CELEC REVIEWER
PRESIDENTIAL ACTION ON THE
Week 1
What is Law?
In the general sense (derecho), law is
defined as the science of moral laws
based on the rational nature of man.
These moral laws govern his free activity
for the realization of his individual and
social ends. They are, by their very nature,
demandable and reciprocal.
When we speak of law in the general
sense, we are referring to the abstract and
moral conception of law. Morality
recognizes that humans, as rational
creatures, have free will, and that they
have every right to exercise this free will
to achieve their unique and individual
aspirations. This right cannot be infringed
and must be respected by other humans.
In the specific sense (ley), law is defined
as a rule of conduct. These rules of
conduct are just and obligatory. They are
promulgated by legitimate authority
(typically by the Legislature). They are of
common observance and benefit.
LEGISLATIVE PROCESS
1. PREPARATION OF THE BILL
2. FIRST READING
3. COMMITTEE CONSIDERATION /
ACTION
4. SECOND READING
5. THIRD READING
6. TRANSMITTAL OF THE
APPROVED BILL TO THE SENATE
7. SENATE ACTION ON APPROVED
BILL OF THE HOUSE
8. CONFERENCE COMMITTEE
9. TRANSMITTAL OF THE BILL TO
THE PRESIDENT
10.
BILL
11. ACTION ON APPROVED BILL
12. ACTION ON VETOED BILL
1. PREPARATION OF THE BILL
The Member or the Bill Drafting
Division of the Reference and Research
Bureau prepares and drafts the bill upon
the Member's request.
2. FIRST READING
1. The bill is filed with the Bills and
Index Service and the same is
numbered and reproduced.
2. Three days after its filing, the
same is included in the Order of
Business for First Reading.
3. On First Reading, the Secretary
General reads the title and number
of the bill. The Speaker refers the
bill to the appropriate
Committee/s.
3. COMMITTEE CONSIDERATION/ACTION
1. The Committee where the bill
was referred to evaluates it to
determine the necessity of
conducting public hearings.
If the Committee finds it necessary
to conduct public hearings, it
schedules the time thereof, issues
public notics and invites resource
persons from the public and
private sectors, the academe and
experts on the proposed
legislation.
If the Committee finds that no
public hearing is not needed, it
schedules the bill for Committee
discussion/s.
2. Based on the result of the public
hearings or Committee
 discussions, the Committee may
introduce amendments,
consolidate bills on the same
subject matter, or propose a
substitute bill. It then prepares the
corresponding committee report.
3. The Committee approves the
Committee Report and formally
transmits the same to the Plenary
Affairs Bureau.
4. SECOND READING
1. The Committee Report is
registered and numbered by the
Bills and Index Service. It is
included in the Order of Business
and referred to the Committee on
Rules.
2. The Committee on Rules
schedules the bill for consideration
on Second Reading.
3. On Second Reading, the
Secretary General reads the
number, title and text of the bill
and the following takes place:
a. Period of Sponsorship
and Debate
b. Period of Amendments
c. Voting which may be by:
i. viva voce
ii. count by tellers
iii. division of the
House; or
iv. nominal voting
5. THIRD READING
1. The amendments, if any, are
engrossed and printed copies of
the bill are reproduced for Third
Reading.
2. The engrossed bill is included in
the Calendar of Bills for Third
Reading and copies of the same
are distributed to all the Members
three days before its Third
Reading.
3. On Third Reading, the Secretary
General reads only the number
and title of the bill.
4. A roll call or nominal voting is
called and a Member, if he desires,
is given three minutes to explain
his vote. No amendment on the
bill is allowed at this stage.
a. The bill is approved by an
affirmative vote of a
majority of the Members
present.
b. If the bill is disapproved,
the same is transmitted to
the Archives.
6. TRANSMITTAL OF THE APPROVED BILL
TO THE SENATE
The approved bill is transmitted to
the Senate for its concurrence.
7. SENATE ACTION ON APPROVED BILL OF
THE HOUSE
The bill undergoes the same
legislative process in the Senate.
8. CONFERENCE COMMITTEE
1. A Conference Committee is
constituted and is composed of
Members from each House of
Congress to settle, reconcile or
thresh out differences or
disagreements on any provision of
the bill.
 2. The conferees are not limited to
reconciling the differences in the
bill but may introduce new
provisions germane to the subject
matter or may report out an
entirely new bill on the subject.
3. The Conference Committee
prepares a report to be signed by
all the conferees and the
Chairman.
4. The Conference Committee
Report is submitted for
consideration/approval of both
Houses. No amendment is
allowed.
9. TRANSMITTAL OF THE BILL TO THE
PRESIDENT
Copies of the bill, signed by the
Senate President and the Speaker of the
House of Representatives and certified by
both the Secretary of the Senate and the
Secretary General of the House, are
transmitted to the President.
10. PRESIDENTIAL ACTION ON THE BILL
1. If the bill is approved the
President, the same is assigned an
RA number and transmitted to the
House where it originated.
2. If the bill is vetoed, the same,
together with a message citing the
reason for the veto, is transmitted
to the House where the bill
originated.
11. ACTION ON APPROVED BILL
The bill is reproduced and copies
are sent to the Official Gazette Office for
publication and distribution to the
implementing agencies. It is then included
in the annual compilation of Acts and
Resolutions.
12. ACTION ON VETOED BILL
The message is included in the
Order of Business. If the Congress decides
to override the veto, the House and the
Senate shall proceed separately to
reconsider the bill or the vetoed items of
the bill. If the bill or its vetoed items is
passed by a vote of two-thirds of the
Members of each House, such bill or items
shall become a law.
Preliminary Procedures
The procedures for introducing legislation
and seeing it through committees are
similar in both the House of
Representatives and the Senate.
Legislative proposals originate in a
number of different ways. Members of
the Senate, of course, develop ideas for
legislation. Technical assistance in
research and drafting legislative language
is available at the Senate Legislative
Technical Affairs Bureau. Special interest
groups—business, religious, labor, urban
and rural poor, consumers, trade
association, and the like—are other fertile
sources of legislation. Constituents, either
as individuals or groups, also may propose
legislation. Frequently, a member of the
Senate will introduce such a bill by
request, whether or not he supports its
purposes.
It must be noted also that much of the
needed legislation of the country today
considered by Congress originates from
the executive branch. Each year after the
President of the Philippines outlines his
legislative program in his State-of-the-
Nation Address, executive departments
and agencies transmit to the House and
the Senate drafts of proposed legislations
to carry out the President’s program.
Introduction of Bills
No matter where a legislative proposal
originates, it can be introduced only by a
member of Congress. In the Senate, a
member may introduce any of several
types of bills and resolutions by filing it
with the Office of the Secretary.
There is no limit to the number of bills a
member may introduce. House and
Senate bills may have joint sponsorship
and carry several members' names.
Major legislation is often introduced in
both houses in the form of companion
(identical) bills, the purpose of which is to
speed up the legislative process by
encouraging both chambers to consider
the measure simultaneously. Sponsors of
companion bills may also hope to
dramatize the importance or urgency of
the issue and show broad support for the
legislation.
Types of Legislation
The type of measures that Congress may
consider and act upon (in addition to
treaties in the Senate) include bills and
three kinds of resolutions. They are:
1. Bills
These are general measures, which if
passed upon, may become laws. A bill is
prefixed with S., followed by a number
assigned the measure based on the order
in which it is introduced. The vast majority
of legislative proposals––
recommendations dealing with the
economy, increasing penalties for certain
crimes, regulation on commerce and
trade, etc., are drafted in the form of bills.
They also include budgetary appropriation
of the government and many others.
When passed by both chambers in
identical form and signed by the President
or repassed by Congress over a
presidential veto, they become laws.
2. Joint Resolutions
A joint resolution, like a bill, requires the
approval of both houses and the signature
of the President. It has the force and
effect of a law if approved. There is no
real difference between a bill and a joint
resolution. The latter generally is used
when dealing with a single item or issue,
such as a continuing or emergency
appropriations bill. Joint resolutions are
also used for proposing amendments to
the Constitution.
3. Concurrent Resolutions
A concurrent resolution is usually
designated in the Senate as S. Ct. Res. It is
used for matters affecting the operations
of both houses and must be passed in the
same form by both of them. However,
they are not referred to the President for
his signature, and they do not have the
force of law. Concurrent resolutions are
used to fix the time of adjournment of a
Congress and to express the “sense of
Congress” on an issue.
4. Simple Resolutions
It is usually designated with P. S. Res. A
simple resolution deals with matters
entirely within the prerogative of one
house of Congress, such as adopting or
receiving its own rules. A simple
resolution is not considered by the other
chamber and is not sent to the President
for his signature. Like a concurrent
resolution, it has no effect and force of a
law. Simple resolutions are used
occasionally to express the opinion of a
single house on a current issue.
Oftentimes, it is also used to call for a
congressional action on an issue affecting
national interest.
Bill Referrals
Once a measure has been introduced and
given a number, it is read and referred to
an appropriate committee. It must be
noted that during the reading of the bill,
only the title and the author is read on the
floor. The Senate President is responsible
for referring bills introduced to
appropriate committees.
The jurisdictions of the Standing
Committees are spelled out in Rule X,
Section 13 of the Rules of the Senate. For
example, if a bill involves matters relating
to agriculture, food production and agri-
business, it must be referred to the
Committee on Agriculture and Food.
In Committee
The standing committees of the Senate,
operating as “little legislatures,”
determine the fate of most proposals.
There are committee hearings scheduled
to discuss the bills referred. Committee
members and staff frequently are experts
in the subjects under their jurisdiction,
and it is at the committee stage that a bill
comes under the sharpest scrutiny. If a
measure is to be substantially revised, the
revision usually occurs at the committee
level.
A committee may dispose of a bill in one
of several ways: it may approve, or reject,
the legislation with or without
amendments; rewrite the bill entirely;
reject it, which essentially kills the bill;
report it favorably or without
recommendation, which allows the
chamber to consider the bill at all. It must
be noted that under Section 29, Rule XI of
the Rules of the Senate, if the reports
submitted are unfavorable, they shall be
transmitted to the archives of the Senate,
unless five Senators shall, in the following
session, move for their inclusion in the
Calendar for Ordinary Business, in which
case the President shall so order.
Committee Reports
A committee report describes the purpose
and scope of the bill, explains any
committee amendments, indicates
proposed changes in existing law and such
other materials that are relevant.
Moreover, reports are numbered in the
order in which they are filed and printed.
Calendaring for Floor Debates:
Consideration of, and Debates on Bills
Under Section 45 of Rule XVI of the Rules
of the Senate, the Senate shall have three
calendars, to wit:
A “Calendar for Ordinary Business," in
which shall be included the bills reported
out by the committees in the order in
which they were received by the Office of
the Secretary; the bills whose
consideration has been agreed upon by
the Senate without setting the dates on
which to effect it; and also the bills whose
consideration has been postponed
indefinitely;
A “Calendar for Special Orders,” in which
the bills and resolutions shall be arranged
successively and chronologically,
according to the order in which they were
assigned for consideration; and
A “Calendar for Third Reading,” in which
shall be included all bills and joint
resolutions approved on second reading.

Thus, a bill which has a committee report
can be referred to the “Calendar for
Ordinary Business.” It may again be
moved to its “Special Order of Business”
for priority action.
On the other hand, the consideration and
debate of bills and resolutions are spelled
out in Rule XXV, Section 71 of the Rules of
the Senate. It provides as follows:
Sec. 71. The Senate shall adopt the
following procedure in the consideration
of bills and joint resolutions:
(a) Second reading of the bill.
(b) Sponsorship by the committee
chairman, or by any member designated
by the committee.
(c) If a debate ensues, turns for and
against the bill shall be taken alternately:
Provided, however, That any committee
member who fails to enter his objection
or to make of record his dissenting vote
after it shall have been included in the
Order of Business and read to the Senate
in accordance with the second paragraph
of Section 24 hereof, shall not be allowed
to speak against the bill during the period
of general debate although he may
propose and speak or vote on
amendments thereto.
(d) The sponsor of the bill or author of the
motion shall have the right to close the
debate.
(e) With the debate closed, the
consideration of amendments, if any, shall
be in order.
(f) After the period of amendments, the
voting of the bill on Second Reading.
(g) Bills shall be submitted to final vote by
yeas and nays after printed copies thereof
in final form have been distributed to the
Members at least three (3) days prior to
their passage, except when the President
of the Philippines certifies to the necessity
of their immediate enactment to meet a
public calamity or emergency, in which
case the voting on Third Reading may take
place immediately after second reading.
After the bill is approved on Third
Reading, it will be submitted to the House
of Representatives for consideration. A bill
passed by the Senate and transmitted to
the House usually goes to a committee,
unless a House bill on the same subject
has already been reported out by the
appropriate committee and placed on the
calendar.
Under normal procedures, therefore, a bill
passed by one chamber and transmitted
to the other is referred to the appropriate
committee, from which it must follow the
same route to passage as a bill originating
from that chamber.
Amendments may be offered at both the
committee and floor action stages, and
the bill as it emerges from the second
chamber may differ significantly from the
version passed by the first. A frequently
used procedure when this occurs is for the
chamber that acts last to bring up the
other chamber’s bill and substitute its
own version, then retaining only the
latter’s bill number. That numbered bill,
containing the Senate and House version,
is then sent to a conference committee to
resolve all differences.
Conference Committee Action
Calling a Conference
Either chamber can request a conference
once both have considered the same
legislation. Generally, the chamber that
approved the legislation first will disagree
to the amendments made by the second
body and will make a request that a
conference be convened. Sometimes,
however, the second body will ask for a
conference immediately after it has
passed the legislation, assuming that the
other chamber will not accept its
amendments.
Selection of Conferees
Under the Rules of the Senate (Rule XII,
Section 34), the Senate President shall
designate the members of the Senate
panel in the conference committee with
the approval of the Senate. The Senate
delegation to a conference can range in
size from three to a larger number,
depending on the length and complexity
of the legislation involved.
Authority of Conferees
The authority given to the Senate
conferees theoretically is limited to
matters in disagreement between the two
chambers. They are not authorized to
delete provisions or language agreed to by
both the House and the Senate as to draft
entirely new provisions.
In practice, however, the conferees have
wide latitude, except where the matters
in disagreement are very specific.
Moreover, conferees attempt to reconcile
their differences, but generally they try to
grant concession only insofar as they
remain confident that the chamber they
represent will accept the compromise.
The Conference Report
When the conferees have reached
agreement on a bill, the conference
committee staff writes a conference
report indicating changes made in the bill
and explaining each side’s actions.
Once a conference committee completes
its works, it can now be submitted to the
floor for its approval. Debate on
conference reports is highly privileged and
can interrupt most other business.
Approval of the conference report by both
houses, along with any amendments on
disagreement, constitutes final approval
of the bill.
Final Legislative Action
After both houses have given final
approval to a bill, a final copy of the bill,
known as the “enrolled bill,” shall be
printed, and certified as correct by the
Secretary of the Senate and the Secretary
General of the House of Representatives.
After which, it will be signed by the
Speaker of the House and the Senate
President.
A bill may become a law, even without the
President’s signature, if the President
does not sign a bill within 30 days from
receipt in his office. A bill may also
become a law without the President’s
signature if Congress overrides a
presidential veto by two-thirds vote.
Summary
The following is a summary of how a bill
becomes a law:
Filing/Calendaring for First Reading
A bill is filed in the Office of the Secretary
where it is given a corresponding number
and calendared for First Reading.
First Reading
Its title, bill number, and author’s name
are read on the floor, after which it is
referred to the proper committee.
Committee Hearings/Report
Committee conducts hearings and
consultation meetings. It then either
approves the proposed bill without an
amendment, approves it with changes, or
recommends substitution or consolidation
with similar bills filed.
Calendaring for Second Reading
The Committee Report with its approved
bill version is submitted to the Committee
on Rules for calendaring for Second
Reading.
Second Reading
Bill author delivers sponsorship speech on
the floor. Senators engage in debate,
interpellation, turno en contra, and
rebuttal to highlight the pros and cons of
the bill. A period of amendments
incorporates necessary changes in the bill
proposed by the committee or introduced
by the Senators themselves on the floor.
Voting on Second Reading
Senators vote on the second reading
version of the bill. If approved, the bill is
calendared for third reading.
Voting on Third Reading
Printed copies of the bill’s final version are
distributed to the Senators. This time,
only the title of the bill is read on the
floor. Nominal voting is held. If passed,
the approved Senate bill is referred to the
House of Representatives for
concurrence.
At the House of Representatives
The Lower Chamber follows the same
procedures (First Reading, Second
Reading and Third Reading).
Back to the Senate
If the House-approved version is
compatible with that of the Senate’s, the
final version’s enrolled form is printed. If
there are certain differences, a Bicameral
Conference Committee is called to
reconcile conflicting provisions of both
versions of the Senate and of the House of
Representatives. Conference committee
submits report on the reconciled version
of the bill, duly approved by both
chambers. The Senate prints the
reconciled version in its enrolled form.
Submission to Malacañang
Final enrolled form is submitted to
Malacañang. The President either signs it
into law, or vetoes and sends it back to
the Senate with veto message.
Group 1
CIVIL ENGINEERING CODE OF ETHICS
Fundamental Principles
Civil engineers uphold and advance the
integrity, honor and dignity of the civil
engineering profession by:
• using their knowledge and skill for the
enhancement of human welfare and the
environment;
• being honest and impartial and serving
with fidelity the public, their
employers/employees and clients;
• striving to increase the competence and
prestige of the civil engineering
profession; and
• supporting the professional and
technical societies of their disciplines.
Fundamental Canons
1. Civil Engineers shall hold
paramount the safety, health
and welfare of the public and
shall strive to comply with the
principles of sustainable
development in the
performance of their duties.
2. Civil Engineers shall perform
services only in areas of their
competence.
3. Civil Engineers shall issue public
statements only in an objective
and truthful manner.
4. Civil Engineers shall act in
professional matters for each
employer or client as faithful
agents or trustees, and shall
avoid conflicts of interest.
5. Civil Engineers shall build their
professional reputation on the
merit of their services and shall
not compete unfairly with
others.
6. Civil Engineers shall act in such a
manner as to uphold and
enhance the honor, integrity,
and dignity of the civil
engineering profession.
7. Civil Engineers shall continue
their professional development
throughout their careers, and
shall provide opportunities for
the professional development of
those civil engineers under their
supervision.
Guidelines to Practice under the
Fundamental Canons of Ethics
1.) Civil Engineers shall hold paramount
the safety, health and welfare of the
public and shall strive to comply with the
principles of sustainable development in
the performance of their duties.
i. Civil Engineers shall recognize
that the lives, safety, health and welfare
of the general public are dependent upon
engineering judgments, decisions and
practices incorporated to structures,
machines, products, processes and
devices.
ii. Civil Engineers shall approve or
seal only those design documents and
reviewed or prepared by them, which are
determined to be safe for public health
and welfare in conformity with accepted
engineering standards.

iii. Civil Engineers whose
professional judgement is overruled under
circumstances where the safety, health
and welfare of the public are endangered,
or the principles of sustainable
development ignored, shall inform their
clients or employers of the possible
consequences.
iv. Civil Engineers who have
knowledge or reason to believe that
another person or firm may be in violation
of any of the provisions of Canon 1 shall
present such information to the proper
authority in writing and shall cooperate
with the proper authority in furnishing
such further information or assistance as
may be required.
v. Civil Engineers should seek
opportunities to be of constructive service
in civic affairs and work for the
advancement of the safety, health and
well-being of their communities, and the
protection of the environment through
the practice of sustainable development.
vi. Civil Engineers should be
committed to improving the environment
by adherence to the principles of
sustainable development so as to enhance
the quality of life.
2.) Civil Engineers shall perform services
only in areas of their competence.
i. Civil Engineers shall undertake to
perform engineering assignments only
when qualified by education or
experience in the technical field of the
engineering involved.
ii. Civil Engineers may accept an
assignment requiring education or
experience outside of their own fields of
competence, provided their services are
restricted to those phases of the project in
which they are qualified. All other phases
of such project shall be performed by
qualified associates, consultants, or
employees.
iii. Civil Engineers shall not affix
their signature or seals to any civil
engineering plan or documents dealing
with subject matter in which they lack
competence by virtue of education or
experience or to any such plan or
document not reviewed or prepared
under their supervision and control.
iv. Civil Engineers shall not use The
Specialty Engineering Title such as
Structural Engineer, Transportation
engineer, Water Engineer, Geotechnical
Engineer, Construction Engineer, etc.
without the PICE Specialist Accreditation.
3.) Civil Engineers shall issue public
statements only in an objective and
truthful manner.
i. Civil Engineers should endeavor
to extend the public knowledge of civil
engineering and sustainable development,
and shall not participate in the
dissemination of untrue, unfair or
exaggerated statements regarding civil
engineering.
ii. Civil Engineers shall be objective
and truthful in professional reports,
statements, or testimony. They shall
include all relevant and pertinent
information in such reports, statements,
or testimony.
iii. Civil Engineers, when serving as
expert witnesses, shall express civil
engineering opinion only when it is
founded upon adequate knowledge of the
facts, upon a background of technical
competence, and upon honest conviction.
iv. Civil Engineers shall issue no
statements, criticism, or arguments on
civil engineering matters which are
inspired or paid for by interested parties,
unless they indicate on whose behalf the
statements are made.
v. Civil Engineers shall be dignified
and modest in explaining their work and
merit and will avoid any act tending to
promote their own interests at the
expense of the integrity, honor and
dignity of the civil engineering profession
and/or related professions.
4.) Civil Engineers shall act in professional
matters for each employer or client as
faithful agents or trustees, and shall avoid
conflicts of interest.
i. Civil Engineers shall avoid all
known or potential conflicts of interest
with their employers or clients and shall
promptly inform their employers or
clients of any business, association,
interests, or circumstances when could
influence their judgement or the quality of
their services.
ii. Civil Engineers shall not accept
compensation from more than one party
for services on the same project, or for
services pertaining to same project, unless
the circumstances are fully disclosed to
and agreed to, by all interested projects.
iii. Civil Engineers shall not solicit
or accept gratuities, directly or indirectly,
from contractors, their agents, or other
parties dealing with their clients or
employers in connection with work for
which they are responsible.
iv. Civil Engineers in public services
as members, advisors, or employees of a
governmental body or department shall
not participate in consideration or actions
with respect to the services solicited or
provided by them or their organization in
private or public engineering practice.
v. Civil Engineers shall advise their
employers or clients when, as a result of
their studies, they believe a project will
not be successful.
vi. Civil Engineers shall not use
confidential information coming to them
in the course of their assignments as a
means of making personal profit if such
action is adverse to the interests of their
clients, employers or the public.
vii. Civil Engineers shall not accept
professional employment outside of their
regular work or interest without the
knowledge of their employers.
5.) Civil Engineers shall build their
professional reputation on the merit of
their services and shall not compete
unfairly with others.
i. Civil Engineers shall not give,
solicit or receive either directly or
indirectly, any political contribution,
gratuity or unlawful consideration in order
to secure work, exclusive of securing
salaried positions through employment
agencies.
ii. Civil Engineers should negotiate
contracts for professional services fairly
and on the basis of demonstrated
competence and qualifications for the
type of professional service required.
iii. Civil Engineers may request;
propose or accept professional
commissions on a contingent basis only
under circumstances in which their
professional judgements would not be
compromised.
iv. Civil Engineers shall not falsify
or permit misinterpretation of their
academic or professional qualifications or
experience.
v. Civil engineers shall give proper
credit for engineering work to those
whom credits is due and shall recognize
the proprietary interests of others.
Whenever possible, they shall name the
person/s who may be responsible for
designs, inventions, writings or other
accomplishments.
vi. Civil Engineers may advertise
professional services in a way that does
not contain misleading language or is in
any other manner derogatory to the
dignity of the profession.
vii. Civil Engineers shall not
maliciously or falsely, directly or
indirectly, injure the professional
reputation, prospects, practice or
employment of another engineer or
indiscriminately criticize another’s work.
viii. Civil Engineers shall not use
equipment, supplies, laboratory or office
facilities of their employers to carry on
outside private practice without the
consent of their employers.
6.) Civil Engineers shall act in such a
manner as to uphold and enhance the
honor, integrity, and dignity of the civil
engineering profession.
i. Civil Engineers shall not
knowingly act in a manner which will be
derogatory to the honor, integrity, or
dignity of the civil engineering profession
or knowingly engage in business or
professional practices of a fraudulent,
dishonest or unethical nature.
7.) Civil Engineers shall continue their
professional development throughout
their careers, and shall provide
opportunities for the professional
development of those civil engineers
under their supervision.
i. Civil Engineers should keep
current in their specialty fields by
engaging in professional practice,
participating in continuing education
courses, reading in technical literature,
and attending professional meetings and
seminars.
ii. Civil Engineers should encourage
their engineering employees to become
registered at the earliest possible date.
iii. Civil Engineers should
encourage engineering employees to
attend and present papers at professional
and technical society meetings.
iv. Civil Engineers shall uphold the
principle of mutually satisfying
relationships between employers and
employees with respect to terms of
employment including professional grade
descriptions, salary ranges, and fringe
benefits.
Group 2
THE PRACTICE OF CIVIL ENGINEERING
QUALITY
Refers to the condition of meeting
both the project requirements and the
client’s or employer’s standards.
It is the outcome of teamwork and
is determined by the satisfaction
expressed by all concerned parties.
It requires much effort which is
considered: conscious, continuous, and
consistent.
A. PROFESSIONAL RESPONSIBILITY
The standard of practice is for Civil
Engineers to be given responsibility for
studying, conceiving, designing, observing
construction, and assisting in the
programming for operating and
maintaining engineering works.
The health, safety, well-being and comfort
of the public in using the facility, and the
ultimate facility cost, all depend to a
considerable extent on how well members
of the project team fulfill their
professional and contractual
responsibilities.
Civil Engineers shall conduct themselves in
a highly Professional Manner and Serve as
Faithful Trustees or agents of their client
or employers.
Civil Engineers are therefore bound by the
Fundamental Canons of Ethics contained
in this manual. Care and protection of the
environment is paramount in the Civil
Engineer’s work engagement.
Civil Engineers must always strive to
maintain the highest standard of Ethical
Professional Practice in their dealing with
client employers, employees, competitors
and the community.
B. CLIENT-CIVIL ENGINEERING
RELATIONSHIPS
Many engineering works are formed
between civil engineers and the following:
• Government agencies Industry
• Excessive Speed
• Private clients
• Civil engineering firms engaged for
a specific project Public agencies
• Independent civil engineering
firms
OBLIGATIONS OF THE CIVIL ENGINEER
As a faithful trustee, civil engineers are
obliged to do the following:
1. Perform their obligations with
diligence, care, and reasonable skill.
2. Shall act independently and accordingly
to the contract, when required to certify
or decide between a client and a third
party.
3. Act as the client's faithful agent implied
in the contract.
4. Give written notice on particulars of
any change in the scope of services.
5. For staged services, civil engineers shall
not initiate ay service without the
approval of the client.
6. When required, civil engineers shall
direct or work with other professions and
integrate concerned work, but shall not be
professionally liable for their work.
7. The civil engineer may recommend
contractors or specialists to design and
execute certain parts of the works.
8. Any interest which may have conflict of
interest of the client should be notified by
the civil engineer.
OBLIGATIONS OF THE CLIENT
The following obligations are of the client
to the civil engineer:
1. The client shall pay the civil engineer
for his services as stipulated in the
contract.
2. Information required by the civil
engineer shall be provided by the client in
writing and the latter shall allow the civil
engineer reasonable time.
3. The client shall cooperate and not
interfere or obstruct in the performance
of services.
4. The client shall make arrangements to
allow the civil engineer to do site
investigation and inspection of facilities
ASAP.
5.The client shall shoulder the
arrangement of services of other
professionals and bear all costs.
6. In cases of clients allowing civil
engineers as Engineer- to-the-Contract,
the client shall give instructions through
the civil engineers.
7. Client shall notify the civil engineer
through writing within 7 days of any
change he is aware of.
LIABILITY OF THE CIVIL ENGINEER AND
THE CLIENT
1. The civil engineer shall pay for damages
arising out of breach of duty of care
against the civil engineer to the client.
2. The client shall be liable to pay to the
civil engineer if a break of client's duty is
established against the client.
3. Conflicts arising from the agreement
between the client and the civil engineer
follows the process of arbitration.
4. A third-party arbitrator should be
mutually acceptable to both parties.
LIMITATION OR CIVIL ENGINEER’S
RESPONSIBILITY
1. The civil engineer shall not be liable for
damages, loss, and costs:
• for any errors or omissions for
documents not prepared by him or
under his control
• for fraudulent services or
negligence by the client or any
other consultant, contractor,
supplier.
2. The civil engineer shall not be liable for
the performance of other consultants,
contractors, suppliers (regardless of
recommendation).
3.The civil engineer shall not be
responsible for the procedures of
techniques adopted by any third party.
DAMAGES
If the civil engineer is found liable, the
damages shall be paid on the following
terms:
1. Damages for the foreseeable loss and
damage as a result of the breach.
2. The maximum amount is specified in
the Specific Provision. However, if no
specific amount is given: the lesser of
300,000Php or 10% of the total amount
damages or 25% of the total fees payable
under the agreement.
3. If a third-party is found liable in some
parts of the service, the amount payable
shall be limited to the proportion of work
under breach.
SUSPENSION OR TERMINATION OF
SERVICES
1. In cases when the civil engineer is not
liable, but it is impossible to continue the
project, the civil engineer shall notify the
client promptly.
2. A 30-day (minimum) notice shall be
given by the client to the civil engineer in
cases when client suspends or terminates
work.
3. A 30-day (minimum) notice shall be
given by the civil engineer for suspension
or termination of services under the
following conditions:
• No payment (or part of it) of the
client 30 days after due date
• When the client suspends work for
more than six months, or if it is
clear to the civil engineer that it is
impractical to continue services
before the suspension exceeds six
months.
4. When services are suspended or
terminated, the civil engineer is entitled
to the payment of the following:
Consequential cost, Expenses and
disruption fees, and Remobilization fees
on resumption.
SETTLEMENT OF DISPUTES
• If a dispute arises on either party,
then that party shall by notice in
writing serve If the matter in
dispute is not resolved in
conciliation between the parties,
then the matter in dispute shall be
referred to arbitration.
OWNERSHIP OF DATA, DESIGNS AND
DOCUMENTS
The civil engineer owns the following
documents, which shall be used for
specific projects covered in the contract
between the client and the engineer:
• Design analyses
• Drawings
• Specifications
• Reproductions
C. CIVIL ENGINEERING SERVICES
Civil engineers commonly provide the
following services:
1. Designs, consultations, and
advice
2. Feasibility studies
3. Field investigations and
engineering data collection.
4. Environmental assessments,
impact statements, or engineering
reports.
5. Opinions of estimates
6. Preliminary and final designs,
drawings, specifications, and
construction bidding document
7. Assistance in securing
construction bids and in awarding
contracts.
8. Construction administration and
observation.
 9. Arrangements for or
performance of testing of
materials and equipment.
10. Assistance in start-up,
assessment of capacity, and
operation of facilities.
11. Preparation of operation and
maintenance manual
12. Appraisals and rate studies
13. Value engineering
14. Expert testimony
15. Assessment of risks
16. Structural remediation or
rehabilitation
17. Project management and
controls
18. Provision of supplemental
temporary staff
19. Teaching
- Project implementation has become
increasingly complex, involving financial,
environmental, regulatory, technical and
managerial matters.
- Program Management – one of the
implementation approaches used by
clients wherein they retain a program
manager to perform specialized task.
- Program Manager – Performs
specialized tasks necessary to the
development or construction of a specific
project. Develop, define and oversee the
program, prepare budgetary estimates of
program costs, prepare program
schedules, evaluate and select members
of the program team, and provide
periodic program status reports. Generally
a Civil Engineer.
PHILIPPINE INSTITUTE OF CIVIL
ENGINEERS (PICE)
• Acknowledges the first five
specialized areas.
• Awarded a certificate of
specialization which will be
considered qualified for positions
in the respective areas of
specialization.
D. SPECIALIZATION OF CIVIL ENGINEERS
AND FIRMS
• Structural and foundation
• Geotechnical and environmental.
• Water resources and hydraulics
• Transportation
• Construction management and
engineering
E. SELECTION OF A CIVIL ENGINEER
• One of the most important
decisions of the client is the
selection of civil engineer.
• The client should set policy and
criteria for the selection of civil
engineers for construction
projects.
• Clients can be somehow subjective
when choosing based on the
quality and expertise.
• It’s essential to have an authorized
people for selecting civil engineers
in specific assignments.
For engineering services in construction
projects:
• The cost of the full range
engineering services should not be
less than 1 to 2% of the life-cycle
cost of construction projects.
• Firm should build healthy
relationship between the Civil
Engineer and the client.
For selecting engineers as consultant:
• Qualification
• Experience
• Reputation
• Quality of Client Service
Request for Qualification or Proposal
- State the nature of the project,
service required, and request for
statement of qualification from civil
engineers.
Prepare a Budget and Costs Plan
- For Civil Engineers upon sending
the RFQs.
Evaluate the statements of qualifications
received.
- Select at least three equally
qualified civil engineers for the job.
Write a letter to each civil engineer
selected.
- Describing the project in detail,
including the scope and outline of services
required.
Invite the Civil Engineers or firms to meet
the selection committee.
- Interview and discussion of the
desired end results of the project.
Do a background check.
- Check the quality of their
performance.
List the Civil Engineer firm or firms in the
order of preference.
- Based on experience, vision on
the project, personnel available, etc.
Invite the chosen Civil Engineer qualified
for the job.
- To develop a detailed scope and
to negotiate the fair compensation for the
services.
Evaluation of the proposed
compensation.
- The compensation presented by
the Civil Engineer should be reasonable.
Negotiation and Termination Settlement
- Deciding whether to terminate or
commence the project with the chosen
Civil Engineer.
Formalization of Agreement
– Written contract
F. PRIME PROFESSIONAL PRACTICE
This refers to the engagement of
engineering services where the consulting
civil engineer serves as the prime
professional or to be performed by
another entity.
Prime Professional – the person who have
the primary responsibility under the
contract for the total professional
services.
The civil engineer can work:
A. Indirectly – when the engineer serves
ad sub- consultant or working for another
prime professional.
B. Directly – when the engineer works as
the prime professional and serves the
owner of the project.
G. EMPLOYMENT
Civil engineers covered by the manual are
those employed by:
• Professional consulting firms
• Government agencies Educational
institutions
• Construction firms
• Manufacturing
 • Commercial entities
PROFESSIONAL CONSULTING FIRMS
Consulting engineer firms are
organizations and businesses that have
partnerships with consulting engineers.
They partner with consulting engineers in
order to pair them with clients who need
their engineering expertise in various
fields.
GOVERNMENT AGENCIES
Department of Public Works and
Highways
• The Department of Public Works
and Highways functions as the
engineering and construction arm
of the Government tasked to
continuously develop its
technology for the purpose of
ensuring the safety of all
infrastructure facilities and
securing for all public works and
highways the highest efficiency
and quality in construction.
EDUCATIONAL INSTITUTIONS
Top Civil Engineering schools in the
Philippines (Newsscholarshub.com)
1. University of the Philippines
(UP)
2. University of Sto. Tomas (UST)
3. Polytechnic University of the
Philippines (PUP)
4. De La Salle University (DLSU)
5. Mapua Institue of Technology
(MIT)
CONSTRUCTION FIRMS
Civil engineering companies design and
specify the scope of projects and may do
projects like designing roads or bridges. A
construction firm does the actual building
of the project and works with civil
engineers to accomplish it. Construction
engineering is a part of civil engineering.
MANUFACTURING
• Civil engineers are often
responsible for specifying,
designing and manufacturing the
materials with which they build
their structures. Studies in
construction materials are
intended to make structural,
transportation and foundation
engineers aware of the
fundamental properties of the
materials they use.
• The Department of Manufacturing
and Civil Engineering develops
innovative and sustainable
solutions for society. We research
modern and sustainable industrial
processes, construction processes,
design, renewable materials and
technologies.
COMMERCIAL ENTITIES
• A commercial entity refers to a
privately held (non-government)
entity that has been registered for
the purpose of engaging in
commercial trade.
H. DESIGN COMPETITION
The process through which a civil engineer
is to be selected above other competitors
based on proposal or an innovative
approach to solving a client's needs.
Invitation is through:
• Directly through solicitation
 • Indirectly through a letter of
request through publication or
newspaper
I. CONTINGENCY BASIS OF EMPLOYMENT
Payment is made as per accomplishment
as stipulated in Canon 5C.
J. PROFESSIONAL PRACTICE OF FOREIGN
CIVIL ENGINEERS
RA 8981 allows foreign engineers to
practice in the Philippines by the following
conditions:
1. Laws of the foreign country also
allow Filipino civil engineers to
practice their profession on the
foreign soil.
2.Allowed under international
agreement.
3.Consultant to be engaged in
foreign-funded, joint venture or
foreign-assisted projects of the
government
4.Employees of Philippine or
foreign private institutions
pursuant to the law.
5.Naturalized Filipino civil
engineers who had been
registered prior to naturalization.
There are requirements for foreign civil
engineers to comply before practicing in
the country:
• Certificate of registration/license
• Special permit from PRC
• Special permit from Department of
Labor and Employment
Group 3
Classification of Engineering Services
A. CONSULTATION, RESEARCH,
INVESTIGATION, AND REPORTS
This service includes the collection,
interpretation, and reporting information
in addition to providing conclusions and
recommendations.
The main types of consultations that may
be offered are divided into categories:
• Preliminary and Feasibility
Investigation and Reports
• Planning Studies
• Appraisals, Valuations, and Rate
Studies
• Assistance in Financial Matters
• Materials Engineering and
Equipment Tests
• Direct Personal Services
• Research and Development
• Special Services
a. Preliminary and Feasibility Investigation
Reports
It involves an extensive
investigation, analyses of conditions, and
comparison of several possible plans.
b. Planning Studies
This service refers to
comprehensive projects that either look
at a geographic area or a topic that affects
the whole town.
This civil engineering services covers the
following:
• Developing engineering
requirements for master plans
 • Preliminary engineering studies of
land development plans, urban
plans, and regional plans
• Investigations of environmental
conditions
c. Appraisals, Valuations, and Rate Studies
The service covers the
establishment of prospective rates in
evaluating properties through:
• Analysis of existing conditions
• Capital and operating costs
• Overhead costs
• Financing costs
• Revenues
d. Assistance in Financial Matters
The scope of services may include:
• Evaluation of capabilities of
existing or proposed facilities
• Statements of probable
construction costs
• An estimate annual revenue
requirement
e. Materials Engineering and Equipment
Tests
These services include the
following:
• Test of materials and equipment
under established codes and
standards
• Specialized examination of
equipment and material used in
construction and industry.
• Other inspections and monitoring
required by a client.
f. Direct Personal Services
This includes services such as
assistance in preparation for legal
proceedings.
• Appearances before courts or
commissions
• Investigations of technical matters
g. Research and Development
This service refers to specialized
investigation and gathering data from
existing resources or through laboratory
works and processes related to the
purpose and object of the research.
The types of research covered are:
• Development of methods and
materials in construction.
• Improvement or upgrade of
construction materials and
methods.
h. Special Services
1. Value engineering
2. Appraisal and valuation
3. Load testing
4. Environmental evaluations
5. Traffic engineering
6. Forensic engineering for structural and
other failures
7. Operational assistance
8. Materials process design
9. Pilot studies
10. Computer modeling
11. Safety engineering
12. Topographic, sounding and boundary
survey engineering
13. Toxic and hazardous waste evaluation
14. Permit and application services
15. Sales and marketing services
16. Expert witness
17. Representation of municipal or
private entities in projects proposed for
privatization.
B. Design Services for Construction
Projects
• There are 6 typical phases in a
construction project, and it’s important
for each phase to be serviced by a civil
engineer – preferably one throughout –
for consistency and efficiency.
• Design services are crucial because:
- Designers carefully plan the
various aspects, consequently improving
and maximizing the function of the
building
- Designers advise clients on the
budget – what’s withinthe scope, what
can’t be achieved, what requires
additional costs, and more; problems in
budget means delay in the development
- Designers ensure organization –
schedule preparation, team coordination,
design specifications preparation and
consultation, being the bridge between
client and project team, etc.
- Designers develop the design,
ensuring that such revisions are
implemented smoothly.
a. Study and Report Phase
• Determine scope and analyze feasibility
of project
• Main services include:
- Review of data and clarification
of client requirements
- Identification and investigation of
legal requirements regarding the project
- Identification and provision of
clients’ technical needs such as surveys
and evaluations, and other services
- Financial analysis
- Preparation of reports of feasible
and alternative solutions
b. Preliminary Design Phase
• Establish general size and scope of
project and its location on the site
• Main services include:
- clarification of the study and
report phase
- coordination with government
agencies
- advising the client of additional
services required
- preparation of estimates
- preparation of periodic status
reports - preparation of the preliminary
design documents
c. Final Design Phase
• preparation and provision of
construction drawings and specifications
• preparation of the revised estimate of
total project costs
• assisting in the application of local and
national regulatory permits
• preparation and provision of legal
documents for the client such as various
contracts
• provision of periodic status reports
d. Bidding or Negotiation Phase
• assisting the client in advertising for and
obtaining bids
• attending bid conferences for the client
• assisting in the determination of
contractors, subcontractors, and materials
suppliers
• advising on the acceptability of
alternative materials and equipment
proposed by contractors and suppliers
• preparing of bid tabulation sheets
• providing of client assistance in
evaluating bids
e. Construction Phase
• consultations to the client during
construction
• reviewing the work of construction
workers
• reviewing reports on materials and
equipment
• visiting the project site to personally
observe and check for the development
and quality of work
• issuing instructions from the client to
the contractors
• recommending to the client contractual
measures that can be done by the client
• preparation of payments due
• observing and assisting in performance
tests and initial operations of the project
• conducting final inspection upon the
completion of the project
f. Operation Phase
• assisting in the start-up of project
operations
• preparing of manuals containing both
operation and maintenance conditions
• identifying deficiencies and determining
corrections for them
• assist in operator training
• developing methods for tracking
operational data
C. CONSTRUCTION SERVICES
A registered Civil Engineer may engage in
construction contracting after being
licensed as a contractor by the
Contractors Accreditation Board. It is
considered unethical for a Civil Engineer
to allow his license to be used by any
other construction company except his
own.
A Civil Engineer may be employed as a
construction engineer, resident civil
engineer, project engineer, quality control
engineer, cost engineer or engineer
inspector in a project.
- In accordance with Section 23 of RA 544,
only registered civil engineer can take
charge or supervise construction or
alteration of any building or structure and
any other civil engineering works
mentioned in Section 2 of the mentioned
Republic Act.
The Civil Engineer when employed is
similarly required to comply with the code
of ethics of profession as consulting Civil
Engineer.
RA 4566 (CONTRACTOR'S LICENSE LAW)
"R.A. 4566 as amended by P.D. No. 1746
provides that no contractor (including
sub-contractor and specialty contractor)
shall engage in the business of contracting
without first having secured a PCAB
license to conduct business. It is an
offense to engage in contracting business
without a license first being obtained."
D.SPECIALSERVICES FOR CONSTRUCTION
PROJECTS
Special services required during the study,
design, construction, and operation
phases of a construction project may
include investigations, reports, and
activities beyond the scope of the basic
services.
These services, many of which are also
listed earlier in this section under the
category “Consultation, Investigations,
and Reports, “may relate to the client’s
decisions as to the feasibility, scope, and
location of the project.
Special services in the profession include:
• Geotechnical Engineering including
test borings, sampling and
analysis, and recommendation on
soils.
• Establishment of design criteria or
demonstrate compliance
• Surveying works. Land surveys,
establishment of boundaries and
monuments, preparation of
easement descriptions,
topographic surveys
• Shop or laboratory inspections
• Reproduction of reports, drawings,
specifications, and documents
required for bidding and
construction
• Value engineering
• Extra travel and subsistence
• Value engineering
• Redesign to reflect changes by the
client
• Assistance to client as an expert
witness in litigation
• Final investigation
• Preparation of documents for
public works
• Land planning and partitioning
activities
• Environmental assessments and
impact statements
 • Detailed studies to meet special
conditions encountered during
construction
• Assistance to the client in the
selection and engagement of
contractors and subcontractors.
• Assessment of the project's ability
• Computer simulation and
modeling
E. Engineering Support Services
These engineering professional services
will implicate supporting those individuals
who are not within the scope of this field
of work but need to accomplish a task
within the field of view. Generally, these
services necessarily require professional
engineering assistance because
investigations, collection of data, and
research studies may be conducted all
throughout process.
General Engineering support services
follows:
• Drafting
• Surveying
• Utilization of appropriate data
F. Academic Services
Serving in academic context is also one of
the services that a professional/licensed
engineer can provide in his/her career to
support individuals such as students or
trainees on their path in this field. This
service entails working as a part-time or
full-time educator or trainer.
Service include:
• Teaching and implementing of
courses under Civil Engineering at
universities or colleges. According
to RA 8981 that supervised and
regulates all subjects for licensure
examinations shall be taught by
registered professionals and who
comply requirements in CHED
(Commission on Higher Education).
• A knowledgeable lecturer or
speaker in this profession, such as
at PICE (Philippine Institute of Civil
Engineering) seminars as well as
technical sessions.
• Providing technical documents and
tutorial videos on civil engineering
courses or subjects as references.
G. SERVICES AS EMPLOYEE
A condition where a civil engineer agrees
to routinely execute tasks or complete
obligations for salaries from an employer.
• A Civil Engineer may be employed
for any position or function in any
commercial or institutional
organization.
• A part time Civil Engineer in a firm
is considered an employee and a
consultant.
• All Civil Engineers employed in any
Government e.g. Local or National
Group 4
THE SELECTION OF CIVIL ENGINEER
The selection of a Civil Engineer is vital for
the client as well as the project. Not every
Civil Engineer has the same area of
competence, as well as experience,
equipment, personnel, and capabilities.
The basis for selection of Civil Engineers is
required for clients to ensure their
satisfaction, safety, as well as the project
is well built. It would be one of the very
first steps of the client for their project
and may dictate how the project is going
to be built.
Basis for Selection
Some factors in selecting Civil Engineers
for private sectors are as followed:
1. Reputation of the Civil Engineer as
referred by the previous clients.
• The clients must have a
background check of the Civil
Engineer that would work on their
project to ensure that the Civil
Engineer that the clients would
choose observes professionalism.
2. Validity of registration from PRC
(Professional Regulation Commission).
• The client must choose a Civil
Engineer that is licensed by the
PRC as well as his/her license
validated.
3. Qualifications and expertise in
performing services.
• The clients must take note of the
Civil Engineer’s area of
competence that they will select
for the project.
4. Ability to assign a qualified staff on site
to take charge of the project.
• The clients must choose a Civil
Engineer of which can assign a
staff that can manage the project
whenever the Civil Engineer is not
around.
5. Possession of financial and business
resources to accomplish the assignment.
• The client must choose a Civil
Engineer that is capable of doing
the tasked project with the means
that they have(budget, equipment,
personnel, etc.).
As for government projects, EO 164 and
PD 1594 as amended apply to
procurement of consulting services and
selection of contractors for construction.
Client’s Selection Committee
• They are responsible for making
recommendations after
conducting appropriate
investigations, interviews, and
inquiries.
• Final selection of Civil Engineers is
based upon the selection
committee’s recommendations.
Policies for Designating Persons in Client’s
Selection Committee
Persons appointed should be familiar with
the project requirements and should be
kept free of internal or external pressure
during the selection process.
The selection committee comprise of
three or more individuals:
a. At least one of whom is a professional
engineer of the appropriate discipline.
b. At least one of the individuals should be
familiar with the Civil Engineering
practice.
c. Individuals who demonstrate
objectively to avoid appearance of a
conflict of interest in the selection of the
Civil Engineer.
Bidding
• Selection of civil engineers should
result from competition based on
the qualifications and resources
best suited to complete a project
in terms of performance quality
and cost-effectiveness.
Selection Procedure
1. Qualifications-Based Selection
Procedure
The selection procedure is considerably
enhanced when the client is:
• fully familiar with the purpose and
nature of the proposed project;
• can describe the project in detail;
and prepared a project scope and
outline of the services expected of
the Civil Engineer.
However, the selection procedure can still
be modified to suit the circumstances.
The 11 usual steps in selection procedure
are as follows, although if the client has
already had satisfactory experience with
the Civil Engineers, it may not be
necessary to follow all.
1. By invitation or by public notice, states
the general nature of the project, the
services required, and request statements
of qualifications and experience from Civil
Engineers who appear to be capable of
meeting the project requirements.
• Request for Qualifications -
used to ascertain the general
qualifications in a selected
area of expertise.
• Request for Proposals - used to
seek Civil Engineers for creating
“shortlists” for selecting a Civil
Engineer for a specific project.
2. Prepare a budget for the staff time and
costs that can be expected from potential
Civil Engineer prior to receipt of the RFQs
and RFPs.
3. Evaluate the statements of
qualifications received. Select at least
three Civil Engineers or firms that may
appear to be best qualified for the specific
project.
4. Write a letter to each Civil Engineer or
firm selected for further consideration
describing proposed project in detail,
including a project scope and outline of
services required, and asking for a
proposal describing in detail the following:
1. The Civil Engineer’s plan for
managing and performing the required
services
2. The personnel to be assigned
3. The proposed schedule
4. Experience with similar projects
5. Office location in which services
are to be performed
6. Financial standing
7. Present workload
8. References
Each Civil Engineer or firm should have an
opportunity to visit the site, review all
pertinent data and obtain clarification of
any items required.
On receipt of proposals, invite the Civil
Engineers or firms to meet individually
with the selection committee for
interviews and discussions of the desired
end results of the project and the
Engineering services required.
• These interviews may be held at
the Civil Engineer’s office.
• The client may consider
supplementing the selection
committee with personnel who
have specialized expertise to
advise the committee, when
appropriate.
• During each interview, the
selection committee should review
the qualifications and experience
of each Civil Engineer of firm, the
capability to provide the services
within the time allotted, and the
key personnel to be assigned to
the project.
6. Check with the recent clients of each
Civil Engineer or firm to determine the
quality of their performance.
• Doesn't need to be limited to
references listed by the Civil
Engineer.eeds to be limited to
references listed by the Civil
Engineer.
7. List the Civil Engineer firm or firms in
the order of preference, taking into
account the following:
• Approach and understanding of
the project
• Reputation
• Experience
• Financial Standing
• Size
• Personnel available
• Quality of references
• Workload
• Location
• Other factors pertinent to the
project being considered.
8. Invite the Civil Engineer considered to
be best qualified to develop a detailed
scope, list of deliverables and schedules,
and to negotiate fair compensation for
the services.
9. The compensation proposed by the Civil
Engineer should be evaluated on the basis
of the clients experience and budget
estimate, taking account the following:
• Range of charges reported in
Section 4 herein; giving
consideration to the project’s
special characteristics and the
scope of services agreed upon.
Fair and reasonable compensation to the
Civil Engineer is vital to the success of the
project since it will enable the consultant’s
expertise to be fully utilized.
10. If satisfactory agreement is not
reached with the first Civil Engineer;
• the negotiations should be
terminated and the Civil Engineer
or firm be notified in writing to
that effect.
• Similar negotiations should be held
with the second Civil Engineer or
firm
• if necessary, with the third Civil
Engineer or firm if no chord is
reached, the client should seek
outside assistance before
continuing with the selection
process.
Such a procedure will usually result in
development of a satisfactory contract.
All such negotiations should be;
• strictly confidential
• In no case should the
compensation discussed with one
Civil Engineer be disclosed to
another.
11. When agreement has been reached on
scope, schedule and compensation, the
client and selected Civil Engineer should
formalize their agreement in a written
contract.
2. Selection Procedure for Level of Effort
“Level of Effort”
a contract procedure used to
supplement a client staff, either by
providing an extension to existing
disciplines and capabilities already on
board or by adding special disciplines not
available on the client’s staff.
As applied to “level of effort” contracts,
• the QBS procedure sets forth:
• the general nature of services to
be rendered
• the type of specialists required
• the estimated number of hours
required during the contract
period for each type and grade of
specialist
• Requests proposals from qualified
firms
Proposals - state the experience of the
firm
• Narrowing the proposals
• The client negotiates an
agreement.
Bidding
Why bidding produces unsatisfactory
results:
• It does not recognize professional
judgement.
 • Judgement is an essential
ingredient in quality engineering
service.
• Completely detailing in advance
the scope of services required for a
project is impossible.
• Resulting service is likely made to
fit minimal requirements of the bid
documents.
• The consulting civil engineer
selected by lowest bid will often
provide minimum services
necessary.
• Ability to be flexible and creative is
severely limited.
• Engineering designs are likely to be
minimal in completeness.
Two Envelope System
• The client will then open the
technical proposals and checks
which best suited his purpose.
• After choosing the best technical
proposal as he deems fit for the
project, he opens the price
proposal (second envelope).
• The second envelope of those
unchosen bidders will then be
returned unopened.
• If the client follows this procedure,
the net effect is as outlined in
“Qualifications- Based Selection
procedure”
• Upon agreement of scope, the
price of services should be
negotiated to reflect changes from
the original scope used for
obtaining proposals.
• If both envelopes are opened at
the same time, a bidding process.
Procedures should be established
to provide confirmation that the
second envelope is opened for
only the successful proposal.
• technical proposal in one envelope
• price proposal in a second
envelope
• Added cost
The two-envelope system is not
recommended.
Group 5
CHARGING FOR CIVIL ENGINEERING
SERVICES
• There are several methods by
which calculation of engineering
consultant services cost can be
carried out in construction.
• The application of each method or
combination of methods is
dependent on nature, scope and
complexity of the required
engineering services.
• When the scope of services is not
well defined, it should be
recognized and discussed during
early negotiations.
• When one of the first four
payment methods is used, it is
logical to include a maximum
amount of the project in the
agreement.
• The charge for engineering
services using the fixed price or
 the percentage of construction
cost methods is based entirely on
the scope of services.
SALARY COST X MULTIPLIER + DIRECT
NON-SALARY EXPENSE
• Compensation on the basis of the
salary cost times an agreed
multiplier is a frequently used
method of determining charges for
engineering services.
• With this method, charges for
engineering services are based
mainly on direct salaries.
• The salary cost times multiplier
method may be utilized as either a
multiplier times salary cost (two
multiplier version) or a multiplier
times direct salary cost (single
multiplier version).
Factors Pertinent to Salary Cost Times
Multiplier Method
1. Salary Cost
Defined as the direct salary plus
employment benefits.
CHARGEABLE TO THE PROJECT:
• Sick leave, Holiday, Vacation, and
Incentive pay;
• Unemployment and other payroll
taxes;
• Contributions for different group
benefits such as insurance,
retirement, and health.
2. Multiplier
applied to salary cost is a factor
that compensates the Civil 'Engineer for
overhead plus a reasonable margin for
contingencies, interest or invested capital
readiness to serve, and profit.
• TYPE OF SERVICE
• NATURE AND EXPERIENCE OF THE
FIRM
• LOCATION OF OFFICE
• EREQUIREMENTS IN SKILLS
• TESTIMONY IN LEGAL
PROCEEDINGS
3. Direct Non-Salary Expense
The costs incurred by a business
that are not related to employee
compensation or benefits, but rather are
directly tied to the production or delivery
of goods or services.
• Living and traveling expenses
• Identifiable communications
expenses
• Expenses for services and
equipment directly applicable to
the project
• Identifiable drafting supplies,
stenographic supplies, and
reproduction work
• Expenses for unusual insurance
and specialized health and safety
programs
4. Civil Engineers Overhead
The costs that are incurred by a
civil engineering firm or department that
are not directly tied to a specific project or
task, but are necessary for the overall
operation of the organization.
 • Provisions for office expenses
• Taxes and insurance
• Library and periodical expenses
• Executive, administrative,
accounting, legal, stenographic,
and clerical salaries and expenses
• Business development expenses
• Provision for loss of productive
time of technical employees
• Costs of acquiring and maintaining
computers
5. Accounting Records
The civil engineer who performs
services under a salary cost times
multiplier agreement or other cost- based
agreement is required to provide the
accounting needed to segregate and
record the appropriate expenditures.
HOURLY BILLING RATE PER DIEM.
The hourly billing rate method of
compensation is very similar to the salary
cost times multiplier in that hourly billing
rate includes all direct personnel expense,
overhead and profit.
the term per diem normally refers
to an eight-hour day. The per diem charge
should be based on the complexity, risk
and important of the services and on the
Civil Engineers professional standing,
expertise and breadth of experience. The
Civil Engineer is also reimbursed for travel
and subsistence cost and for other out of
pocket expenses incurred when away
from the home office.
COST PLUS FIXED FEE
Under this agreement, the Civil
Engineer is reimbursed for the actual
costs of all services and supplies related to
the project including: salary cost,
Overhead, direct non salary expense,
Fixed fee.
The cost-plus fixed fee basis
requires that the client and the Civil
engineer define and agree upon the scope
of services the Civil Engineer to perform.
Such definition of the scope of service is
essential to enable the Civil engineer to
estimate costs and propose an equitable
fixed fee amount. This must be
incorporated into the client-engineer
agreement.
FIXED PRICE
• The price is already identified
before the project and will be fixed
all throughout the service.
• The scope and time period of the
project must be outlined properly
• Calculated as the sum total of
estimated engineering costs for
salaries overhead and non salary
expenses, an allowance for
contingencies, interest on invested
capital, readiness to serve, and a
reasonable amount for profit.
• Partial payments are paid at a
compromised interval.

PERCENTAGE OF CONSTRUCTION COST
This method is used to determine the
compensation of the engineer for services
where the principal responsibility is the
detailed design or construction
supervision of facilities to be constructed.
The percentage of construction cost
method is seldom used raw because of
increasing complexity and large variation
in tasks for projects.
CONSTRUCTION COST
Estimated overall cost of building the
facility that will be covered by the
proposed detailed design or construction
supervision services, excluding the fees
and other costs associated with such
services, the cost of the land and right-of-
way, and any related legal and
administrative costs.
The percentage fee shall consider the
type, complexity, location and magnitude
of construction cost of the project and
shall not exceed the following percentage
of estimated construction cost.
1. Feasibility studies – 3%
2. Detailed engineering design – 6%
3. Detailed architectural and engineering
design – 8%
4. Construction supervision – 10%
SCHEDULE OF MINIMUM BASIC FEES
CERTAIN PRINCIPLES TO BE OBSERVED IN
THE RATES OF COMPENSATION FOR CIVIL
ENGINEERS:
1. When doing work on foreign assisted
projects or in projects where international
consultants participate, the Civil Engineer
performing similar or equivalent work,
should accept compensation that
approximates the international standard
rates.
2. Civil Engineers regularly employed in
the private sector shall have a minimum
compensation corresponding to 10%
more than the minimum wage prevailing
in the region as basic monthly salary. Civil
Engineers employed in the government
sector shall have a minimum basic
monthly salary corresponding to
appropriate entry positions provided by
the Civil Service Commission.
3. A Civil Engineer employed in the private
sector who signs and seals the Civil
Engineering plans, specifications, and
other related documents of a certain
project for and in behalf of his employers
shall be compensated with a minimum of
10% of the professional fee for the
project, over and above the basic monthly
salary.
PART A – MINIMUM COMPENSATION FOR
CIVIL ENGINEER AS PRIME PROFESSIONAL
Group I – Simple structures such as lofts,
warehouses, garages, sheds, market
buildings, and comparable projects of one Group III – Buildings with fifteen (15) or
but not more than two stories more floors, long span and complex
bridges, high dams, major portworks,
power plants and other complex
Project
Minimum Basic Feed structures not covered in Groups I and II.
Construction Cost

10 million and less 6% **If the Civil Engineer is not the prime
professional for the above groups but
P600,000 plus 5.5%
Over 10 million to renders basic Civil Engineering services
in excess of P10
20 million only, his fee shall be a minimum of 25% of
million
the prime professional fee.
P1,150,000 plus 4.5%
Over P20 million
in excess of P20
to P30 million Project
million Minimum Basic Feed
Construction Cost
P1,600,000 plus 3.5%
Over P30 million in excess of P30 10 million and less 8%
million P800,000 plus 7.5%
Over 10 million to
in excess of P10
20 million
Group II – Buildings of 3 stories up to 14 million
stories, towers, tanks, exhibition
P1,550,000 plus 6.5%
buildings, memorials, industrial buildings, Over P20 million
in excess of P20
simple bridges, low dams, piers, wharves, to P30 million
million
bins and silos and comparable projects.
P2,200,000 plus 5.5%
Over P30 million in excess of P30
Project
Minimum Basic Feed million
Construction Cost

10 million and less 7% PART B – MINIMUM COMPENSATION FOR

CIVIL ENGINEER AS PROFESSIONAL NOT
P700,000 plus 6.5%
Over 10 million to PRIME.
in excess of P10
20 million
million
Group IV – Hotels, large apartment
P1,350,000 plus 5.5% buildings, office buildings, shopping
Over P20 million
in excess of P20 centers, store buildings, resorts, hospitals,
to P30 million
million and comparable projects.
P1,900,000 plus 4.5%
Over P30 million in excess of P30 **Structures not falling in any group shall
million be classified into Group III.
 Group 6

Project
Minimum Basic Feed TOTAL PROJECT COST
Construction Cost

10 million and less 1.05% Probable total cost is a major

concern of the client throughout the
P105,000 plus
Over 10 million to planning design and construction phases
0.975% in excess of
20 million of a project. The probable total capital
P10 million
cost, often used to establish budgets for a
P202,500 plus typical project, is made up of:
Over P20 million
0.825% of in excess
to P30 million
of P20 million ➢Professional Engineering Costs
P285,000 plus ➢Construction Cost
Over P30 million 0.675% in excess of ➢Legal Costs
P30 million ➢Owner’s Costs, including project
administration, staffing, financing, and
MINIMUM COMPENSATION FOR CIVIL other overhead.
ENGINEER’S FOR RENDERING THE ➢Contingency allowance for
FOLLOWING SERVICES unknowns

Service Fee PROFESSIONAL ENGINEERING COST

Value 25% of Professional Fee +
Engineering 25% of savings It is a part of the total project cost based
Expert on the engineering services. This may
P2,000/appearance involve alternative or phase
Witness
implementation schemes that add
Academic Service Fee flexibility to the project. Furthermore,
Civil engineering services are required for
P75/hr –
BS Degree Holder each of the six typical phases of
P150/hr
construction projects. All services are
P150/hr –
Master Degree Holder preferably performed by the same Civil
P250/hr
Engineer for consistency and efficiency.
P250/hr –
Doctorate Degree Holder
P400/hr SIX STANDARD PHASES OF A
Lecturer (PICE-CPD) P500/hr CONSTRUCTION PROJECT AND ITS COST
Conducting
Tutorial/Refresher P500/hr Study and Design
Courses
Resource Speaker P500/hr • Analysis of client's needs,
Writer/Author P3,000/article evaluation of alternatives and
recommendations of a perfect
 option, conceptual design, and
conceptual opinions of probable
construction cost
• determines the scope and
development of the entire project
that includes the project's overall
capital and lifestyle cost
• field or traffic surveys
• planning analyses
• geotechnical explorations
• analyses
Preliminary Design
• Preparation of final design criteria,
preliminary drawings, outline
specifications, and the preliminary
estimate of construction cost
• The report should include an
outline of materials and
equipment specifications
Final Design Phase
• Preparation of construction
drawings, specifications, an
estimate of probable construction
cost, and contract documents.
• The report should allow
reasonably accurate estimates of
construction and operating costs,
as well as the construction
schedule.
Bidding or Negotiating Phase
• Assistance to the client with the
bidding or negotiating process for
construction of the project
Construction Phase
• Representation of the client during
construction and inspection of
construction
• additional surveying and
geotechnical engineering services
Operational Phase
• Assistance to the client in the
startup and operation of the
project, including periodic
inspection
• Additional or special engineering
services may be needed by the
client
Construction Costs
• The total costs involved in
developing a constructed asset,
such as a building, include
construction costs.
• The construction contract may,
however, include expenses such as
profits, fees, overheads, and so
forth that may not necessarily be
regarded as hard costs (literal
building costs).
• The project's pre- and post-
construction cost estimates are
analyzed using a cost plan.
Cost Planning
Initial Cost Appraisals - prepared during
the feasibility study stage.
Elemental Cost Plans - prepared during
the project brief stage and carried
through to detailed design.
Approximate Quantities Cost Plans -
prepared from the end of detailed design
through to tender.
Pre-tender Estimates - prepared
alongside tender documentation.
Contract Sum- agreed with the selected
contractor.
Final Account - agreed once the
construction works are completed.
Cost Estimate
• Is the service provider’s
approximation of what the job is
likely to cost.
• The purpose of cost estimation is
to predict the quantity, cost, and
price of the resources required to
complete a job within the project
scope.
• The method used to estimate
actual cost will vary with the
increase in the amount of detail
available.
1. Initial Cost Appraisal.
2. Elemental Cost Plans
3. Approximate Quantities
4. Pre-Tender Estimates
5. Contract Sum
6. Final Account
Construction Price
The cost of the entire construction
of the Project, including all supervision,
materials, supplies, labor, tools,
equipment, transportation and/or other
facilities furnished, used or consumed,
without deduction on account of
penalties, liquidated damages or other
amounts withheld from payment to the
contractor or contractors.
Cost Index
Construction Cost Index is an
indicator of the average cost movement
over time of a fixed basket of
representative goods and services related
to Construction Industry.
CAPITAL COST
Capital cost is one-off expenditure on the
acquisition, construction or enhancement
of built assets and might include:
• Land or Property acquisition
• Commissions
• Statutory fees
• Consultant fees directly associated
with the development Materials,
plant and equipment
• Labour
• Fixtures and Fittings
• Project Insurance, Inflation,
taxation and financing
• Internal costs directly associated
with the development
OPERATIONAL COST
Operational cost incurred in a day-to-day
operations might include:
• Wages
• Utilities
• Maintenance and repairs
• Rent
• Sales
• General and administrative
expenses
Whole-Life Costs
Whole-life cost refers to the total
cost of a project over its entire lifetime,
taking into account all costs associated
with the project, including design,
construction, operation, maintenance,
and decommissioning or disposal.
The whole-life cost estimation also
considers expenses that are often
disregarded, such as costs associated with
environmental and social impact factors.
Life-Cycling Costs
Life cycle cost (LCC) refers to the
total cost of a product, system, or asset
over its entire lifecycle. It includes all costs
associated with the product, including
acquisition costs, operating costs,
maintenance costs, and disposal costs.
Hard Costs
Hard costs refer to the tangible,
quantifiable expenses incurred in the
construction or development of a building
or project. They are the direct costs
associated with the physical construction,
materials, and labor required to build a
structure or complete a project.
• Labour, equipment and materials
required to complete the built
structure.
• Site costs, such as utilities,
drainage and so on.
• Landscape costs.
Soft Costs
Soft costs refer to the expenses
incurred during a construction or
development project that are not directly
related to the physical construction or
labor. They are typically expenses
associated with planning, design,
administration, legal and consulting
services, and other indirect costs of the
project.
• Fees
• Land costs
• Off-site costs
• Loans accounting fees and
interests
• Insurance and taxes
• Public relations and advertising
costs
Legal, Land, Administration, Staffing, and
Financial Costs
These costs, which include audits,
the cost of issuing bonds, land costs, and
interest for borrowed money during
construction, are part of the probable
total project cost and can best be
estimated in cooperation with the client
because they are usually outside the
knowledge and control of the Civil
Engineer.
Examples
• Legal fees
• Real estate and land acquisition
fees
• Building permit review fees
• Printing (construction documents
and spec books)
• Builder’s Risk Insurance
• Construction bond
• Construction interest expense
Contingency Allowance
As the project moves forward from
the study and report phase through the
final design phase and finally to
construction award, more becomes
known about project details and costs,
until at the completion of the project, the
final project cost becomes a known
quantity.
To provide for intangible costs,
contingencies should routinely be added
to the basic cost estimate. It is
common practice to add 20% or more to
the estimated probable total project cost
at the completion of the study end report
phase, reducing this to perhaps 10% at
the completion of final design and
perhaps to 5% when the construction bids
become known. Larger or more complex
projects may require higher
contingencies.
How is Contingency Allowance Calculated?
Contingency allowances can be
calculated in different ways, but a
common method is to allocate a
percentage of the total budget or
estimated costs. The percentage chosen
may depend on the level of uncertainty
and risk associated with the project and
can vary from project to project.
For example, a contingency
allowance of 5-10% may be sufficient for a
low-risk project, while a higher-risk
project may require a contingency
allowance of 20% or more.
P100,000 × 10% = P10,000
P100,000 + P10,000 = P110,000 (Total
budget for the project)
Example Application of Contingency
Allowance
• Design Change
• Unknown Ground Conditions
• Weather- related Delays
• Material Price Escalation
• Unforeseen Permitting
Requirements
Design Change
The customer asks for a design
change for a bridge during construction,
such as an extra pedestrian walkway. The
materials, building methods, and
structural components must all be
modified to accommodate this shift. The
increased expenses connected with the
design modification would be covered by
the contingency allowance.
Unknown Ground Conditions
Unexpected soil conditions might
arise during a road building project, such
as the existence of soft or unstable soil,
necessitating extra excavation and
stabilizing techniques. In order to deal
with these unanticipated ground
conditions and guarantee that the project
can go forward without delays or safety
sacrifices, the contingency allowance
would be used.
Weather-related Delays
When bad weather lasts for an
extended amount of time during a
construction project that is expected to be
finished within a certain time frame,
construction operations are delayed. The
extra expenses arising from the prolonged
project length, such as labor, equipment
rentals, and interim safety precautions,
would be covered by the contingency
allowance.
Material Price Escalation
A sudden spike in the price of
building supplies like steel or concrete is
caused by changes in the market or
problems in the supply chain. The project
could continue as planned with the
support of the contingency allowance,
which would help cover the increased
material prices and avoid budget
overruns.
Unforeseen Permitting Requirements
Unexpected regulatory or
permitting needs that were not
anticipated during the preliminary
planning stage are encountered
throughout the project. The expenses
involved with getting the required
permissions, carrying out extra
investigations, or fulfilling the new
regulatory requirements would be
covered by the contingency allowance.
REPUBLIC ACT NO. 544:
AN ACT TO REGULATE THE PRACTICE
OF CIVIL ENGINEERING IN THE
PHILIPPINES
REPUBLIC ACT 544
RA 544 as amended by the Republic Act
No. 1582 is an act to regulate the practice
of Civil Engineering in the Philippines that
was approved on 17th of June in 1950.
The title of the act was written in the first
article and states that the act shall be
called Civil Engineering Law. RA 544 shows
the services that require Civil Engineering
knowledge and application.
ARTICLE II: BOARD OF EXAMINERS FOR
CIVIL ENGINEERS
The second and third articles of this bill
are called Board of Examiners for Civil
Engineers and Examination and
Registration respectively. The sections of
the second article show how the Board of
Examiners for Civil Engineers are being
chosen, the duties that they should fulfill
or the power that they have under the
act, the qualification for choosing and the
compensation for the board of examiners.
The bill states that the qualifications
below are required for choosing the Board
of Examiners for Civil Engineers. It also
stated in the bill that the Board shall have
a Chairman and two members that will be
appointed by the President of the
Philippines. Their role is to manage
the issues involving the civil engineering
practice from the registration and
certification of civil engineers on
performing civil engineer services and to
perform investigation if there’s
such violations under this act for the
safety of ethical and technological
standard of civil engineering profession in
the Philippines.
ARTICLE III: EXAMINATION AND
REGISTRATION
The third article states the requirements
of the applicants for the examination on
becoming a licensed civil engineer in the
country; Be at least twenty-one years of
age, Be a citizen of the Philippines, Be of
good reputation and moral character, Be a
graduate of a four-year course in civil
engineering from a school, institute,
college or university recognized by the
Government or the State wherein it is
established. The examination for the
licensure should be held in the city of
manila once a year. The subjects included
in the examination are mathematics,
including algebra, plane and spherical
trigonometry, analytics, descriptive and
solid geometry, differential and integral
calculus, and rational and applied
mechanics; hydraulics; surveying, water
supply systems etc as stated in the bill.
The Commissioner of the PRC or
Professional Regulation Commission shall
designate Secretary and custodian for the
said examination.
All passers of the examination should take
a professional oath from the Board of Civil
Engineers or other Government Officials.
They also shall obtain a seal of such design
as the Board shall authorize and a serial
number of the certificate issued by the
Board shall be included in the design of
the seal. The board may also refuse to
issue a certificate to any person convicted
by a court of competent jurisdiction of any
criminal offense and the Board may also
reissue a certificate after the expiration of
one year from the date of certificate of
registration is revoked.
REPUBLIC ACT 9184
ARTICLE I: GENERAL PROVISION
The Republic Act no. 9184 was eligible by
the day of 11th of January of 2003 with
the purpose of prescribing the necessary
rules and regulations for the
modernization, standardization, and
regulation of the procurement activities of
the Government of the Philippine. In
article one it stated that the bill shall be
called as the Government procurement
act, the declaration of the policy,
governing principles such as transparency,
competitiveness, streamlined process,
accountability and proper monitoring of
the procurement process. The first article
also consists of Scope and Application of
the implementing rules and regulations
where it states that IRR shall apply to all
procurement of any branch, Any Treaty or
Agreement to which the government of
the Philippines affects the subject matter
of the Act.
ARTICLE II: PROCUREMENT PLANNING
AND ARTICLE III: PROCUREMENT FOR
ELECTRONIC MEANS
The second and third articles of the bill
are Procurement Planning, and
Procurement for Electronic Means. All
procurement should be within the
approved budget and should be
carefully implemented and planned by the
procuring entity. An annual procurement
plan shall be approved by the head of the
entity, in the case of Infrastructure
projects the plan shall include engineering
design and acquisition of right-of-way and
shall be revised only in accordance with
the guidelines in IRR.
Information and communications
technology shall be utilized in the
procurement process to promote
transparency, where there should be a
portal that shall serve as the primary
source of information on all government
procurement. The Government Electronic
Procurement System (GEPS) shall serve as
the primary source of information on
government procurement and shall
ensure the security, integrity and
confidentiality of documents submitted
through the system.
ARTICLE IV: COMPETITIVE BIDDING
Section 10, Competitive Bidding. All
Procurement must be conducted by
bidding competitions, excluding as stated
in Article XVI.
ARTICLE V: BIDS AND AWARDS
COMMITTEE
Article V defines the members and
functions of the Bids and Awards
Committee. According to Section 11, The
BAC and its Composition, BAC must
consist of no less than five members
up to 7 members. It will be run by a
Procuring Entity official with a third
ranking. Unless dismissed for reason, BAC
members ought to serve a one-year term
effective on the day of their designation.
Section 12, Functions of the BAC, outlines
the BAC's responsibilities regarding
procurement and bidding processes
including publicizing the invitation to bid,
assessing the suitability of bidders,
conducting bid assessment,
recommending award of contracts, and
more. The BAC additionally has to
recommend to the Head of the Procuring
Entity the implementation of Alternative
Methods of Procurement as stated in
Article XVI. They are also charged with
verifying that the Procuring Entity follows
the criteria established by this Act and the
IRR, as well as are obligated to produce a
procurement monitoring statement that is
authorized and reported to the GPPB.
Section 13, Observers. For the purpose of
transparency, the BAC intends to bring a
minimum of two observers during
proceedings representing an authorized
private group within a sector and a non-
government organization. In Section 14,
BAC Secretariat, the Head of the Procuring
Entity will set up a Secretariat which
functions to be BAC's primary support
unit.
Section 15, Honoraria of BAC Members.
The Procuring Entity is allowed to give
honoraria to BAC members with an
amount that is not more than 25% of their
monthly wages, depending on financial
availability. Section 16, Professionalization
of BAC, BAC Secretariat, and Technical
Working Group Members, the GPPB ought
to set up a regular training program in
order to strengthen and enhance the
committee's competence.
ARTICLE VI: PREPARATION OF BIDDING
DOCUMENTS
Article VI provides guidelines for the
preparation of bidding documents for
procurement of goods and services
through competitive bidding.
The article requires that the bidding
documents be clear, complete, and
consistent, and be based on approved
budget and technical specifications. It also
mandates that the bidding documents be
made available to prospective bidders in a
timely and reliable manner.
ARTICLE VII: INVITATION TO BID
This article establishes the procedures for
inviting prospective bidders to participate
in the bidding process. It specifies the
information that should be included in the
invitation, such as the nature of the
project, eligibility requirements, bid
documents, and the deadline for
submission of bids. The invitation to bid
should be advertised in a publication of
general circulation or posted in a
conspicuous place.
ARTICLE VIII: RECEIPT AND OPENING TO
BIDS
Article VIII outlines the process for the
receipt and opening of bids submitted by
interested bidders. It specifies that bids
must be submitted in sealed envelopes
and should be received by the BAC (Bids
and Awards Committee) on or before the
specified deadline. The bids are publicly
opened, read aloud, and recorded. The
article also covers the procedures for bid
modifications, withdrawal of bids, and the
presence of observers during bid opening.
ARTICLE IX: BID EVALUATION
Article IX details the procedures for the
evaluation of bids by the BAC. It
emphasizes the importance of conducting
a fair, transparent, and competitive
evaluation process. The BAC
evaluates the bids based on
predetermined criteria specified in the
bidding documents, such as price,
technical specifications, and compliance
with the terms and conditions. The article
also covers the procedures for conducting
post-qualification, clarifications with
bidders, and the preparation of evaluation
reports.
ARTICLE X: POST QUALIFICATION
Article X addresses the process of post-
qualification, which is conducted after the
bidevaluation. Post-qualification involves
verifying the eligibility, qualifications, and
capacity of the bidder to undertake the
contract. The BAC examines the
documents submitted by the winning
bidder to ensure that they meet all the
required qualifications and have the
necessary resources to fulfill the contract.
This article also includes provisions for
disqualification and the issuance of
notices to winning and losing bidders
regarding the results of the post-
qualification process.
ARTICLE XI: AWARD, IMPLEMENTATION
AND TERMINATION OF THE CONTRACT
This Article highlights the contract
awarding, implementation, and
termination explained in Sections 37 to
42. Section 37, Notice and Executive of
Award, discusses the processes
undergone for the grant of Notice of
Award, involving the Head of the
Procuring Entity or his authorized
representative and the winning bidder.
Section 38, Period of Action on
Procurement Activities, determines the
time frame and requirements for the
procurement procedure, from bidding to
contract awarding. Section 39, Performing
Security, explains that prior to contract
signing, the winning bidder is compelled
to provide a performance security in the
manner and amount set out in the Bidding
Documents.
In accordance with Section 40, Failure to
Enter into Contract and Post Performance
Security, if the bidder fails to come into
contract with the Procuring Entity
throughout the specified period of time,
the BAC will dismiss the bidder and post-
qualify the next bidder until an agreement
has been made, at which point the
contract will be rebid. Section 41,
Reservation Clause, states that the Head
of the agency has the authority to decline
proposals, proclaim a bidding failure, or to
not grant the contract if he or she
provided an apparent proof of misconduct
between the involved parties, the BAC did
not comply with the bidding process,
or the awarding of contract would be
detrimental to the government as implied
in the IRR. Section 42, Contract
Implementation and Termination, the IRR
should include the rules and
guidelines for enacting and terminating of
contracts given in compliance with this
Act. Both standard and special contract
conditions must be incorporated.
ARTICLE XII: DOMESTIC AND FOREIGN
PROCUREMENT
Section 43, “Procurement of Domestic
and Foreign Goods”, which states the
country's responsibilities pursuant to
international agreements. This specifies
products can be acquired from either local
or international sources and all qualified
suppliers, manufacturers, and distributors
can purchase. Yet, in order to ensure the
distribution of the products, the
Procuring Entity may opt for local
production that satisfies quality
standards.
ARTICLE XIII: BIDDING OF PROVINCIAL
PROJECTS
This article explains both Section 44 and
Section 45, dealing with Bidding of
Provincial Projects and Provincial Bidders,
accordingly. Section 44 explains that
priority programs and infrastructure
projects which are planned and yearly
financed under the General
Appropriations Act will have the same
public bidding and contracting procedures
as per this Act. This also includes
Engineering District civil works projects
regarded as “provincial projects” which
will be regulated by both sections
mentioned.
Section 45 states that within five years of
the date of enactment of his Act, the
contractor who bids with a main office
resides in the same province despite
offering the lowest price in all provincial
bidders but is higher compared with the
lowest calculated bid of a contractor with
a main office outside the province, shall
be given the right to match the bid.
Moreover, the disbursement of financial
support for specified projects should be
announced in a local newspaper with the
highest circulation and on the DBM's
website.
ARTICLE XIV: LEASE OF COMPUTERS,
COMMUNICATIONS, INFORMATION AND
OTHER EQUIPMENT
Section 46, which is about the “Lease
Contracts.” It states that the leasing of all
construction and office equipment
undergoes both open bidding and the
procedures stipulated in this
law.
ARTICLE XV: DISCLOSURE OF RELATIONS
Section 47 of this article reveals the
Disclosure of Relations wherein aside
from the contents of the Invitation to Bid
listed in Section 21, the bidder should also
submit a signed statement indicating that
he or she or their corporation does not
have any connection, by blood or
marriage, to the Head of the Procuring
Entity up to the third civil degree. Failure
to fulfill this condition will result in
immediate disqualification of said bid
based on the criteria outlined in Section
30.
ARTICLE XVI: ALTERNATIVE METHODS OF
PROCUREMENT
Article XVI, Alternative Methods of
procurement. It outlines the requirements
for setting up a board charged with
developing standards and guidelines for
government procurement.
This article also describes the best
practises for public bidding, such as pre-
bid meetings and contract awards
following bid appraisal.
As long as a designated representative of
the Head of Procuring Entity has approved
it in advance, the article even gives
entities conducting this type of
procurement some flexibility with
alternative methods (examples include
limited source bidding/, direct
contracting, repeat orders, shopping, and
negotiated procurement). In every
situation, the government should always
try to get the best deal. The law lays forth
requirements and restrictions for
each alternative procurement strategy,
such as limited source bidding, direct
contracting, repeat orders, shopping, and
negotiated procurement, in order to
accomplish this purpose. In the
Philippines, Article XVI aims to encourage
efficiency, openness, and competition in
public procurement.
ARTICLE XVII: PROTEST MECHANISM
Article XVII, Protest Mechanism makes
guidelines for the people who want to
protest the choices made by the Bids and
Awards Committee or BAC during a
procurement process.
Section 55: this section allows people to
write a protest writing against the
decision of the BAC at the procurement
process. Protestants must file a validated
position paper and must pay a protest fee.
The fee will be given by the Implementing
Rules and Regulation or the IRR. They will
also give the time span on when the
protest can be filed and resolved
Section 56: Protests will be settled based
solely on the records of the BAC. The head
of the procuring entity's choices will be
final up to a specified amount, as stated in
the IRR.
Section 57: Protests will not delay or stop
the bidding process. Protests must be
settled before any award is made.
Section 58: The action of the court will be
allowed after all protest under this article
have been completed. Violations that are
brought during this process will be
dismissed for lack of juristiction. The
regional court has the final decision of the
procuring process.
In summary, the protest mechanism
under Article XVII provides a means for
people or entities to challenge decisions
made by the BAC during the procurement
process. The process includes filing a
written protest, paying a non-refundable
fee, and following the procedures set out
in the IRR. While the head of the
procuring entity's decisions will usually
be final, protests must be resolved before
any award is made, and court action can
only be taken after all protests have been
completed.
ARTICLE XVIII: SETTLEMENT OF DISPUTES
Article XVIII, Settlement Disputes are a
result of contracts that are subject to the
provision of the Act. The article discusses
the process for resolving any disputes
through arbitration and
appeals
Section 59 of Article XVIII states that any
discussion arising from the
implementation of a contract covered by
the act shall be submitted to arbitration.
The process of arbitration must follow the
RA 876 or the Arbitration Law. However,
any disputes that fall within the
Construction Industry Arbitration
Commission must be given to that body.
The pursuant of the contract must include
a provision for arbitration, however, both
parties can mutually agree in writing an
alternative mode to solve the conflict.
Section 60 of Article XVIII covers the
challenges. This article says that the
arbitral award and any decision issued in
compliance with Section 59 can be
challenged by way of petition to be
reviewed. The petition can be submitted
in the Court of Appeals. The petition can
raise questions of law and would be
governed by the Rules of the Court
Overall, Article XVIII of RA 9184 provides
an option for settling disputes in the act
through arbitration with the chance of the
Court of Appeals to review
ARTICLE XIX: CONTRACT PRICES AND
WARRANTIES
Article XIX, Contract Prices and
Warranties. This articles pertains to
contract prices and warranties in public
procurement. It states that bid prices for a
given scope of work in the contract are
considered fixed and not subject to price
increase during the signing of contract,
except under unusual situations and with
the approval of the GPPB. Unusual
situations refer to events determined by
the National Economic and Development
Authority, upon the request of the
procuring entity. A warranty is needed for
the procurement ofgoods to make sure
that manufacturing defects are corrected
by the supplier for a particular period of
time, and the obligation is met by
retention money or a special bank
guarantee. The contractor is fully
responsible for the safety, protection,
security, and convenience of his
employees, third parties, and the public in
infrastructure projects and is required to
put up a warranty security. They are also
required to perform repairs for any
defects or damages to the infrastructure
projects caused by the use of materials of
low quality within ninety days
of the order to do so. Failure to comply
will result in a lifetime ban from
participating in any public auction and
property subject to sale or debt actions to
recover costs.
ARTICLE XX: THE GOVERNMENT
PROCUREMENT POLICY BOARD
Article XX, The Government Procurement
Policy Board or GPPB they are the one
who's responsible for setting policies and
guidelines for government procurement.
The GPPB is made of the heads of various
government agencies and is charged with
ensuring that procurement activities are
transparent, fair, and efficient.
GPPB is responsible for:
● Developing and changing the
Implementing Rules and
Regulations (IRR) of RA 9184
● Providing advice and support to
procuring entities such as
government agencies on
procurement-related issues
● Resolving disputes and
complaints linked to procurement
activities
● Conducting studies and research
to improve the buying process
 ● Monitoring and evaluating the
implementation of the
procurement law and rules
ARTICLE XXI: PENAL CLAUSE
Article XXI entitled PENAL CLAUSE
includes Sec. 65 - Offences and Penalties
and Sec. 66 -Jurisdiction. As stated in
Section 65, an individual who commits
one of the unlawful acts, or
even more than one of them, will be liable
to imprisonment for not less than six
years and one day, nor more than fifteen
years. If a bidder is a juridical entity, its
directors, officers or employees who are
involved in any of the acts listed above
shall be held criminally liable for their
actions, and accessory penalties shall be
imposed. As for Sec 66, on the other hand,
it is the responsibility of the appropriate
courts to have jurisdiction over the
offenses defined under this Article,
according to the laws in effect at the time
the offenses were committed.
ARTICLE XXII: CIVIL LIABILITY
There are two sections in Article 21 that
pertain to civil liability in the event of a
conviction, Section 67, and Section 68,
Liquidated Damages. Despite the
possibility of administrative
sanctions being imposed in appropriate
cases, a conviction under the Act and IRR-
A or R.A. 3019 carries civil liability.
Depending on the courts' discretion,
restitution may be ordered or any
unwarranted benefits derived from the
act or acts in question may be forfeited in
favor of the government.
According to Section 68, every contract
that is completed in accordance with the
Act and this IRR-A must include a clause
stipulating that liquidated damages will be
paid in the event of a breach. When the
total amount of liquidated damages
reaches ten percent (10%) of the
contract's value, the procuring entity must
rescind the agreement, without affecting
other options and remedies available to it.
The amount of liquidated damages for the
procurement of infrastructure projects
shall be in accordance with Annex "E."
ARTICLE XXIII: ADMINISTRATIVE
SANCTIONS
In addition to the provisions of Rules XXI
and XXII of this IRR-A, the head of the
procuring entity shall impose on bidders
the administrative penalty of suspension
for one year for the first offense, and
suspension of two years for the second
offense from participating in the public
bidding process, as well as disqualification
from further participating in the public
bidding being undertaken by the
procuring entity concerned. The Bid
Security or the Performance Security
posted by the concerned bidder or
prospective bidder shall also be forfeited.
The head of the procuring entity may
delegate to the BAC the authority to
impose the aforementioned
administrative penalties.
Sec. 70 states that the head of the
procuring entity may preventively
suspend any member of the Technical
Working Group or the Secretariat, or the
BAC if there are strong reasons or
prima facie evidence showing that the
officials or employees concerned are
guilty of the charges filed against them
under Rules XXI and XXII of this IRR-A or
for dishonesty as defined by the Civil
Service Laws. For uniformed personnel of
the AFP, the substantive and procedural
due process under its justice system shall
be applied.
Lifting of preventive suspension and
removal of administrative penalties
according to Sec. 71 shall be in
accordance with the provisions of Sections
52 and 53, Chapter 6, Subtitle A (Civil
Service Commission), Title I, Book V of
Executive Order No. 292, otherwise
known as the Administrative Code of
1987.
ARTICLE XXIV. LEGAL ASSISTANCE AND
INDEMNIFICATION OF BAC MEMBERS
Article 24 includes Sec. 72 - Private Legal
Assistance and Sec. 73 - Indemnification
of BAC Members. Sec 72 states that all the
members of the BAC are hereby
authorized to engage the services of
private lawyers or external counsel
immediately upon receipt of Court Notice
that a civil or criminal action, suit or
proceeding is filed against them in
connection with the lawful performance
of their official functions and duties as
BAC members.
The GPPB shall establish an equitable
indemnification package for public
officials providing services in and for the
BAC and indemnification for all
reasonable fees, costs, and expenses
incurred by such persons in connection
with any administrative, civil, or criminal
action. In the event of a settlement or
compromise, indemnification shall be
confined only on matters covered by the
settlement. The members of the BAC and
its support staff shall also be entitled to
medical assistance for injuries incurred in
the performance of their functions.
ARTICLE XXV: FINAL PROVISIONS
Article 25 includes Sec. 74 to 78. Sec 74
states the IRR-A may be recommended for
amendment by the GPPB jointly with the
members of the Oversight Committee if
needed subject to Section 74 of the Act,
for approval by the President of the
Philippines. Any amendment to this IRR-A
shall be applicable to all procurement
activities, the advertisement or invitation
of which were issued after the effectivity
of the said amendment.
Sec 75 states that this law repeals
Executive Order No. 40 series of 2001,
Executive Order No. series of 2000, and
Executive Order No. 302 series of 1996.
Any other law, presidential decree or
issuance, executive order, letter of
instruction, administrative order,
proclamation, charter, rule, or regulation
and/or parts thereof contrary to or
inconsistent with the provisions of the Act
is hereby repealed, modified, or amended
accordingly. If any provision in this IRR-A,
or application of such provision to any
circumstance, is declared invalid or
unconstitutional, the other provisions not
affected thereby shall remain valid and
subsisting.
In all procurement activities, if the
advertisement or invitation for bids was
issued prior to the effectiveness of the
Act, the provisions of E.O. 40 and its IRR,
P.D. 1594 and its IRR, R.A. 7160 and its
IRR, or other applicable laws shall govern.
According to Sec. 78 this IRR-A shall take
effect fifteen calendar days after its
publication in the Official Gazette or in a
newspaper of general nationwide
circulation.
Presidential Decree No. 1594 and Its
Implementing Rules and Regulation
I. Detailed Engineering
Detailed engineering shall proceed only on the
basis of the feasibility or preliminary
engineering study made which establishes the
technical viability of the project and
conformance to land use and zoning guidelines
prescribed by existing laws.
A schedule of detailed engineering activities
shall include the following;
A. Survey
B. Site Investigation
C. Soils and Foundation Investigation
D. Construction Materials Investigation
E. Preparation of Design plans
F. Preparation of Technical Specifications
G. Preparation of Quantity and Cost
Estimates
H. Preparation of Program of Work
I. Preparation of Proposed Construction
J. Schedule (and estimated Cash Flow for
projects with Schedule over Six (6)
Months)
K. Preparation of Site or Right-of-Way
Plans including Schedule of Acquisition
L. Preparation of Utility Relocation Plan I.
M. Preparation and Submission of Design
Report
N. Environmental Impact Statement for
critical project as defined by the
department of environment and natural
resources (DENR)
O. Preparation of minimum requirements
for a Construction Safety and Health
Program for the project being
considered
P. Preparation of Bid/Tender Documents
Work under detailed engineering shall include
but not necessarily be limited to the following:
DESIGN STANDARDS - Design standards for
structures shall take into account, among other
things, the seismicity of the area to determine
the optimum safety of structures and to
minimize possible earthquake damage.
FIELD SURVEYS AND INVESTIGATIONS -
Necessary field surveys and investigations
which may include aerial, hydrographic,
topographic, hydrologic.
CONTRACT PLANS
• Site development plan
• Plans and profile sheet
• Typical sections and details
• Drainage details where applicable
• Structural plans at appropriate scales
indicating all details necessary in order
that the complete structure can be set
out and constructed
• Other details which may be required by
the Head of office/agency/corporation
QUANTITIES - All construction quantities shall
be computed to a reasonable accuracy of plus
or minus fifteen percent (15%).
SPECIAL PROVISIONS - Specifications shall be
prepared for specific terms of work or methods
of construction, measurement and payment
under each contract, which are not covered by
Standard Construction and Material
Specifications adopted by the
office/agency/corporation concerned.
UNIT PRICES - These shall be prepared for each
contract using costs based on reasonable
approved current prices, divided into local and
foreign exchange costs, as the case may be.
BUDGET FOR THE CONTRACT - the budget for
the contract to be bid shall be prepared by
official(s) duly designated by the head of
office/agency/corporation concerned or by his
duly authorized representative. It shall be
approved by the head of the
office/agency/corporation or his duly
designated representative.
BID/TENDER DOCUMENTS - The Bid/Tender
Documents shall include:
• Instructions to Bidders,
• General Conditions,
• Addenda,
• Itemized Bill of Quantities,
• Day Work Schedule,
• Form of Bid Security,
• Performance Security,
• Contract Plans and Specifications,
• Draft Contract which will include a price
escalation clause, and all other
information required for local and
international bidding procedures.
PROGRAM OF WORK - No program of work for
any project shall be approved without detailed
engineering.
II. Instructions to Bidders
IB 1 - Who May be Allowed to Bid
The following may become contractors for
government projects:
a. Filipino
b. Contractors forming themselves into a joint
venture i.e., a group of two or more
contractors that intend to be jointly and
severally responsible for a particular contract
(shall for purposes of bidding/ tendering comply
with LOI 630, and, aside from being currently
and properly licensed by the Philippine
Contractors Accreditation Board (PCAB), shall
comply with the provisions of R.A. 4566 and its
Implementing Rules and Regulations,
c. foreign contractors for internationally bid
foreign-assisted projects as may be required by
foreign financial institutions.
IB 2 - Organization of the BAC
1. Each office/agency/corporation shall have in
its head office or in its implementing offices a
Bid and Award Committee (BAC) Each
committee shall be composed of the following:
A. Chairman (regular) - at least third
ranking official of the
office/agency/corporation
B. Executive officer and secretary
(regular) - legal officer of the
office/agency/corporation.
C. Member (regular) - Technical member
designated by the head of
office/agency/corporation
D. Member (provisional) - At least two,
with experience in the type of contract
to be bid and in project management.
E. Members from the Private Sector - To
ensure the transparency of bidding
process
F. Observer - the Commission on Audit
(COA) of the concerned
office/agency/corporation.
2. Government owned or controlled
corporations shall organize their own BACs
3. non-infrastructure agencies
IB 3 -INVITATION TO PREQUALIFY/APPLY FOR
ELIGIBILITY AND TO BID
• For locally funded contracts,
contractors shall be invited to apply for
eligibility and to bid through.
• For foreign financed/assisted
contracts, contractors are invited
under the same procedures above
and/or in accordance with procedures
established by, and agreed upon with,
the lending/financing institution.
IB 4 - Issuance of Qualification Statements /
Forms
1. The BAC or designated procurement
unit shall provide prospective bidders
with the notice for prequalification
2. Prequalification or eligibility statements
3. The following documents shall
comprise the prequalification or
eligibility statements, to be submitted
by the contractor
• Legal documents
• Technical documents
• Financial documents
IB-5 CLASSIFICATION AND REGISTRATION OF
CONTRACTORS
The Philippine Contractors Accreditation Board
(PCAB) shall register and classify contractors
based on the PCAB guidelines for registration
and classification of contractors
IB 6 - PREQUALIFICATION OR ELIGIBILITY
SCREENING OF CONTRACTORS FOR SPECIFIC
CONTRACTS
IB7- ISSUANCE OF PLANS, SPECIFICATIONS,
PROPOSAL BOOK FORM(S) AND DRAFT
CONTRACT
The BAC or designated procurement unit shall
issue the plans, specifications, proposal book
form(s) for the contract to be bid to the eligible
bidders under the relevant classification
IB 8 INTERPRETATION OF BID/TENDER
DOCUMENTS AND OTHER SUPPLEMENTAL
NOTICES
IB 9 - ELIGIBLE BIDDER'S RESPONSIBILITY
IB 10 - BID/TENDER AND AWARD
BIDS SHALL BE PREPARED ON THE PROPOSAL
BOOK FORM IN ACCORDANCE WITH THE
INSTRUCTIONS TO BIDDERS. BIDS AND BID
SECURITIES SHALL BE VALID FOR A
REASONABLE PERIOD TO BE DETERMINED BY
THE HEAD OF OFFICE/AGENCY/CORPORATION
CONCERNED AS INDICATED IN THE
INSTRUCTION TO BIDDERS
IB 10.6 - Awarding of Contract
The BAC (or other designated agencies) shall
award the contract to the contractor
considered as the "lowest calculated
responsive bid," which is the contractor that
has passed the post-qualification criteria and
has the lowest calculated total bid price.
IB 10.7 - Documents Comprising the Contract
Documents such as the following must be
included in the contract:
• contract agreement
• conditions of the contract
• drawings or plans, specifications,
invitation to bid
• instructions to bidders, bid form, and
more.
IB 10.8 - Supporting Documents
The approval of the contract is further
facilitated by supporting documents such as
duly approved program of work and cost
estimates, certificate of availability of funds,
and more.
IB 10.9 - Approval of Contract
Within 15 days from the date when the
successful bidder (or their representative) have
executed the contract with the corporation or
organization concerned, the latter's head
typically approves or disapproves it.
IB 10.10 - Issuance of Notice to Proceed
The authorized party (such as the government)
shall issue the Notice to Proceed (NTP) to the
successful bidder not more than 15 days from
the contract approval date.
IB 10.11 - Monitoring of Contract Awards
Process
For monitoring purposes, approved contracts
indicating crucial information as stipulated in PD
1594 must be submitted to the NEDA
Committee on Infrastructure (INFRACOM)
III. Contract Implementation
CI 1 - Variation Orders (Change Order, Extra
Work Order, or Supplemental Agreement)
• Variation orders issued by concerned
parties are necessary when there are
changes or any addition or omission in
the initial construction plan. Changes
must be within general scope of the
project as bid and awarded.
• Once the Regional Director deems
justified and necessary the variation
order after the onspot investigation,
shall review the plans, and forward it
to the appropriate parties for
consideration.
• The entire process from the variation
order's preparation up to the approval
of the implementing parties must not
exceed 30 days.
CI 2 - Additional/Extra Work Costing
• Additional, extra works necessary to
and within the general scope of the
contract should be costed whether
they are covered by change orders or
extra work orders.
• The cost of the extra work done shall
be submitted at the intervals to be
determined by the Project Engineer in
a satisfactory form which shall be
approved or adjusted at once by the
Government.
CI 3 - Conditions under which contractor is to
start work under variation orders and receive
payments
Under no circumstances shall a contractor
proceed to commence work under any Change
Order, Extra Work Order or Supplemental
Agreement unless it has been approved by the
Secretary or his duly authorized
representative.
CI 4 - Advance Payment
• The Government shall make an
advance payment to the contractor in
an amout equal to fifteen percent
(15%) of the total contract price.
• The advance payment shall be made
only upon the submission to and
acceptance by the Government of an
irrevocable standby letter of credit of
equivalent value.
CI 5 - Progress Payment
Once a month or for an accomplishment of at
least P 1.0 million, the contractor may submit a
request for payment for work accomplished
CI 6 - Retention Money
• Progress payments are subject to
retention of ten percent (10%) referred
to as the "retention money." Such
retention shall be based on the total
amount due to the contractor prior to
any deduction.
• The total "retention money" shall be
due for release upon final acceptance
of the works.
CI 7 - Contract Completion
Once the project reaches an accomplishment
of 95% of the total contract amount, the
government may create an inspectorate team
to make preliminary inspection and submit a
punch-list to the contractor in preparation for
the final turnover of the project.
CI 8 - Liquidated Damages
• The contractor shall pay the
Government for liquidated damages if
the contractor refuses or fails to
satisfactorily complete the work within
the specified contract time.
• Such amount shall be deducted from
any money due or which may become
due the contractor under the contract
and/or collect such liquidated damages
from the retention money or other
securities posted by the contractor.
CI 9 - Incentive Bonus
• For major and urgent projects, if the
contractor completes the contract
works ahead of schedule without any
suspension order effected or extension
of contract time granted, he may be
given a bonus.
• The completion of a project ahead of
schedule shall also be considered a
"plus-factor" in favor of the contractor
in assessing/evaluating the
prequalification for future projects.
CI 10 - Suspension of Work
• The Government or its authorized
representative shall have the authority
to suspend the work due to inevitable
events or failure of contractor to
correct bad working conditions.
• In case of total suspension, or
suspension of activities which is not
due to any fault of the contractor, the
contractor is allowed to adjust the
contract time accordingly.
CI 11 - Extension of Contract Time
The Government shall determine the amount
of extension that the contractor will get fairly
based on the circumstance of the work
IV. Evaluation of Contractors Performance
PE 1 - SUBJECT AND SCOPE
All contractors undertaking projects with the
government, regardless of contract amount
and funding source and whose contracts are
awarded either thru bidding or negotiation,
shall have their performance evaluated by
offices/agencies/corporations concerned. This
evaluation shall be done during construction
and UPON completion OF EACH GOVERNMENT
PROJECT
PE 2 - EVALUATION GUIDELINES
Housing, building, port and harbor projects,
agencies concerned may formulate and adopt
their own implementing guidelines specific to
project types
Other than has no objection to adopt
Provided further that the formulated guidelines
are made known to all prospective bidders.
PE 3 - IMPLEMENTATION MECHANISM FOR
CPES
Each agency shall establish a cpes
implementing unit (iu) which shall be
responsible for cpes guidelines
implementation,accredited by the CIAP.
PE 4 - SUBMISSION OF EVALUATION RESULTS
All offices/agencies/corporations concerned
shall submit the results of their performance
evaluation to the CIAP within a week after the
conduct of the final evaluation.
PE 5 - UTILIZATION OF EVALUATION RESULTS
The CIAP shall consolidate all of the evaluation
results received and shall disseminate the
same to all offices/agencies/corporations
concerned
ACRONYMS AND NAMES OF AGENCIES
CPES: Constructors Performance Evaluation
System (CPES)
CPES is a uniform rating system for evaluating
the performance of constructors based on a
set of criteria. The evaluation is done at certain
stages during the actual construction of the
project, and upon its completion.
CIAP: Construction Industry Authority of The
Philippines
An attached agency of the Department of
Trade and Industry. It promotes, accelerates,
and regulates the construction industry
V. Administritive Sanctions
• The administrative sanctions as
provided for under the uniform
guidelines for blacklisting constructors
involved in public construction (ciap
blacklisting guidelines) shall be imposed
for offenses/violations committed by
contractors during prequalification,
bidding, award and contract
implementation
• Violation of the provisions of the IRR of
PD 1594 will subject the erring
government official/employee to the
sanctions provided under existing laws,
particularly republic acts 3019 (known
as the "anti-graft and corrupt practices
act") and 6713 (known as the "code of
conduct and ethical standards for
public officials and employees"), and
the civil service law, among others.
complaints against government
officials/employees may be filed with
the agency head, or if the agency head
is the officer being complained, with
the office of the president .
VI. Applicability
• These implementing rules and
regulations as amended shall apply to
all contracts for infrastructure and
other construction projects of all
government agencies including
government-owned or controlled
corporations and other
instrumentalities that will either be bid
out or negotiated including those
through sealed canvass or simplified
public bidding after ten (10) days from
date of dissemination of these
amended implementing rules and
regulations by the National Economic
and Development Authority (NEDA)
Committee on Infrastructure
(INFRACOM), unless otherwise
specifically provided herein.
• For contracts bid out before said
effectivity date, the previous
implementing rules and regulations
shall apply. Any violation hereof shall be
punishable under existing laws, rules
and regulations as may be appropriate.
These amended implementing rules and
regulations shall not apply to lump sum
"Pakyaw" contracts.
CIAP Document 102: Uniform General
Conditions of Contract for Private
Construction
Section I. Definition and Documents
Article no. 1 - DEFINITION
1.02. ADVANCE PAYMENT/ DOWN
PAYMENT the money given by the Owner
to the Contractor to help the latter
underwrite significant start up or
procurement costs that may have to be
incurred before construction begins.
1.03. AGREEMENT the term used to
describe the agreement signed by the
Owner and the Contractor excluding the
Contract Documents which are attached
thereto.
1.08. BID DOCUMENT collectively refer to
all documents provided or made available
to prospective bidders which include the
Invitation to Bid, drawings and technical
specifications and a copy of the Contract
which the winning bidders would be
required to sign with the Owner
1.09. BREAKDOWN OF WORK AND
CORRESPONDING VALUE a listing of the
different parts of the Work indicating each
part and its corresponding value
1.10. CHANGE ORDER a written order to
the Contractor issued by the Owner after
the execution of the Contract authorizing a
change or variation in the Work or an
adjustment in the Contract Price or
Contract Time
1.11. COMPLETION TIME LIMIT period of
time allowed by the Contract for the
completion of the project or any stipulated
portions thereof
1.12. CONTRACT the term used to describe
the Agreement and the Contract
Documents
1.13. CONTRACT DOCUMENTS documents
attached to the Agreement identified
therein as Contract Documents, including
all additions, deletions and modifications
incorporated therein. These generally
include the following documents which shall
form part of this Contract and constitute
integral parts hereof:
o Special Provisions or
Conditions;
o (b) General Conditions;
o (c) Specifications;
o (d) Drawings;
o (e) Contractor’s
Performance and Payment
Bonds contemplated in
Clause 31.04 hereof;
o (f) Contractor’s Guarantee
Bond contemplated in
Clause 31.05 hereof; and
o (g) other Bid Documents
1.15 CONTRACT PRICE the amount in money,
or other consideration, to be paid by the
Owner to the Contractor for the execution of
the Work in accordance with the Contract
1.16 COST all expenditures properly incurred or
to be incurred, whether on or off the site,
including overhead and other charges properly
allocable thereto but does not include any
allowance for profit
1.18 FINAL PAYMENT the payment of the final
progress billing and all approved claims
including but not limited to variations in the
work, Contract Price adjustments and/or
escalation, acceleration of work, and others.
NOTE: final payment does not include the
retention money
1.19 GUARANTEE BOND approved form of
security furnished by the Contractor and its
Surety as a guarantee of the quality of the
materials provided, the equipment installed,
and the workmanship performed by the
Contractor
1.20 INSTRUCTION TO BIDDERS the list of
instructions regarding the manner bids are to
be prepared and the conditions for the award
of the Contract
1.21 INVITATION TO BID the notice or
advertisement published by the Owner or the
invitation issued to prospective bidders, giving
information as to the nature of the proposed
project, conditions for the issuance of Contract
documents, date of bidding, and information
that would give the Contractor a general idea of
the magnitude and extent of the project
1.22 LAST KNOWN ADDRESS OF A PARTY refers
to the address in the Philippines given by a
party in the Contract
1.26 PAYMENT BOND approved form of
security furnished by the Contractor and its
Surety as a guarantee of good faith on the part
of the Contractor to faithfully comply with the
Contract in respect of its obligations arising
therefrom to its workers, Sub-Contractors, and
suppliers
1.27 PERFORMANCE BOND approved form of
security furnished by the Contractor and its
Surety as a guarantee of good faith on the part
of the Contractor to execute the Work in
accordance with the Contract
1.28 RETENTION sum of money, usually 10% or
less of every progress payment to a Contractor
which the Owner retains to underwrite future
costs of completing the Contractor’s work
and/or remedying the defects therein
1.29 SCHEDULE OF MATERIALS AND FINISHES
an outline specification enumerating the type
or brand names of materials required to be
used by the Contractor for the Work
1.30 SPECIAL PROVISIONS OR CONDITIONS
instructions issued prior to bidding to
supplement and/or modify the Drawings,
Specifications and/or General Conditions of the
Contract
1.31 SPECIFICATIONS written or printed
description of the Work to be done describing
qualities of the material to be used, the
equipment to be installed and the mode of
construction
1.32 SUB-CONTRACTOR a Contractor duly
registered and licensed by the Philippine
Contractors Accreditation Board having a direct
contract with the Contractor and who acts for
or in behalf of the Contractor in executing any
part of the Contract NOTE: one who furnishes
materials without labor is a supplier and not a
Sub-Contractor
1.35 WORK shall refer to all the Contractor-
provided labor or materials or both, as well as
equipment transportation or other facilities
necessary to commence and complete the
construction and to fulfill all its obligations
which are called for in the Contract
1.36 WRITTEN NOTICE information, advice, or
notification pertinent to the project delivered
in person or sent by registered mail to an
individual, firm or corporation at the latter's last
known business address
Section II. Laws, Regulations, Site Conditions,
Permits, and Taxes
Article 6 Laws and Site Conditions
6.01 Laws and Regulations In general, the
Contractor shall comply with all Laws. The
Contractor shall also comply with regulations of
firms furnishing utilities such as water, gas,
telephone, and electricity for the project.
6.02 Site Conditions Before the bidding and the
awarding of the Contract, the Contractor is
expected to have visited the project site and
made its own estimate of the facilities
Article 7 Permits, Taxes and Surveys
• 7.01 Permits and Licenses
• 7.02 Taxes
• 7.03 Construction Stakes and
Reference Mark
• 7.04 Services of Geodetic Engineer
Section III Equipment and Materials
Article 8 General
All materials and equipment must conform to
all Laws now or which may be in force and
applicable during the period of construction.
Article 9 Equipment
9.01 Quality of Equipment To establish
standards of quality, the Owner, in the
detailed Specifications may have referred to
certain equipment by name and catalog
number.
9.02 Equipment Substitution The Contractor
shall furnish the complete list of proposed
substitutions.
Article 10 Materials, Fixtures, Appliances, and
Fittings Furnished by the Contractor
• 10.01 Samples of Materials
• 10.02 Brand Name Materials and
Substitutes
• 10.03 Testing Samples of Materials
• 10.04 Quality of Materials
• 10.05 Storage and Stockpiling of
Materials
• 10.06 Defective Materials10.06
Defective Materials
• 10.07 Imported Materials, Fixtures and
Equipment
• 10.08 Owner’s Approval
Article 11 Materials, Equipment, Fixtures,
Appliances and Fittings Furnished by the
Owner
Materials, equipment, fixtures, appliances, and
fittings specifically indicated in the Contract
shall be provided in accordance with the
Owner-approved construction schedule.
Materials furnished by the Owner shall be
deemed acceptable for the purpose intended.
Article 12 Royalties and Patents
The Contractor shall pay all royalties and
license fees on all patented materials and
processes it furnished.
Article 13 Manufacturer’s Directions
All manufactured articles, materials,
equipment, appliances, fixtures, and fittings
supplied by the Contractor shall be applied,
installed, connected, erected, used, cleaned,
and conditioned by the Contractor, in
accordance with the manufacturer’s printed
directions.
Section IV Premises and Temporary Structures
Article 14 Use of Premises
14.01 Limitation of Use - The Contractor shall
confine its apparatus, the storage of materials,
and the operations of its workers to limits
indicated by Law
14.02 Safeguard for Structure - The Contractor
shall not load or permit any part of the
structure to be loaded with a weight that will
endanger its safety.
Article 15 Temporary Structures and Facilities
• 15.01 Temporary Office and
Contractor’s Building
• 15.02 Temporary Housing for Workers
• 15.03 Safety and Sanitation
• 15.04 Temporary Signs
• 15.05 Temporary or Trial Usage
Section V Protection of Work and Property
Article 16 Protection of Work and Owner’s
Property
16.01 Safeguard Measures The Contractor
shall:
o take all reasonable measures to
protect from damage:
o (i)the Works.
o (ii)the Owner's property, and.
o (iii)the equipment, materials,
appliances, and fixtures
supplied or paid for by the
Owner and shall make good any
damage, etc
o (b) provide reliable and
competent security personnel
to guard the site and premises,
provide all doorways with locks
under the Contractor’s control
o c) prohibit smoking at the site
and post signs to this effect at
conspicuous places.
o (d) prohibit fires built on the
site except by expressed
consent of the Owner; and
o (e) provide and maintain in
good working order an
adequate number of firefighting
equipment and such equipment
shall not be used for any other
purpose.
16.02 Old Materials - All old materials of value
as determined through a joint inventory by the
Owner
16.03 Trees and Other Plants - Existing
vegetation such as but not limited to trees,
plants, and shrubs, identified by the Owner to
remain at site shall be boxed and otherwise
protected from damage
16.04 Drainage - The natural flows of rivers or
streams shall not be interrupted or obstructed
unless necessary in the prosecution of the
Work.
Article 17 Protection of Adjacent Property and
Existing Utilities
17.01 Contractor's Responsibility - The
Contractor shall adequately protect adjacent
property as provided by Law and the Contract
17.02 Damages to Adjacent Utilities - The
Contractor shall be liable for and pay for all
damages to adjacent and existing utilities
occasioned in any manner by its act or neglect,
or by that of its agents, employees, or workers.
17.03 Condition Survey - Prior to
commencement of the Works, the Contractor
shall, insofar as is legally and physically.
Article 18 Authorization to Contractor for the
Protection of Life, Work and Property During
an Emergency
In an emergency endangering life, the Work or
the adjoining property, the Contractor, even
without special instruction or authorization
from the Owner, shall act, at its discretion, to
prevent or minimize such threatened loss or
injury
Article no. 5 - Shop Drawings
5.02 IDENTIFICATION SHOP DRAWINGS, which
shall be numbered consecutively, shall
represent:
o all working and erection
dimensions;
o (b) arrangement and sectional
views;
o (c) necessary details, including
complete information for
making connections with other
work;
o (d) kinds of materials and
finishes.
Shop drawings shall contain the following:
o date of approval by the Owner;
o (b) name of project;
o (c) descriptive names of
equipment, materials, and
classified item numbers; and
o (d) location at which materials
or equipment are to be
installed in the Work.
5.03 LETTER OF TRANSMITTAL Submission of
shop drawings shall be accompanied by a letter
of transmittal in duplicate, containing the
name of the project, the Contractor’s name,
reference drawing number, titles, and other
pertinent data.
5.04 CORRECTIONS, CHANGES AND
VARIATIONS The Contractor shall submit three
sets of prints of shop drawings to the Owner
for approval. Satisfactory shop drawings will
be so identified by the Owner, dated, and one
copy thereof returned to the Contractor.
Should shop drawings be disapproved by the
Owner, one set of such shop drawings shall be
returned to the Contractor indicating therein
the corrections and changes to be made.
(a) The Contractor shall make the required
corrections and changes and resubmit the shop
drawings, in duplicate, until the Owner's
approval is obtained.
(b) Upon receipt of such approval, the
Contractor shall insert the date of approval on
the tracings and promptly furnish the Owner
with three additional prints of approved
drawings.
(c) No work called for by the shop drawings
shall be executed by the Contractor until the
Owner's approval is given.
(d) Should the shop drawings show variations
from the Contract requirements because of
standard shop practice or other reasons, the
Contractor shall make specific mention of such
variations in its letter of submittal.
5.05 RESPONSIBILITY FOR ACCURACY Should
the Contractor be a specialty contractor or be
engaged by the Owner as a specialty contractor,
the Owner's approval of shop drawings shall be
general. It shall not relieve the Contractor of
responsibility for accuracy of such shop
drawings, nor for proper fitting and
construction of work, nor for furnishing of
materials or work required by the Contract and
not indicated on the shop drawings. The
Owner’s approval of such drawings or schedule
shall not relieve the specialty contractor from
responsibility for deviations from the Drawings
or Specifications, unless the Contractor has, in
writing, called the Owner’s attention to such
deviations at the time of submission and
secured the Owner’s written approval.
5.06 OWNER’S APPROVAL Unless specified to
the contrary or unless the Contractor’s
submission is deficient, shop drawing approval
by the Owner shall be made within seven (7)
working days of submission by the Contractor.
Section VI. Labor, Work, and Payments
Article no. 19 - Labor
Competent and qualified professionals,
construction workers, foremen, technical
employees, and the like, are the only people to
be employed by the Contractor.
Article no. 20 - Work
Methods and Appliances: Contractor shall
ensure completion of work as stipulated in the
Contract by utilizing the appropriate resources
such as tools, methods, equipment, human
resources, and more.
Defective Work: Work that doesn't go in
accordance with what's stipulated in the
Contract is considered defective work and is
condemned by the Owner.
Inspection of Work: The Owner has access at
all times to the construction work. But all
inspection and tests must be facilitated in a way
that will not delay the work. Increased or
Decreased Quantities of Work: Not every
element of the work is foreseen at the time of
calling for bids; and thus, Change Orders can
and will be necessary
Article no. 21 - Time of Completion of Work
Notice to Proceed: A Notice to Proceed (NTP) is
to be issued by the Owner to the Contractor
when the Contract stipulates for them to do
so. Untimely project commencement can put
the Contractor at various risks, unless this
commencement is a mutual decision by both
parties.
Completion Time: A Contractor must complete
the construction work within the time period
stipulated in the Contract. Once an NTP is
issued to the Contractor, it shall commence
construction work within 7 days from the date
of receiving of the NTP; unless the NTP states a
later date for work commencement.
Schedule of Construction Work: The Contractor
shall furnish the Owner a construction
schedule subject to the approval of the latter.
Extension of Time: In case of delays in the
completion of the construction work, the
Contractor can be entitled of Completion Time
adjustment in a fair and justifiable manner.
Delay in Completion of Work: In the case that
the Contractor fails to accomplish the work in
the stipulated time frame in the Contract, the
Contractor must pay the Owner justifiable
compensation.
Article no. 22 - Payments
Breakdown of Contract Amount: All requests
for payment are subjected to the Breakdown
of Work and Corresponding Value as approved
by the Owner.
Requests for Payment: Unless the Contract
stipulates otherwise, no payment shall be
issued for material, equipment, or any
resources that are not stipulated in the
Contract; unless such immediate acquisition
is/are necessarily made because of shortages or
difficulties; in this case, payment can be given
subject to the Owner's approval of the bills of
sale of the Contractor.
Authorized Deductions from Value of
Completed Work: The Owner can deduct the
following from the total payment due the
Contractor: cost of defective work not
rectified, amounts accumulated as liquidated
damages, and more.
Owner's Action on Requests for Payment:
Upon receipt of the Request for Progress
Payment from the Contractor, within 30 days,
the Owner shall settle the amount.
Corrections of Work Before or After Final
Payment: Owner's acceptance of the
Contractor's work means that Contractor is
relieved of any liability for any defect in the
work unless defect is purposely hidden so as to
not be noticed by Owner even with diligence.
Section VII. Contractors-Separate Contractors-
Sub Contractors Relation
Article no. 23 - Separate Contracts with Other
Contractors
The Owner may perform work outside of the
Contractor's scope of work or award separate
contracts to other contractors.
The Owner shall provide for the coordination
of the work performed by the Contractor
and/or each separate contractor with the
Work of the Contractor.
Article No. 24 - Contractor and Separate
Contractor Relations
The Contractor shall give other contractors
reasonable opportunity for the introduction
and storage of their materials and the
execution of their work.
Any cost caused by defective or ill-timed work
shall be borne by the party responsible
therefor.
Should any part of the Contractor's work
depend for proper execution or results upon
the work of any other contractor, the
Contractor shall inspect and promptly report it
to the Owner.
Article 25 - Sub-Contracts
It is understood and agreed that no portion of
the Work shall be sublet or sub-contracted
without the Owner’s consent.
The consent of the Owner to the Contractor’s
engagement of a Sub-Contractor, by itself, shall
not create any contractual relation between the
Sub-Contractor and the Owner.
Section VIII. Suspension of Work and
Termination of Contract
Article No. 26 – Contractor's Right to Suspend
Work or Terminate Contract
The Contractor may suspend work or
terminate the Contract upon fifteen (15) days'
written notice to the Owner for any of the
following reasons:
(a) Should an order of any court or
other public authority caused the work to be
stopped or suspended for an aggregate period
of ninety (90) days through no act or fault of the
Contractor or its employees.
(b) Should the Owner fail to pay the
Contractor the approved Request for Payment.
(c) Should the Owner fail to pay the
Contractor any sum within thirty (30) days.
(d) Should the Owner suspend the work
without just cause for more than an aggregate
period of fifteen (15) days without the
Contractor's consent.

(e) Should the Owner fail to deliver at
the construction site Owner-
supplied/furnished construction materials
and/or equipment,
(f) Should approval of Variation Orders
for additional works along the critical path be
delayed beyond fifteen (15) days
Article No. 27 - Owner's Right to Suspend Work
The Owner may, at any time and without cause,
suspend the work or any portion thereof for a
period of not more than the aggregate period
of fifteen (15) days by notice in writing to the
Contractor and shall fix the date on which work
shall be resumed.
Just causes for Suspension of Work:
(a) Unsuitable weather conditions;
(b) failure of the Contractor to correct
defective work or to correct conditions;
(c) failure of the Contractor to carry
out valid orders issued by the Owner;
(d) failure of the Contractor to supply
sufficient skilled workers, suitable materials or
equipment.
Article No. 28 - Owner's Right to Terminate
Contract
The Owner may immediately terminate the
Contract, without prior notice should the
Contractor
(a) be adjudged bankrupt or insolvent,
(b) make a general assignment of its
assets for the benefit of its creditors,
(c) file a petition for suspension of
payments, or to reorganize under the
bankruptcy or similar Laws.
The Owner may terminate the Contract when
the Contractor
(a) repeatedly fails to supply, based on
the construction schedule, the sufficient
number of skilled workers or suitable materials
or equipment;
(b) repeatedly fails to make, without
just cause, prompt payments to Sub-
Contractors and completion of the Work is
being delayed;
(c) disregards the Laws or orders of any
public body having jurisdiction;
(d) otherwise violates in any
substantial way any provision of the Contract
Article No. 29 - Owner's Right to Proceed with
the Work after Reduction in the Contractor's
Scope of Work; Partial Takeover from
Contractor
The Owner may, after seven (7) days following
receipt by the Contractor of written notice and
without prejudice to any other remedy the
Owner may have and without terminating the
Contract, carry out the work of the contractor.
The Contractor, upon receiving notice of
termination of the Contract, shall vacate the
site and deliver possession of the Work, or the
parts thereof specified in the notice, to the
Owner.
Section IX. Responsibilities and Liabilities of
Contractor and of Owner
Article no, 30 - Contractor's Responsibility for
Accidents and Damages
The Contractor shall take all necessary
precautions for the safety of employees and
workers on the Work, and comply with all
Laws to prevent injury to its persons
Article no, 31 - Contractor's Insurance and
Bonds
The Contractor shall secure and maintain
insurance coverage from an insurance
company acceptable to the Owner as will
protect itself, its Sub-Contractors, and the
Owner from claims for bodily injury, death or
property damage
Article no, 32 - Owner’s Responsibilities and
Liabilities
Section X. Owner's Representative
The Owner’s Representative shall either be the
Architect, the Engineer, Construction Manager
or other person designated by the Owner as the
Owner's Representative.
The Owner's Representative shall have the full
authority to act for and on behalf of the Owner
in all matters which under the Contract the
Owner shall give its consent, approval or
decision.
The Owner’s Representative shall also perform
the function of Construction Manager unless
the Owner designates another person as
Construction Manager. If the Owner shall
designate a Construction Manager and define
its functions, those functions of a Construction
Manager not delegated to the latter shall be
performed by the Owner’s Representative

32.01 Advance Payment

32.02 Protection of Employees and

Professionals Performing Services for the
Owner

Article no, 33 - Liens, Disputes and Arbitration

LIEN: a right to keep possession of property

belonging to another person until a debt owed
by that person is discharged

DISPUTES: a disagreement, argument, or

debate

ARBITRATION: Arbitration is a well-established

and widely used means to end disputes
Section XI. Schedule of Time Limits
The Contractor shall perform its Work subject to
certain Time Limits. This indexed section, as
based on the entire General Conditions, is
provided in order to facilitate the execution of
its Work.
Extracts from the New Civil Code: Obligations
and Contracts
Title I. Obligations
Chapter No.1 - General Provisions
Article 1156. An obligation is a juridical
necessity to give, to do or not to do.
Article 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law;
and
(5) Quasi-delicts
Article 1158. Obligations derived from law are
not presumed. Only those expressly
determined in this Code or in special laws are
demandable, and shall be regulated by the
precepts of the law which establishes them;
and as to what has not been foreseen, by the
provisions of this Book.
Article 1159. Obligations arising from contracts
have the force of law between the contracting
parties and should be complied with in good
faith
Chapter No.2 - Nature and Effect of Obligations
Article 1167. If a person obliged 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 that what has been poorly done be
undone.
Article 1171. Responsibility arising from fraud
is demandable in all obligations. Any waiver of
an action for future fraud is void
Article 1175. Usurious transactions shall be
governed by special laws.
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
Chapter No.3 - Different kinds of Obligations
Section 1: Pure and Conditional Obligations
Article 1179. Every obligation whose
performance does not depend upon a future or
uncertain event, or upon a past event
unknown to the parties, is demandable at
once. Every obligation which contains a
resolutory condition shall also be demandable,
without prejudice to the effects of the
happening of the event.
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
Article 1187. The effects of a conditional
obligation to give, once the condition has been
fulfilled, shall retroact to the day of the
constitution of the obligation. Nevertheless,
when the obligation imposes reciprocal
prestations upon the parties, the fruits and
interests during the pendency of the condition
shall be deemed to have been mutually
compensated. If the obligation is unilateral, the
debtor shall appropriate the fruits and interests
received, unless from the nature and
circumstances of the obligation it should be
inferred that the intention of the person
constituting the same was different. In
obligations to do and not to do, the courts shall
determine, in each case, the retroactive effect
of the condition that has been complied with.
Chapter No.3 - Different kinds of Obligations
Section 2: Obligations with a Period
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.
Chapter No.3 - Different kinds of Obligations
Section 3: Alternative Obligations
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.
Article 1204. The creditor shall have a right to
indemnity for damages when, through the
fault of the debtor, all the things which are
alternatively the object of the obligation have
been lost, or the compliance of the obligation
has become impossible. The indemnity shall be
fixed taking as a basis the value of the last thing
which disappeared, or that of the service which
last became impossible. Damages other than
the value of the last thing or service may also be
awarded.
Chapter No.3 - Different kinds of Obligations However, even though the object or service
Section 4: Joint and Solidary Obligations may be physically divisible, an obligation is
indivisible if so provided by law or intended by
Article 1210. The indivisibility of an obligation the parties. In obligations not to do, divisibility
does not necessarily give rise to solidarity. Nor or indivisibility shall be determined by the
does solidarity of itself imply indivisibility. character of the prestation in each particular
case.
Article 1211. Solidarity may exist although the
creditors and the debtors may not be bound in Chapter No.3 - Different kinds of Obligations
the same manner and by the same periods and Section 6: Obligations with a Penal Clause
conditions.
Article 1226. In obligations with a penal clause,
Chapter No.3 - Different kinds of Obligations the penalty shall substitute the indemnity for
Section 5: Divisible and Indivisible Obligations damages and the payment of interests in case
of noncompliance, if there is no stipulation to
Article 1223. The divisibility or indivisibility of
the contrary. Nevertheless, damages shall be
the things that are the object of obligations in
paid if the obligor refuses to pay the penalty or
which there is only one debtor and only one
is guilty of fraud in the fulfillment of the
creditor does not alter or modify the provisions
obligation. The penalty may be enforced only
of Chapter 2 of this Title.
when it is demandable in accordance with the
Article 1224. A joint indivisible obligation gives provisions of this Code.
rise to indemnity for damages from the time
Article 1228. Proof of actual damages suffered
anyone of the debtors does not comply with his
by the creditor is not necessary in order that
undertaking. The debtors who may have been
the penalty may be demanded.
ready to fulfill their promises shall not
contribute to the indemnity beyond the Article 1230. The nullity of the penal clause
corresponding portion of the price of the thing does not carry with it that of the principal
or of the value of the service in which the obligation. The nullity of the principal
obligation consists. obligation carries with it that of the penal
clause
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.
CHAPTER 4 Extinguishment of Obligations
General Provisions
Article 1231. Obligations are extinguished:
(1) By payment or performance.
(2) By the loss of the thing due.
(3) By the condonation or remission of
the debt.
(4) By the confusion or merger of the
rights of creditor and debtor.
(5) By compensation.
(6) By novation.
SECTION 1 - Payment or Performance
Article 1232 - Article 1251
SUBSECTION 1. Application of Payments
Article 1252 - Article 1254
SUBSECTION 2. Payment by Cession
Article 1255 - The debtor may cede or assign his
property to his creditors in payment of his
debts. This cession, unless there is stipulation
to the contrary, shall only release the debtor
from responsibility for the net proceeds of the
thing assigned.
SUBSECTION 3 - Tender of Payment and
Consignation
Article 1256 - Article 1261
SECTION 2- Loss of the Thing Due
Article 1262 - Article 1269.
SECTION 3 - Condonation or Remission of the
Debt
Article 1270 - Article 1274
Title II. Contracts
Chapter No. 1 - General Provisions
Article 1305-1317
A contract binds one party to another where
one party, with respect to the other, furnishes
products or services to the latter. Involved
parties shall pledge to act what's stipulated in
the contract.
Chapter No. 2 - Essential Requisites of
Contracts
General Provisions - Article 1318
A contract cannot exist without the following:
(1) consent of all parties involved,
(2) defined subject matter, and
(3) established obligations
Section 1 - Article 1319-1346
Consent is critical. It occurs when a certain
offer from one party and an absolute
acceptance from another party meets.
Unemancipated minors, insane or demented
people, and deaf-mutes who don't know how to
write cannot give consent to a contract.
Section 2 - Article 1347-1349
All things in the realm of humans can be a
subject matter of contracts.
Impossible things or services cannot be a
subject matter of contracts
Section 3 - Article 1350-1355
The particular motives of the parties involved
in making the contract can be different from
the cause.
The cause of a contract is unlawful if it is
contrary to law, morals, good customs, public
order, or public policy.
Chapter No. 3 - Form of Contracts
Article 1356 – 1358
Contracts shall be obligatory, in whatever form
they may have been entered into, provided all
the essential requisites for their validity are
present.
However, when the law requires that a contract
be in some form in order that it may be valid or
enforceable, or that a contract be proved in a
certain way, that requirement is absolute and
indispensable.
Chapter No. 4 - Reformation of Instruments
Article 1359 – 1369
When, there having been a meeting of the
minds of the parties to a contract, their true
intention is not expressed in the instrument
purporting to embody the agreement, by
reason of mistake, fraud, inequitable conduct or
accident.
One of the parties may ask for reformation of
the instrument so that the true intention may
be expressed.
Chapter No. 5 - Interpretation of Contracts
Article 1370 – 1379
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.
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
Chapter No. 6 - Rescissible of Contracts
Article 1380 – 1389
A rescissible contract is one which contains all
the essential elements exists which make it
legally effective, but by reasons of injury or
damage to either of the contracting parties or
to third person, such as creditors, may be
rescinded.
Rescission shall be only to the extent necessary
to cover the damages caused.
Chapter No. 7 - Voidable Contract
Article 1390 – 1402
A voidable contract is an agreement between
two parties that can be legally canceled by one
or both parties under certain conditions.
The following contracts are voidable or
annullable, even though there may have been
no damage to the contracting parties:
Those where one of the parties is
incapable of giving consent to a contract;
Those where the consent is vitiated by
mistake, violence, intimidation, undue
influence or fraud.
Chapter No. 8 - Unenforceable Contracts
Article 1403 – 1408
An unenforceable contract is a valid contract
that the court chooses, for specific reasons, not
to enforce.
The following contracts are unenforceable,
unless they are ratified:
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;
Those that do not comply with the
Statute of Frauds as set forth in this number.
Title III. Natural Obligations
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.
Article 1424. 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.
Article 1428. When, after an action to enforce
a civil obligation has failed the defendant
voluntarily performs the obligation, he cannot
demand the return of what he has delivered or
the payment of the value of the service he has
rendered.
Title IV. Estoppel
The term estoppel refers to a legal principle
that prevents someone from arguing
something or asserting a right that contradicts
what they previously said or agreed to by law.
Article 1431. Through estoppel an admission or
representation is rendered conclusive upon the
person making it, and cannot be denied or
disproved as against the person relying
thereon.
Article 1433. Estoppel may in pais or by deed
Title V. Trusts

Chapter No. 1- GENERAL PROVISION

Article 1441. Trusts are either express or

implied. Express trusts are created by the
intention of the trustor or of the parties.
Implied trusts come into being by operation of
law.

Article 1440.

Trustor - A person who establishes a trust

Trustee - one in whom confidence is reposed

as regards property for the benefit of another
person

Beneficiary - the person for whose benefit the

trust has been created
The Civil Engineering Professional
Licensure
Examina7on
REPUBLIC ACT 544
An Act to Regulate the Prac9ce of Civil
Engineering in the Philippines
ARTICLE III EXAMINATION AND
REGISTRATION
Examina5on Requirement
SECTION 8.
All applicants for registra5on for the
prac5ce of civil engineering shall be
required to pass a technical examina5on as
hereinaHer provided.
SECTION 9. Holding of Examina5on
Examina5on of candidates desiring to
prac5ce civil engineering in the Philippines
shall be given in the City of Manila of each
year, provided that such days do not fall on
official holidays, otherwise the examina5ons
shall be held on the days next following.
SECTION 10. Subjects of Examina5on
Applicants for cer5ficate of registra5on as
civil engineer shall be examined, in the
discre5on of the Board, on the following
subjects: mathema5cs, including algebra,
plane and spherical trigonometry, analy5cs,
descrip5ve and solid geometry, differen5al
and integral calculus, and ra5onal and
applied mechanics; hydraulics; surveying,
including highway and railroad surveying;
plane, topographic and hydrographic
surveying, and advance surveying; design
and construc5on of highways and railroads,
masonry structures, wooden and reinforced
concrete buildings, bridges, towers, walls,
founda5ons, piers, ports, wharves,
aqueducts, sanitary engineering works,
water supply systems, dikes, dams and
irriga5on and drainage canals.
To pass, overall grade should be 70% with
no grades lower than 50% for each subject.
• Surveying, Mathema5cs, and
Transporta5on Engineering (35%)
• Hydraulics and Geotechnical
Engineering (30%)
• Construc5on and Structural
Engineering (35%)
SECTION 11. Execu5ve Officer of the Board
The Commissioner of Professional
Regula5on Commission shall be the
execu5ve officer of the Board and shall
conduct the examina5ons given by the said
Board. He shall designate any subordinate
officer of the Professional Regula5on
Commission to act as the Secretary and
custodian of all records including
examina5on papers and minutes of the
delibera5on of the Board.
PROFESSIONAL REGULATION COMMISSION
(PRC)
CIVIL ENGINEER BOARD OF EXAMINERS:
SECTION 12. Qualifica5ons for Examina5on
Any person applying for admission to the
civil engineering examina5on as herein
provided shall, prior to the date of the
examina5on, establish to the sa5sfac5on of
the Board that he has the following
qualifica5ons:
• Be at least twenty-one years of age
• Be a ci5zen of the Philippines;
• Be of good reputa5on and moral
character; and
• Be a graduate of a four-year course
in civil engineering from a school,
ins5tute, college or university
recognized by the Government or
the State wherein it is established.
SECTION 13: Oath of Civil Engineers
All successful candidates in the examina5on
shall be required to take a professional oath
before the Board of Examiners for Civil
Engineers or other Government Officials
authorized to administer oaths, prior to
entering upon the prac5ce of the civil
engineering profession.
SECTION 14: Seal and Use of Seal
All registered civil engineers shall obtain a
seal of such design as the Board shall
authorize and direct: Provided, however,
that the serial number of the cer5ficate
issued by the Board shall be included in the
design of the seal. Plans and specifica5ons
prepared by, or under the direct supervision
of a registered civil engineer shall be
stamped with said seal during the life of the
registrant's cer5ficate, and it shall be
unlawful for anyone to stamp or seal any
documents with said seal aHer the
cer5ficate of the registrant named thereon
has expired or has been revoked, unless said
cer5ficate shall have been renewed or re-
issued.
SECTION 15 Exemp5on for Registra5on
1. Registra5on shall not be required of the
following persons:
a. Officers or enlisted men of the
United States and Philippine Armed
Forces, and civilian employees of the
Government of the United States
sta5oned in the Philippines while
rendering civil engineering services
for the United States and/or
Philippines.
b. Civil engineers or experts called in
by the Philippine Government for
consulta5on, or specific design and
construc5on of fixed structures as
defined under this Act, provided that
their prac5ce shall be limited to such
work.
2. Any person residing in the Philippines
may make plans on specifica5ons for any of
the following:
a. Any building in chartered ci5es or
in towns with building ordinances,
not exceeding the space
requirement specified therein,
requiring the services of a civil
engineer.
b. Any wooden building enlargement
or altera5on which is to be used for
farm purposes only and cos5ng not
more than ten thousand pesos.
c. Provided, however. That there
shall be nothing in this Act that will
 prevent any person from
construc5ng his own (wooden or
light material) residen5al house,
u5lizing the services of a person or
persons required for the purpose,
without the use of a civil engineer,
as long as he does no violate local
ordinances of the place where the
building is to be constructed.
3. Nor shall anything in this Act prevent
draHsmen, student clerk-or-work,
superintendents, and other employees of
those lawfully engaged in the prac5ce of
civil engineering under the provisions of this
Act, from ac5ng under the instruc5on,
control or supervision of their employer.
4. Nor shall anything in this Act prevent any
person who prior to the approval of this Act
have been lawfully engaged in the prac5ce
of “maestro de obras” to con5nue as such,
provided they shall not undertake the
making of plans supervision for the
following classes of work:
a. Building of concrete whether
reinforced or not.
b. Building of more than two stories.
c. Building with frames of structural
steel.
d. Building of structures intended for
public gathering or assemblies such
as theaters, cinematographs, stadia,
churches, or structures of like
nature.
5. Nor shall anything in this Act prevent
professional architects and engineers to
prac5ce their professions.
SECTION 16 Refusal to Issue Cer5ficate
The Board for Civil Engineers shall not issue
a cer5ficate to any person convicted by a
court of competent jurisdic5on of any
criminal offense involving moral turpitude,
or to any person guilty of immoral or
dishonorable conduct, or to any person
guilty of immoral or dishonorable conduct,
or to any person of unsound mind. In the
event of a refusal to issue a cer5ficate to
any person, the Board shall give to the
applicant a wrilen statement semng forth
its reason for such ac5on, which statement
shall be incorporated in the records of the
Board.
Sec5on 17: Suspension and revoca5on of
cer5ficates
Subject to the approval of the Secretary of
Public Works and Communica5ons, the
Board shall have the power, aHer due no5ce
and hearing, to suspend or revoke the
cer5ficate of registra5on for any cause
men5oned in the preceding sec5on.
Sec5on 18: Re-issue and replacement of
cer5ficates
The Board may, aHer the expira5on of one
year from the date a cer5ficate of
registra5on is revoked and for reasons it
may deem sufficient, entertain an
applica5on for a new cer5ficate of
registra5on from the registrant concerned.
Such applica5on shall be accomplished in
the same form prescribed for examina5on,
but the Board may, in its discre5on, exempt
the applicant from taking the requisite
examina5on.
Sec5on 19: Transitory provisions

As soon as this Act takes effect, any person

desiring to prac5ce the profession of civil
engineering shall be required to obtain a
cer5ficate of registra5on in the manner and
under the condi5ons hereinaHer provided.
All civil engineers duly licensed under the
provisions of amended, at the 5me this Act
takes effect, shall be automa5cally
registered under the provisions hereof.
Cer5ficates of registra5on held by such
persons in good standing shall have the
same force and effect as though the same
have been issued the provisions of this Act.
All graduates in civil engineering from a
school, ins5tute, college, or university
recognized by the Government who have
passed the civil service examina5on for
senior civil engineer and have been
prac5cing or employed in the Government
as such during five years are exempted from
taking examina5on.

TITLE I – OBLIGATIONS
CHAPTER 1
GENERAL PROVISIONS
1156. An obligation is a juridical necessity to give, to
do, or not to do.
JURIDICAL NECESSITY – juridical tie; connotes that in case of
noncompliance, there will be legal sanctions.
 An obligation is nothing more than the duty of a
person (obligor) to satisfy a specific demandable
claim of another person (obligee) which, if breached,
is enforceable in court.
 A contract necessarily gives rise to an obligation but
an obligation does not always need to have a
contract.
DAMAGES – sum of money given as a compensation for the
injury or harm suffered by the obligee for the violation of his
right.
KINDS OF OBLIGATION
A. From the viewpoint of “sanction” -
(a) CIVIL OBLIGATION – that defined in Article
1156; an obligation, if not fulfilled when it
becomes due and demandable, may be
enforced in court through action; based on
law; the sanction is judicial due process
(b) NATURAL OBLIGATION – a special kind of
obligation which cannot be enforced in court
but which authorizes the retention of the
voluntary payment or performance made by
the debtor; based on equity and natural law.
(i.e. when there is prescription of duty to
pay, still, the obligor paid his dues to the
obligee – the obligor cannot recover his
payment even there is prescription) the
sanction is the law, but only conscience had
originally motivated the payment.
(c) MORAL OBLIGATION – the sanction is
conscience or morality, or the law of the
church. (Note: If a Catholic promises to hear
mass for 10 consecutive Sundays in order to
receive P1,000, this obligation becomes a
civil one.)
B. From the viewpoint of subject matter -
(a) REAL OBLIGATION – the obligation to give
(b) PERSONAL OBLIGATION – the obligation to
do or not to do (e.g. the duty to paint a
house, or to refrain from committing a
nuisance)
C. From the affirmativeness and negativeness of the
obligation -
(a) POSITIVE OR AFFIRMATIVE OBLIGATION –
the obligation to give or to do
OBLIGATIONS AND CONTRACTS
REVIEWER
(c) NEGATIVE OBLIGATION – the obligation not
to do (which naturally inludes not to give)
D. From the viewpoint of persons obliged -
“sanction” -
(a) UNILATERAL – where only one of the parties
is bound (e.g. Plato owes Socrates P1,000.
Plato must pay Socrates.)
(d) BILATERAL – where both parties are bound
(e.g. In a contract of sale, the buyer is
obliged to deliver)
- may be:
(b.1) reciprocal
(b.2) non-reciprocal – where performance by one is non-
dependent upon performance by the other
ELEMENTS OF OBLIGATION
a) ACTIVE SUBJECT – (Creditor / Obligee) the person who
is demanding the performance of the obligation;
b) PASSIVE SUBJECT – (Debtor / Obligor) the one bound to
perform the prestation or to fulfill the obligation or duty;
c) PRESTATION – (to give, to do, or not to do) object;
subject matter of the obligation; conduct required to be
observed by the debtor;
d) EFFICIENT CAUSE – the JURIDICAL TIE which binds the
parties to the obligation; source of the obligation.
e) CAUSA (causa debendi/causa obligationes) - why
obligation exists
PRESTATION (Object)
1. TO GIVE – delivery of a thing to the creditor (in sale,
deposit, pledge, donation);
2. TO DO – covers all kinds of works or services
(contract for professional services);
3. NOT TO DO – consists of refraining from doing some
acts (in following rules and regulations).
Requisites of Prestation / Object:
1) licit (if illicit, it is void)
2) possible (if impossible, it is void)
3) determinate or determinable (or else, void)
4) pecuniary value
 INJURY – wrongful act or omission which causes loss
or harm to another
 DAMAGE – result of injury (loss, hurt, harm)
1157. Obligation arises from – (1) law; (2) contracts;
(3) quasi-contracts; (4) acts or omissions punished by
law; (5) quasi-delicts.
(1) LAW (Obligation ex lege) – imposed by law itself; must
be expressly or impliedly set forth and cannot be presumed
- [See Article 1158]
(2) CONTRACTS (Obligation ex contractu) – arise from
stipulations of the parties: meeting of the minds / formal
agreement
- must be complied with in good faith because it is the “law”
page 1

between parties; neither party may unilaterally evade his
obligation in the contract, unless:
a) contract authorizes it
b) other party assents
Note:
Parties may freely enter into any stipulations, provided they
are not contrary to law, morals, good customs, public order or
public policy
- [See Article 1159]
(3) QUASI-CONTRACTS (Obligation ex quasi-contractu) –
arise from lawful, voluntary and unilateral acts and which are
enforceable to the end that no one shall be unjustly enriched
or benefited at the expense of another
- 2 kinds:
a. Negotiorum gestio - unauthorized management;
This takes place when a person voluntarily takes
charge of another’s abandoned business or
property without the owner’s authority
b. Solutio indebiti - undue payment; This takes
place when something is received when there is
no right to demand it, and it was unduly
delivered thru mistake
- [See Article 1160]
(4) DELICTS (Obligation ex maleficio or ex delicto) – arise
from civil liability which is the consequence of a criminal
offense
- Governing rules:
1. Pertinent provisions of the RPC and other penal laws
subject to Art 2177 Civil Code
[Art 100, RPC – Every person criminally liable for a felony is
also civilly liable]
2. Chapter 2, Preliminary title, on Human Relations (
Civil Code )
3. Title 18 of Book IV of the Civil Code – on damages
- [See Article 1161]
(5) QUASI-DELICTS / TORTS (Obligation ex quasi-delicto
or ex quasi-maleficio) – arise from damage caused to another
through an act or omission, there being no fault or
negligence, but no contractual relation exists between the
parties
- [See Article 1162]
1158. Obligations from law are not presumed. Only
those (1) expressly determined in this code or (2) in
special laws are demandable, and shall be regulated by
the precepts of the law which establishes them; and as
to what has not been foreseen, by the provisions of this
code.
 Unless such obligations are EXPRESSLY provided by
law, they are not demandable and enforceable, and
cannot be presumed to exist.
 The Civil Code can be applicable suppletorily to
obligations arising from laws other than the Civil
OBLIGATIONS AND CONTRACTS
REVIEWER
Code itself.
 Special laws – refer to all other laws not contained in
the Civil Code.
1159. Obligations arising from contracts have the force
of law between the contracting parties and should be
complied with in good faith.
CONTRACT – meeting of minds between two persons whereby
one binds himself, with respect to the other, to give, to do
something or to render some service; governed primarily by
the agreement of the contracting parties.
VALID CONTRACT – it should not be against the law, contrary
to morals, good customs, public order, and public policy.
 In the eyes of law, a void contract does not exist and
no obligation will arise from it.
OBLIGATIONS ARISING FROM CONTRACTS – primarily
governed by the stipulations, clauses, terms and conditions of
their agreements.
 If a contract’s prestation is unconscionable (unfair)
or unreasonable, even if it does not violate morals,
law, etc., it may not be enforced totally.
 Interpretation of contract involves a question of law.
COMPLIANCE IN GOOD FAITH – compliance or performance in
accordance with the stipulations or terms of the contract or
agreement.
FALSIFICATION OF A VALID CONTRACT – only the
unauthorized insertions will be disregarded; the original terms
and stipulations should be considered valid and subsisting for
the partied to fulfill.
1160. Obligations derived from quasi-contracts shall be
subject to the provisions of chapter 1, title 17 of this
book.
QUASI-CONTRACT – juridical relation resulting from lawful,
voluntary and unilateral acts by virtue of which, both parties
become bound to each other, to the end that no one will be
unjustly enriched or benefited at the expense of the other.
 There is no consent - consent is PRESUMED.
(1) NEGOTIORUM GESTIO – juridical relation
which takes place when somebody
voluntarily manages the property affairs of
another without the knowledge or consent
of the latter; owner shall reimburse the
gestor for necessary and useful expenses
incurred by the latter for the performance of
his function as gestor.
(2) SOLUTIO INDEBITI – something is received
page 2
 OBLIGATIONS AND CONTRACTS
REVIEWER

when there is no right to demand it and it obligation to pay for the damage done, there being fault or
was unduly delivered through mistake; negligence but there is no pre-existing contractual relation
obligation to return the thing arises on the between parties.
part of the recipient. (e.g. If I let a
storekeeper change my P500 bill and by REQUISITES:
error he gives me P560, I have the duty to a. omission
return the extra P60) b. negligence
c. damage cause to the plaintiff
1161. Civil obligations arising from criminal offenses d. direct relation of omission, being the cause, and
shall be governed by the penal laws, subject to the the damage, being the effect
provisions of Article 2177, and of the pertinent e. no pre-existing contractual relations between
provisions of Chapter 2, Preliminary in Human parties
Relations, and of Title 18 of this book, regulating
damages. Fault or Negligence – consists in the omission of that diligence
which is required by the nature of the obligation and
Governing rules: corresponds with the circumstances of the person, time, and
1. Pertinent provisions of the RPC and other penal laws of the place.
subject to Art 2177 Civil Code
[Art 100, RPC – Every person criminally liable for a felony is BASIS DELICTS QUASI-DELICTS
also civilly liable] 1. INTENT Criminal / Negligence
2. Chapter 2, Preliminary title, on Human Relations ( malicious
Civil Code ) 2. INTEREST Affects PUBLIC Affects PRIVATE
3. Title 18 of Book IV of the Civil Code – on damages interest interest
3. LIABILITY Criminal and Civil liability
 Every person criminally liable for a felony is also civil liabilities
criminally liable (art. 100, RPC) 4. PURPOSE Purpose – Indemnification
punishment
CRIMINAL LIABILITY INCLUDES: 5.COMPROMISE Cannot be Can be compromised
(a) RESTITUTION – restoration of property compromised
previously taken away; the thing itself shall 6. GUILT Proved beyond Preponderance of
be restored, even though it be found in the reasonable evidence
possession of a third person who has doubt
acquired it by lawful means, saving to the
latter his action against the proper person
who may be liable to him.
(b) REPARATION OF THE DAMAGE CAUSED – Note:
court determines the amount of damage: The SC in Sagrada v. Naccoco implied that the sources of
price of a thing, sentimental value, etc. obligation in Art 1162 is exclusive. Many commentators
(c) INDEMNIFICATION FOR CONSEQUENTIAL believe, however that it should not be. At present, there is
DAMAGES – includes damages suffered by one more possible source of obligations - PUBLIC OFFER
the family of the injured party or by a third (Public Offer is in fact a source of obligation in
person by reason of the crime. the German Civil Code) – Ateneo memory aid

Effect of acquittal in criminal case:
a. when acquittal is due to reasonable doubt – no civil
liability
b. when acquittal is due to exempting circumstances – there
is civil liability
c. when there is preponderance of evidence – there is civil
liability
*** The enumeration in 1157 is not scientific because in
reality there are only 2 sources of obligations: law and
contract (quasi-contract, delicts, and quasi-delicts are
imposed by law) [Leung Ben v. O'Brien, 38 Phil. 182]
CHAPTER 2
NATURE AND EFFECT OF OBLIGATIONS

1163. Every person obliged to give something is also

1162. Obligations derived from quasi-delicts shall be
governed by the provisions of chapter 2, title 17 of this
book, and by special laws.
QUASI-DELICT (culpa aquiliana) – an act or omission by a
person which causes damage to another giving rise to an
obliged to 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.
 Speaks of an obligation to care of a DETERMINATE

page 3

thing (that is one which is specific; a thing identified
by its individuality) which an obligor is supposed to
deliver to another.
 Reason: the obligor cannot take care of the whole
class/genus
DUTIES OF DEBTOR:
 Preserve or take care of the things due.
 DILIGENCE OF A GOOD FATHER – a good father
does not abandon his family, he is always ready
to provide and protect his family; ordinary care
which an average and reasonably prudent man
would do.
 ANOTHER STANDARD OF CARE – extraordinary
diligence provided in the stipulation of parties.
 FACTORS TO BE CONSIDERED – diligence
depends on the nature of obligation and
corresponds with the circumstances of the
person, time, and place.
** Debtor is not liable if his failure to deliver the thing is due
to fortuitous events or force majeure… without negligence or
fault in his part.
 Deliver the fruits of a thing
 Deliver the accessions/accessories
 Deliver the thing itself
 Answer for damages in case of non-fulfillment or breach
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.
REAL RIGHT (jus in re) – right pertaining to person over a
specific thing, without a passive subject individually
determined against whom such right may be personally
enforced.
 a right enforceable against the whole world
PERSONAL RIGHT (jus ad rem) – a right pertaining to a
person to demand from another, as a definite passive subject,
the fulfillment of a prestation to give, to do or not to do.
 a right enforceable only against a definite person or
group of persons.
 Before the delivery, the creditor, in obligations to
give, has merely a personal right against the debtor
– a right to ask for delivery of the thing and the
fruits thereof.
 Once the thing and the fruits are delivered, then he
acquires a real right over them.
 Ownership is transferred by delivery which could be
either actual or constructive. (Art. 1477) �
 The remedy of the buyer when there is no delivery
despite demand is to file a complaint for “SPECIFIC
PERFORMANCE AND DELIVERY” because he is not
OBLIGATIONS AND CONTRACTS
REVIEWER
yet the owner of the property before the delivery.
� ACTUAL DELIVERY – actual delivery of a thing from the
hand of the grantor to the hand of the grantee (presonally),
or manifested by certain possessory acts executed by the
grantee with the consent of the grantor (realty).
� CONSTRUCTIVE TRADITION – representative of symbolical
in essence and with intention to deliver the ownership.
FRUITS:
1. NATURAL – spontaneous products of the soil, the
young and other products of animals;
2. INDUSTRIAL – produced by lands of any cultivation
or labor;
3. CIVIL – those derived by virtue of juridical relation.
1165. When what is to be delivered is a determinate
thing, the creditor … may compel the debtor to make
delivery. If the thing is indeterminate or generic, he
may ask that the obligation be complied with at the
expense of the debtor. If the obligor delays or has
promised to deliver the same ting 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.
DETERMINATE THING
 something which is susceptible of particular
designation or specification;
 obligation is extinguished if the thing is lost due to
fortuitous events.
INDETERMINATE THING
 something that has reference only to a class or
genus;
 obligation to deliver is not so extinguished by
fortuitous events.
REMEDIES FOR FAILURE OF DELIVERY (determinate thing)
1. Complaint for specific performance – an action to
compel the fulfillment of the obligation.
2. Complaint for rescission of the obligation – action to
rescind
3. Complaint for damages – action to claim for
compensation of damages suffered
 As a general rule, “no person shall be responsible for
those events which could not be foreseen, or which,
though foreseen, are inevitable, except:
1. in cases expressly specified by the law
2. when it is stipulated by the parties
3. when the nature of the obligation requires
assumption of risk
 An indeterminate thing cannot be object of
destruction by a fortuitous event because genus
never perishes.
1166. The obligation to give a determinate thing
includes that of delivering all its accessions and
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REVIEWER

accessories, even though they may not have been

mentioned.
ORDINARY DELAY – mere failure to perform an obligation at
ACCESSIONS – fruits of the thing or additions to or the appointed time.
improvements upon the principal LEGAL DELAY (DEFAULT) – tantamount to non-fulfillment of
 those which are naturally or artificially attached to the the obligation and arises after an extrajudicial or judicial
thing demand was made upon the debtor.

ACCESSORIES – things included with the principal for the KINDS OF DEFAULT:
latter’s embellishment, better use, or completion a) MORA SOLVENDI – delay on the part
of the debtor to fulfill his obligation;
When does right to fruits arise? – from the time the obligation REQUISITES:
to deliver arises 1. failure of the obligor to perform obligation on
 Conditional – from the moment the condition the DATE agreed upon;
happens 2. demand (j/ej) by the creditor;
 With a term/period – upon the expiration of the 3. failure to comply with such demand
term/period
 Simple – from the perfection of the contract EFFECTS:
1) debtor – liable for damages and
1167. If a person obliged to do something fails to do it, interests
the same shall be executed at his cost. This same rule 2) debtor – liable for the loss of a thing
shall be observed if he does it in contravention of the due to a fortuitous event
tenor of the obligation … it may be decreed that what
has been poorly done be undone. KINDS:
1) mora solvendi ex re – default in real
THREE SITUATIONS: obligations (to give)
a) Debtor’s failure to perform an obligation 2) mora solvendi ex persona – default in
 creditor may do the obligation, or by another, at personal obligations (to do)
the expense of the debtor;
 recover damages b) MORA ACCIPIENDI – delay on the
b) Performance was contrary to the terms agreed part of the creditor to accept the
upon performance of the obligation;
 order of the court to undo the same at the Effects:
expense of the debtor 1. creditor – liable for damages
c) Performance in a poor manner 2. creditor – bears the risk of loss of the thing
 order of the court to undo the same at the 3. debtor – not liable for interest from the time of
expense of the debtor creditor’s delay
4. debtor – release himself from the obligation
1168. When the obligation consists in NOT DOING and
the obligor does what has been forbidden him, it shall c) COMPENSATIO MORAE – delay of the
also be undone at his expense. obligors in reciprocal obligation.
Effect: the default of one compensates the default of
1169. Those obliged to deliver or to do something incur the other; their respective liabilities shall be offset
in delay from the time the obligee judicially or equitable.
extrajudicially demands from them the fulfillment of
their obligation.  Default / Delay in negative obligation is not possible.
However, the demand by the creditor shall not be (In negative obligation, only fulfillment and violation
necessary in order that delay may exists: are possible)

 When the law or obligation so expressly declares;
 When from the nature of the contract, time us the
essence and motivating factor for its
establishment;
 When demand would be useless (prestation is
impossible);
 In reciprocal obligations, from the moment one of
the parties fulfills his obligation;
 When the debtor admits he is in default
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.
FRAUD (dolo) – deliberate intentional evasion of the faithful
fulfillment of an obligation;
NEGLIGENCE (culpa or fault) – voluntary act or omission of
diligence, there being no malice, which prevents the normal

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REVIEWER

fulfillment of an obligation; NATURE OF Direct, Incidental to the

DELAY (mora) – default or tardiness in the performance of an NEGLIGENCE substantive and performance of the
obligation after it has been due and demandable; independent obligation.
CONTRAVENTION OF TERMS OF OBLIGATION (violatio)– GOOD FATHER OF Complete and Not complete and
violation of terms and conditions stipulated in the obligation; THE FAMILY proper defense proper defense in
this must not be due to a fortuitous event. DEFENSE (parents, the selection of
guardian, employees.
employers)
1171. Responsibility arising from fraud is demandable PRESUMPTION OF No presumption There is presumption
in all obligations. Any waiver of an action for future NEGLIGENCE – injured party – defendant must
fraud is void. must prove prove that there was
negligence of no negligence in the
 To allow such waiver will necessarily render the the defendant. carrying out of the
obligatory force of contracts illusory. terms of the
 The law does not prohibit waiver of an action for contract.
damages based on fraud already committed.
 Any deliberate deviation from the normal way of
1173. The fault or negligence of the obligor consists in
fulfilling the obligation may be a proper basis for
the omission of that diligence which is required by the
claim for damages against the guilty party.
nature of the obligation and corresponds with the
circumstances of the persons, of he time and of the
INCIDENTAL FRAUD – committed in the performance of an
place… If the law or contract does not state the
obligation already existing because of a contract.
diligence which is to be observed in the performance,
CAUSAL FRAUD – employed in the execution of contract in
that which is expected if a good father of a family shall
order to secure consent; remedy is annulment bec of vitiation
be required.
of consent.
FRAUD distinguished from NEGLIGENCE
1172. Responsibility arising from negligence in the
performance of every kind of obligation is also FRAUD NEGLIGENCE
demandable, but such liability may be regulated by the There is deliberate intention There is no deliberate
courts, according to circumstances. to cause damage. intention to cause damage.
Liability cannot be Liability may be mitigated.
Court’s discretion because: mitigated.
(a) negligence depends upon the Waiver for future fraud is Waiver for future negligence
circumstances of a case – good or bad void. may be allowed in certain
faith of the obligor may be considered cases:
as well as the conduct or misconduct of 1. gross – can never be
the obligee; excused in advance;
(b) it is not as serious as fraud. against public policy
2. simple – may be
Negligence – lack of foresight or knowledge excused in certain cases
Imprudence – lack of skill or precaution
DILIGENCE – the attention and care required of a person in a
TEST OF NEGLIGENCE given situation and is opposite of negligence.
Did the defendant, in doing the alleged negligent act, use the
reasonable care and caution which an ordinary prudent man NEGLIGENCE – consists in the omission of that diligence
would have used in the same situation? which is required by the nature of the particular obligation
and corresponds with the circumstances of the persons, of the
TWO TYPES OF NEGLIGENCE: time, and of the place.

Basis 1. Culpa 2. Culpa KINDS of DILIGENCE:

Aquiliana Contractual 1. DILIGENCE OF A GOOD FATHER – a good father
(Quasi-delict) (Breach of does not abandon his family, he is always ready
contract) to provide and protect his family; ordinary care
DEFINITION Negligence Negligence in the which an average and reasonably prudent man
between parties performance of would do.
not so related contractual 2. Diligence required by the law governing the
by pre-existing obligation particular obligation
contract 3. Diligence stipulated by the parties

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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.
FORTUITOUS EVENT – an occurrence or happening which
could not be foreseen or even if foreseen, is inevitable;
absolutely independent of human intervention; act of God.
FORCE MAJEURE - an event caused by the legitimate or
illegitimate acts of persons other than the obligor; there is
human intervention.
 conditions which exempt obligor from liability:
1. event is independent of the will of obligor
2. it must either be unforeseeable or unavoidable
3. occurrence must render it impossible for the debtor
to fulfill the obligation in a normal matter
4. the obligor is free of partiipation in injury to creditor.
REQUISITES OF FORTUITOUS EVENT:
1. Independent of the human will (or at least of the
obligor’s)
2. Unforeseen or unavoidable
3. Of such character as to render it impossible for
the obligor to comply with his obligation in a
normal manner
4. Obligor – free from any
participation/aggravation of the injury to the
obligee (no negligence or imprudence)
EXEPTIONS:
1. When it is expressly stipulated that he shall be liable
even if non-performance of the obligation is due to
fortuitous events;
2. When the nature of the obligation requires the
assumption of risk;
3. When the obligor is in delay;
4. When the obligor has promised the same thing to
two or more persons who do not have the same
interest;
5. When the possessor is in bad faith and the thing lost
or deteriorated due to fortuitous event;
6. When the obligor contributed to the loss of the thing.
1175. Usurious transactions shall be governed by
special laws.
USURY – contracting for or receiving interest in excess of the
amount allowed by law for the loan or use of money, goods,
etc.
SIMPLE LOAN – one of the parties delivers to another, money
or other consumable thing upon the condition that the same
amount of the same kind and quality shall be paid.
OBLIGATIONS AND CONTRACTS
REVIEWER
USURY LAW – makes the usurers criminally liable if the
interest charged on loans are more that the limit prescribed
by law.
 This law is repealed – Circular No. 905 of the Central
Bank has expressly removed the interest ceilings
prescribed by the USURY LAW.
1176. The receipt of the principal by the creditor
without reservation with respect to the interest, shall
give rise to the presumption that said interest has been
paid.
The receipt of a later installment of a debt without
reservation as to prior installments, shall likewise raise
the presumption that such installments have been paid.
 These are mere presumptions.
 To be sure – write the interest and the dates covered
by such payment in the receipt.
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.
REMEDIES AVAILABLE TO CREDITORS FOR THE
SATISFACTION OF THEIR CLAIMS:
1. Exact fulfillment with right to damages
2. Exhaustion of the debtor’s properties still in his
possession – writ of attachment (before judgment)
or writ of execution (for final judgment not yet
executed)
3. ACCION SUBROGATORIA – an action where the
creditor whose claims had not been fully satisfied,
may go after the debtors (3rd person) of the
defendant debtor.
4. ACCION PAULIANA – an action where the creditor
files an action in court for the RESCISSION of acts or
contracts entered into by the debtor designed to
defraud the former.
1178. Subject to the laws, all rights acquired in virtue
of an obligation are transmissible, if there has been no
stipulation to the contrary.
EXCEPTIONS:
a) Those not transmissible by their nature like
purely personal rights;
b) Those not transmissible by provision of law;
c) Those not transmissible by stipulation of parties.
CHAPTER 3
DIFFERENT KINDS OF OBLIGATIONS
Section 1 – Pure and Conditional Obligations
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1179. Every obligation whose performance does not
depend upon a future or uncertain event, or upon a
past event unknown to the parties, is demandable at
once.
Every obligation which contains a resolutory condition
shall also be demandable, without prejudice to the
effects of the happening of the event.
CONDITION – an event which is both future and uncertain
upon which the existence or extinguishment of an obligation
is made to depend.
PURE OBLIGATION – an obligation which does not contain any
condition or term upon which the fulfillment is made to
depend; immediately demandable by the creditors and the
debtor cannot be excused from not complying with his
prestation.
CONDITIONAL OBLIGATION – an obligation subject to a
condition.
a) Suspensive Obligation – its fulfillment gives rise
to an obligation; the demandability of the
obligation or the effectivity of the contract can
take place only after the condition has been
fulfilled.
b) Resolutory Obligation – its happening
extinguishes the obligation which is already
existing;
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.
 Speaks of a period depending on the will of the
DEBTOR. If its purpose is to delay, immediate action
is allowed. The court fixes the terms.
PERIOD – a future and certain event upon the arrival of
which, the obligation subject to it either arises or is
extinguished.
INDICATIONS OF A TERM OR PERIOD:
When the debtor binds himself to pay –
 when his means permit him to do so
 little by little
 as soon as possible
 from time to time
 as soon as I have the money
 in partial payment
 when in the position to pay
1181. In conditional obligations, the acquisition of
rights, as well as the extinguishment or loss of those
already acquired, shall depend upon the happening of
the event which constitutes the condition.
Suspensive Condition – the acquisition of rights by the
OBLIGATIONS AND CONTRACTS
REVIEWER
creditor depends upon the happening of the event which
constitutes the condition; if such condition does not take
place, it would be as of the conditional obligation had never
existed.
(e.g. promise to give a car after graduating from law school
as cum laude)
Resolutory Condition – the rights and obligations already
existing are under threat of extinction upon the happening or
fulfillment of such condition.
(e.g. donation by reason of marriage – the celebration of
marriage is a resolutory condition; if the marriage did not
push through, the donation may be revoked)
1182. When the fulfillment of the condition depends
upon the sole will of the debtor, the conditional
obligation shall be void. If it depends upon chance or
upon the will of a third person, the obligation shall take
effect in conformity with the provisions of this Code.
 Applies only to suspensive conditions.
3 KINDS OF CONDITIONS UNDER THIS ARTICLE:
1. POTESTATIVE – a suspensive condition
which depends upon the will of one of the
contracting parties = if at the sole will of the
debtor, it is void; if at the creditor’s, still
valid. this is to prevent the establishment of
illusory obligations.
2. CASUAL – the condition depends upon
chance or the will of a third person;(i.e.
cellphone warranty)
3. MIXED – the condition depends partly upon
the will of the parties and partly upon
chance or the will of a third person;
(example ni Atty. De Chavez: passing the
bar)
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.
POSSIBLE CONDITION – if it is capable of realization or
actualization according to nature, law, public policy or good
customs.
2 KINDS OF IMPOSSIBLE CONDITIONS:
1. Physically Impossible – cannot exist or cannot be done in
its nature;
2. Legally Impossible – contrary to law, good customs, or
public policy.
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When a conditional obligation is VOID – impossible conditions

annul the obligation which depends upon them; the obligor 1184 1185
knows his obligation cannot be fulfilled, he has no intention to (POSITIVE SUSPENSIVE) (NEGATIVE SUSPENSIVE)
comply with his obligation. Jose obliges himself to give Jose obliges himself to give the
the pregnant woman Maria pregnant woman Maria P5000 if
When a conditional obligation is VALID – if the condition is P5000 if she would give birth she would NOT give birth on
negative (not to do an impossible thing), it is disregarded and on or before December 30. December 30.
the obligation is rendered pure and valid. a. Jose is LIABLE if Maria a. Jose is NOT LIABLE if Maria
gives birth on or before gives birth on December 30.
Only the affected obligation is void, if the obligation is December 30.
divisible, and the part thereof not affected by the impossible b. Jose is NOT LIABLE if b. Jose is LIABLE if Maria DID
condition is valid. Maria gives birth after NOT give birth on December 30
December 30. – if Maria gives birth BEFORE or
Only the condition is void if there is already a pre-existing AFTER December 30.
obligation and it does not depend upon the fulfillment of the c. If Maria would have a c. If Maria would have a
condition which is impossible. miscarriage before December miscarriage before December
30, the obligation is 30, the obligation is deemed
1184. The condition that some event happen at a EXTINGUISHED. FULFILLED.
determinate time shall extinguish the obligation as
soon as the time expires or if it has become indubitable
that the event will not take place.
1186. The condition shall be deemed fulfilled when the
Positive condition – refers to the fulfillment of an event or obligor voluntarily prevents its fulfillment.
performance of an act  This provision speaks of the DOCTRINE OF
CONSTRUCTIVE FULFILLMENT
Negative condition – refers to the non-fulfillment or non-
performance of an act. - REQUISITES:
1. The condition is SUSPENSIVE;
POSITIVE SUSPENSIVE CONDITION 2. The obligor ACTUALLY PREVENTS the fulfillment of
The obligation is extinguished: the condition;
1. As soon as the TIME EXPIRES without the event 3. He acts VOLUNTARILY.
taking place;
2. As soon as it has become certain that the EVENT  Malice or fraud is not required, as long as his
WILL NOT TAKE PLACE although the time specified purpose is to prevent the fulfillment of the condition.
has not yet expired.  No person shall profit by his own wrong.

** TIME is the condition – should happen for the obligation to
extinguish.
1185. The condition that some event will not happen at
a determinate time shall render the obligation effective
from the moment the time indicated has elapsed, or if it
has become evident that the event cannot occur.
If no time has been fixed, the condition shall be
deemed fulfilled at such time as may have probably
been contemplated, bearing in mind the nature of the
obligation.
** This is a condition of non-happening of a future event.
The obligation shall become effective and binding:
a) From the moment the time indicated has elapsed
without the event taking place;
b) From the moment it has become evident that the
event cannot occur, although the time indicated has
not yet elapsed.
1184 -vs- 1185
1187. The effects of a conditional obligation to give,
once the condition has been fulfilled, shall retroact to
the day of the constitution of the obligation.
Nevertheless, when the obligation imposes reciprocal
prestations upon the parties, the fruits and interests
during the pendency of the condition shall be deemed
to have been mutually compensated. If the obligation is
unilateral, the debtor shall appropriate the fruits and
interests received, unless from the nature and
circumstances of the obligation it should be inferred
that the intention of the person constituting the same
was different.
In obligations to do and not to do, the courts shall
determine, in each case, the retroactive effect of the
condition that has been complied with.
 Applies only to fulfilled suspensive conditions.
 Retroactive statute
 The effects of the obligation is deemed to commence
not from the fulfillment of the obligation but from the
day of its constitution (similar to the legitimation of a
natural child)

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 The article does not require the delivery of fruits or
payment of interests accruing (accumulating) before
the fulfillment of the suspensive condition.
 Obligations to do or not to do – the retroactive effect
shall be determined by the court using its sound
discretion without disregarding the intentions of the
parties.
1188. The creditor may, before the fulfillment of the
condition, bring the appropriate actions for the
preservation of his right.
The debtor may recover what during the same time he
has paid by mistake in case of a suspensive condition.
Preservation of the rights of CREDITOR – the debtor may
render nugatory (not serious, ignore) the obligation upon the
happening of the obligation.
 Action for prohibition restraining the alienation of the
thing pending the happening of the suspensive
condition;
 Action to demand security if the debtor has become
insolvent;
 Action to set aside alienations made by the debtor in
fraud of creditors;
 Actions against adverse possessors to interrupt the
running prescriptive period.
 To have his rights annotated in the registry.
Rights of the DEBTOR – entitled to recover what has been
paid by mistake prior to the happening of the suspensive
condition.
1189. When the conditions have been imposed with the
intention of suspending the efficacy of an obligation to
give, the following rules shall be observed in case of
the improvement, loss or deterioration of the thing
during the pendency of the condition:
LOSS
(1) debtor without fault – obligation is
extinguished
(2) debtor with fault – obligation to pay
damages
DETERIORATION
1. debtor without fault – impairment is to
be borne by the creditor
2. debtor with fault – creditor chooses:
rescission of obligation, fulfillment,
indemnity
IMPROVEMENT
1. by nature or time – improvement: inure to the
benefit of the creditor
2. at the expense of the debtor – granted to the
usufructuary
OBLIGATIONS AND CONTRACTS
REVIEWER
1190. When the conditions have for their purpose the
extinguishment of an obligation to give, the parties,
upon the fulfillment of said conditions, shall return to
each other what they have received.
In case of the loss, deterioration or improvement of the
thing, the provisions which, with respect to the debtor,
are laid down in the preceding article shall be applied
to the party who is bound to return.
As for the obligations to do and not to do, the
provisions of the second paragraph of Article 1187 shall
be observed as regards the effect of the
extinguishment of the obligation.
 Refers to the fulfillment of a resolutory condition.
 When the resolutory condition happened, the
obligation is considered as if it did not exist.
 The parties are bound to return or restore whatever
they have received from each other – “reciprocal
restitution”
 Donation by reason of marriage – if the marriage
does not happen, such donation should be returned
to the donor.
 Loss, deterioration and improvement – governed by
1189.
 In obligations to do and not to do, the courts shall
determine, in each case, the retroactive effect of the
condition that has been complied with.
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.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment
of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights
of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the
Mortgage Law.
RECIPROCAL – arise from same causse; each is a debtor and
creditor of the other
RESCISSION – resolution or cancellation of the contract
 Applies only to reciprocal obligations where two
parties are mutually debtor and creditor of each
other in the same transaction. The cause must be
identical ad the obligations must arise
simultaneously.
 The party who can demand rescission should be the
party who is ready, willing, and able to comply with
his own obligations while the other is not capable to
perform his own.
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REVIEWER

REMEDIES:
1. Specific performance or fulfillment of Term – length of time sure to come
obligation with damages; Condition – fact or event uncertain to come
2. Rescission of contract with damages.
Basis Period/Term Condition
Effect of rescission: the parties must surrender whatever they 1. TIME Always refers to Can refer to past
have received from the other, and the obligation to pay is FUTURE events unknown to
extinguished. the parties
2. FULFILLMENT Sure to happen at May or may not
If there is an express stipulation of automatic rescission an exact date or happen.
between parties – such resolution shall take place only after indefinite time but
the creditor has notified the debtor of his choice of rescission sure to come.
subject to judicial scrutiny. 3. INFLUENCE Merely fixes the May cause the arising
time for the or cessation of the
1192. In case both parties have committed a breach of demandability or obligation.
the obligation, the liability of the first infractor shall be performance of
equitably tempered by the courts. If it cannot be obligation.
determined which of the parties first violated the
contract, the same shall be deemed extinguished, and
each shall bear his own damages. REQUISITES:
3. Future
FIRST INFRACTOR KNOWN 4. Certain, sure to come
The liability of the first infractor should be equitably reduced. 5. Physically or legally possible
– equitably offset each other’s damages.
1194. In case of loss, deterioration or improvement of
FIRST INFRACTOR CANNOT BE DETERMINED the thing before the arrival of the day certain, the rules
The court shall declare the extinguishment of the obligation in Article 1189 shall be observed.
and each shall bear his own damages.
1195. Anything paid or delivered before the arrival of
Section 2 – Obligations with a Period the period, the obligor being unaware of the period or
believing that the obligation has become due and
1193. Obligations for whose fulfillment a day certain demandable, may be recovered, with the fruits and
has been fixed, shall be demandable only when that interests.
day comes.
Obligations with a resolutory period take effect at once,  The payment or delivery is done before the arrival of
but terminate upon arrival of the day certain. the period.
A day certain is understood to be that which must
necessarily come, although it may not be known when. CONSEQUENCES:
If the uncertainty consists in whether the day will come 1. If he was not aware of the period or he
or not, the obligation is conditional, and it shall be believes that the obligation has become due
regulated by the rules of the preceding Section. and demandable – he can recover what he
paid or delivered including fruits and
PERIOD / TERM – consists in a space or length of time upon interests;
the arrival of which, the demandability or the extinguishment 2. If he was aware and he paid voluntarily –
of an obligation is determined; it may be definite (exact date he cannot recover the delivery made; it is
or time is known) or indefinite (arrival of date is unknown but deemed a waiver of the benefit of the term
sure to come). and the obligation is considered already
- Future + Certain event matured.

GENERAL CLASSIFICATIONS:
a) EX DIE / SUSPENSIVE PERIOD – from a day
certain give rise to the obligation; suspensive
effect.
b) IN DIEM / RESOLUTORY PERIOD – arrival of a
term certain terminated the obligation;
resolutory effect.
 The presumption is that the debtor knew that the
debt was not yet due. He has the burden of proving
that he was unaware of the period.
1196. Whenever in an obligation a period is designated,
it is presumed to have been established for the benefit
of both the creditor and the debtor, unless from the
tenor of the same or other circumstances it should
appear that the period has been established in favor of

page 11

one or of the other.
 PRESUMPTION: Obligation with a period is for the
benefit of both the creditor and debtor.
 EXCEPTION: when it appears that the period is for
the benefit of one or the other
 This cannot apply when the court was authorized by
the parties to fix a reasonable term.
 The benefit of the term may be the subject of
stipulation of the parties.
1. Term is for the benefit of the debtor alone –
he cannot be compelled to pay prematurely,
but he can if he desires to do so.
- Example: A obliges himself to pay B within 5 years. A
cannot be compelled to pay prematurely, but he can pay
anytime within 5 years (A will benefit because he can pay
anytime he wants as long as it is within 5 years; B will not
benefit from the interests if A decides to pay early).
2. Term is for the benefit of the creditor – He
may demand fulfillment even before the
arrival of the term but the debtor cannot
require him to accept payment before the
expiration of the stipulated period.
- Example: A borrows money from B and is obliged to make
the payment on December 5. B may compel A to make the
payment before December 5, but A may not compel B to
receive the payment before December 5 (B will benefit from
the interests that will accrue before December 5).
 The creditor may have reasons other than the
maturity of interest, that’s why, unless the creditor
consents, the debtor has no right to accelerate the
time of payment even if the premature tender
includes an offer to pay the principal and interest in
full.
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.
JUDICIAL PERIOD – period designated by the court.
CONTRACTUAL PERIOD – period fixed by the parties in their
contract.
Court will fix a period:
1. When no period is mentioned, but it is inferable from
the nature and circumstances of the obligation that a
period was intended by the parties.
2. When the period is dependent upon the will of the
OBLIGATIONS AND CONTRACTS
REVIEWER
debtor.
 If the obligation does not state and intend a period,
the court is not authorized to fix a period.
 The court must fix the duration of the period to
prevent the possibility that the obligation may never
be fulfilled or to cure a defect in a contract whereby
it is made to depend solely upon the will of one of
the parties.
Court cannot fix the period:
1. If there is a period agreed upon by the
parties and it has already lapsed or expired.
2. From the very moment the parties give
their acceptance and consent to the period
fixed by the court, it becomes a law
governing their contract.
1198. The debtor shall lose every right to make use of
the period:
(1) When after the obligation has been contracted, he
becomes insolvent, unless he gives a guaranty or
security for the debt;
(2) When he does not furnish to the creditor the
guaranties or securities which he has promised;
(3) When by his own acts he has impaired said
guaranties or securities after their establishment, and
when through a fortuitous event they disappear, unless
he immediately gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in
consideration of which the creditor agreed to the
period;
(5) When the debtor attempts to abscond.
The period is disregarded and the obligation becomes pure
and immediately demandable: [IGIVA]
 [I] When debtor becomes insolvent;
 The insolvency need not be judicially
declared. It is sufficient that debtor could
not pay his debts due to lack of money or
funds.
 [G] When the debtor does not furnish guaranties or
securities;
 [I] When guaranties or securities given have been
impaired or have disappeared;
 If security was lost through debtor’s fault -
impairment
 If security was lost through fortuitous event -
disappearance
 [V] When debtor violates an undertaking;
If such undertaking is the reason for the creditor to agree
with such period.
 [A] When debtor attempts to abscond (escape).
Mere attempt to abscond is sufficient. It is an indication of
bad faith.
Section 3 – Alternative Obligations
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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.
OBLIGATIONS WITH PLURAL PRESTATIONS:
1. CONJUNCTIVE/COMPOUND OBLIGATION - an
obligation where the debtor has to perform ALL the
several prestations in the contract to extinguish the
obligation.
2. ALTERNATIVE OBLIGATION – an obligation where
the debtor is required to fulfill ONLY ONE of the
several prestations to extinguish the obligation.
3. FACULTATIVE OBLIGATION – an obligation where the
debtor is bound to perform ONLY ONE prestation,
with a reserved right to choose another prestation as
SUBSTITUTE for the principal.
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.
Implied grant to the creditor is not allowed. If it does not
appear on the agreement as to whom among them has the
right to choose, it is the debtor who can choose.
1201. The choice shall produce no effect except from
the time it has been communicated.
1. The choice shall not produce any legal effect
until it has been duly communicated to the other
party.
2. It can be done in writing, verbally, impliedly, or
any unequivocal means.
3. Once the choice has been communicated to the
other party:
1. The obligation is now LIMITED only to the
PRESTATION CHOSEN, with all the natural
consequences flowing therefrom;
2. The choice is IRREVOCABLE.
a. The performance of prestation without announcing
the choice to the creditor is NOT BINDING.
b. The consent of the other party is NOT REQUIRED in
making the choice – that will in effect frustrate the
clear intention of the law and the nature of the
alternative obligation.
c. If there is delay in the making of choice – punish the
one who is supposed to exercise the right of choice
for the delay he caused – court may order the debtor
to make a choice, or creditor to make the choice
within certain period, or court makes the choice.
1202. The debtor shall lose the right of choice when
among the prestations whereby he is alternatively
bound, only one is practicable.
OBLIGATIONS AND CONTRACTS
REVIEWER
 There being but one prestation available, this
prestation becomes a simple obligation.
1203. If through the creditor's acts the debtor cannot
make a choice according to the terms of the obligation,
the latter may rescind the contract with damages.
(1) If the debtor could not make a choice due to
the creditor’s act of making the prestations
impossible, debtor may RESCIND the
contract with damages - rescission takes
place at the initiative of the debtor.
(2) If the debtor is being prevented to choose
only a particular prestation, and there are
others available, he is free to choose from
them, after notifying the creditor of his
decision.
1204. The creditor shall have a right to indemnity for
damages when, through the fault of the debtor, all the
things which are alternatively the object of the
obligation have been lost, or the compliance of the
obligation has become impossible.
The indemnity shall be fixed taking as a basis the value
of the last thing which disappeared, or that of the
service which last became impossible.
Damages other than the value of the last thing or
service may also be awarded.
 If the impossibility of all the objects of the
alternative obligation is caused by the debtor, the
creditor is entitled to damages.
 If such impossibility is caused by a fortuitous event,
the obligation is extinguished and the debtor is
released from responsibility, unless the contrary is
stipulated by the parties.
 The creditor cannot claim for damages if the debtor
can still perform the remaining prestations.
 The damages that may be recovered is based on the
last thing which disappeared or the service which
became impossible. This last one is converted into a
simple obligation.
1205. When the choice has been expressly given to the
creditor, the obligation shall cease to be alternative
from the day when the selection has been
communicated to the debtor.
Until then the responsibility of the debtor shall be
governed by the following rules:
A. only one thing lost – fortuitous event – creditor
chooses from the remainder – debtor delivers the
choice to creditor;
B. only one remains – debtor delivers the same to the
creditor;
C. only one thing lost – fault of the debtor
1. creditor may choose any one of the
page 13

remainders;
2. creditor may choose the price or value of
the one which was lost;
3. may choose 1 or 2 plus damages
D. all things lost – fault of the debtor – creditor may
choose the price of ANYONE of the things, with
damages if warranted.
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.
 This article applies only when the right of choice has
been expressly granted to the creditor.
1206. When only one prestation has been agreed upon,
but the obligor may render another in substitution, the
obligation is called facultative.
The loss or deterioration of the thing intended as a
substitute, through the negligence of the obligor, does
not render him liable. But once the substitution has
been made, the obligor is liable for the loss of the
substitute on account of his delay, negligence or fraud.
 If loss or deterioration happened before substitution
is made, obligor is not liable; after substitution is
communicated, he is liable for loss (through delay,
negligence or fraud)
Section 4 – Joint and Solidary Obligations
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 one of the former has a right
to demand, or that each one of the latter is bound to
render, entire compliance with the prestation. There is
a solidary liability only when the obligation expressly
so states, or when the law or the nature of the
obligation requires solidarity.
INDIVIDUAL OBLIGATION – one debtor and one creditor
COLLECTIVE OBLIGATION – two or more debtors and two or
more creditors
1. JOINT – entire obligation is to be paid or
performed proportionately by the debtors;
2. SOLIDARY – each one of the debtors are
obliged to pay the entire obligation, each
one of the creditors has the right to demand
from any of the debtors, the fulfillment of
the entire obligation;
A. Passive Solidarity – solidarity on the part of
the DEBTORS
B. Active Solidarity – solidarity on the part of
the CREDITORS.
 SOLIDARITY SHOULD BE EXPRESSED – law,
stipulation, nature of obligation.
OBLIGATIONS AND CONTRACTS
REVIEWER
 When the obligation is ambiguous, it must be
considered as joint obligation.
CONSEQUENCES OF SOLIDARITY:
1. Passive Solidarity – full payment made by anyone of
the solidary debtors extinguishes the obligation. The
one who paid can claim reimbursement from his co-
debtors as regards their corresponding shares in the
obligation.
A, B, & C are solidary debtors of D in the sum of P900.
D can demand payment of the entire obligation when it
becomes due, from any one of the debtors or from all of them
at the same time.
If C paid the whole P900 to D, he may claim reimbursement
from A and B.
2. Active Solidarity – full payment to any of the
creditors extinguishes the obligation. The creditor
who received the entire amount will be liable to pay
the corresponding shares of his co-creditors in
accordance with their internal agreement.
Garfield owes the sum of P40,000 to Mickey, Minnie, Donald,
and Pluto, who are solidary creditors. Garfield can pay anyone
of them. If Mickey received the P40,000, he is liable to pay
the corresponding shares of his co-creditors.
MIXED SOLIDARITY
a. Solidary Debtors, Joint Creditors
 P9,000.00 – total debt
Debtors (Solidary) Creditors (Joint)
Aida pays P4,500.00 John = P 4,500.00
Lorna pays P4,500.00 Marsha P 4,500.00
Fe
b. Joint Debtors, Solidary Creditors
 P 9,000.00 – total debt
Debtors (Joint) Creditors (Solidary)
Aida (P 3,000.00) John (can claim from debtors)
Lorna (P 3,000.00) Marsha (-same-)
Fe (P 3,000.00)
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.
 This provision speaks of JOINT DIVISIBLE
OBLIGATION.
 When there is a concurrence of several creditors or
of several debtors in one and in the same obligation,
there is a presumption that the obligation is joint.
page 14
 OBLIGATIONS AND CONTRACTS
REVIEWER

 Each of the creditors shall be entitled to demand only converted into monetary obligation for indemnity for
the payment of his proportionate share of the credit. damages. Batman and Robin will be liable only for P
 Each of the debtors may be compelled to pay only 750,000.00 each.
his proportionate share of the debt.
 The credits or debts shall be considered distinct from  The act of one is not binding (others must concur)
one another.
1210. The indivisibility of an obligation does not
CONSEQUENCES OF JOINT OBLIGATION: necessarily give rise to solidarity. Nor does solidarity of
1. Each debtor – liable for a proportionate part of the itself imply indivisibility.
entire debt;
Thales, Socrates, Plato, & Aristotle owe P100 to Bruce Lee  Solidarity is expressed in the stipulations of the
= 4 debts and 1 credit party, law governing the obligation, or the nature of
Each of them owes Bruce Lee P25 the obligation.
Bruce Lee cannot collect the entire P100 from any one of
them. INDIVISIBLE OBLIGATION – an obligation where the
2. Each creditor – entitled to a proportionate part of the prestation or object to be delivered cannot be performed by
credit; parts without altering its essence or substance.
Piggy owes P100 to Froggy and Fishy
= 1 debt and 2 credits Basis Indivisibility Solidarity
Froggy can only collect 50 from Piggy, 1. Nature Refers to the Refers to the tie
Same with Fishy prestation of the existing between
3. Demand made by one creditor upon one debtor contract parties of the
produces the effects of default only as between obligation (who is
them, but not with respect to the others; liable)
Bubbles demanded payment from Buttercup; Buttercup was 2. Number of Does not require Requires plurality of
in default. This does not mean that the others are in default subjects / parties plurality of parties parties
too because Bubbles did not demand from them. 3. Effect of breach Obligation is The liability, even if
4. The interruption of prescription caused by the of obligation converted into converted into
demand made by one creditor upon one debtor will monetary indemnity for
not benefit the co-creditors; obligation for damages, remains
indemnity for solidary.
Wittgenstein extended the period in which Tarski should have
damages – each
paid his debt to him. This does not mean that the same
debtor is liable
extension applies to Tarski's debt to Davidson.
only for his part in
5. The insolvency of one debtor will not increase the the indemnity.
liability of his co-debtors, nor will it allow a creditor
to demand anything from the co-creditors.
1211. Solidarity may exist although the creditors and
If Husserl and Merleau-Ponty are debtors of Sartre for
the debtors may not be bound in the same manner and
P1,000,000.00 and Husserl becomes insolvent, the liability of
by the same periods and conditions.
Merleau-Ponty will only be P500,000.00 representing his
proportional share of ½ in the whole obligation.
 The solidarity of the debtors is not affected even if
different terms and conditions are made applicable to
1209. If the division is impossible, the right of the
them.
creditors may be prejudiced only by their collective
 Enforcement of the terms and conditions may be
acts, and the debt can be enforced only by proceeding
made at different times. The obligations which have
against all the debtors. If one of the latter should be
matured can be enforced while those still undue will
insolvent, the others shall not be liable for his share.
have to be awaited. Enforcement can be made
against any one of the solidary debtors although it
JOINT INDIVISIBLE OBLIGATION – an obligation where
can happen that a particular obligation chargeable to
solidarity is not provided and the prestation or object is not
a particular debtor is not yet due. He will be
susceptible of division; its fulfillment requires the concurrence
answerable for all the prestations which fall due
of all debtors, while doing each one’s parts.
although chargeable to the other co-debtors.

Batman and Robin jointly obliged themselves to deliver a

Sad Face, Happy, and Fanny got a loan of P150 from Smiley.
brand new Toyota Fortuner worth P1,500,000.00 to
They signed a promissory note solidarily binding themselves
Superman. The object, a vehicle, is indivisible. They must
to pay Smiley under the following terms:
deliver the thing jointly. In case of breach, the obligation is
Sad Face will pay P50 with 3% on December 30,

page 15

2006
Happy will pay P50 with 4% on December 30, 2007
Fanny will pay P50 with 5% on December 30, 2008
On December 31, 2006, Smiley can collect his P50 with 3%
from any one of the debtors, but not the whole P150 because
it is not yet entirely due. The maturity of the other amounts
should still be awaited. If maturity comes, Smiley can collect
from any of the debtors, because they are expressly solidary
in liabilities, and not affected by the secondary stipulations.
1212. 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.
 Every solidary creditor is benefited by the useful acts
of any one of them.
 If a solidary creditor performs an act which is not fair
to his co-creditors, the act may have valid legal
effects or the obligation of the debtor due to them
may be extinguished, but the performing creditor
shall be liable to his co-creditors.
 Question: May solidary creditors perform an act
that is beneficial to others?
1213. A solidary creditor cannot assign his rights
without the consent of the others.
Assign – transfer of right
 The assignee does not become a solidary creditor,
and any payment made upon him by the debtor does
not extinguish the obligation. He is considered a
STRANGER, and his acts are not binding to the
solidarity.
 DOCTRINE OF MUTUAL AGENCY - In solidary
obligations, the act of one is act of the others.
 Exceptions to the doctrine:
1. Art. 1212 – a creditor may not perform an act
prejudicial to other creditors
2. Art. 1213 – a creditor cannot transfer his right
without consent
1214. The debtor may pay any one of the solidary
creditors; but if any demand, judicial or extrajudicial,
has been made by one of them, payment should be
made to him.
 The debtor can pay any one of the solidary creditors.
Such payment when accepted by any of the solidary
creditors will extinguish the obligation.
 To avoid confusion on the payment of the obligation,
the debtor is required to ay only to the demanding
creditor and that payment is sufficient to effect the
extinguishment of the obligation.
 In case two or more demands made by the other
creditors, the first demand must be given priority.
OBLIGATIONS AND CONTRACTS
REVIEWER
1215. Novation, compensation, confusion or remission
of the debt, made by any of the solidary creditors or
with any of the solidary debtors, shall extinguish the
obligation, without prejudice to the provisions of
Article 1219.
The creditor who may have executed any of these acts,
as well as he who collects the debt, shall be liable to
the others for the share in the obligation corresponding
to them.
NOVATION – obligations are modified by:
1. Changing their object or principal conditions;
2. Substituting the person of the debtor; and
3. Subrogating (placing) a third person in the rights of
the creditor. [Art. 1291, CC]
COMPENSATION – takes place when two persons, in their own
right, become creditors and debtors of each other
 the amount of one is covered by the amount of the other
Erap borrowed P100 from Fernando.
Fernando borrowed P75 from Erap.
Erap’s obligation to Fernando is now P25 only, because the
original obligation was offset by Fernando’s supposed-to-be
obligation to Erap.
CONFUSION – takes place when the characters of creditor
and debtor are merged in the same person.
Tito pays his debt to Vic with a check payable to “cash”.
Vic paid his debt to Joey with the same check.
Joey paid his debt to Tito, with the same check Tito issued to
Vic.
Tito becomes paid by his own check. He becomes the debtor
and the creditor of himself at the same time.
REMISSION – the gratuitous abandonment by the creditor of
his right; acceptance of the obligor is necessary.
 These 4 modes of extinguishing obligations are acts
prejudicial to the other solidary co-creditors because
these have the effect of extinguishing the debt or
obligation which is due to all of them.
 The only recourse of the co-creditors is to let the one
who executed any of those acts be liable for the
shares corresponding to all his co-creditors (in their
internal agreement).
1216. The creditor may proceed against any one of the
solidary debtors or some or all of them simultaneously.
The demand made against one of them shall not be an
obstacle to those which may subsequently be directed
against the others, so long as the debt has not been
fully collected.
 When there is passive solidarity, the creditor can
proceed against:
1. Any of the solidary debtors;
page 16

2. Some of the solidary debtors;
3. All of the solidary debtors, simultaneously.
Extrajudicial demands - first demand shall not prevent
subsequent demands on the other co-debtors, if co-debtor
first to have been required to fulfill obligation did not act on
it.
1217. Payment made by one of the solidary debtors
extinguishes the obligation. If two or more solidary
debtors offer to pay, the creditor may choose which
offer to accept.
He who made the payment may claim from his co-
debtors only the share which corresponds to each, with
the interest for the payment already made. If the
payment is made before the debt is due, no interest for
the intervening period may be demanded.
When one of the solidary debtors cannot, because of
his insolvency, reimburse his share to the debtor
paying the obligation, such share shall be borne by all
his co-debtors, in proportion to the debt of each.
Payment – consists in the delivery of the thing or the
rendition (rendering) of the service whish is the object of the
obligation.
Interest – compensation for the use of borrowed money
Partial payment – the solidary debtor who made the partial
payment is entitles to be reimbursed only for such amount of
money which he had paid and which exceeds his own share in
the obligation.
If one of the debtors is insolvent and could not pay his share
in the obligation, all solidary debtors including the paying
debtor shall share proportionately in the settlement of the
corresponding share of the insolvent debtor. [In short, his co-
debtors will save his ass.]
1218. Payment by a solidary debtor shall not entitle
him to reimbursement from his co-debtors if such
payment is made after the obligation has prescribed or
become illegal.
No reimbursement if:
1. Obligation PRESCRIBES
 The creditor did not make any demand for more than
10 years.
2. Obligation becomes ILLEGAL
 Law has been passed, making such prestation illegal.
1219. The remission made by the creditor of the share
which affects one of the solidary debtors does not
release the latter from his responsibility towards the
co-debtors, in case the debt had been totally paid by
anyone of them before the remission was effected.
OBLIGATIONS AND CONTRACTS
REVIEWER
 Atty De Chavez: Ito ay provision sa tanga...
(siyempre, 'pag nagbayad na, wala nang obligation,
wala na ding ire-remit...)
 Any belated (delayed) remission by the creditor of
the share of any of the debtor has no effect on the
internal relationship of the co-debtors.
Payment before remission: A, B, and C solidarily owe D
P1,500.00. B paid the entire obligation. After which, D
remitted the share of C. B can collect P500.00 each from A
and C even if the share of C in the obligation had been
remitted.
Remission before payment: A, B, and C solidarily owe D
P1,500.00. D remitted the share of C. Thereafter, B paid the
entire obligation. B can collect P500.00 from A but not from
C. However, B may ask D to give back P500, which is the
supposed-to-be share of C.
 After the prior payment of the entire obligation,
there is nothing to remit because the obligation had
been extinguished.
1220. The remission of the whole obligation, obtained
by one of the solidary debtors, does not entitle him to
reimbursement from his co-debtors.
 There is nothing to be reimbursed because he did not
spend any money, the remission being a gratuitous
act.
1221. If the thing has been lost or if the prestation has
become impossible without the fault of the solidary
debtors, the obligation shall be extinguished.
If there was fault on the part of any one of them, all
shall be responsible to the creditor, for the price and
the payment of damages and interest, without
prejudice to their action against the guilty or negligent
debtor.
If through a fortuitous event, the thing is lost or the
performance has become impossible after one of the
solidary debtors has incurred in delay through the
judicial or extrajudicial demand upon him by the
creditor, the provisions of the preceding paragraph
shall apply.
Loss of the thing or impossibility of prestation –
1. NO FAULT – solidary debtors –
obligation is extinguished
2. FAULT of any one of them – all are
liable because of their mutual agency
3. FORTUITOUS EVENT – delay on the
part of the debtors – all will be liable
 If the thing due was not lost, but there is merely a
delay, fraud or negligence on the part of one of the
page 17

solidary debtors, all (including the innocent) debtors
will share in the payment of the PRINCIPAL
prestation. The damages and interest imposed will
be borne by the guilty debtor.
 Obligation to deliver is converted into an obligation
to pay indemnity when there us loss or impossibility
of performance.
1222. A solidary debtor may, in actions filed by the
creditor, avail himself of all defenses which are derived
from the nature of the obligation and of those which
are personal to him, or pertain to his own share. With
respect to those which personally belong to the others,
he may avail himself thereof only as regards that part
of the debt for which the latter are responsible.
DEFENSES OF A SOLIDARY DEBTOR:
1. Defense arising from the nature of the obligation –
such as payment, prescription, remission, statute of
frauds, presence of vices of consent, etc.
2. Defenses which are personal to him or which
pertains to his own share alone – such as minority,
insanity and others purely personal to him.
3. Defenses personal to the other solidary creditors but
only as regards that part of the debt for which the
other creditors are liable.
Section 5 – Divisible and Indivisible Obligations
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 – refers to the susceptibility of an obligation to
be performed partially.
 Obligation to deliver 100 sacks of rice or a particular
type
INDIVISIBILITY – refers to the non-susceptibility of an
obligation to partial performance.
 Obligation to deliver a particular computer set
If a thing could be divided into parts and as divided, its value
is impaired disproportionately, that thing is INDIVISIBLE.
1224. A joint indivisible obligation gives rise to
indemnity for damages from the time anyone of the
debtors does not comply with his undertaking. The
debtors who may have been ready to fulfill their
promises shall not contribute to the indemnity beyond
the corresponding portion of the price of the thing or of
the value of the service in which the obligation
consists.
JOINT INDIVISIBLE OBLIGATION – the object is indivisible
but the liability of the parties is joint.
OBLIGATIONS AND CONTRACTS
REVIEWER
 The unfulfilled undertaking (duty) is converted into a
monetary obligation which is not divisible.
 The guilty debtor is liable for damages.
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.
The following are considered INDIVISIBLE obligations:
1. Obligation to give definite things
2. Obligations which are not susceptible of partial
performance
3. Even though the object or service may be physically
divisible, it is indivisible if:
a. the law so provides
b. when the parties intended it to be indivisible
The following obligations are deemed DIVISIBLE:
1. When the object of the obligation is the execution of
a certain number of days of work
2. When the object of the obligation is the
accomplishment of work measured in units
3. When the object of the obligation is susceptible of
partial compliance
4. When the object of the obligation is such that the
debtor is required to pay in installments
 If the contract is divisible, and a part of it is illegal,
the illegal part is void, and the rest shall be valid and
enforceable.
 If the contract is indivisible, and a part of it is illegal,
the entire contract is void.
 Partial performance of an indivisible obligation is
tantamount to non-performance.
Section 6 – Obligations with a Penal Clause
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
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Code.
PENALTY CLAUSE
 Purposes: Jurado book
 This is an accessory obligation attached to the
principal obligation, which imposes an additional
liability in case of breach of the principal obligation.
 It pushes the debtor to perform his obligation
faithfully and without delay – within the period
agreed upon, or else, he suffers a fixed civil penalty
without need of proving the damages of the other
party.
The penalty imposable is a substitute for the indemnity for:
a. damages
b. payment of interest in case of breach of obligation
1. unless the contrary is stipulated!
EXCEPTIONS – additional damages may be recovered from
the following acts:
4. If the debtor refuses to pay the penalty
5. If the debtor is guilty of fraud in the fulfillment
of the obligation
6. If there is express stipulation that the other
damages or interests are demandable to the
penalty in the penal clause
1227. The debtor cannot exempt himself from the
performance of the obligation by paying the penalty,
save in the case where this right has been expressly
reserved for him. Neither can the creditor demand the
fulfillment of the obligation and the satisfaction of the
penalty at the same time, unless this right has been
clearly granted him. However, if after the creditor has
decided to require the fulfillment of the obligation, the
performance thereof should become impossible without
his fault, the penalty may be enforced.
 A debtor cannot evade from payment of his principal
obligation by choosing to pay the penalty stipulated,
except when the debtor is EXPRESSLY granted with
the right to substitute the penalty for the principal
obligation. – an obligation with penalty clause cannot
be turned to facultative obligation unless expressly
stipulated in the contract.
 The creditor cannot demand the stipulated fulfillment
of the principal obligation and the penalty at the
same time, except
a. when the creditor was clearly given the right to
enforce both the principal obligation and
penalty;
b. when the creditor has demanded fulfillment of
the obligation but cannot be fulfilled due to the
1. debtor’s fault – creditor may demand
for penalty
2. creditor’s fault – he cannot claim the
penalty
3. fortuitous event – principal obligation
OBLIGATIONS AND CONTRACTS
REVIEWER
and penalty are extinguished
1228. Proof of actual damages suffered by the creditor
is not necessary in order that the penalty may be
demanded.
d. As long as the agreement or contract is breached.
e. The mere non-fulfillment of the principal obligation
entitles the creditor to the penalty stipulated.
f. The purpose of the penalty clause is precisely to
avoid proving damages.
1229. The judge shall equitably reduce the penalty
when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there
has been no performance, the penalty may also be
reduced by the courts if it is iniquitous or
unconscionable.
JUDICIAL REDUCTION OF PENALTY
 Principal obligation – partly complied with by the
debtor (but not in indivisible obligation, because it is
tantamount to non-compliance)
 Principal obligation – complied not in accordance
with the tenor of the agreement (refers to irregular
performance)
 Penalty – iniquitous or unconscionable
 Judge’s power to reduce penalties are limited to
private contracts.
INIQUITOUS OR UNCONSCIONABLE – when it is revolting to
the conscience or common sense; grossly disproportionate to
the damages suffered.
PENALTY NOT ENFORCEABLE:
1. Impossible performance of principal
obligation due to fortuitous events
2. Creditor prevented the debtor from fulfilling
the obligation
3. Penalty is contrary to good morals or good
customs
4. Both parties are guilty of breach of contract
5. Breach of contract by the creditor
6. None of the parties committed any willful or
culpable violation of the agreement
1230. The nullity of the penal clause does not carry
with it that of the principal obligation.
The nullity of the principal obligation carries with it
that of the penal clause.
Because the penal clause is only an accessory to the principal
obligation, it cannot exist alone.
If the penal clause is void, the principal obligation remains
enforceable.
The nullity of penal clause does not mean the nullity of the
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principal.
For example:
In case of non-payment of P10,000, P1,000 per day as
penalty shall be imposed. It is a void contract but it is not an
excuse that you don't have to pay the principal which is
P10,000.
CHAPTER 4
EXTINHGUISHMENT OF OBLIGATIONS
GENERAL PROVISIONS
1231. Obligations are exringuished:
5. by payment or performance
6. by loss of the thing due
7. by condonation or remission
8. by confusion or merger of the rights of
creditor and debtor
9. by compensation
10. by novation
Other causes of extinguishment of obligations, such as
annulment, rescission, fulfillment of a resolutory
condition, and prescription, are governed elsewhere in
this Code.
1232. Payment means not only the delivery of money
but also the performance, in any other manner of an
obligation.
Payment means not only delivery of money but also the
performance.
 It is the fulfillment of the prestation due that
extinguishes the obligation by the realization of the
purposes for which it was constituted
 It is a juridical act which is voluntary, licit and made
with the intent to extinguish an obligation
 Requisites:
1. person who pays
2. the person to whom payment is made
3. the thing to be paid
4. the manner, time and place of payment etc
 The paying as well as the one receiving should have
the requisite capacity
 Kinds:
1. normal –when the debtor voluntarily performs the
prestation stipulated
2. abnormal – when he is forced by means of a judicial
proceeding either to comply with prestation or to pay
indemnity
1233. A debt shall not be understood to have been
paid unless the thing or service in which the oligatoin
consists has been completely delivered or rendered, as
the case may be.
 States 2 requisites of payment:
a.) identity of prestation - the very thing or service due must
OBLIGATIONS AND CONTRACTS
REVIEWER
be delivered or released
b.) integrity – prestation must be fulfilled completely
 Time of payment – the payment or performance
must be on the date stipulated (may be made even
on Sundays or on any holiday, although some states
like the Negotiable Instruments Law states that
payment in such case may be made on the next
succeeding business day)
 The burden of proving that the obligation has been
extinguished by payment devolves upon the debtor
who offers such a defense to the claim of the plaintiff
creditor
 The issuance of a receipt is a consequence of usage
and good faith which must be observed (although
our Code has no provision on this) and the refusal of
the creditor to issue a receipt without just cause is a
ground for consignation under Art 1256 ( if a receipt
has been issued by payee, the testimony alone of
payer would be insufficient to prove alleged
payments)
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.
 In order that there may be substantial performance
of an obligation, there must have been an attempt in
good faith to perform, without any willful or
intentional departure therefrom
 The non-performance of a material part of a contract
will prevent the performance from amounting to a
substantial compliance
 A party who knowingly and willfully fails to perform
his contract in any respect, or omits to perform a
material part of it cannot be permitted under the
protection of this rule to compel the other party to
perform; and the trend of the more recent decisions
is to hold that the percentage of omitted or irregular
performance may in and of itself be sufficient to
show that there has not been a substantial
performance
 The party who has substantially performed may
enforce specific performance of the obligation of the
other party or may recover damages for their breach
upon an allegation of performance, without proof of
complete fulfillment.
 The other party, on the other hand, may by an
independent action before he is sued, or by a
counterclaim after commencement of a suit against
him, recover from the first party the damages which
he has sustained by the latter’s failure to completely
fulfill his obligation
1235 – When the oblige accepts the performance,
knowing its incompleteness or irregularity, and without
expressing any protest or objection, the obligation is
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deemed fully complied with
 A person entering into a contract has a right to insist
on its performance in all particulars, according to its
meaning and spirit. But if he chooses to waive any of
the terms introduced for his own benefit, he may do
so.
 But he is not obliged to accept anything else in place
of that which he has contracted for and if he does
not waive this right, the other party cannot recover
against him without performing all the stipulations
on is part
 To constitute a waiver, there must be an intentional
relinquishment of a known right. A waiver will not
result from a mere failure to assert a claim for
defective performance/payment. There must have
been acceptance of the defective performance with
actual knowledge if the incompleteness or defect,
under circumstances that would indicate an intention
to consider the performance as complete and
renounce any claim arising from the defect
 A creditor cannot object because of defects in
performance resulting from his own acts or directions
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
 Reason for this article: whenever a third person pays
there is a modification of the prestation that is due.
 Generally, the 3rd person who paid another’s debt is
entitled to recover the full amount he paid. The law,
however limits his recovery to the amount by which
the debtor has been benefited, if the debtor has no
knowledge of, or has expressed his opposition to
such payment
 If the debt has been remitted, paid compensated or
prescribed, a payment by a third person would
constitute a payment of what is not due; his remedy
would be against the person who received the
payment under such conditions and not against the
debtor who did not benefit from the payment
 payment against debtor’s will – even if payment of
the third party is against the will of the debtor, upon
payment by the third party, the obligation between
the debtor and creditor is already extinguished
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
 This article gives to the third person who paid only a
simple personal action for reimbursement, without
the securities, guaranties and other rights recognized
in the creditor, which are extinguished by the
OBLIGATIONS AND CONTRACTS
REVIEWER
payment
1238. Payment made by a third person who does not
intend to be reimbursed by the debtor is deemed to be
a donation, which requires the debtor’s consent/ but
the payment is in any case valid as to the creditor who
has accepted it
ART 1239. In obligations to give, payment made by one
who does not have the free disposal of the thing due
and capacity to alienate it shall not be valied, without
prejudice to the provisions of article 1427 under the
Title on “Natural Obligations”
 consignation will not be proper here. In case the
creditor accepts the payment, the payment will not
be valid except in the case provided in article 1427
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
 the authority of a person to receive payment for the
creditor may be
a.) legal – conferred by law (e.g.,guardian of the
incapacitated, administrator of the estate of the deceased)
b.) conventional – when the authority has been given by
the creditor himself (e.g., agent who is appointed to collect
from the debtor
 payment made by the debtor to a wrong party does
not extinguish the obligation as to the creditor
(void), if there is no fault or negligence which can be
imputed to the latter (even when the debtor acted in
utmost good faith, or through error induced by the
fraud of the 3rd person). It does not prejudice the
creditor and the accrual of interest is not suspended
by it
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)
 payment shall be considered as having benefited the
incapacitated person if he made an intelligent and
reasonable use thereof, for purposes necessary or
useful to him, such as that which his legal
representative would have or could have done under
similar circumstances, even if at the time of the
complaint the effect of such use no longer exists
(e.g., taxes on creditor’s property, money to
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extinguish a mortgage on creditor’s property)
 the debtor is not released from liability by a payment
to one who is not the creditor nor one authorized to
receive the payment, even if the debtor believed in
good faith that he is the creditor, except to the
extent that the payment inured to the benefit of the
creditor
 in addition to those mentioned above, payment to a
third person releases the debtor:
a.) when, without notice of the assignment of credit, he
pays to the original creditor
b.) when in good faith he pays to one in possession of the
credit
 even when the creditor receives no benefit from the
payment to a third person, he cannot demand
payment anew, if the mistake of the debtor was due
to the fault of the creditor
1242. Payment made in good faith to any person in
possession of the credit shall release the debtor.
(1164)
 the person in possession of the credit is neither the
creditor nor one authorized by him to receive
payment, but appears under the circumstances of
the case, to be the creditor. He appears to be the
owner of the credit, although in reality, he may not
be the owner (e.g., an heir who enters upon the
hereditary estate and collects the credits thereof, but
who is later deprived of the inheritance because of
incapacity to succeed)
 it is necessary not only that the possession of the
credit be legal, but also that the payment be in good
faith
1243. Payment made to the creditor by the debtor after
the latter has been judicially ordered to retain the debt
shall not be valid. (1165)
 the payment to the creditor after the credit has been
attached or garnished is void as to the party who
obtained the attachment or garnishment, to the
extent of the amount of the judgment in his favor.
 The debtor upon whom garnishment order is served
can always deposit the money in court by way of
consignation and thus relieve himself from further
liability
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. (1166a)
 Upon agreement of consent of the creditor, the
debtor may deliver a different thing or perform a
different prestation in lieu of that stipulated. In this
case there may be dation in payment or novation
 The defects of the thing delivered may be waived by
OBLIGATIONS AND CONTRACTS
REVIEWER
the creditor, if he expressly so declares or if, with
knowledge thereof, he accepts the thing without
protest or disposes of it or consumes it
1245. Dation in payment, whereby property is alienated
to the creditor in satisfaction of a debt in money, shall
be governed by the law of sales. (n)
 This is the delivery and transmission of ownership of
a thing by the debtor to the creditor as an accepted
equivalent of the performance of the obligation.
 The property given may consist not only of a thing
but also of a real right (such as a usufruct)
 Considered as a novation by change of the object
 Where the debt is money, the law on sale shall
govern; in this case, the act is deemed to be a sale
with the amount of the obligation to the extent that
it is extinguished being considered as price
 Difference between Dation and Cession (see Art.
1255)
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)
 If there is disagreement between the debtor and the
creditor as to the quality of the thing delivered, the
court should decide whether it complies with the
obligation, taking into consideration the purpose and
other circumstances of the obligation
 Both the creditor and the debtor may waive the
benefit of this article
 see Art. 1244
1247. Unless it is otherwise stipulated, the
extrajudicial expenses required by the payment shall
be for the account of the debtor. With regard to judicial
costs, the Rules of Court shall govern. (1168a)
 This is because the payment is the debtor’s duty and
it inures to his benefit in that he is discharged from
the burden of the obligation
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)
 The creditor who refuses to accept partial prestations
does not incur delay except when there is abuse of
right or if good faith requires acceptance
 This article does not apply to obligations where there
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are several subjects or where the various parties are
bound under different terms and conditions
1249. The payment of debts in money shall be made in
the currency stipulated, and if it is not possible to
deliver such currency, then in the currency which is
legal tender in the Philippines. The delivery of
promissory notes payable to order, or bills of exchange
or other mercantile documents shall produce the effect
of payment only when they have been cashed, or when
through the fault of the creditor they have been
impaired.
In the meantime, the action derived from the original
obligation shall be held in the abeyance. (1170)
 LEGAL TENDER means such currency which in a
given jurisdiction can be used for the payment of
debts, public and private, and which cannot be
refused by the creditor
 so long as the notes were legal tender at the time
they were paid or delivered, the person accepting
them must suffer the loss if thereafter they became
valueless
 the provisions of the present article have been
modified by RA No. 529 which states that payments
of all monetary obligations should now be made in
currency which is legal tender in the Phils. A
stipulation providing payment in a foreign currency is
null and void but it does not invalidate the entire
contract
 A check, whether a manager’s check or an ordinary
check is not legal tender and an offer of the check in
payment of debt is not a valid tender of payment
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)
 Applies only where a contract or agreement is
involved. It does not apply where the obligation to
pay arises from law, independent of contracts
 Extraordinary inflation of deflation may be said to be
that which is unusual or beyond the common
fluctuations in the value of the currency, which
parties could not have reasonably foreseen or which
was manifestly beyond their contemplation at the
time when the obligation was constituted
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. 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
OBLIGATIONS AND CONTRACTS
REVIEWER
expenses shall be borne by him. These provisions
are without prejudice to venue under the Rules of
Court.(1171a)
 Since the law fixes the place of payment at the
domicile of the debtor, it is the duty of the creditor to
go there and receive payment; he should bear the
expenses in this case because the debtor cannot be
made to shoulder the expenses which the creditor
incurs in performing a duty imposed by law and
which is for his benefit.
 But if the debtor changes his domicile in bad faith or
after he has incurred in delay, then the additional
expenses shall be borne by him
 When the debtor has been required to remit money
to the creditor, the latter bears the risks and the
expenses of the transmission. In cases however
where the debtor chooses this means of payment, he
bears the risk of loss.
SUBSECTION 1
APPLICATION OF PAYMENTS
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)
 Requisites:
1. 1 debtor and 1 creditor only
2. 2 or more debts of the same kind
3. all debts must be due
4. amount paid by the debtor must not be
sufficient to cover the total amount of all
the debts
 It is necessary that the obligations must all be due.
Exceptions: (1) whe there is a stipulation to the
contrary; and (2) the application of payment is made
by the party for whose benefit the term or period has
been constituted (relate to Art. 1196).
 It is also necessary that all the debts be for the same
kind, generally of a monetary character. This
includes obligations which were not originally of a
monetary character, but at the time of application of
payment, had been converted into an obligation to
pay damages by reason of breach or
nonperformance.
 If the debtor makes a proper application of payment
but the creditor refuses to accept it because he
wants to apply it to another debt, such creditor will
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incur in delay
 RIGHT OF DEBTOR TO MAKE APPLICATION. If at the
time of payment, the debtor does not exercise his
right to apply it to any of his debts, the application
shall be understood as provided by law, unless the
creditor makes the application and his decision is
accepted by the debtor. This application of payment
can be made by the creditor only in the receipt
issued at the time of payment (although the
application made by creditor may be contested by
the debtor if the latter’s assent to such application
was vitiated by such causes as mistake, violence,
intimidation, fraud, etc)
 The debtor and the creditor by agreement, can
validly change the application of payment already
made without prejudice to the rights of third persons
acquired before such agreement
1253. If the debt produces interest, payment of the
principal shall not be deemed to have been made until
the interests have been covered. (1173)
 
Interest paid first before principal
 Applies both to compensatory interest (that
stipulated as earnings of the amount due under the
obligation) and to interest due because of delay or
mora on the part of the debtor
 SC held that this provision applies only in the
absence of a verbal or written agreement to the
contrary (merely directory, not mandatory)
1254. When the payment cannot be applied in
accordance with the preceding rules, or if application
can not be inferred from other circumstances, the debt
which is most onerous to the debtor, among those due,
shall be deemed to have been satisfied. If the debts
due are of the same nature and burden, the payment
shall be applied to all of them proportionately. (1174a)
 As to which of 2 debts is more onerous is
fundamentally a question of fact, which courts must
determine on the basis of the circumstances of each
case
 Debts are not of the same burden (1st par.)– Rules:
1. Oldest are more onerous than new ones
2. One bearing interest more onerous than one
that does not
3. secured debt more onerous than unsecured
one
4. principal debt more onerous than guaranty
5. solidary debtor more onerous than sole
debtor
6. share in a solidary obligation more onerous
to a solidary debtor
7. liquidated debt more onerous than
unliquidated
 Debts are of the same burden (2nd par.)– the
payment shall be applied to all of them pro rata or
proportionately.
OBLIGATIONS AND CONTRACTS
REVIEWER
 Example: debtor owes his creditor several debts, all
of them due, to wit: (1) unsecured debt, (2) a debt
secured with mortgage of the debtor's property, (3)
a debt with interest, (4) a debt in which the debtor is
solidarily liable with another. Partial payment was
made by the debtor, without specification as to
which the payment should be applied.
The most onerous is (4), followed by (2), then
(3), then (1). Consequently, payment shall be
made in that order.
SUBSECTION 2
PAYMENT BY CESSION
1255. The debtor may cede or assign his property to his
creditors in payment of his debts. This cession, unless
there is stipulation to the contrary, shall only release
the debtor from responsibility for the net proceeds of
the thing assigned. The agreements which, on the
effect of the cession, are made between the debtor and
his creditors shall be governed by special laws. (1175a)
Cession is a special form of payment whereby the
debtor abandons or assigns all of his property for the
benefit of his creditors so that the latter may obtain
payment of their credits from the proceeds of the
property.
 Requisites:
1. plurality of debts
2. partial or relative insolvency of the debtor
3. acceptance of cession by the creditors
 Kinds of Cession:
1. Contractual (Art. 1255)
2. Judicial (Insolvency Law)
 Must be initiated by debtors
 Requires two or more creditors, debtors insolvent,
cession accepted by creditors
 Such assignment does not have the effect of making
the creditors the owners of the property of the
debtor unless there is an agreement to that effect
 Difference between Dation and Cession
DATION CESSION
may be 1 creditor many creditors
does not require insolvency requires partial or relative
insolvency
delivery of a thing delivery of all the property
transfer of ownership of the no transfer of ownership (only
property of possession and
administration)
a novation
payment extinguishes the effect is merely to release
obligation (to the extent of debtor from the net proceeds
the value of the thing of the property; hence, partial
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delivered) extinguishment of obligation.
SUBSECTION 3
TENDER OF PAYMENT AND CONSIGNATION
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:
(1) When the creditor is absent or unknown, or does
not appear at the place of payment;
(2) When he is incapacitated to receive the payment at
the time it is due;
(3) When, without just cause, he refuses to give a
receipt;
(4) When two or more persons claim the same right to
collect;
(5) When the title of the obligation has been lost.
(1176a)
 Tender of payment : manifestation made by the
debtor to the creditor of his desire to comply with his
obligation; The act of the debtor of offering to the
creditor the thing or amount due
 Consignation : Deposit of the object or the amount
due with the proper court after refusal or inability of
the creditor to accept the tender of payment
 Tender of payment by certified check is valid; a mere
check would also be valid for tender of payment if
the creditor makes no prompt objection, but this
does not estop the latter from later demanding
payment in cash
 When a tender of payment is made in such a form
that the creditor could have immediately realized
payment if he had accepted the tender, followed by a
prompt attempt of the debtor to deposit the means
of payment in court by way of consignation, the
accrual of interest on the obligation will be
suspended from the date of such tender. But when
the tender of payment is not accompanied by the
means of payment, and the debtor did not take any
immediate step to make a consignation, then the
interest is not suspended from the time of such
tender.
 GENERAL REQUISITES OF VALID CONSIGNATION vs
SPECIAL REQUISITES
General Req : relative to payment (Arts. 1232 -
1251)
Special Req : very nature of consignation (Arts.
1256 – 1258)
1257. In order that the consignation of the thing due
may release the obligor, it must first be announced to
 Special Requisites of consignation: [DLN-DN]
the persons interested in the fulfillment of the
1. [D] There was a debt due
obligation.
2. [L] The consignation of the obligation was made
The consignation shall be ineffectual if it is not made
OBLIGATIONS AND CONTRACTS
REVIEWER
because of some legal cause provided in the present
article
3. [N] That previous notice of the consignation has
been given to persons interested in the performance
of the obligation
4. [D] The amount or thing due was placed at the
disposal of the court
5. [N] After the consignation had been made the
persons interested had been notified thereof
 If the reason for consignation is the unjust refusal of
the creditor to accept payment, it must be shown:
1. That there was previous tender of payment, without
which the consignation is ineffective
2. That the tender of payment was of the very thing
due, or in case of money obligations that legal tender
currency was offered
3. That the tender of payment was unconditional and
4. That the creditor refused to accept payment without
just cause
 Exception to requirement for tender of payment:
[AIR-TT]
1. [A] When creditor is absent or unknown or does not
appear at place of payment
2. [I] When he is incapacitated to receive payment
3. [R] When he refuses to give receipt, without just
cause
4. [T] When two or more persons claim same right to
collect
5. [T] When title of the obligation has been lost
 The 1st and 2nd Special Requisites of Consignation
are embodied in Article 1256.
 As to the 2nd requisite ([L] – legal cause) the
following musst be present:
(a) the tender of payment must have been made prior to
the consignation
(b) that it must have been unconditional [e.g. where the
debtor tendered a check for P3,250 to the creditor as
payment of a debt conditioned upon the signing by
the latter of a motion to dismiss a complaint for legal
separation, such tender of payment is invalid.]
(c) that the creditor must have refused to accept the
payment without just cause [it is not necessary for
the court where the thing or the amount is deposited
to determine whether the refusal of the creditor to
accept the same was with or without just cause. The
question will be resolved anyway in a subsequent
proceeding. Hence, the mere refusal of the creditor
to accept the tender of payment will be sufficient
(Manresa)]
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strictly in consonance with the provisions which
regulate payment. (1177)
 The lack of notice does not invalidate the
consignation but simply makes the debtor liable for
the expenses
 The tender of payment and the notice of
consignation sent to the creditor may be made in the
same act. In case of absent or unknown creditors,
the notice may be made by publication
 1st paragraph of this article – pertains to the 3rd
Special Requisite of Consignation ([N] Previous
Notice)
- Tender of Payment vs Previous Notice : the former
is a friendly and private act manifested only to the
creditor; the latter is manifested also to other
persons interested in the fulfillment of the obligation.
 the benefit of the creditor.
2nd paragraph of this article – pertains to the General
Requisites of Consignation (Arts. 1232-1251), which
must be complied with
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 consignation
in other cases.
The consignation having been made, the interested
parties shall also be notified thereof. (1178)
 1st paragraph hereof - 4th Special Requisite of
Consignation ([D] Disposal of the Court)
- this is complied with if the debtor depostis the
thing or amount with the Clerk of Court
 2nd paragraph hereof - 5th Special Requisite of
Consignation ([N] Subsequent Notice)
- this is to enable the creditor to withdraw the goods
or money deposited.
1259. The expenses of consignation, when properly
made, shall be charged against the creditor. (1179)
 The consignation is properly made when:
1.) after the thing has been deposited in court, the creditor
accepts the consignation without objection and without any
reservation of his right to contest it because of failure to
comply with any of the requisites for consignation; and
2.) when the creditor objects to the consignation but the
court, after proper hearing, declares that the consignation has
been validly made
*in these cases, the creditor bears the expenses of the
consignation
1260. Once the consignation has been duly made, the
debtor may ask the judge to order the cancellation of
the obligation. Before the creditor has accepted the
consignation, or before a judicial declaration that the
consignation has been properly made, the debtor may
withdraw the thing or the sum deposited, allowing the
OBLIGATIONS AND CONTRACTS
REVIEWER
obligation to remain in force. (1180)
 Consignation has a retroactive effect and the
payment is deemed to have been made at the time
of the deposit of the thing in court or when it was
placed at the disposal of the judicial authority
 The effects of consignation are: 1.) the debtor is
released in the same manner as if he had performed
the obligation at the time of the consignation
because this produces the same effect as a valid
payment, 2.) the accrual of interest on the obligation
is suspended from the moment of consignation, 3.)
the deteriorations or loss of the thing or amount
consigned occurring without fault of the debtor must
be borne by the creditor, because the risks of the
thing are transferred to the creditor from the
moment of deposit 4.) any increment or increase in
value of the thing after the consignation inures to
 When the amount consigned does not cover the
entire obligation, the creditor may accept it,
reserving his right to the balance. If no reservations
are made, the acceptance by the creditor of the
amount consigned may be regarded as a waiver of
further claims under the contract
1261. If, the consignation having been made, the
creditor should authorize the debtor to withdraw the
same, he shall lose every preference which he may
have over the thing. The co-debtors, guarantors and
sureties shall be released. (1181a)
 When the consignation has already been made and
the creditor has accepted it or it has been judicially
declared as proper, the debtor cannot withdraw the
thing or amount deposited unless the creditor
consents thereto. If the creditor authorizes the
debtor to withdraw the same, there is a revival of
the obligation, which has already been extinguished
by the consignation, and the relationship of debtor
and creditor is restored to the condition in which it
was before the consignation. But third persons,
solidary co-debtors, guarantors and sureties who are
benefited by the consignation are not prejudiced by
the revival of the obligation between the debtor and
the creditor
SECTION 2
LOSS OF THE THING DUE
1262. An obligation which consists in the delivery of a
determinate thing shall be extinguished if it should be
lost or destroyed without the fault of the debtor, and
before he has incurred in delay.
When by law or stipulation, the obligor is liable even
for fortuitous events, the loss of the thing does not
extinguish the obligation and he shall be responsible
for damages. The same rule applies when the nature of
the obligation requires the assumption of risk.
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1263: In an obligation to deliver a generic thing, the
loss or destruction of anything of the same kind does
not extinguish the obligation. (n)
1264. The courts shall determine whether, under the
circumstances, the partial loss of the object of the
obligation is so important as to extinguish the
obligation. (n)
1265. Whenever the thing is lost in the possession of
the debtor, it shall be presumed that the loss was due
to his fault, unless there is proof to the contrary, and
without prejudice to the provisions of article 1165. This
presumption does not apply in case of earthquake,
flood, storm, or other natural calamity. (1183a)
 3rd paragraph of Art. 1165: whe 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 liable for any fortuitious event until he has
effected the delivery
 Hence, in cases where Art. 1165, par. 3 is applicable,
even if the debtor can prove that the loss of the
thing in his possession was not through his fault or
that it was through a fortuitous event, he shall still
be liable to the creditor for damages.
1266. The debtor in obligations to do shall also be
released when the prestation becomes legally or
physically impossible without the fault of the obligor.
(1184a)
LEGAL IMPOSSIBILITY : may either be -
1. direct (when the law prohibits the performance or
execution of the work agreed upon, i.e. when it is
immoral or dangerous)
2. indirect (the law imposes duties of a superior
character upon the obligor which are incompatible
with the work agreed upon, although the latter may
be perfectly licit, as where the obligor is drafted for
military service or for a civil function)
PHYSICAL IMPOSSIBILTY : examples – death of the debtor;
when there is an accident...
1267. When the service has become so difficult as to be
manifestly beyond the contemplation of the parties, the
obligor may also be released therefrom, in whole or in
part. (n)
DOCTRINE OF UNFORESEEN EVENT
(rebus sic stantibus)
It refers to obligation "to do" (personal obligation)
Parties are presumed to have the risk
It does not apply aleatory contracts (insurance contract)
Excluded highly speculative business (stock exchange)
Monatory obligations are excluded (governed by 1357)
Requisites:
1. event or change in the circumstances could have
OBLIGATIONS AND CONTRACTS
REVIEWER
been foreseen of the time of the execution contract
2. it makes the performance of the contract extremely
difficult but not impossible
3. the event must not be due to the act of any of the
parties
4. the contract is for a future prestation. If the
contract is of immediate fulfillment, the gross
inequality of the reciprocal prestations may be
involve desion or want of cause.
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.
(1185)
Example: X hit Y; Y claim damages for X and X run after the
insurance. The insurance is not the 3rd party
1269. The obligation having been extinguished by the
loss of the thing, the creditor shall have all the rights of
action which the debtor may have against third persons
by reason of the loss. (1186)
NOTE:
* There is no such thing as loss of a generic thing
1270. Condonation or remission is essentially
gratuitous, and requires the acceptance by the obligor.
It may be made expressly or impliedly.
One and the other kind shall be subject to the rules
which govern inofficious donations. Express
condonation shall, furthermore, comply with the forms
of donation. (1187)
1271. The delivery of a private document evidencing a
credit, made voluntarily by the creditor to the debtor,
implies the renunciation of the action which the former
had against the latter.
If in order to nullify this waiver it should be claimed to
be inofficious, the debtor and his heirs may uphold it by
proving that the delivery of the document was made in
virtue of payment of the debt. (1188)
1272. Whenever the private document in which the
debt appears is found in the possession of the debtor, it
shall be presumed that the creditor delivered it
voluntarily, unless the contrary is proved. (1189)
1273. The renunciation of the principal debt shall
extinguish the accessory obligations; but the waiver of
the latter shall leave the former in force. (1190)
1274. It is presumed that the accessory obligation of
pledge has been remitted when the thing pledged, after
its delivery to the creditor, is found in the possession of
the debtor, or of a third person who owns the thing.
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(1191a)
SECTION 4
CONFUSION OR MERGER OF RIGHTS
1275. The obligation is extinguished from the time the
characters of creditor and debtor are merged in the
same person. (1192a)
 Merger or confusion is the meeting in one person of
the qualities of creator and debtor with respect to
the same obligation. It erases the plurality of
subjects of the obligation. Further, the purposes for
which the obligation may have been created are
considered as fully realized by the merger of the
qualities of debtor and creditor in the same person.
 Requisites of merger or confusion are:
(1) It must take place between the creditor and the
principal debtor,
(2) the very same obligation must be involved, for if
the debtor acquires rights from the creditor, but not
the particular obligation in question in question there
will be no merger,
(3) the confusion must be total or as regards the
entire obligation.
 The effect of merger is to extinguish the obligation.
1276. Merger which takes place in the person of the
principal debtor or creditor benefits the guarantors.
Confusion which takes place in the person of any of the
latter does not extinguish the obligation. (1193)
 The extinguishment of the principal obligation
through confusion releases the guarantor’s because
the obligation of the latter is merely accessory. When
the merger takes place in the person of a guarantor,
the obligation is not extinguished.
1277. Confusion does not extinguish a joint obligation
except as regards the share corresponding to the
creditor or debtor in whom the two characters concur.
(1194)
SECTION 5
COMPENSATION
1278. Compensation shall take place when two
persons, in their own right, are creditors and debtors of
each other. (1195)
 Compensation is a mode of extinguishing to the
concurrent amount, the obligations of those persons
who in their own right are reciprocally debtors and
creditors of each other. It is the offsetting of two
obligations which are reciprocally extinguished if
they are of equal value. Or extinguished to the
concurrent amount if of different values.
 Kinds of Compensation:
 As to their effects
OBLIGATIONS AND CONTRACTS
REVIEWER
 compensation may be total (when
the two obligations are of the same
amount); or
 partial (when the amounts are not
equal).
 As to origin
1. it may be legal;
2. facultative;
3. conventional;
4. or judicial.
■ It is legal when it takes place by operation
of law because all requisites are present.
■ It is facultative when it can be claimed by
one of the parties, who, however, has the
right to object to it, such as when one of
the obligations has a period for the benefit
of one party alone and who renounces that
period so as to make the obligation due.
■ It is conventional when the parties agree to
compensate their mutual obligations even if
some requisite is lacking.
■ It is judicial when decreed by the court in a
case where there is a counterclaim.
From Dean Pineda:
Compensation Distinguished From Payment. In
compensation, there can be partial extinguishment of the
obligation; in payment, the performance must be completer,
unless waived by the creditor. Payment involves delivery of
action, while compensation (legal compensation) takes place
by operation of law without simultaneous delivery.
Compensation Distinguished from Merger. In
compensation, there are at least two persons who stand as
principal creditors and debtor of each other, in merger, there
is only one person involved in whom the characters of creditor
and debtor are merged. In merger, there is only one
obligation, while in compensation, there are two obligations
involved.
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)
 For compensation to take place, the parties must be
mutually debtors and creditors (1) in their own right,
and (2) as principals. Where there is no relationship
of mutual creditors and debtors, there can be no
page 28

compensation. Because the 1st requirement that the
parties be mutually debtors and creditors in their
own right, there can be no compensation when one
party is occupying a representative capacity, such as
a guardian or an administrator. The 2nd requirement
is that the parties should be mutually debtors and
creditors as principals. This means that there can be
no compensation when one party is a principal
creditor in one obligation but is only a surety or
guarantor in the other.
 The things due in both obligations must be fungible,
or things which can be substituted for each other.
 Both debts must be due to permit compensation.
 Demandable means that the debts are enforceable in
court, there being no apparent defenses inherent in
them. The obligations must be civil obligations,
including those that are purely natural. An obligation
is not demandable, therefore, and not subject to
compensation, in the following cases: (1) when there
is a period which has not yet arrived, including the
cases when one party is in a state of suspension of
payments; (2) when there is a suspensive condition
that has not yet happened; (3) when the obligation
cannot be sued upon, as in natural obligation.
 A debt is liquidated when its existence and amount is
determined. Compensation can only take place
between certain and liquidated debts.
From Dean Pineda:
The five requisites of a legal compensation are
enumerated in the Article. All requisites must be present
before compensation can be effectual.
6. First Requisite—That each of the obligators be bound
principally and that he be at the same time a
principal creditor of the other. >>The parties must
be mutual creditor and debtor of each other and
their relationship is a principal one, that is, they are
principal debtor and creditor of each other.
 Second Requisite—That both debts consist in such 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. >>When the
debts consist of money, there is not much of a
problem when it comes to compensation to the
concurrent amount. It is a matter of mathematical
computation. When the debt consist of things, it is
necessary that the things are consumable which
must be understood as ‘fungible’ and therefore
susceptible of substitution. More than that they must
be of the same kind. If the quality has been states,
the things must be of the same quality.
 Third Requisite—That the two debts are due. >> A
debt is ‘due’ when its period of performance has
arrived. If it is a subject to a condition, the condition
must have already been fulfilled. However, in
voluntary compensation, the parties may agree upon
the compensation of debts which are not yet due.
 Fourth Requisite—That they be liquidated and
OBLIGATIONS AND CONTRACTS
REVIEWER
demandable. >> A debt is considered ‘liquidated’
when its amount is clearly fixed. Of if it is not yet
specially fixed, a simple mathematical computation
will determine its amount or value. It is
‘unliquidated’ when the amount is not fixed because
it is still subject to a dispute or to certain condition.
It is not enough that the debts be liquidated. It is also
essential that the same be demandable. A debt is demandable
if it is not yet barred by prescription and it is not illegal or
invalid.
 Fifth Requisite—That over neither of them there be
any retention or controversy, commenced by third
persons and communicated in due time to the
debtor. >> A debt of a thing cannot be a subject of
compensation if the same had been subject of a
garnishment of which the debtor was timely notified.
When a credit or property had been properly
garnished of attached, it cannot be disposed of
without the approval of the court.
1280. Notwithstanding the provisions of the preceding
article, the guarantor may set up compensation as
regards what the creditor may owe the principal
debtor. (1197)
 The liability of the guarantor is only subsidiary; it is
accessory to the principal obligation of the debtor. If
the principal debtor has a credit against the creditor,
which can be compensated, it would mean the
extinguishment of the guaranteed debt, either totally
or partially. This extinguishment benefits the
guarantor, for he can be held liable only to the same
extent as the debtor.
From Dean Pineda:
Exception to the Rule On Compensation; Right of
Guarantor to Invoke Compensation Against Creditor. The
general rule is that for compensation to operate, the parties
must be related reciprocally as principal creditors and debtors
of each other. Under the present Article, the guarantor is
allowed to set up compensation against the creditor.
1281. Compensation may be total or partial. When the
two debts are of the same amount, there is a total
compensation. (n)
 Total Compensation—debts are of the same amount.
 Partial Compensation—Debts are not of the same
amount; operative only up to the concurrent
amount.
1282. The parties may agree upon the compensation of
debts which are not yet due. (n)
 Voluntary compensation is not limited to obligations
which are not yet due. The parties may compensate
by agreement any obligations, in which the objective
requisites provided for legal compensation are not
present. It is necessary, however, that the parties
should have the capacity to dispose of the credits
page 29

which they compensate, because the extinguishment
of the obligations in this case arises from their wills
and not from law.
1283. If one of the parties to a suit over an obligation
has a claim for damages against the other, the former
may set it off by proving his right to said damages and
the amount thereof. (n)
Art. 1284. When one or both debts are rescissible or
voidable, they may be compensated against each other
before they are judicially rescinded or avoided. (n)
 Although a rescissible or voidable debt can be
compensated before it is rescinded or annulled, the
moment it is rescinded or annulled, the decree of
rescission or annulment is retroactive, and the
compensation must be considered as cancelled.
Recission of annulment requires mutual restitution;
the party whose obligation is annulled or rescinded
can thus recover to the extent that his credit was
extinguished by the compensation, because to that
extent he is deemed to have made a payment.
1285. The debtor who has consented to the assignment
of rights made by a creditor in favor of a third person,
cannot set up against the assignee the compensation
which would pertain to him against the assignor,
unless the assignor was notified by the debtor at the
time he gave his consent, that he reserved his right to
the compensation.
If the creditor communicated the cession to him but the
debtor did not consent thereto, the latter may set up
the compensation of debts previous to the cession, but
not of subsequent ones.
If the assignment is made without the knowledge of
the debtor, he may set up the compensation of all
credits prior to the same and also later ones until he
had knowledge of the assignment. (1198a)
 Assignment after Compensation. When compensation
has already taken place before the assignment,
inasmuch as it takes place ipso jure, there has
already been an extinguishment of one of the other
of the obligations. A subsequent assignment of an
extinguished obligation cannot produce any effect
against the debtor. The only exception to this rule is
when the debtor consents to the assignment of the
credit; his consent constitutes a waiver of the
compensation, unless at the time he gives consent,
he informs the assignor that he reserved his right to
the compensation.
 Assignment before compensation. The assignment
may be made before compensation has taken place,
either because at the time of assignment one of the
debts is not yet due or liquidated, or because of
some other cause which impedes the compensation.
As far as the debtor is concerned, the assignment
does not take effect except from the time he is
notified thereof. If the notice of assignment is
OBLIGATIONS AND CONTRACTS
REVIEWER
simultaneous to the transfer, he can set up
compensation of debts prior to the assignment. If
notice was given to him before the assignment, this
takes effect at the time of the assignment; therefore
the same rule applies. If he consents to the
assignment, he waives compensation even of debts
already due, unless he makes a reservation.
 But if the debtor was notified of the assignment, but
he did not consent, and the credit assigned to a third
person matures after that which pertains to the
debtor, the latter may set up compensation when the
assignee attempts to enforce the assigned credit,
provided that the credit of the debtor became due
before the assignment. But it f the assigned credit
matures earlier than that of the debtor, the assignee
may immediately enforce it, and the debtor cannot
set up compensation, because the credit is not yet
due.
 If the debtor did not have knowledge of the
assignment, he may set up by way of compensation
all credits maturing before he is notified thereof.
Hence, if the assignment is concealed, and the
assignor still contracts new obligation in favor of the
debtor, such obligation maturing before the latter
learns of the assignment will still be allowable by
way of compensation. The assignee in such case
would have a personal action against the assignor.
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)
 This article applies to legal compensation and not to
voluntary compensation.
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)
E. The prohibition of compensation when one of the
debts arises from a depositum (a contract by virtue
of which a person [depositary] receives personal
property belonging to another [depositor], with the
obligation of safely keeping it and returning the
same) or commodatum (a gratuitous contract by
virtue of which one of the parties delivers to the
other a non-consumable personal property so that
the latter may use it for a certain time and return it)
is based on justice. A deposit of commodatum is
given on the basis of confidence in the depositary of
the borrower. It is therefore, a matter of morality,
the depositary or borrower performs his obligation.
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 OBLIGATIONS AND CONTRACTS
REVIEWER

 With respect to future support, to allow its contracted or afterwards. Compensation rests upon a
extinguishment by compensation would defeat its potestative right, and a unilateral decision of the
exemption from attachment and execution. , and debtor would be sufficient renunciation.
may expose the recipient to misery and starvation. Compensation can be renounced expressly of
Common humanity and public policy forbid this impliedly.
consequence. Support under this provision should be  No Compensation. Even when all the requisites for
understood, not only referring to legal support, to compensation occur, the compensation may not take
include all rights which have for their purpose the place in the following cases: (1) When there is
subsistence of the debtor, such as pensions and renunciation of the effects of compensation by a
gratuities. party; and (2) when the law prohibits compensation.
(Unless otherwise indicated, commentaries are sourced from
1288. Neither shall there be compensation if one of the the Civil Code book IV by Tolentino).
debts consists in civil liability arising from a penal
offense. (n) SECTION 6
 If one of the debts consists in civil liability arising NOVATION
from a penal offense, compensation would be HOW OBLIGATIONS ARE MODIFIED
improper and inadvisable because the satisfaction of
such obligation is imperative. 1291. Obligations may be modified by:
 The person who has the civil liability arising from (1) Changing their object or principal condition
crime is the only party who cannot set up the (2) Substituting the person of the debtor
compensation; but the offended party entitled to the (3) Subrogating a third person in the rights of a
indemnity can set up his claim in compensation of creditor
his debt.  Novation is the extinguishment of an obligation by a
Art. 1289. If a person should have against him several substitution or change of the obligation by a
debts which are susceptible of compensation, the rules subsequent one which extinguishes or modifies the
on the application of payments shall apply to the order first either by:
of the compensation. (1201) changing the object or principal conditions
 It can happen that a debtor may have several debts by substituting the person of the debtor
to a creditor. And vice versa. Under these subrogating a third person in the rights of the creditor
circumstances, Articles 1252 to 1254 shall apply.  Novation is a juridical act of dual function. At the
time it extinguishes an obligation it creates a new
1290. When all the requisites mentioned in Article 1279 one in lieu of the old
are present, compensation takes effect by operation of  Classification of Novation
law, and extinguishes both debts to the concurrent  as to nature
amount, even though the creditors and debtors are not 1. Subjective or personal – either
aware of the compensation. passive or active. Passive if there is
 Legal compensation takes place from the moment substitution of the debtor. Active if
that the requisites of the articles 1278 and 1270 co- a third person is subrogated in the
exist; its effects arise on the very day which all its rights of the creditor.
requisites concur. 2. Objective or real – substitution of
 Voluntary of conventional compensation takes effect the object with another or
upon the agreement of the parties. changing the principal conditions
 3. Mixed – Combination of subjective
Facultative compensation takes place when the
and objective
creditor declares his option to set it up.
  as to form
Judicial compensation takes place upon final
judgment.  Express – parties declare that the old obligation is
 Effects of Compensation: substituted by the new
(1) Both debts are extinguished to the concurrent amount;  Implied – an incompatibility exists between the old
(2) interests stop accruing on the extinguished obligation of and the new obligation that cannot stand together
the part extinguished;  as to effect
(3) the period of prescription stops with respect to the 2. Partial – when there is only a modification or change
obligation or part extinguished; in some principal conditions of the obligation
(4) all accessory obligations of the principal obligation which 1. Total – when the old obligation is completely
has been extinguished are also extinguished. extinguished
 Renunciation of Compensation. Compensation can be  Requisites of Novation:
renounces, either at the time an obligation is

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 OBLIGATIONS AND CONTRACTS
REVIEWER

 A previous valid obligation 1. Essential elements – without which there is no contract;

 Agreement of all parties they are a) consent, b) subject matter and c) cause
 Extinguishment of the old contract – may be express 2. Natural elements – exist as part of the contract even if the
of implied parties do not provide for them, because the law, as
 Validity of the new one suppletory to the contract, creates them
TITLE II. 3. Accidental elements – those which are agreed by the
CONTRACTS parties and which cannot exist without stipulated

CHAPTER 1 * Stages of a Contract:

GENERAL PROVISIONS 4. 3 stages:
1. Preparation, conception, or generation – period of
GENERAL PROVISIONS negotiation and bargaining, ending at the moment of
agreement of the parties
Art. 1305. A contract is a meeting of the minds 2. Perfection or birth of the contract – the moment when the
between two persons whereby one binds himself, with parties come to agree on the terms of the contract
respect to the other to give something or to render 3. Consummation or death – the fulfillment or performance of
some service. the terms agreed upon in any contract
* relate to Art. 1159 of CC
* Definition: 1306. The contracting parties may establish such
4. Sanchez Roman – a juridical convention manifested in legal stipulations, clauses, terms & conditions as they may
form, by virtue of which one or more persons bind themselves deem convenient, provided they are not contrary to
in favor of another or others, or reciprocally, to the fulfillment law, morals, good customs, public order, or public
of a prestation to give, to do or not to do. policy.
* Other Terms:  This article embodies the principle of autonomy of contracts
c) Perfect promise – distinguished from a contract, in that the * Freedom to contract:
latter establishes and determines the obligations arising 7. Any person has the liberty to enter into a contract so long as
therefrom; while the former tends only to assure and pave they are not contrary to law, morals, good customs, public
the way for the celebration of a contract in the future. order or public policy.
d) Imperfect Promise – mere unaccepted offer 8. The legislature, under the constitution, is prohibited from
e) Pact – a special part of the contract, sometimes incidental and enacting laws to prescribe the terms of a legal contract.
separable for the principal agreement * Validity of Stipulations:
f) Stipulation – similar to a pact; when the contract is an 3. Any and all stipulations not contrary to law, morals, good
instrument, it refers to the essential and dispositive part, as customs, public order or public policy is valid
distinguished from the exposition of the facts and antecedents * Trust Receipts:
upon which it is based. 5. Trust receipts, as contracts, in a certain manner partake of
* Number of Parties: the nature of a conditional sale as provided by the Chatter
 The Code states “two persons”; what is meant actually is “two Mortgage Law, that is, the importer becomes the absolute
parties”. For a contract to exist, there must be two parties. owner of the imported merchandise as soon as he had paid its
 A party can be one or more persons. price.
* Husband & Wife: * Other Stipulations:
c. Husbands and wives cannot sell to each other as a protection (3) Other valid stipulations: Venue of Action, Escalation clauses,
of the conjugal partnership. & Limitation of carrier’s liability
d. They can however enter into a contract of agency. * Compromises:
* Auto-contracts: 3. Compromises create reciprocal concessions so that parties
4. It means one person contracts himself. avoid litigation.
5. As a general rule, it is accepted in our law. The existence of a 4. The Court must approve it and once approved, the parties are
contract does not depend on the number of persons but on enjoined to comply strictly and in good faith with the
the number of parties. agreement.
6. There is no general prohibition against auto-contracts; hence, * Juridical Qualification:
it should be held valid. 4. Juridical Qualification is different from validity. It is the law
* Contracts of Adhesion: that determines juridical qualification.
5) Contracts prepared by another, containing provisions that he 5. The contract is to be judged by its character and courts will
desires, and asks the other party to agree to them if he wants look into the substance and nor to the mere from of the
to enter into a contract. transaction.
Example: transportation tickets * Limitations on Stipulation:
f. It is valid contract according to Tolentino because the other 3. An act or a contract is illegal per se is on that by universally
party can reject it entirely. recognized standards us inherently or by its nature, bad,
* Characteristics of Contracts: improper, immoral or contrary to good conscience.
4. 3 elements: * Contrary to law:
3. Freedom of contract is restricted by law for the good of the

page 32

public.
4. It is fundamental postulate that however broad the freedom
of the contracting parties may be, it does not go so far as to
countenance disrespect for or failure to observe a legal
prescription. The Statute takes precedence.
Examples:
3. A promissory note which represents a gambling debt is
unenforceable in the hands of the assignee.
4. Stipulations to pay usurious interests are void.
5. A contract between to public service companies to divide the
territory is void because it impairs the control of the Public
Service Commission.
6. Agreement to declare valid a law or ordinance is void.
* Contrary to Morals:
d) Morals mean good customs or those generally accepted
principles of morality which have received some kind of social
and practical confirmation.
Examples:
d. a promise to marry or nor to marry, to secure legal
separation, or to adopt a child
e. a promise to change citizenship, profession, religion or
domicile
f. a promise not to hold public office or which limits the
performance of official duties
g. a promise to enter a particular political party or separate from
it
h. contracts which limit in an excessive manner the personal or
economic freedom of a person
i. to make an act dependent on money or some pecuniary
value, when it is of such a nature that it should not depend
thereon; payment to kill another.
* Contrary to Public Order:
4. Public order means the public weal or public policy. It
represents the public, social, and legal interest in private law
that which is permanent and essential in institutions, which,
even if favoring some individual to whom the right pertains,
cannot be left to his own will.
5. A contract is said to be against public order if the court finds
that the contract as to the consideration or the thing to be
done, contravenes some established interest of society, or is
inconsistent with sound policy and good morals, or tends
clearly to undermine the security of individual rights.
Examples:
(d) Common carrier cannot stipulate for exemption for liability
unless such exemption is justifiable and reasonable and the
contract is freely and fairly made.
(e) Payment to intermediaries in securing import licenses or
quota allocations.
(f) Contract of scholarship stipulating that the student must
remain in the same school and that he waives his right to
transfer to another school without refunding the school
Art. 1307. Innominate contracts shall be regulated by
the stipulations of the parties, by the provisions of
Titles I & II of this Book, by the rules governing the
most analogous nominate contracts, and by the
customs of the place.
INNOMINATE CONTRACTS – those which lack individuality and
are not regulated by special provisions of law.
OBLIGATIONS AND CONTRACTS
REVIEWER
* Innominate Contracts:
do ut des (I give that you may give) – An agreement in which
A will give one thing to B, so that B will give another thing to
A.
do ut facias (I give that you may do) – An agreement under
which A will give something to B, so that B may do something
for A.
facio ut facias (I do that you may do) – An agreement under
which A does something for B, so that B may render some
other service for A.
facio ut des (I do that you may give) – An agreement under
which A does something for B, so that B may give something
to A.
* Analogous contracts:
3) Innominate contracts, in the absence of stipulations and
specific provisions of law on the matter, are to be governed
by rules applicable to the most analogous contracts.
Art. 1308. The contract must bind both contracting
parties; its validity or compliance cannot be left to the
will of one of them.
* Principle of Mutuality of Contract:
3. The binding effect of contract on both parties is based on the
principles:
 that obligations arising from contracts have the force of law
between the contracting parties
 that there must be mutuality between the parties based on
their essential equality, to which is repugnant to have one
party bound by the contract leaving the other free therefrom.
A contract containing a condition which makes its fulfillment
dependent exclusively upon the uncontrolled will of one of the
contracting parties is void.
* Unilateral Cancellation:
Just as nobody can be forced to enter into a contract, in the
same manner once a contract is entered into, no party can
renounce it unilaterally or without the consent of the other.
Nobody is allowed to enter into a contract, and while the
contract is in effect, leaves, denounces or disavows the
contract to the prejudice of the other.
* When Stipulated:
F. However, when the contract so stipulates that one may
terminate the contract upon a reasonable period is valid.
G. Judicial action for the rescission of the contract is no longer
necessary when the contract so stipulates that it may be
revoked and cancelled for the violation of any of its terms and
conditions. This right of rescission may be waived.
* Express Agreement:
The article reflects a negative form of rescission as valid.
Negative Form of Rescission – a case which is frequent in certain
contracts, for in such case neither is the article violated, nor
is there any lack of equality of the persons contracting; such
as cancellation of a contract due to default or non-payment or
failure to do service.
Art. 1309. The determination of the performance may
be left to a third person, whose decision shall not be
binding until it has been made known to both
contracting parties.
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 Exception to Art. 1308 (Mutuality of Contract) 7.
 A third person may be called upon to decide whether or not
performance has been done for the fulfillment of the contract. 8.
Such decision becomes binding when the contracting parties
have been informed of it.
 General rule: rights and obligations under a contract are
Art. 1310. The determination shall be obligatory if it is
evidently inequitable. In such case, the courts shall  Heirs are not third persons because there is privity of interest
decide what is equitable under the circumstances.
 Exception to Art. 1308 (Mutuality of Contract)
11. However, when the decision cannot be arrived due to 4.
inequity, the courts shall decide what is equitable for the
parties involved.
Art 1311. Contracts take effect only between the
parties, their assigns and heirs, except in case where
the rights and obligations arising from the contracts (3)
are not transmissible by their nature, or by stipulation (4)
or by provision of law. The heir is not liable beyond the (5)
value of the property he received from the decedent.
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 (d)
favor upon a third person.
 1st paragraph of this article embodies the principle of relativity
of contract
 Four exceptional instances where a contract may produce
effect on third persons: Art. 1311-1314
* Parties bound by contract:
3. Generally, only the parties that agreed on the contracts are
bound by the contract.
4. Transmission is possible to the heirs or assignees if so
stipulated and in certain contracts.
* Third persons not bound:
4. It is s general rule that third parties are not bound by the acts 4.
of another.
5. A contract cannot be binding upon and cannot be enforced
against one who is not a party to it, even if he has knowledge
of such contract and has acted with knowledge thereof.
6. Important Latin maxim: Res inter alio acta aliis necque nocet 4.
prodest.
* Third persons affected:
c) There are exceptions to the rule. They are:
A contract creating a real right affects third persons who may 5.
have some right over the thing. (article 1312)
A contract may reduce the properties of a debtor and thus 6.
diminish the available security for the claims of creditors.
(article 1313)
In some cases as in composition in insolvency and in
suspension of payments, certain agreements are made 5.
binding by law on creditors who may not have agreed thereto.
* Enforcement of contract: 6.
d) Only a party to the contract can maintain an action to enforce
the obligations arising under said contract. 7.
* Annulment of contracts: 8.
OBLIGATIONS AND CONTRACTS
REVIEWER
A third person cannot ask for a contract’s annulment because
he is not party to it.
Exception: when it is prejudicial to his rights, the third person
may ask for its rescission.
* Contracts bind heirs:
transmissible to heirs.
between them and their predecessor.
* Intransmissible Contracts:
Exceptions:
contracts of purely personal in nature – partnership and
agency
contracts for payment of money debts are charged not to the
heirs but to the estate of the decedent
* Stipulations for Third Parties:
Second paragraph creates an exception to the first.
When there is such stipulation pour autrui, it can be enforced.
2 Divisions:
those where the stipulation is intended for the sole benefit of
such third person
those where an obligation is due from the promisee to the
third person and the former seeks to discharge it by means of
such stipulation
* Requisites of Article:
To apply the second paragraph, the following are necessary:
stipulation in favor of a third persons
stipulation in favor of a third persons should be a part, not
the whole, of the contract
clear and deliberate conferment of favor upon a third person
by the contracting parties and not a mere incidental benefit or
interest
stipulation should not be conditioned or compensated by any
kind of obligation whatever
that the third person must have communicated his
acceptance to the obligor before its revocation
neither of the contracting parties bears the legal
representation or authorization of the third party
* Beneficiaries:
A stipulation may validly be made in favor of indeterminate
persons, provided that they can be determined in some
manner at the time when the prestation from the stipulation
has to be performed.
* Test of Beneficial Stipulation:
To constitute a valid stipulation pour autrui, it must be the
purpose and intent of the stipulating parties to benefit the
third person, and it is not sufficient that the third person may
be incidentally benefited by the stipulation.
Test of Beneficial Stipulation: intention of the parties as
disclosed by their contract.
To apply this, it matters not whether the stipulation is in the
nature of a gift or whether there is an obligation owing from
the promisee to the third person.
* Acceptance of Third Party:
Stipulation pour autrui has no binding effect unless it is
accepted by the third party.
Acceptance is optional to the third person: he is not obliged to
accept it.
It may be in any form, express or implied, written or oral
There is no time limit to acceptance until the stipulation is
page 34

revoked before the third person’s acceptance.
* Rights of Parties:
c. The original parties, before acceptance of the third persons,
still have the right to revoke or modify the contract.
* Dependence on Contract:
(e) Right of the third person emanates from the contract;
defenses are also available against the contract.
(f) If after the third person has accepted the stipulation and the
parties failed to perform or defaulted, he can sue wither for
specific performance or resolution, with indemnity for
damages, as authorized by article 1191.
* Who may revoke:
(b) General Rule: it pertains to the other contracting party or
promisee, who may exercise it without the consent of the
promisor. But it may be agreed that the revocation should
have the consent of the promisor.
(c) The right of revocation cannot be exercised by the heirs or
assignees of the promisee; they might not want to honor the
decedent’s promise.
* Collective contracts:
(c) Definition: contracts where the law authorizes the will of the
majority to bind a minority to an agreement notwithstanding
the opposition of the latter, when all have a common interest
in the juridical act.
Art 1312. In contracts creating real rights, third
persons who come into possession of the object of the 1.
contract are bound thereby, subject to the provisions of
the Mortgage Law and the Land Registration laws. 2.
* Real Rights in Property
 A real right directly affects property subject to it; hence,
whoever is in possession of such property must respect that
real right.
Art 1313. Creditors are protected in cases of contracts
intended to defraud them.
* Contracts in Fraud of Creditors
 When a debtor enters into a contract in fraud of his creditors,
such as when he alienated property gratuitously without
leaving enough for his creditors (article 1387), the creditor
may ask for its rescission.
Art 1314. Any third person who induces another to
violate his contract shall be liable for damages to the
other contracting party.
* see Arts. 1177 and 1380
* Interference of Third Persons:
 If a third person induced a party to violate his side of the
contract, the other party may sue the third person for
damages.
 Requisites:
 the existence of a valid contract
 knowledge by the third person of the existence of a contract
 interference by the third person in the contractual relation
without legal justification
Jurisprudential basis: Manila Railroad Co. vs. Compañia
Transatlantica
1. ...the process must be accomplished by distinguishing clearly
OBLIGATIONS AND CONTRACTS
REVIEWER
between the right of action arising from the improper
interference with the contract by a stranger thereto,
considered as an independent act generative of civil liability,
and the right of action ex contractu against a party to the
contract resulting form the breach thereof.
* Extent of Liability:
(3) The extent of liability of a third person interfering is limited to
the damage that the other party incurred.
(4) Liability is solidary, the offending party and the third person,
because in so far as the third person is concerned, he
commits a tortious act or a quasi-delict, for which solidary
responsibility arises.
Art 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.
* embodies the Principle of Consensuality:
4. Perfection of a contract, in general: the moment from which it
exists; the juridical tie between the parties arises from that
time.
5. Perfection of Consensual Contracts: the mere consent which
is the meeting of the minds of the parties upon the terms of
the contract
consent may not be expressly given.
* Binding Effect of Consensual Contracts:
The binding force of such contracts are not limited to what is
expressly stipulated, but extends to all consequences which
are the natural effect of the contract, considering its true
purpose, the stipulations it contains, and the object involved.
Art 1316. Real contracts, such as deposit, pledge or
commodatum, are not perfected until the delivery of
the object of the obligation.
 Exception to Art. 1315 or Principle of Consensuality
* Perfection of real contracts:
Real contract is not perfect by mere consent. The delivery of
the thing is required.
Delivery is demanded, neither arbitrary nor formalistic.
Art 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.
* Ratification necessary:
 A contract entered into in behalf of another who has not
authorized it is not valid or binding on him unless he ratifies
the transaction.
 When ratified, he is estopped to question the legality of the
transaction.
 Kinds of ratification:
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1. express
2. implied
 The ratification has a retroactive effect from the moment of
its celebration, not from its ratification.
 Before ratification, the contract is in a state of suspense; its
effectivity depends on its ratification. The other party must
not do anything prior to ratification that shall prejudice the
rights of the other party.
 When not ratified, the person who entered into a contract in
behalf of another without authority becomes liable to the
other party, if he did not inform the latter that he does not
have any representation or authority.
 When such deficiency or lack of authority has been relayed to
the other, he cannot claim for damages against he person
without authority.
CHAPTER 2
ESSENTIAL REQUISITES OF CONTRACTS
GENERAL PROVISIONS
Art. 1318. There is no contract unless the following
requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the
contract;
(3) Cause of the obligation which is established. (1261)
 There must be at least 2 parties to every contract. The
number of parties, however, should not be confused with the
number of persons.
 A single person can represent 2 parties, and one party can be
composed of 2 or more persons.
 Consent presupposes capacity. There is no effective consent
in law without the capacity to give such consent.
 REQUISITES of CONTRACT IN GENERAL:
- may either be =
■ ESSENTIAL= without which there would be no contract;
 COMMON = present in all contracts
= Consent, object and cause [COC]
 SPECIAL =present only in certain contracts (e.g. delivery in
real contracts or form in solemn ones)
 EXTRAORDINARY = peculiar to a specific contract (e.g. price
in a contract of sale)
■ NATURAL = derived from the nature of the contract, and as a
consequence, ordinarily accompany the same, although they
can be excluded by the contracting parties if they so desire
■ ACCIDENTAL = those which exist only when the contracting
parties expressly provide for them for the purpose of limiting
or modifying the normal effects of the contract.
 In descending order, the law imposes the essential elements,
presumes the natural and authorizes the accidental.
 Conversely, the will of the contracting parties conforms to the
first, accepts or repudiates the second and establishes the
third.
SECTION 1
OBLIGATIONS AND CONTRACTS
REVIEWER
CONSENT
Art. 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. (1262a)
 CONSENT (cum sentire) : agreement of wills.
 CONSENT (as applied to contracts) : concurrence of the wills
of the contracting parties with respect to the object and the
cause which shall constitute the contract
 Requisites:
 consent must be manifested by the concurrence of the offer
and the acceptance (Arts. 1319-1326);
 contracting parties must possess the necessary legal capacity
(Arts. 1327-1329); and
 consent must be intelligent, free, spontaneous and real (Arts.
1330-1346)
 Forms: Consent may either be express or implied. There is
also a presumptive consent, which is the basis of quasi-
contracts.
 Manifestation: Consent is manifested by the concurrence of
offer and acceptance with respect to the object and the cause
of the contract. Once there is such a manifestation, the period
or stage of negotiation is terminated. If consensual, the
contract is perfected.
 A unilateral proposition must be definite (distinguished from
mere communications), complete (stating the essential and
non-essential conditions desired by the offeror), and
intentional (serious) when accepted by another party for such
proposition to form a valid contract.
 According to Tolentino, however, a unilateral promise is not
recognized by our Code as having obligatory force. To be so,
there must be an acceptance that shall convert it into a
contract.
 Mental reservation—when a party makes a declaration but
secretly does not desire the effects of such declaration. The
mental reservation of the offeror, unknown to the other,
cannot affect the validity of the offer.
 Complex offers: In cases where a single offer involves two or
more contracts, the perfection where there is only partial
acceptance will depend upon the relation of the contracts
between themselves, whether due to their nature, or due to
the intent of the offeror.
 Simultaneous offers: As a rule, the offer and the acceptance
must be successive in order that a contract may arise. When
there are crossed offers, however, no contract is formed
unless one of the parties accepts the offer received by him.
 Acceptance must not qualify the terms of the offer to produce
a contract. It should be unequivocal,
 Successive agreements: If the intention of one or both parties
is that there be concurrence on all points, the contract is not
perfected if there is a point of disagreement—even if there is
already agreement on the essential elements of the contract.
page 36

 Meanwhile, if there is no declaration that agreement on an
accessory or subordinate matter is necessary, the contract
will be perfected as soon as there is concurrence on the
object and the cause.
 Intermediary: If he carries the offer and the acceptance in
written form, the rule applicable to acceptance by letter will
apply (see illustration below). If carries the offer verbally, and
the acceptance is also verbal, the perfection of the contract
will be at the moment he makes the acceptance known to the
offeror.
 By correspondence: When the offer to buy was written or
prepared in Tokyo, and the acceptance thereof in Manila was
sent by the offeree by airmail to and received by the offeror
in Tokyo, the contract is presumed to have been entered into
in Tokyo.
 Effect of silence: Modern jurists require the following in order
that silence may produce the effect of tacit acceptance—1)
that there is a duty or the possibility to express oneself; 2)
that the manifestation of the will cannot be interpreted in any
other way; 3) that there is a clear identity in the effect of the
silence and the undisclosed will.
 The general rule, however, is that silence is ambiguous and
does not authorize any definite conclusion. Circumstances will
have to be taken into consideration.
 Withdrawal of offer: Both the offer and the acceptance can be
revoked before the contract is perfected.
Art. 1320. An acceptance may be express or implied.
(n)
 Implied acceptance may arise from acts or facts which reveal
the intent to accept, such as the consumption of the things
sent to the offeree, or the fact of immediately carrying out of
the contract offered.
Art. 1321. The person making the offer may fix the
time, place, and manner of acceptance, all of which
must be complied with. (n)
3. The offer with a period lapses upon the termination of the
period. Thus the acceptance, to become effective, must be
known to the offeror before the period lapses.
Art. 1322. An offer made through an agent is accepted
from the time acceptance is communicated to him. (n)
 An intermediary who has no power to bind either the offeror
or the offeree is not an agent; his situation is similar to that
of a letter carrier.
Art. 1323. An offer becomes ineffective upon the death,
civil interdiction, insanity, or insolvency of either party
before acceptance is conveyed. (n)
 The disappearance of either party or his loss of capacity
before perfection prevents the contractual tie from being
formed.
Art. 1324. When the offerer has allowed the offeree a
certain period to accept, the offer may be withdrawn at
any time before acceptance by communicating such
withdrawal, except when the option is founded upon a
consideration, as something paid or promised. (n)
OBLIGATIONS AND CONTRACTS
REVIEWER
c) It is not the moment of sending but the time of receipt of the
revocation or acceptance which is controlling.
d) The delay in transmission is at the risk of the sender, because
he is the one who selects the time and the manner of making
the transmission.
e) Contract of Option: This is a preparatory contract in which
one party grants to the other, for a fixed period and under
specified conditions, the power to decide whether or not to
enter into a principal contract. It must be supported by an
independent consideration, and the grant must be exclusive.
Art. 1325. Unless it appears otherwise, business
advertisements of things for sale are not definite
offers, but mere invitations to make an offer. (n)
 Sales advertisements: A business advertisement of things for
sale may or may not constitute a definite offer. It is not a
definite offer when the object is not determinate.
 When the advertisement does not have the necessary
specification of essential elements of the future contract, it
cannot constitute of an offer. The advertiser is free to reject
any offer that may be made.
Art. 1326. Advertisements for bidders are simply
invitations to make proposals, and the advertiser is not
bound to accept the highest or lowest bidder, unless
the contrary appears. (n)
d) In judicial sales, however, the highest bid must necessarily be
accepted.
Art. 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)
 Unemancipated minors cannot enter into valid contracts, and
contracts entered into by them are not binding upon them,
unless upon reaching majority they ratify the same.
 Insane persons: It is not necessary that there be a previous
of declaration of mental incapacity in order that a contract
entered into by a mentally defective person may be annulled;
it is enough that the insanity existed at the time the contract
was made.
 Being deaf-mute is not by itself alone a disqualification for
giving consent. The law refers to the deaf-mute who does not
know how to write.
Art. 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)
 The use of intoxicants does not necessarily mean a complete
loss of understanding. The same may be said of drugs. But a
person, under the influence of superabundance of alcoholic
drinks or excessive use of drugs, may have no capacity to
contract.
 In hypnotism and somnambulism, the utter want of
understanding is a common element.
f) Art. 1329. The incapacity declared in Article 1327 is
subject to the modifications determined by law, and is
understood to be without prejudice to special
page 37

disqualifications established in the laws. (1264)
 The Rules of Court provide a list of incompetents who need
guardianship: persons suffering from the penalty of civil
interdiction, hospitalized lepers, prodigals, deaf and dumb
who are unable to write and read, those of unsound mind
(even though they have lucid intervals), and persons not
being of unsound mind but by reason of age, disease, weak
mind, and other similar causes cannot, without outside aid,
take care of themselves and manage their
property—becoming an easy prey for deceit and exploitation.
 Special disqualification: Persons declared insolvent or
bankrupt, husband and wife (incapacity to sell property to
each other).
 The incapacity to give consent to contracts renders the
contract merely voidable, while special disqualification makes
it void.
Art. 1330. A contract where consent is given through
mistake, violence, intimidation, undue influence, or
fraud is voidable. (1265a)
6. Requisites of consent: 1) It should be intelligent or with an
exact notion of the matter to which it refers; 2) It should be
free; and 3) It should be spontaneous.
7. Defects of the will: intelligence is vitiated by error; freedom
by violence, intimidation, or undue influence; and spontaneity
by fraud.
Art. 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)
 Ignorance and error are 2 different states of mind. Ignorance
means the complete absence of any notion about a particular
matter, while error or mistake means a wrong or false notion
about such matter.
 Annulment of contract on the ground of error is limited to
cases in which it may reasonably be said that without such
error the consent would not have been given.
 An error as to the person will invalidate consent when the
consideration of the person has been the principal cause of
the same.
 Mistake as to qualifications, even when there is no error as to
person, is a cause vitiating consent, if such qualifications have
been the principal cause of the contract.
 A mistake as to the motive of a party does not affect the
contract; to give it such effect would destroy the stability of
contractual relations. When the motive has, however, been
expressed and was a condition of the consent given,
annulment is proper—because an accidental element is, by
the will of the parties, converted into a substantial element.
Art. 1332. When one of the parties is unable to read, or
OBLIGATIONS AND CONTRACTS
REVIEWER
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)
Art. 1333. There is no mistake if the party alleging it
knew the doubt, contingency or risk affecting the
object of the contract. (n)
 To invalidate consent, the error must be excusable. It must
be a real error and not one that could have been avoided by
the party alleging it. The error must arise from facts unknown
to him.
 A mistake that is caused by manifest negligence cannot
invalidate a juridical act.
Art. 1334. Mutual error as to the legal effect of an
agreement when the real purpose of the parties is
frustrated, may vitiate consent. (n)
 Three requisites under this article: 1) the error must be as to
the legal effect of an agreement; 2) it must be mutual; and 3)
the real purpose of the parties is frustrated.
 The legal effects include the rights and obligations of the
parties, not as stipulated in the contract, but as provided by
the law. The mistake as to these effects, therefore, means an
error as to what the law provides should spring as
consequences from the contract in question.
 An error as to the nature or character is always essential, and
makes the act juridically inexistent.
Art. 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.
To determine the degree of intimidation, the age, sex
and condition of the person shall be borne in mind.
A threat to enforce one's claim through competent
authority, if the claim is just or legal, does not vitiate
consent. (1267a)
g. Duress is that degree of constraint or danger either actually
inflicted (violent) or threatened and impending (intimidation),
sufficient to overcome the mind and will of a person of
ordinary firmness.
h. Violence refers to physical force or compulsion, while
intimidation refers to moral force or compulsion.
i. Requisites of violence: 1) That the physical force employed
must be irresistible or of such degree that the victim has no
other course, under the circumstances, but to submit; and 2)
that such force is the determining cause in giving the consent
to the contract.
j. Requisites of intimidation: 1) that the intimidation must be
the determining cause of the contract, or must have caused
the consent to be given; 2) that the threatened act be unjust
or unlawful; 3) that the threat be real and serious, there
being an evident disproportion between the evil and the
resistance which all men can offer; and 4) that it produces a
reasonable and well-grounded fear from the fact that the
person from whom it comes has the necessary means or
page 38

ability to inflict the threatened injury.
Art. 1336. Violence or intimidation shall annul the
obligation, although it may have been employed by a
third person who did not take part in the contract.
(1268)
Art. 1337. There is undue influence when a person
takes improper advantage of his power over the will of
another, depriving the latter of a reasonable freedom of
choice. The following circumstances shall be
considered: the confidential, family, spiritual and other
relations between the parties, or the fact that the
person alleged to have been unduly influenced was
suffering from mental weakness, or was ignorant or in
financial distress. (n)
 In intimidation, there must be an unlawful or unjust act which
is threatened and which causes consent to be given, while in
undue influence there need not be an unjust or unlawful act.
In both cases, there is moral coercion.
 Moral coercion may be effected through threats, expressed or
implied, or through harassing tactics.
 Undue influence is any means employed upon a party which,
under the circumstances, he could not well resist, and which
controlled his volition and induced him to give his consent to
the contract—which otherwise he would not have entered
into.
 A contract of adhesion is one in which one of the parties
imposes a ready-made form of contract, which the other
party may accept or reject, but which the latter cannot
modify. These are contracts where all the terms are fixed by
one party and the other has merely “to take it or leave it.”
 A contract of adhesion is construed strictly against the one
who drew it. Public policy protects the other party against
oppressive and onerous conditions.
Art. 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.
(1269)
 Fraud is every kind of deception, whether in the form of
insidious machinations, manipulations, concealments, or
misrepresentations, for the purpose of leading another party
into error and thus executing a particular act.
 Fraud produces qualified error; it induces in the other party
an inexact notion of facts. The will of another is maliciously
misled by means of false appearance of reality.
 “Insidious words or machinations” include false promises;
exaggeration of hopes or benefits; abuse of confidence; and
fictitious names, qualifications, or authority.
 Kinds of fraud: 1) dolo causante—which determines or is the
essential cause of the consent; 2) dolo incidente—which does
not have such a decisive influence and by itself cannot cause
the giving of consent, but refers only to some particular or
accident of the obligation.
 Dolo causante can be a ground for annulment; dolo incident
cannot be a ground for annulment.
 The result of fraud is error on the part of the victim.
 Requisites of fraud: 1) it must have been employed by one
OBLIGATIONS AND CONTRACTS
REVIEWER
contracting party upon the other; 2) it must have induced the
other party to enter into the contract; 3) it must have been
serious; 4) and it must have resulted in damage or injury to
the party seeking annulment.
Art. 1339. Failure to disclose facts, when there is a
duty to reveal them, as when the parties are bound by
confidential relations, constitutes fraud. (n)
 Silence or concealment, by itself, does not constitute fraud,
unless there is a special duty to disclose certain facts, or
unless according to good faith and the usages of commerce,
the communication should be made.
 Thus, the innocent non-disclosure of a fact does not affect the
formation of the contract or operate to discharge the parties
from their agreement.
Art. 1340. The usual exaggerations in trade, when the
other party had an opportunity to know the facts, are
not in themselves fraudulent. (n)
c) Tolerated fraud includes minimizing the defects of the thing,
exaggeration of its good qualities, and giving it qualities that
it does not have. This is lawful misrepresentation known as
dolus bonus. This is also called lawful astuteness.
d) These misrepresentations are usually encountered in fairs,
markets, and almost all commercial transactions. They do not
give rise to an action for damages, either because of their
insignificance or because the stupidity of the victim is the real
cause of his loss.
e) The thinking is that where the means of knowledge are at
hand and equally available to both parties, one will not be
heard to say that he has been deceived.
Art. 1341. 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)
c. An opinion of an expert is like a statement of fact, and if
false, may be considered a fraud giving rise to annulment.
Art. 1342. Misrepresentation by a third person does not
vitiate consent, unless such misrepresentation has
created substantial mistake and the same is mutual.
(n)
 The general rule is that the fraud employed by a third person
upon one of the parties does not vitiate consent and cause
the nullity of a contract.
 Exception: If one of the parties is in collusion with the third
person, or knows of the fraud by the third person, and he is
benefited thereby, he may be considered as an accomplice to
the fraud, and the contract becomes voidable.
Art. 1343. Misrepresentation made in good faith is not
fraudulent but may constitute error. (n)
Art. 1344. In order that fraud may make a contract
voidable, it should be serious and should not have been
employed by both contracting parties.
Incidental fraud only obliges the person employing it to
pay damages. (1270)
 Fraud is serious when it is sufficient to impress, or to lead an
ordinarily prudent person into error; that which cannot
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 OBLIGATIONS AND CONTRACTS
REVIEWER

deceive a prudent person cannot be a ground for nullity.

 Besides being serious, the fraud must be the determining
cause of the contract. It must be dolo causante.
 When both parties use fraud reciprocally, neither one has an
action against the other; the fraud of one compensates that
of the other. Neither party can ask for the annulment of the
contract.

Art. 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)
 Simulation is the declaration of a fictitious will, deliberately
made by agreement of the parties, in order to produce, for
the purposes of deception, the appearance of a juridical act
which does not exist or is different from that which was really
executed.

Art. 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)
c. In absolute simulation, there is color of a contract, without
any substance thereof, the parties not having any intention to
be bound.
d. In relative simulation, the parties have an agreement which
they conceal under the guise of another contract. Example: a
deed of sale executed to conceal donation.
e. 2 juridical acts under relative simulation: ostensible act, that
which the parties pretend to have executed; hidden act, that
which consists the true agreement between the parties.

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SECTION 2. - Object of Contracts
 The object of a contract is its subject matter. It is the thing,
right, or service which is the subject-matter of the obligation
arising from the contract.
 Requisites: 1) It must be within the commerce of man; 2) it
must be licit, or not contrary to law, morals, good customs,
public policy, or public order; 3) it must be possible ; and 4) it
must be determinate as to its kind.
Art. 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.
3. 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)
 Things which are outside the commerce of man:  Requisites: 1) it must exist; 2) it must be true; and 3) it must
1. Services which imply an absolute submission by those who
render them, sacrificing their liberty, their independence or
beliefs, or disregarding in any manner the equality and
dignity of persons, such as perpetual servitude or slavery;
1. Personal rights, such as marital authority, the status and
capacity of a person, and honorary titles and distinctions;
2. Public offices, inherent attributes of the public authority, and
political rights of individuals, such as the right of suffrage; 6.
3. Property, while they pertain to the public dominion, such as
the roads, plazas, squares, and rivers;
4. Sacred things, common things, like the air and the sea, and
res nullius, as long as they have not been appropriated. 7.
 Even future things can be the object of contracts, as long as
they have the possibility or potentiality of coming into
existence.
 The law, however, generally does not allow contracts on
future inheritance. A contract entered into by a 8.
fideicommissary heir with respect to his eventual rights would
be valid provided that the testator has already died. The right
of a fideicommissary heir comes from the testator and
not from the fiduciary.
Art. 1348. Impossible things or services cannot be the
object of contracts. (1272)  Cause is the objective, intrinsic, and juridical reason for the
 Things are impossible when they are not susceptible of
existing, or they are outside the commerce of man. Personal
acts or services impossible when they beyond the ordinary
strength or power of man.
 The impossibility must be actual and contemporaneous with
the making of the contract, and not subsequent thereto.
 The impossibility is absolute or objective when nobody can
perform it; it is relative or subjective when due to the special
1.
conditions or qualifications of the debtor it cannot be
performed.
 The absolute or objective impossibility nullifies the contract; 2.
the relative or subjective does not.
Art. 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
OBLIGATIONS AND CONTRACTS
REVIEWER
existence of the contract, provided it is possible to
determine the same, without the need of a new
contract between the parties. (1273)
 The thing must have definite limits, not uncertain or arbitrary.
 The quantity of the of the object may be indeterminate, so
long as the right of the creditor is not rendered illusory.
SECTION 3. - Cause of Contracts
 The cause of the contract is the “why of the contract,” the
immediate and most proximate purpose of the contract, the
essential reason which impels the contracting parties to enter
into it and which explains and justifies the creation of the
obligation through such contract.
 The cause as to each party is the undertaking or prestation to
be performed by the other. The object of the contract is the
subject matter thereof (e.g., the land which is sold in a sales
contract). Consideration, meanwhile, is the reason, motive, or
inducement by which a man is moved to bind himself by an
agreement.
be licit.
Art. 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)
In onerous contracts, the cause need not be adequate or an
exact equivalent in point of actual value, especially in dealing
with objects which have a rapidly fluctuating price. There are
equal considerations.
A remuneratory contract is one where a party gives
something to another because of some service or benefit
given or rendered by the latter to the former, where such
service or benefit was not due as a legal obligation. The
consideration of one is greater than the other’s.
A gratuitous contract is essentially an agreement to give
donations. The generosity or liberality of the benefactor is the
cause of the contract. There is nothing to equate.
Art. 1351. The particular motives of the parties in
entering into a contract are different from the cause
thereof. (n)
existence of the contract itself, while motive is the
psychological, individual, or personal purpose of a party to
the contract.
 As a general principle, the motives of a party do not affect the
validity or existence of a contract. Exceptions: When motive
predetermines the purpose of the contract, such as
 When the motive of a debtor in alienating property is to
defraud his creditors, the alienation is rescissible;
When the motive of a person in giving his consent is to avoid
a threatened injury, as in the case of intimidation, the
contract is voidable; and
When the motive of a person induced him to act on the basis
of fraud or misrepresentation by the other party, the contract
is voidable.
Art. 1352. Contracts without cause, or with unlawful
cause, produce no effect whatever. The cause is
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unlawful if it is contrary to law, morals, good customs,
public order or public policy. (1275a)
Art. 1353. The statement of a false cause in contracts
shall render them void, if it should not be proved that
they were founded upon another cause which is true
and lawful. (1276)
 Where the cause stated in the contract is false, the latter may
nevertheless be sustained by proof of another licit cause.
Art. 1354. Although the cause is not stated in the
contract, it is presumed that it exists and is lawful,
unless the debtor proves the contrary. (1277)
 Unless the contrary is proved, a contract is presumed to have
a good and sufficient consideration. This presumption applies
when no cause is stated in the contract.
Art. 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)
 In case of lesion or inadequacy of cause, the general rule is
that the contract is not subject to annulment.
 In cases provided by law, however, such as those mentioned
in Art 1381, the lesion is a ground for rescission of the
contract.
 Gross inadequacy naturally suggests fraud and is evidence
thereof, so that it may be sufficient to show it when taken in
connection with other circumstances.
CASES
SANCHEZ VS RIGOS
June 14, 1972
Nicolas Sanchez and Severina Rigos executed an “Option to
Purchase” whereby Rigos “agreed, promised, and committed’
to sell to Sanchez a parcel of land for P1,510. The
understanding was that the Option will be deemed
“terminated and elapsed” if Sanchez fails to exercise his right
to buy said property within 2 years from the execution of the
agreement. Sanchez did tender several payments within the
specified period but Rigos rejected said payments, arguing
that the Option was a unilateral promise to sell and was
unsupported by any valuable consideration and by force of
the Civil Code. And therefore, pointed out Rigos, the Option
was null and void.
HELD: The Option was not a contract to buy and sell. It did
not impose upon Sanchez the obligation to purchase Rigos’
property. It merely granted Sanchez an option to buy. There
is nothing in the contract to indicate that Rigos’ agreement or
promise was supported by a consideration “distinct from the
price” stipulated for the sale of land.
Under Arts 1324 and 1479 of the Civil Code, however, a
unilateral promise to sell—although not binding as a contract
in itself for lack of a separate consideration—nevertheless
generates a bilateral contract of purchase and sale upon
acceptance.
In other words, since there may be no valid contract without
a cause or consideration, the promisor is not bound by his
promise and may, accordingly, withdraw it. Pending notice of
his withdrawal, his accepted promise partakes of the nature
of an offer to sell which, if accepted as in the case at bar,
results in a perfected contract of sale. Decision: for Sanchez.
OBLIGATIONS AND CONTRACTS
REVIEWER
“An option implies the legal obligation to keep the offer to sell
open for the time specified. It could be withdrawn before
acceptance, if there was no consideration for the option. But
once the offer to sell is accepted, a bilateral promise to sell
and to buy ensues, and the offeree ipso facto assumes the
obligations of a purchaser.” – J. Antonio, concurring opinion.
HILL VS VELOSO
July 24, 1915
Maximina Veloso claimed that she was tricked by her son-in-
law Domingo Franco into signing a blank document,
unknowingly binding her to a debt of P6,319 to Michael & Co.
She thought, according to her, she was made to sign to
acknowledge an obligation to pay for the guardianship of the
minor children of Potenciano Veloso (her brother?). And that
she learned of the true nature of the document (a promissory
note to Michael & Co.) only after Franco’s death. But, clearly,
her signatures on the promissory note were obtained by
means of fraud.
HELD: Granted there was deceit in executing the Promissory
Note to Michael & Co., still the deceit and error alleged could
not annul the consent of Veloso nor exempt her from the
obligation incurred. The deceit, in order that it may annul the
consent, must be that which the law defines as a cause.
“There is deceit when by words or insidious machinations on
the part of one of the contracting parties, the other is induced
to execute a contract which without them he would not have
made.” (Art 1269, Civil Code)
Franco was not one of the contracting parties who may have
deceitfully induced the other contracting party, Michael & Co.,
to execute the contract. The one and the other of the
contracting parties, to whom the law refers, are the active
and passive subjects of the obligation, the party of the first
part and the party of the second part who execute the
contract. The active subject and the party of the first part of
the Promissory Note in question was Michael & Co., and the
passive subject and party of the second part were Veloso and
Franco. Veloso and Franco, therefore, composed a single
contracting party in contractual relation with or against
Michael & Co.
Franco, like any other person who might have induced Veloso
into signing the Promissory Note under the influence of
deceit, would be but a third person. Under the Civil Code,
deceit by a third person does not in general annul consent.
This deceit may give rise to more or less extensive and
serious responsibility on the part of the third person (Franco)
and a corresponding right of action for the contracting party
prejudiced (Veloso). [Veloso will probably just have to file an
action against the estate of Franco.]
Veloso ordered to pay Michael & Co.
MAPALO VS MAPALO
May 19, 1966
Spouses Miguel and Candida Mapalo—simple and illiterate
farmers—donated the eastern half of their property to Maximo
Mapalo, Miguel's brother, who was about to get married.
Maximo, however, deceived Miguel and Maxima into signing a
deed of absolute sale over the entire property in his favor.
Maximo and his notary public led the spouse to believe that
the deed of sale covered only the eastern half of the property.
The deed even stated an alleged consideration of P500, which
the spouses never received. Thirteen years later, Maximo sold
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the entire property to Evaristo, Petronila, Pacifico, and Miguel
Narciso—who first took possession of the eastern half and
later demanded Miguel and Candida to vacate the western
half. The spouses moved to declare the deeds of sale over the
western half of the property null and void.
HELD: Consent in the case at bar was admittedly given, albeit
under the influence of fraud. Accordingly, said consent,
although defective, did exist. In such case, the defect in the
consent would provide a ground for annulment of a voidable
contract, not a reason for nullity ab initio.
As for the cause or consideration, liberality did not exist as
regards the western portion of the Mapalo property. There
was no donation with regard to the same. Under the Civil
Code, contracts without a cause or consideration produce no
effect whatsoever. The alleged consideration of P500 in the
deed of sale was totally absent as it was not received by the
spouses. Decision: for Miguel and Candida.
SANTOS VS COURT OF APPEALS
August 1, 2000
Rosalinda Santos sold her property in Parañaque to Carmen
Caseda. Caseda gave an initial payment and took possession
of the property, which she then leased out. Caseda, however,
suffered from bankruptcy and failed to pay the remaining
balance. Santos re-possessed the property and collected the
rentals from the tenants thereof. Caseda sold her fishpond in
Batangas and raised money enough to pay the balance.
Santos, however, wanted a higher price now taking into
consideration the real estate boom in Metro Manila. Caseda
filed a petition either to have Santos execute the final deed of
conveyance over the property or, in default thereof, to
reimburse the amount she had already paid.
HELD: Taking into consideration the essential requisites of a
contract, the Court concluded that there was no transfer of
ownership simultaneous with the delivery of the property
purportedly sold to Caseda. The records clearly showed that,
notwithstanding the fact that Caseda took possession of the
property, the title had remained always in the name of
Santos. Thus, the contract between Santos and Caseda was a
contract to sell—ownership is reserved by the vendor and is
not to pass until full payment of the purchase price.
Since the case at bar involves a contract to sell, a judicial
rescission of the agreement is not necessary. In a contract to
sell, the payment of the purchase price is a positive
suspensive condition. Failure to pay the price agreed upon is
not a mere breach, casual or serious, but a situation that
prevents the obligation of the vendor to convey title from
acquiring an obligatory force. Thus, if the vendor should eject
the vendee for failure to meet the condition precedent, he is
enforcing the contract and not rescinding it.
For comparative purposes, in a contract of sale, non-payment
of the price is a negative resolutory condition. The vendor has
lost ownership of the thing sold and cannot recover it unless
the contract is rescinded and set aside.
Decision: For Santos.
SANTOS VS HEIRS OF JOSE MARIANO AND ERLINDA
MARIANO-VILLANUEVA
October 24, 2000
Spouses Macario Mariano and Irene Peña-Mariano owned 6
parcels of land. When Macario died and left no will, his share
over the properties passed on to his children and Irene. Irene,
OBLIGATIONS AND CONTRACTS
REVIEWER
who was appointed the heirs’ lawful representative and agent,
subsequently executed an Affidavit of Merger whereby she
merged unto her name the land titles covering all the
properties in question. Over the years, she remarried and
disposed of all 6 parcels of land in favor of one Raul Santos.
The children learned of all this only after Irene’s death.
ISSUE: Whether the supposed contracts of sale of various
pieces of real property entered into between Irene as vendor
and the respective vendees were bona fide contracts, legal,
and binding upon the children—who were registered co-
owners of said real properties.
HELD: Even with a duly executed written document
purporting to be a contract of sale, the Court cannot rule that
the subject contracts of sale are valid, when the evidence
presented in the courts below show that there had been no
meeting of the minds between the supposed seller and
corresponding buyers of the parcels of land in the case at bar.
The case is replete with evidence tending to show that there
was really no intention to sell the subject properties as far as
the children were concerned.
MMDA vs JANCOM
Facts: Jancom won the bid to operate the waste disposal site
in San Mateo, Rizal under the Build-Operate-Transfer (BOT)
scheme.Aafter a series of meetings and consultations
between the negotiating teams of EXECOM and JANCOM, the
BOT Contract for the waste-to-energy project was signed
between JANCOM and the Philippine Government, represented
by the Presidential Task Force on Solid Waste Management
through DENR Secretary Victor Ramos, CORD-NCR Chairman
Dionisio dela Serna, and MMDA Chairman Prospero Oreta. The
BOT contract was submitted to President Ramos for approval
but this was too close to the end of his term which expired
without him signing the contract. President Ramos, however,
endorsed the contract to incoming President Joseph E.
Estrada. However, due to the clamor of residents of Rizal
province, President Estrada had, in the interim, also ordered
the closure of the San Mateo landfill. Due to these
circumstances, the Greater Manila Solid Waste Management
Committee adopted a resolution not to pursue the BOT
contract with JANCOM. MMDA decided to hold a new bidding
for other waste management in other locations. Jancom won
a court order compelling the MMDA to push through with their
contract.
Issue: Was there a valid contract despite the lack of signature
by the President and valid notice of award?
Held: Yes
Ratio:
1. Article 1315 of the Civil Code, provides that a contract is
perfected by mere consent. Consent, on the other hand, is
manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the
contract (See Article 1319, Civil Code).
2. In the case at bar, the signing and execution of the
contract by the parties clearly show that, as between the
parties, there was a concurrence of offer and acceptance with
respect to the material details of the contract, thereby giving
rise to the perfection of the contract.
3. To illustrate, when petitioners accepted private
respondents’ bid proposal (offer), there was, in effect, a
meeting of the minds upon the object (waste management
page 43

project) and the cause (BOT scheme). Hence, the perfection
of the contract.
4. Despite the lack of valid notice of award, the defect was
cured by the subsequent execution of the contract entered
into and signed by authorized representatives of the parties;
5. In any event, petitioners, as successors of those who
previously acted for the government (Chairman Oreta, et al),
are estopped from assailing the validity of the notice of award
issued by the latter. As private respondents correctly
observed, in negotiating on the terms and conditions of the
BOT contract and eventually signing said contract, the
government had led private respondents to believe that the
notice of award given to them satisfied all the requirement of
the law.
6. There being a perfected contract, MMDA cannot revoke or
renounce the same without the consent of the other. From
the moment of perfection, 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 1315,
Civil Code). The contract has the force of aw between the
parties and they are expected to abide in good faith by their
respective contractual commitments, not weasel out of them.
Just as nobody can be forced to enter into a contract, in the
same manner, once a contract is entered into, no party can
renounce it unilaterally or without the consent of the other. It
is a general principle of law that no one may be permitted to
change his mind or disavow and go back upon his own acts,
or to proceed contrary thereto, to the prejudice of the other
party. Nonetheless, it has to be repeated that although the
contract is a perfected one, it is still ineffective or
unimplementable until and unless it is approved by the
President.
Palma vs Canizares
Facts:
Saturnina Salazar and Juan Canizares took part in a game of
chance. Canizares lost and as a result thereof, became
indebted to Salazar in the amount of $5,000. This was
evidenced in a promissory note signed by the brother-in-law
of Canizares. Canizares paid 500, leaving a balance of 4500.
Salazar meanwhile, received 4500 from Palma. She indorsed
the note to Palma who demanded the sum from Canizares.
Issue: Is Canizares under obligation to pay Palma?
Held: No
Ratio:
It is indubitable that the indebtedness of 5,000 pesos
expressed in the note referred to arose in a monte game, a
game of chance, and therefore expressly prohibited by law.
As the law does not allow an action for the recovery of money
won in such games (art. 1798 of the Civil Code), it follows
that the action brought by Palma can not be maintained, nor
can any judgment be rendered by the courts directing the
payment of the sum claimed in the complaint.
The undertaking expressed in the note executed by a third
person in favor of the woman, Salazar, by order of Cañizares
does not constitute a ratification or confirmation of the
obligation contracted to pay the sum lost in a monte game.
Furthermore, it has not been proven that Canizares gave his
consent to the subrogation
Thus, the obligation of the supposed debtor, because of its
OBLIGATIONS AND CONTRACTS
REVIEWER
vicious origin, is not enforceable in court, it follows that no
recovery can be had in this suit.
Dumez vs. NLRC
Facts:
Petitioner is a French company which hires Filipino workers
through a ECCOI, a company existing in the
Philippines. Dumez needed 4 Senior Draftsmen who were
willing to work for $600/month at Saudi Arabia. Private
respondent Jose was among the draftsmen that were hired by
ECCOI in behalf of Dumez. The employment agreement of
Jose showed that his monthly base salary would be
$680. This discrepancy was discovered when Dumez began
preparing the papers related to respondent’s first month
salary. The discrepancy was reported to ECCOI who in turn
claimed that it was a mere typographical error. Meanwhile,
Jose insisted on being paid $680 per month as stated in his
employment agreement. Dumez eventually dismissed Jose on
the grounds of “surplus employee, excess of manpower and
retrenchment.” A case was filed by Jose before the POEA and
then before the NLRC who ordered Dumez to pay the
respondent’s salary for the unexpired portion of 1 year.
Issue: WON there existed a valid contract between Dumez
and Jose?
Held: NO
Ratio:
The amount of monthly salary base was a prime consideration
of the parties in signing the employment contract. Mutual
mistake, however, prevented the proposed contract from
arising.
The mutual mistake here should be distinguished from a
mistake which vitiates consent in a voidable contract.
The element of consent was not present at all in this
case. There was no concurrence of the offer and acceptance
upon the subject matter and the cause which are to constitute
the contract.
In a situation wherein one or both parties consider that
certain matters or specifics, in addition to the subject matter
and the causa should be stipulated and agreed upon, the area
of agreement must extend to all points that the parties deem
material or there is no contract.
Somoso vs. CA
Facts:
The spouses Somosa purchased from Conpinco one unit VHS
(23k) with accessories and one unit Cinema Vision (124.5k)
with complete accessories. They made partial payments which
were evidenced by provisional receipts. However, by Aurgust
27, 1979, no further payments were made. On November of
the same year, petitioner demanded that Conpinco pull out
the VHS unit because “it was not the unit requested for
demonstration.” Petitioner also requested the return of the
15k deposit. In response, conpinco sent petitioners a
collection letter for the Cinema Vision and for the National
VHS. Petitioners are claiming that there was no perfected
contract of sale between them and respondent Conpinco as
there was no meeting of the minds of the parties upon the
thing which is the object of the contract and upon the price of
the said thing. Petitioners claim they only requested a
demonstration.
Issue: WON there was a contract?
Held: YES
page 44

Ratio:
The claims of petitioners are belied by the two documents of
sale signed by the spouses as buyers which documents were
notarized.
The acts of petitioners before and after the delivery of the
National VHS negates any claim that the set was delivered for
demonstration purposes only and that there was no meeting
of the minds between the parties as to the subject of the sale
and its price. (delivery of checks as partial downpayment
etc.)
Yuvienco vs. Dacuycuy
Facts:
Petitioners were selling a parcel of land located in
Tacloban. They expressed willingness to sell the property at
6.5M to private respondents as long as the latter would make
known its decision to buy not later than July 31, 1978. The
private respondents reply, thru a letter stated “we agree to
buy property proceed to Tacloban to negotiate details.” The
respondents are now filing a complaint for specific
performance which the petitioners want dismissed on the
ground of lack of cause of action. The judge ruled negatively
on the motion to dismiss.
Issue: WON the facts show the existence of a perfected
contract of sale?
Held: NO
Ratio:
Art. 1319 CC: 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.
The telegram instructing Atty Gamboa to “proceed to
Tacloban to negotiate details” is the key that negates and
makes it legally impossible for the court to hold that
respondents’ acceptance of petitioners offer, was the
“absolute” one that Art. 1319 requires.
“to negotiate” is practically the opposite of the idea that an
agreement has been reached.
There was a failure of any meeting of the minds of the
parties. It was because of their past failure to arrive at an
agreement that petitioners had to put an end to the
uncertainty by writing the letter dating July 12, 1978.
FORM OF CONTRACTS
Dauden-Hernaez vs. De los Angeles (1969)
This is a petition for a writ of certiorari to set aside certain
orders of the CFI of Quezon City dismissing a complaint for
breach of contract and damage, etc.
Facts: a.
 Marlene Dauden-Hernaez is a motion picture actress who has
filed a complaint against private resp Hollywood Far East
Productions Inc and its President Ramon Valuenzela to
recover P14, 700 representing a balance due to said actress
for her services as leading actress in two motion pictures 
produced by the company and to recover damages.
 Her petition was dismissed by the lower court because “it was
defective because not evidenced by any written document,
OBLIGATIONS AND CONTRACTS
REVIEWER
either public or private considering that the claim is more
than P500 ” thereby violating Article 1356 and 1358 of the
Civil Code.
Issue:
WON the court below abused its discretion in ruling that a
contract for personal services involving more than P500 was
either invalid or unenforceable under the last par of 1358 of
the CC.
Held:
 Yes. The court below abused its discretion. There was a
misunderstanding of the role of the written form in contracts,
as ordained in the present CC.
 The contractual system of our CC still follows that of the
Spanish Code of 1889 and of the “Ordenamiento de Alcala”
(ah so Leghis) of upholding the spirit and intent of the parties
over formalities, hence, in general, contracts are valid and
binding from their perfection regardless of the form, whether
they be oral of written as provided by Art 1315 (Contracts are
perfected by mere consent xxx) and by 1356 ( Contracts shall
be obligatory in whatever form they may have been entered
into xxx).
 The essential requisites are present in the contract- C-O-C.
 However 1356 also provides two exceptions:
a. Contracts for which the law itself requires that they be in
some particular form (writing) in order to make them valid
and enforceable (the so-called solemn contracts).
Ex.
1. donation of immovable property (in public ins) (Art. 749)
2. donation of movables worth more than P5,000 (Art. 748)
3. contracts to pay interest in loans (mutuum) (Art. 1956).
4. agreements contemplated in:
4.1. Art 1744: Stipulation bet the common carrier and the
shipper or the owner limiting the liability of the former for the
loss destruction or deterioration of the goods to a degree less
than extraordinary diligence xxx
4.2. Art 1773: A contract of partnership is void, whenever
immovable property is contributed thereto, if an inventory of
said property is not made, signed by the parties, and
attached to the public instrument.
4.3. Art. 1874: When a sale of a piece of land or any interest
therein is through an agent, the authority of the latter shall
be in writing; otherwise, the sale shall be void.
4.4. Art. 2134: The amount of the principal and of the
interest shall be specified in writing; otherwise the contract of
antichresis shall be void.
Note: Antichresis: a contract whereby the creditor acquires
the right to receive the fruits of an immovable of his debtor,
with the obligation to apply them to the payment of the
interest, if owing and thereafter to the principal of his credit
(Art. 2132).
Contracts that the law requires to be proved by some writing
(memorandum) of its terms as in those covered by the old
Statute of Frauds, now Art. 1403(2) of the CC. (This is
needed for enforceability of the contract by an action in
court).
The basis error in the court’s decision lies in overlooking that
in our contractual system it is not enough that the law should
require that the contract be in writing, as it does in Art. 1358.
page 45

The law MUST further PRESCRIBE that without the writing the
contract is not valid or enforceable by action.
5. Order set aside and case remanded to court of origin for
further proceedings.
Alano et al vs. Babasa (1908)
Facts:
(e) Juana Cantos assisted by her husband Jose Alano filed a
complaint against the defendant Jose Babasa alleging that the
complainant Cantos has the right to repurchase the land
which her father pledged to guarantee a debt of P1300 in
favor of Fulgencio Babasa and Maria Cantos, the parents of
the defendant (relative siguro ng complainant yung
defendant, pinsan siguro).
(f) The contract entered into on July 18, 1883 stipulated a
condition that the creditors should enjoy the usufruct of said
land from the date of contract and that for seven years to
take possession of the land as if their own and that after 7
years, the debtor is entitled to redeem the land by paying the
debt.
(g) Petitioner claims that they talked to defendant and that in the
beginning engaged to permit its redemption later on offered
to definitely purchase said land at an increase price but
plaintiff did not agree.
(h) Defendant made a general denial and alleged that the land
described had been sold with right of repurchase and that the
parents of the plaintiff had lived years after the expiration of
the 7-year period provided and that they never exercised the
right to repurchase.
Issue:
WON the plaintiff can repurchase the said land taking into
consideration that the Civil Code was enacted in Dec. 1889
which provides a different prescriptive period.
Held:
No. Her action has already prescribed.
 The contract was entered into on July 18, 1883 and the 7
year expiration has commenced on June 19, 1890 and at that
time the CC became effective already thus the provisions of
the Code can be applied on the case.
 Art. 1939 shall be the applicable to the case which states
that: Prescription, which began to run before the publication
of this code, shall be governed by the prior laws; but if, after
this code became operative, all the time required in the same
for prescription has elapsed, it shall be effectual, even if
according to said prior laws a longer period of time may be
required.
 Excerpt from the contract: “it has been agreed to between us
that we shall convey to him the said land from this day, and
that he will cause the same to be worked from this date as if
it were his own property for a period of seven years; that we
shall have the right to redeem it for the said sum of P1,000 at
the expiration of seven years in such a manner that said land
shall be under his care as long as we do not pay the
redemption money”.
 In the absence of an express agreement, the right to redeem
the thing sold shall only last and may only be exercised within
4 years counted from the date of the contract (in this case, it
shall be counted from 1889 when the said code went into
effect). It has already expired when the action was brought in
1907.
OBLIGATIONS AND CONTRACTS
REVIEWER
 Relevance of case under the title: It is a contract of sale with
right to repurchase and it is valid, perfect and efficient
because the three requisites are present and is also binding
notwithstanding the fact that it has been drawn up as a
private document, and the legalization of a contract by means
of a public writing and its entry in the register are not
essential solemnities or requisites for its validity and efficacy
as between the contracting parties, but just conditions of
form which the law imposes in order that it may be effective
and recorded agreement may be respected by the latter.
 Judgment affirmed.
REFORMATION OF INSTRUMENTS
Atilano vs. Atilano (1969)
Facts:
 In 1916, Eulogio Atilano I acquired by purchase from
Villanueva lot no. 535 in Zamboanga, obtained the transfer
certificate of title in his name and in 1920 divided the said lot
into 5 parts identified as lots Nos. 535-A, 535-B, 535-C, 535-
D, 535-D, 535-E.
 On May 18, after the subdivision of the said lot, he executed a
deed of sale cover lot E in favor of his brother Eulogio Atiliano
II, who obtained lot E, and the three other lots were sold to
other persons. Atilano I retained for himself only the
remaining portion of the land presumably Lot A.
 In 1952, Atilano II died, thus his widow and children obtained
the transfer certificate over E in their names as co-owners but
in 1959 they decided to subdivide the lot and they then
discovered upon the results of the survey that the land they
were actually occupying was lot A and not E.
 Because of this, they demanded that Lot E be surrendered to
them and offered to surrender Lot A to the descendants of
Atilano I but they refused. It is understandable that they
wanted Lot E because it has an area of 2612 sqm as
compared to 1808 sqm of lot A.
 Defendants (Atilano II descendants) answered that it was just
an involuntary error and that the intention of the parties was
to convey the lot correctly identified as A. Atilano I had been
possessing and had his house on the portion designated as E
and in fact increased the area by purchasing the adjacent lot
from its owner Carpio.
 RTC rendered judgment for the plaintiff on the sole ground
that since the property was registered under the Land
Registration Act, the defendants could not acquire it through
prescription.
Issue:
WON the lower court was correct in rendering the judgment
for the plaintiff.
Held:
No. One sells or buys the property as he sees it, in its actual
setting and by its physical metes and bounds, and not by the
mere lot number assigned to it in the certificate or title.
 The portion correctly referred to as lot A was already in the
possession of Atilano II who had constructed his residence
therein even before the sale in his favor.
 The sale was a simple mistake in the drafting of the
document. The mistake did not vitiate the consent of the
page 46

parties or affect the validity and binding effect of the contract
between them.
 The new CC provides a remedy for such a situation by means
of reformation of the instrument. This remedy is available
when, there having been a meeting of the minds of the
parties to a contract, their true intention is not expressed in
the instrument purporting to embody the agreement by
reason of mistake, fraud, inequitable conduct or accident
(1359).
 In this case, the deed of sale executed in 1920 need no
longer be reformed. The parties have retained possession of f.
their respective properties conformably to the real intention of
the parties to that sale, and all they should do is to execute
mutual deeds of conveyance.
Investors Finance Corporation vs. CA (1991)
Facts: g.
 Before April 30, 1974 resp Richmann Tractors Inc, with
Pajarillaga as president were the owners of certain
construction equipment and being in need of financing (for
operation of their construction and logging business) went to
Investor’s Finance Corporation (or FNCB Finance) with their
h.
equipment as collateral. In the documents which were
executed, it was made to appear that FNCB was the owner of
the equipments and that private resp were merely leasing
them. As a consideration for the lease, private resp were to
pay monthly amortizations over a period of 36 mos).
 On April 30, 1974, petitioner FNCB Finance and respondent
Richmann Tractors executed a Lease Agreement covering
various properties described in the Lease Schedules attached
to the Lease Agreement. As security for the payment of resp
Richmann’s obligations under the Lease Agreement, resp
Pajarillaga’s executed a Continuing Guaranty dated April 30,
1974.
 Richmann also applied for and was granted credit financing
facilities by petitioner in the amount of almost 1M payable in
installments.
 Private respondents defaulted in their respective obligations.
FNCB demanded for the obligations to be fulfilled and
thereafter filed a complaint for seizure.
 A writ of replevin was issued for the seizure of the heavy
equipment and machineries subject of the lease agreement
and when served upon the Pajarillaga’s, they panicked and
proceeded to the office of the FNCB and its counself and
thereafter signed a Compromise agreement which states
among others that the Pajarillaga’s acknowledge that plaintiff
is the owner of all the properties and that they have been
allowed to temporarily operated the properties under the
direct control and supervision of plaintiff and/or its
representatives with the express understanding that
defendants acknowledge and recognize plaintiff’s ownership
and right to repossess and take custody of said properties.
 This agreement was approved by Branch XXI of this Court
and a decision was rendered enjoining the parties thereto to
faithfully comply with the terms and conditions. But the
Pajarillaga’s still did not comply with the compromise
agreement thus the sheriff levied on 27 pieces of heavy
equipment.
OBLIGATIONS AND CONTRACTS
REVIEWER
 The Pajarillaga’s claim that there was fraud because they
signed the Compromise agreement without the help of their
counsel and that it was just one-sided in favor of FNCB, thus,
filed for an annulment of the compromise agreement and the
simulated lease agreement. (RTC and CA ruled in favor of the
Pajarilla’s)
Issue:
WON annulment should be the proper remedy for the
Pajarillaga spouses.
Held:
No. According to the Court, their action for annulment of the
simulated lease agreement was seasonably filed in 1979,
within 10 years from the date of its execution in 1974 (1144
CC). However the trial court and the CA should have treated
it as an action for reformation of contract.
For when the true intention of the parties to a contract is not
expressed in the instrument purporting to embody their
agreement by reason of mistake, fraud, inequitable conduct
or accident, the remedy of the aggrieved party is to ask for
the reformation, not annulment, of the instrument to the end
that their true agreement may be expressed therein.
If the true transaction between FNCB and Pajarillaga or
Richman Tractors—an loan with chattel mortgage—had been
reflected in the documents, instead of a simulated financial
leasing, the creditor-mortgagee (FNCB), upon the
mortgagor’s default in paying the debt, would have been
entitled to seize the mortgaged machinery and equipment
from Pajarillaga for the purpose of foreclosing the chattel
mortgage therein. The mortgagors would have had no cause
of action for actual, moral and exemplary damages arising
from the replevin of their mortgaged machinery and
equipment by the creditor, FNCB.
INTERPRETATION OF CONTRACTS
Borromeo v CA 1972
Facts: Jose A. Villamor, the debtor, borrowed from Canuto O.
Borromeo, the original creditor, a large sum of money for
which he mortgaged his house and lot. Said mortgage,
however, was not properly drawn up and registered, so that
the mortgaged house and lot ended up attached to a separate
civil action initiated by a certain Mr. Miller against Villamor.
When Villamor was being pressed to settle his obligation with
Borromeo, the former assured his creditor that he would still
pay the debt and executed a written document promising to
pay his debt to Borromeo even after the lapse of ten years,
the legal prescriptive period for recovery of debts. The
creditor never instituted any action against the debtor within
the ten years following the execution of the said document
Action to recover the sum from the debtor was filed only after
ten years and was rejected by CA for 2 main reasons: (1)ten-
year prescriptive period for recovery of debts had elapsed, (2)
document promising to pay even after ten years was void
because promise was illegal, it being violative of principle
“that a person cannot renounce future prescription”.
Issue: WON written document promising to pay after ten
years is void for being illegal.
Held: No. In the interpretation of the written document or
contract wherein Villamor promised to pay his debt even after
ten years, CA relied too heavily on the words employed in
said document without taking the intention of the parties into
page 47

consideration. Reference to the prescriptive period of ten
years is susceptible to the construction that only after the
lapse thereof could the demand be made for the payment of
the obligation.
Prescriptive period to file action thus started to run only after
ten years had lapsed. This is consistent with the actions and
intent of the two parties.
In declaring the said contract to be void, CA ran counter to
the well-settled maxim that between two possible
interpretations, that which saves rather than destroys is to be
preferred.
Lim Yhi Luya v CA 1980
Facts: Lim Yhi Luya entered into a contract of sale with
private respondent, Hind Sugar Company, wherein the latter
sold to the former 4,085 piculs of sugar. The terms of the
contract which was drawn by the respondent company
explicitly stated “cash upon signing of this contract”. Much of
the sugar was properly delivered to the plaintiff in the next
few months except for a remaining 350 piculs of sugar. When
plaintiff filed an action to compel the delivery of the remaining
350 piculs, private respondent company contended that no
payment had yet been made by the plaintiff, contrary to the
terms stipulated in their contract. Plaintiff had no receipt to
prove that payment had been made but contends that the
terms stipulated in the contract is sufficient proof that
payment had been made at around the time the contract was
signed.
Issue: WON the statement “cash upon signing of this contact”
in the contract of sale drawn up by the respondent company
may be interpreted as sufficient proof that payment had in
fact been made.
Held: Yes. Although the contract is ambiguous enough to
admit of several valid interpretations, the interpretation to be
taken shall not favor the respondent company since it is the
party who caused the ambiguity in its preparation. (see Art
1377) The ambiguity raised by the use of the words or
phrases in the questioned provision must be resolved and
interpreted against the respondent company.
Respondent company's act of delivering to the petitioner four
delivery orders covering all the 4,035 piculs of sugar, viewed
in the light of the established fact that all sugar transactions
between petitioner and respondent are always in cash.. is a
clear confirmation of the fact that petitioner paid in cash the
cost of the sugar.. on the very day that the contract was
signed..
Riviera Filipina v CA 2002
Facts Riviera Filipina, Inc. entered into a contract of lease
with Juan Reyes involving 1,018 square meters of real
property owned by Reyes. Paragraph 11 of the lease contract
expressly provided that “lessee shall have the right of first
refusal should the lessee decide to sell the property during
the term of the lease.” When Reyes decided to sell the
property in 1988, he entered into a series of negotiations with
Riviera Filipina but the parties failed to agree on the price for
the subject property. Riviera Filipina, Inc. clearly expressed
its refusal to go beyond the price of 5,000 per square meter.
Another interested party offered to purchase the same
property for 5,300 per square meter. Riviera Filipina was well-
informed that there were other interested buyers but did not
know of specific price offered by other party. Riviera Filipina
OBLIGATIONS AND CONTRACTS
REVIEWER
now filing suit against Reyes and 3rd party purchaser,
contending that their right of first refusal was violated
because they were not given the opportunity to match the
offer of 5,300 per square meter.
Issue WON right of first refusal in the contract of lease may
be interpreted as to require that the lessee have specific
knowledge of the price offered by other interested parties,
thereby amounting to a right to match.
Held No. “Intention of the parties shall be accorded primordial
consideration and in case of doubt, their contemporaneous
and subsequent acts shall be principally considered.”
The actions of the two principal parties involved in the
contract of lease shaped their understanding and
interpretation of the “right of first refusal” to mean simply
that should Reyes decide to sell the property during the term
of the lease, such sale should first be offered to Riviera.
Riviera's stubborn approach in its negotiations with Reyes
showed crystal clear that there was never any need to
disclose such information.
DEFECTIVE CONTRACTS:
RESCISSIBLE CONTRACTS
Art. 1380. Contracts validly agreed upon may be
rescinded in the cases established by law. (1290)
Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians
whenever the wards whom they represent suffer lesion
by more than one-fourth of the value of the things
which are the object thereof;
(2) Those agreed upon in representation of absentees,
if the latter suffer the lesion stated in the preceding
number;
(3) Those undertaken in fraud of creditors when the
latter cannot in any other manner collect the claims
due them;
(4) Those which refer to things under litigation if they
have been entered into by the defendant without the
knowledge and approval of the litigants or of
competent judicial authority;
(5) All other contracts specially declared by law to be
subject to rescission. (1291a)
Art. 1382. Payments made in a state of insolvency for
obligations to whose fulfillment the debtor could not be
compelled at the time they were effected, are also
rescissible. (1292)
Art. 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)
Art. 1384. Rescission shall be only to the extent
necessary to cover the damages caused. (n)
Art. 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.
page 48

In this case, indemnity for damages may be demanded
from the person causing the loss. (1295)
Art. 1386. Rescission referred to in Nos. 1 and 2 of
Article 1381 shall not take place with respect to
contracts approved by the courts. (1296a)
Art. 1387. 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 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. (1297a)
Art. 1388. Whoever acquires in bad faith the things
alienated in fraud of creditors, shall indemnify the
latter for damages suffered by them on account of the
alienation, whenever, due to any cause, it should be
impossible for him to return them.
If there are two or more alienations, the first acquirer
shall be liable first, and so on successively. (1298a)
Art. 1389. The action to claim rescission must be
commenced within four years.
For persons under guardianship and for absentees, the
period of four years shall not begin until the
termination of the former's incapacity, or until the
domicile of the latter is known. (1299)
Notes:
* 4 years from when? Example insane , from lucid interval
ba?
* 1st remedy (since subsidiary action ang rescission) is to ask
for the amount of lesion to be repaired.
UFC V CA
May 13, 1970
Magdalo V. Francisco, Sr. invented the Mafran sauce, a food
seasoning made out of banana (ketchup?) and had the
formula patented and the name registered as his own
trademark.
In May 1960, Francisco Sr. entered into a contract with
Universal Food Corporation entitled “Bill of Assignment”
wherein Francisco assigned the USE of the Mafran sauce
formula to UFC (right to mass produce and sell) in exchange
for a permanent assignment as Second Vice President and
Chief Chemist with a salary of P300/month, and becoming a
member of the Board of Directors.
On November 30, 1960 UFC dismissed Francisco and the staff
working on the Mafran sauce on the pretense of scarcity and
high prices of raw materials; but 5 days later, the President
and General Manager of UFC Tirso T. Reyes, ordered the
Auditor/Superintendent and the Assistant Chief Chemist to
produce the Mafran sauce in full swing, to recall the laborers
dismissed (except for Francisco Sr.) and to hire additional
daily laborers. The Mafran sauce produced was of inferior
quality because of the absence of Francisco Sr. who alone
knew the exact formula.
GM Reyes also admitted that “I consider the two months we
OBLIGATIONS AND CONTRACTS
REVIEWER
paid him (Francisco Sr.) is the separation pay.”
Thus Francisco Sr. filed an action for Rescission of the
contract. Lower court dismissed the case. CA reversed:
rescinded the contract and ordered UFC to 1. Return the
Mafran Sauce formula and trademark 2. Pay Francisco Sr. his
salary since Dec 1960 until the return of the Mafran formula
and trademark and 3. Pay attorney’s fees and costs.
Held: CA correctly observed that UFC schemed and
maneuvered to ease out and dismiss Francisco Sr. from the
service as chief chemist, in flagrant violation of the Bill of
Assignment; and that the notice of recall was to placate
Francisco Sr. Therefore in addition UFC is 4. Enjoined from
using in any manner said Mafran sauce trademark and
formula and 5. pay legal interest on Francisco Sr.’s salary.
Doctrine:
The general rule is that rescission of a contract will not be
permitted for a slight or casual breach, but only for such
substantial and fundamental breach as would defeat the very
object of the parties making the agreement. The question of
whether a breach of a contract is substantial depends upon
the attendant circumstances.
Recall: Art 1191 CC: 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.
The injured party may choose between the fulfillment and the
rescission of the obligation with the payment of damages in
either case. He may also seek rescission even after he has
chosen fulfillment, if the latter should become impossible.
The Court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance with
Art 1385 and Art 1388 of the Mortgage Law.
Tolentino: Art 1191 Rescission is used, instead of Resolution
which is more apt.
Difference of Art 1191 to Art 1381:
J. J.B.L. Reyes:
A rescission for breach of contract under Art 1191 CC is not
predicated on injury to economic interests of the party
plaintiff, but on the breach of faith by the defendant, that
violates the reciprocity between the parties. It is not a
subsidiary action, and Art 1191 may be scanned without
disclosing anywhere that the action for rescission thereunder
is subordinated to anything other than the culpable breach of
his obligations by the defendant. This rescission is a principal
action retaliatory in character, it being unjust that a party be
held bound to fulfill his promise, when the other violates his.
Hence the reparation of damages for the breach is purely
secondary.
In Art 1381, the cause of action is subordinated to the
existence o f that prejudice because it is the raison d’ etre as
well as the measure of the right to rescind. Hence, when the
defendant makes good the damage caused, the action cannot
be maintained or continued, as expressly provided in Art.
1383 and 1384. But the operation of these 2 articles is limited
to the cases of rescission for lesion enumerated in Article
1381 of the CC, and does not apply to cases under Art. 1191.
Equitorial V Mayfair, ibid. (case #14 sa page 1 syllabus)
Nov. 21, 1996
In 1967, Carmelo entered a contract of lease with Mayfair
page 49

Theater for a portion of Carmelo’s property with a stipulation
(par. 8) of an exclusive option by Mayfair to purchase the 
property in case Carmelo decides to sell it.
In 1974, Mr. Pascal of Carmelo called Mr. Yang of Mayfair 
because another party was willing to buy the property.
Despite Mayfair giving notice of interest to buy; Carmelo sold
the property to Equatorial on 1978.
Mayfair then brought suit for the annulment of the sale of the 
leased premises to Equatorial.
RTC dismissed the petition and found par. 8 to be an option
clause that cannot bind Carmelo for lack of separate and
distinct consideration.
CA reversed; par. 8 – right of first refusal according to art.
1479 par. 2.
Held: Par. 8 is a right of first refusal, so the contract between
Carmelo and Equatorial must be rescinded.
Ratio: the right was incorporated for Mayfair’s protection;
Mayfair should be given the right to match the P11.3M price. 
Equatorial is a buyer in bad faith.
Doctrine: same with Guzman, Bocaling V Bonnevie
Guzman, Bocaling V Bonnevie
March 2, 1992
Africa Valdez de Reynoso, the administratrix of a parcel of
land leased it to the Bonnevies for P4,000 per month with a
stipulation that the Bonnevies will be given first priority to
purchase the land should Reynoso decide to sell it.
According to Reynoso, she notified the Bonnevies via
registered mail on Nov 3, 1976 her intention to sell the 
property for P600K, giving them 30 days to exercise their
right, which she failed to prove. The Bonnevies allege that 
they didn’t receive any letter.
Reynoso sold the land to Guzman, Bocaling and Co. for
P400K.
The Bonnevies filed an action for annulment of the sale, and
that Reynoso be required to sell the property to them which 
CFI granted and CA affirmed.
Held: The CA correctly held that the Contract of Sale was not
voidable but Rescissible.
Doctrine:
Under Art. 1380 to 1381 (3) of the Civil Code, a contract
otherwise valid may nonetheless be subsequently rescinded 
by reason of injury to third persons like creditors. The status
of creditors could be validly accorded the Bonnevies for they
had substantial interests that were prejudiced by the sale of
the subject property to the petitioner without recognizing
their right of first priority under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law
to the contracting parties and even to third persons, to secure
reparation for damages caused to them by a contract, even if
this should be valid, by means of the restoration of things to 
their condition at the moment prior to the celebration of said
contract.
It is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and
damage the contract may cause, or to protect some 
incompatible and preferent right created by the contract.
Rescission implies a contract which, even if initially valid,
produces a lesion or pecuniary damage to someone that 
justifies its invalidation for reasons of equity
Voidable Contracts
OBLIGATIONS AND CONTRACTS
REVIEWER
Voidable Contracts
Contracts that are voidable or annullable:
 When either party is incapable of giving consent to a contract
When consent is vitiated by mistake, violence, intimidation,
undue influence, fraud
Binding, unless annulled by a proper court action
Ratifiable (Art. 1390)
Prescription for action of annulment: 4 years to begin:
when vice is due to intimidation, violence or undue influence
– from the time defect of consent ceases
mistake or fraud – from the time of discovery
entered into by minors or those incapable of giving consent –
the moment guardianship ceases (Art. 1391)
 Ratification
extinguishes action for annulment (Art. 1392)
may be express or tacit (Art. 1393)
tacit ratification – the execution of an act which necessarily
implies an intention to waive his right by the party, who,
knowing of the reason which renders the contract voidable,
has a right to invoke annulment.
may be effected by the guardian of the incapacitated person
(Art. 1394)
does not require the conformity of the person who does not
have a right to bring an action for annulment (Art. 1395)
cleanses the contract from all its defects from the moment it
was constituted (Art. 1396)
Annulment
Who may institute (Art. 1397)
By all who are obliged principally or subsidiarily
 Exceptions:
 Persons capable cannot allege the incapacity of those with
whom they contracted
Persons who exerted violence, undue influence, who
employed fraud or caused mistake – action for annulment
cannot be based on these flaws
Gives rise to the responsibility of restoring to each other
things subject matter of the contract, with fruits, price with its
interest, except in cases provided by law (Art. 1398)
Service – value thereof will serve as the basis for damages
 Incapacitated persons not obliged to make restitutions except
insofar as he has been benefited by the thing or price
received by him (Art. 1399)
 If objects cannot be returned because these were lost through
his fault, he shall return the fruits received and the value of
the thing at the time of the loss, with interests from the same
date (Art. 1400)
As long as one of the contracting parties does not restore
what in virtue of the annulment decree he is bound to return,
the other cannot be compelled to comply with what is
incumbent upon him. (Art. 1402)
Extinguishment of action (Art. 1401)
if object is lost through the fault or fraud of person who has
the right to institute the proceedings
if action based on incapacity of any one of contracting parties,
loss of thing shall not be an obstacle to the success of action,
unless loss or fraud took place through the plaintiff’s fault
page 50

CASES
Uy Soo Lim v. Tan Unchuan
Facts:
 An action for annulment of a contract whereby Uy Soo Lim
sold to Pastrano all his interest in the estate of the late
Santiago Pastrano
 Santiago migrated to the Philippines when he was 13. Married
Candida Vivares, had two children with her – Francisca
(defendant in the suit and wife of co-defendant) and
Concepcion.
 Santiago returned to China and had illicit relations with Chan
Quieg. Came back to the Philippines and never saw her
again. Received a letter from her saying that she borne him a
son named Uy Soo Lim.
 Believing that Uy Soo Lim being his only son, he dictated his
will leaving to him 7/9 of his properties to the son.
 Claimants to the estate:
 Candida – ½ as widow
 Francisca and Concepcion – that Uy Soo Lim was not entitled
for not being a son, legitimate or illegitimate
 Chan Quieg – ½ as widow (their marriage was valid under the
laws of China)
 Uy Soo Lim appointed Choa Tek Hee as adviser and agent and
executed a power of attorney in favor of him to represent him
in the negotiations
 Compromise was reached – Uy Soo Lim to divest his interest
in the estate for P82,000.00, Francisca declared the sole
owner of all the properties.
 Uy Soo Lim filed a case to annul the contract alleging that
undue influence was exerted on him, and that his youth was
taken advantage of.
Issue: WON Uy Soo Lim can file for annulment
Held: No.
Ratio:
e) Although he was a minor at the time of the execution of the
contract, he failed to repudiate it immediately upon reaching
the age of majority
f) He also tacitly ratified the contract when he disposed of the
greater part of the proceeds when he became of age and after
he had full knowledge of facts upon which he is trying to
disclaim
g) If he were seeking to annul the contract, he would also have
asked that payments to him by the defendants be
stopped. Instead, he proceeded to secure, spend and dispose
of every cent of the proceeds)
h) Art. 1393 – express or tacit ratification
i) Art. 1398 – responsibility of restoring to each other things
subject matter of the contract
j) Art. 1401 – extinguishment of action for annulment: if object
is lost through the fault or fraud of person who has the right
to institute the proceedings
Sps. Theis v. CA
Facts:
 Carlsons Dev’t. Corp. owned three adjacent lots
1. Lot covered by TCT 15515
2. Lot covered by TCT 15516
3. Lot covered by TCT 15684
 A fourth lot was adjacent to Lot 15684, which was not owned
by Carlsons Dev’t.
OBLIGATIONS AND CONTRACTS
REVIEWER
 1985: Carlsons constructed a two-storey house on the third
lot (erroneously indicated to be covered by TCT 15515)
 Lots 15515 and 15516 mistakenly surveyed to be located on
lot number 4
 The fourth lot was sold to Sps. Theis by Carlsons Dev’t.,
covered by said TCTs. The Theis did not immediately occupy
the lot; went to Germany instead. Upon return, they
discovered that the lot was owned by another
 Theis insisted on buying lot number 4, which was not possible
as it was not owned by Carlsons; instead, Carlsons Dev’t.
offered lots 1 and 2, which was refused.
 This time, Theis insisted on lot number 3; counter-offer by
Carlson to return purchase price x 2, refused.
 Carlsons filed an action for annulment on the ground of
mistake
Issue: WON Carlsons can seek for annulment on the ground
of mistake
Held: Yes
Ratio:
 Carlsons’ mistake was made in good faith
 When mistake was discovered, offers were made to offset the
damage caused by the mistake
 The nature of mistake as to vitiate consent must be that
which speaks of the substance of the contract
 Consent being an essential element of contracts, when it is
given by mistake, the validity of contractual relations
becomes legally impaired
Rural Bank of Caloocan v. CA
Facts:
5. Maxima Castro, accompanied by Valencia, applied to RBC for
an industrial loan of 3 thousand
6. The Valencia spouses applied for a 3 thousand peso loan as
well, which was also granted
7. Both loans being granted, Castro was made to sign a
promissory note, as a principal in the first, and as a co-maker
in the Valencia note. They were secured by a real-estate
mortgage on Castro’s house and lot.
8. Castro received a Notice of Sheriff’s Sale in satisfaction of the
obligation covering the two promissory notes
Only then did she realize that the mortgage was encumbrance
not just for her 3k loan, but also for the 3k loan of the
Valencias; she was made to sign without knowledge of this
fact
She filed a suit for annulment from the second promissory
note and the mortgage covering this, and the annulment of
the foreclosure sale.
Issue: WON fraud can be alleged to free Castro from
responsibility with respect to the 2nd promissory note
Held: Yes
Ratio:
 The mistake committed by both Castro and the bank which
led to the vitiation of consent is due to the Valencias fraud
and misrepresentation
 A contract may be annulled on the ground of vitiated consent
due to fraud by a third person even without the connivance
with one of the contracting parties
 The bank committed a mistake in not ensuring the extent of
the coverage of the mortgage.
MWSS v. CA
page 51

Facts:
g. 1965: MWSS leased around 128 hectares of land to CHGCCI
for 25 years renewable for another 15 years with a stipulation
allowing for the exercise of a right of first refusal should it be
put up for sale
h. President Marcos issued an LOI directing MWSS to cancel the
lease and to dispose the property. MWSS and CHGCCI agreed
on the sale
i. MWSS approved the sale in favor of Silhouette, CHGCCI’s
assignee for 25M.
j. Silhouette entered a deed of sale with Ayala (1984)
k. 1993: MWSS filed an action seeking the declaration of nullity
of the MWSS-Silhouette sale due to Silhouette’s fraudulent
acts and Marcos’s undue influence over MWSS
Issue: WON the sale can be declared null and void
Held: No.
Ratio:
 All the essential requisites being present, the contract can
only be voidable, and not void, as all the essential requisites
of the contract are present.
5.
 Being voidable at the most, prescriptive period of four years
from the time of the discovery of the mistake and from the
6.
time the undue influence ceases should be observed.
 If the vice of consent is based on Marcos’s undue influence,
the four years should be counted from the moment the undue
influence ceased, which is in 1986
 If mistake is alleged, prescriptive period of four years to begin
from the discovery of the same, it should’ve begun from the e)
date of the execution of the sale of documents, deemed to
have taken place on the date of registration of the deeds with
the Register of Deeds as registration is constructive notice to
the world
 Furthermore, there was ratification on the part of MWSS, both
impliedly (making demands for payment) and expressly
(signing of the contract of sale itself) made.
UNENFORCEABLE CONTRACTS2
UNENFORCEABLE CONTRACTS
Art. 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;
(2) Those that do not comply with the Statute of Frauds
as set forth in this number. In the following cases an 4.
agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum, 5.
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 6.
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
OBLIGATIONS AND CONTRACTS
REVIEWER
pesos, unless the buyer 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 of 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.
(3) Those where both parties are incapable of giving
consent to a contract.
4. Unenforceable contracts cannot be enforced unless it is first
ratified in the manner provided by law. An unenforceable
contract does not produce any effect unless it is ratified.
Unenforceable contracts cannot be sued upon unless ratified
(Paras, 2003).
As to defectiveness, an unenforceable contract is nearer to
absolute nullity than voidable or rescissible contracts.
There are 3 kinds of unenforceable contracts:
a) unauthorized contracts;
b) those that fail to comply with the Statute of Frauds;
c) those where both parties are incapable of giving consent to
a contract.
UNAUTHORIZED CONTRACTS
When a person enters into a contract for and in the name of
the another, without authority to do so, the contract does not
bind the latter, unless he ratifies the same. The agent, who
has entered into the contract in the name of the purported
principal, but without authority from him, is liable to third
persons upon the contract; it must have been the intention of
the parties to bind someone, and, as the principal was not
bound, the agent should be. Ex: Without my authority, my
brother sold my car, in my name to X. The contract is
unauthorized and cannot affect me unless I ratify the same
expressly or implicitly, as by accepting the proceeds of the
sale. (Paras)
Mere lapse of time, no matter how long, is not the ratification
required by law of an unenforceable contract (Tipton v.
Velasco, 6 Phil 67, as cited in Paras).
STATUTE OF FRAUDS
Meaning: descriptive of statutes which require certain classes
of contracts to be in writing.
Purpose: to prevent fraud and perjury in the enforcement of
obligations depending for their evidence upon the unassisted
memory of witnesses by requiring certain enumerated
contracts and transactions to be evidenced by a writing
signed by the party to be charged.
Application: This statute does not deprive the parties the right
to contract with respect to matters therein involved, but
merely regulates the formalities of the contract necessary to
render it unenforceable. The statute of frauds, however,
simply provides for the manner in which contracts under it
shall be proved. It does not attempt to make such contracts
invalid if not executed in writing but only makes ineffective
the action for specific performance. The statute of frauds is
page 52

not applicable to contracts which are either totally or partially
performed, on the theory that there is a wide field for the
commission of frauds in executory contracts which can only
be prevented by requiring them to be in writing, a fact which 4.
is reduced to a minimum in executed contracts because the
intention of the parties becomes apparent by their execution,
and execution concludes, in most cases, the rights of the
parties.
7. A note or memorandum is evidence of the agreement, and is
used to show the intention of the parties. No particular form
of language or instrument is necessary to constitute a
memorandum or note as a writing under the Statute of
Frauds.
General Rules of Application (mainly Paras): 5.
 Applies only to executory contracts. But it is not enough for a
party to allege partial performance in order to render the
Statute inapplicable; such partial performance must be duly
proved, by either documentary or oral evidence; 6.
 Cannot apply if the action is neither for damages because of
the violation of an agreement nor for the specific performance
of said agreeement;
 Exclusive, i.e. it applies only to the agreements or contracts
enumerated herein;
 Defense of the Statute may be waived;  Ratification by one party converts the contract into a voidable
 Personal defense, i.e. a contract infringing it cannot be
assailed by third persons;
 contracts infringing the Statute are not void; they are merely
unenforceable;
 The Statute of Frauds is a rule of exclusion, i.e. oral evidence 1.
might be relevant to the agreements enumerated therein and
might therefore be admissible were it not for the fact that the
law or the statute excludes oral evidence;
 A contract entered into in the name of another by one who
 The Statute does not determine the credibility or weight of
evidence. It merely concerns itself with the admissibility
thereof;
 The Statute does not apply if it is claimed that the contract
does not express the true agreement of the parties. As long
as true or real agreement is not covered by the Statute, it is (6) Requisites for a Person to contract in the name of another: a)
provable by oral evidence.
THE SPECIFIC AGREEMENTS UNDER THE STATUTE OF
FRAUDS
1. Performance within a year. The 'making' of an agreement, for
the purpose of determining WON the period for performance
brings the agreement within the Statute, means the day on
which the agreement is made, and the time begins to run
from the day the contract is entered into, and not from the
time that performance of it is entered upon. There must be
intention that the performance should not be performed 
within a year.
2. Guaranty of Another's Debt. Test as to whether a promise is
within the Statute: lies in the answer to the question whether
the promise is an original or a collateral one. If the promise is
original or independent, as to when the promisor is primarily
liable, it is outside the Statute. If the promise is collateral, the Gonda,as cited by Paras; Maam Rowie also made reference to
promise must be in writing.
3. Consideration of marriage. Applies to promises by a 3rd
person to one of the parties contemplating the marriage.
OBLIGATIONS AND CONTRACTS
REVIEWER
Thus, a promise made by the father of a prospective bride to
give a gift to the prospective husband is covered by the
statute.
Sale of personalty. Price of the property must be at least
P500 and covers both tangible and intangible property. The
Statute will not apply where there has been part payment of
the purchase price. If there is more than one item, which
exceeds P500, the operation of the statute depends upon
WON there is a single inseparable contract or several one. If
inseparable, Statute applies. If the contract is separable, then
each article is taken separately, and the application of the
statute to it depends upon its price. Meaning of “things in
action”: incorporated or intangible personal property (Paras)
Lease or sale of realty. Evidence to prove an oral contract of
sale of real estate must be disregarded if timely objections
are made to its introduction. But the statute does not forbid
oral evidence to prove a consummated sale of real property.
Representation as to Credit. Limited to those which operate to
induce the person to whom they are made to enter into
contractual relations with the 3rd person, but not those
representations tending to induce action for the benefit of the
person making them. The statute does not cover
representations deceitfully made.
INCAPACITATED PARTIES
contract- voidable at the option of the party who has not
ratified.
Art. 1404. Unauthorized contracts are governed by
Article 1317 and the principles of agency in Title X of
this Book.
Art. 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.
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)
he must be duly authorized (expressly or impliedly) or b) he
must have by law a right to represent him (like the guardian,
or the administrator) or c) the contract must be subsequently
ratified (expressly or impliedly, by word or by deed). (Paras).
Art. 1405. Contracts infringing the Statute of Frauds,
referred to in No. 2 of Article 1403, are ratified by the
failure to object to the presentation of oral evidence to
prove the same, or by the acceptance of benefit under
them.
Two ways of ratification of contracts infringing the Statute
are: a) failure to object to the presentation of oral evidence;
b) acceptance of benefits under them, since the Statute does
not apply to contracts which are partially executed. Cross
examination of the witnesses testifying orally on the contract
amounts to a waiver or to a failure to object. (Abrenica v.
this in one of her short kwentos).
Art. 1406. When a contract is enforceable under the
Statute of Frauds, and a public document is necessary
page 53

for its registration in the Registry of Deeds, the parties
may avail themselves of the right under Article 1357.
 Art. 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)
 The right of one party to have the other execute the public
document needed for convenience in registration, is given
only when the contract is both valid and enforceable. (Paras)
Art. 1407. In a contract where both parties are
incapable of giving consent, express or implied
ratification by the parent, or guardian, as the case may
be, of one of the contracting parties shall give the
contract the same effect as if only one of them were
incapacitated.
If ratification is made by the parents or guardians, as
the case may be, of both contracting parties, the
contract shall be validated from the inception.
f) Self-explanatory, hehe. Both Paras and Tolentino, walang
comments. However, we should take note of the retroactive
effect of a ratified contract.
Art. 1408. Unenforceable contracts cannot be assailed
by third persons.
 The defense of the Statute is personal to the party to the
agreement. Thus, it cannot be set up by strangers to the
agreement.
 Just as strangers cannot attack the validity of voidable
contracts, so also can they not attack a contract because of
its unenforceability. Indeed the Statute of Frauds cannot be
set up as a defense by strangers to the transaction. (Ayson v.
CA, 97 Phil. 965).
CASES:
Yuvienco v. Dacuycuy, 1981
See facts in previous discussion. Under this heading, the
question is WON the claim for specific performance of the
private respondents is enforceable under the Statute of
Frauds.
Held: No, since the agreement does not appear in any note or
writing or memorandum signed by either of the petitioners or
any of the respondents. Thus, such oral contract involving the
“sale of real property” comes squarely under the Statute of
Frauds.
Doctrine:
In any sale of real property on installments, the Statute
of Frauds read together with the perfection
requirements of Article 1475 of the Civil Code must be
understood and applied in the sense that the idea of
payment on installments must be in the requisite of a
note or memorandum therein contemplated. Under the
Statute of Frauds, the contents of the note or
memorandum, whether in one writing or in separate
ones merely indicative for an adequate understanding
of all the essential elements of the entire agreement,
may be said to the contract itself, except as to the
form.
Coronel v. Constantino, 2003
Honoria Aguinaldo owned real property. When she died, ½ of
OBLIGATIONS AND CONTRACTS
REVIEWER
the property was inherited by Emilia Meking vda. De Coronel
and sons-Benjamin, Catalino and Ceferino; the other half by
Florentino Constantino and Aurea Buensuceso. Emilia Meking
sold the property to Jess Santos and Priscilla Bernardo, who
later sold it to Constantino. In 1991, Constantino filed a
complaint for declaration of ownership, quieting of title and
damages. CA ruled for Constantino.
Issues/Held:
1) WON the contract of sale executed by Emilia, in her own
behalf is unenforceable with respect to the shares of her co-
heirs-children
Yes. It has been shown that the contract was not signed by
petitioner Benjamin and the shares of Catalino and Cferino in
the subject property were not sold by them. Since it cannot
be disputed that Benjamin did not sign the document, the
contract is unenforceable against him.
2) WON the minor children can ratify unauthorized actions of
their parents.
Yes. But in this case, no evidence was presented to show that
the 3 brothers were aware of the sale made by their mother.
Unaware of such sale, the 3 could not be considered to have
remained silent and knowingly chose not to file an action for
annulment of the sale. Their alleged silence and inaction may
not be interpreted as an act of ratification on their part. And
there is also no evidence that the 3 brothers benefited from
the sale.
Doctrine:
Ratification means that one under disability voluntarily
adopts and gives sanction to some unauthorized act or
defective proceeding, which without his sanction would
not be binding on him. It is this voluntary choice,
knowingly made, which amounts to a ratification of
what was theretofore unauthorized, and becomes the
authorized act of the party so making the ratification.
Regal Films,Inc. v. Concepcion, 2001
Gabby Concepcion, thru his manager Lolit Solis, entered into
a contract with Regal for services to be rendered by
respondent in petitioner's movies. Petitioner undertook to
give 2 parcels of land of land to respondent, on top of talent
fee. In 1994, actor, and manager, filed an action against the
movie outfit, alleging that he was entitled to rescind the
contract, owing to Regal's failure to honor the contract.
Petitioner alleged that there was an agreement, and an
addendum to the original contract. In September 1994, Solis
moved for the dismissal of the complaint averring that there
already was an amicable settlement. Concepcion opposed
saying that he had no consent and the contract was grossly
disadvantageous to him. By 1995, and after the confluence of
events (read: Manila Filmfest scam), Regal intimated that it
was willing to release Concepcion from the contracts rather
than pursue the addendum. Concepcion then filed a motion
indicating that he was willing to honor the addendum. The
Court held that Concepcion's attempt to ratify the addendum
came too much late as Regal already revoked it.
Issue3:
1) WON a contract entered into in the name of another is
unenforceable if consent was not given by the party in whose
behalf it was executed
Yes. A contract entered into in the name of another by one
who ostensibly might have but who in reality, had no real
page 54

authority or legal representation, or who having such
authority, acted beyond his powers, would be unenforceable.
2) Assuming that the addendum was unenforceable, WON it is
susceptible to ratification by the person in whose behalf it was
executed
Yes. But ratification should be made before its revocation by
the other contracting party.
National Power Corp v. National Merchandising Corp.,
1982
In 1956, National Power Corp (NPC) and National
Merchandising Corp (Namerco), the latter as representative of
the International Commodities Corp of New York, entered into
a contract for the purchase by the NPC of from the New York
firm of 4 thousand long tons of crude sulfur. A performance
bond was executed by Domestic Insurance Company (DIC) to
guarantee Namerco's obligation. Under the contract, seller
would deliver the sulfur within 60 days from notice of
establishment in its favor of a letter of credit. Failure to do
would make the seller and surety liable for damages. The New
York firm advised Namerco that it might not secure the
availability of a vessel and DIC disclaimed responsibility for
the terms of the contract. Namerco did not disclose such
instructions from its principal and proceeded with the
perfection of the contract. When the sulfur was not delivered,
NPC sued DIC and Namerco. The court dismissed the action
against DIC for lack of jurisdiction.
Issue:
1) WON Namerco exceeded its authority and in effect, acted
in its own name
Yes. The agent took chances, despite the principal's
instructions and thus, it acted on its own name.
2) WON the stipulation for liquidated damages is
unenforceable since the contract was allegedly unenforceable
No. Article 1403 refers to unenforceability of the contract
against the principal. In this case, the contract containing the
stipulation for liquidated damages is not being enforced
against its principal but against the agent and its surety.
Article 18974 implies that the agent who acts in excess of his
authority is personally liable to the party with whom he
contracted. Since Namerco exceeded the limits of its
authority, it virtually acted in its own name and it is
therefore, bound by the contract of sale, which, however is
not enforceable against its principal.
Jovan Land v. CA, 1997
Eugenio Quesada owns Q Building in Manila and wanted to
sell it. Thru co-petitioner Mendoza, Jovan Land Pres. Joseph
Sy learned of this development and sent offers to Quesada.
The owner rejected the offers. In his third written offer, Sy
enclosed a check worth P12M with a similar check for P1M as
earnest money. Annotated on this 3rd letter-offer was the
phrase 'received original, '9-4-89' beside which appears the
signature of Quesada. Petitioner then filed action for specific
performance.
Issue: WON the 'contract of sale' as alleged by Sy was
unenforceable
Held: No. The document was merely a memorandum of the
receipt by the former of the latter's offer. The requisites of a
valid contract of sale are lacking in said receipt and therefore
the 'sale' is neither valid nor enforceable. No written
agreement was reached. Under the Statute of Frauds, an
OBLIGATIONS AND CONTRACTS
REVIEWER
agreement for the sale of real property or of an interest
therein, to be enforceable, must be in writing and subscribed
by the party charged or by an agent therof.
Cenido v. Apacionado, 1999
Bonifacio Aparato owns a parcel of unregistered land. He sold
it to spouses Apacionado, who took care of him for 20 years
prior to his death. In the contract (Pagpapatunay) purporting
to the sale, it can be gleaned that because the Apacionados
took care of him, Bonifacio sold it for P10,000 and her signed
it with his full knowledge and consent, and there were 2
witnesses to the signing of the contract. It was not notarized.
One Renato Cenido claimed ownership over the property and
alleged that he was Aparato's illegitimate son and he was
recognized as such by Bonifacio's brother, Gavino, and the
two partitioned his estate among themselves. Cenido caused
the issuance to his name of a Tax Declaration over the
subject property.
Issue:
1) WON the document is valid
Yes. The private conveyance of the house and lot is therefore
valid between Aparato and the spouses. It is a private
document but this fact does not detract from its validity.
Generally, contracts are obligatory, in whatever form such
contracts may have been entered into, provided all the
essential requisites for their validity are present. When
however the law requires that a contract be in some form for
it to be valid or enforceable, that requirement must be
complied with. Under Article 1358 requires that certain acts
and contracts must be in a public document. Under Art. 1403,
sales of real property must be in writing. Since the
Pagpapatunay is in writing, it is enforceable under the
Statute. But since it is not a public document, it does not
comply with Art. 1358. However, the requirement of Art.
1358 is not for the validity but for its efficacy.
Villanueva v. CA, 1997
The Villanuevas are the tenants of the Dela Cruzes. In 1986,
the latter proposed the sale of the property and they agreed
at the price of P550,000. The Dela Cruzes asked for P10,000
which would form part of the sale price. Sometime thereafter,
the Dela Cruzes told the Villanuevas that they are selling the
other half of the property to the Sabios, another tenant of the
Dela Cruzes. The Villanuevas agreed to such an arrangement
and they, together with the Sabios, decided to pay only
P265,000 each corresponding to the value of ½ of the
property. In 1987, the Dela Cruzes sold the portion which the
Villanuevas were supposed to buy to the spouses Pile. The
Villanuevas then instituted this action.
Issue: 1) WON there was a perfected contract of sale between
the petitioners and the Dela Cruzes
Held: No. Sale is a consensual contract. In this case, what is
clear from the evidence is that there was no meeting of the
minds as to the price, expressly or impliedly, directly or
indirectly. No contract was presented in evidence.
2) WON the Statute of Frauds is applicable though it was a
contract of sale that was partly executed
No. The Statute applies only to executory contracts, but there
is no perfected contract in this case, therefore there is no
basis for the application of the Statute. The application of
such statute presupposes the existence of a perfected
contract and requires only that a note or memorandum be
page 55

executed in order to compel judicial enforcement thereof.
What took place was only prolonged negotiation to buy and
sell.
VOID OR INEXISTENT CONTRACTS
What contracts are void or inexistent?
The following contracts are void or inexistent from the
beginning:
 Those whose cause, object or purpose is contrary to law,
morals, good customs, public order or public policy;
 Those which are absolutely simulated or fictitious;
 Those whose cause or object did not exist at the time of the
transaction;
 Those whose object is outside the commerce of men;
 Those which contemplate an impossible service;
 Those where the intention of the parties relative to the
principal object cannot be ascertained;
 Those expressly prohibited or declared void by law. (a-g, Art
1409, NCC).
 Those which are the direct results of previous illegal contracts
(Art 1422, NCC).
Cases
Liguez vs Hon. Court of Appeals
Petitioner Conchita Liguez was the recipient of a donation of
the parcel of land subject of this petition. Donation was
allegedly made by and in view of the desire of one Salvador
Lopez, a married man of mature years, to have sexual
relations with her, Liguez back then a minor, only 16 years of
age. After the donation, Liguez and Lopez cohabited and lived
as husband and wife until Lopez was killed. It was found that
the donation was part of the land belonging to the conjugal
partnership of Lopez and his legal wife Maria Ngo. CA held
that the donation was inoperative and null and void because
(1) the husband had no right to donate conjugal property to
Liguez; and (2) because the donation was tainted with illegal
causa or consideration, of which the donor and donee were
participants.
SC reversed CA decision.
Doctrine: SC held that the CA erred in applying the pari
delicto rule in this case. Both parties to donation here not
having equal guilt; there had been no finding that Liguez had
full knowledge of the terms of the bargain entered into by and
between Lopez and her parents. Moreover, the rule that
parties to illegal contracts will not be aided by the law should
also be understood as barring the parties from pleading
illegality of the bargain either as a cause of action or as a
defense. Thus, the heirs of Lopez cannot set up this plea, as
Lopez himself, even if he were living, had no right to such
pleading.
The right of the husband to donate community property is
strictly limited by law. However, donation made in
contravention of the law is not void in its entirety, but only in
so far as it prejudices the interest of the wife, whether
donation is gratuitous or onerous.
Rellosa vs Gaw Chee Hun
Petitioner Dionisio Rellosa sold to Gaw Chee Han a parcel of
land together with the house erected thereon situated in
Manila. The vendor remained in possession of property under
a contract of lease. Alleging that the sale was executed
OBLIGATIONS AND CONTRACTS
REVIEWER
subject to the condition that the vendee (Chinese) would
obtain the Japanese Military Administration’s approval, and
that even if said condition was met, the sale would still be
void under article XIII of the Constitution, the vendor prayed
for annulment of the contracts of sale and lease. Defendant
answered the complaint putting up the defense of estoppel
and that the sale was binding not being contrary to public
policy, law and morals. TC declared the contracts valid and
binding and dismissed complaint. CA affirmed decision in toto.
The SC sustained that the sale in question was indeed
entered into in violation of the Constitution, what’s left to be
determined is, can petitioner have the sale declared null and
void and recover the property considering the effect of the
law governing rescission in contracts? SC answered in the
negative. The sale in question is null and void, but plaintiff is
barred from taking the present action under the principle of
pari delicto.
Doctrine: The contracting parties here were prevented from
seeking relief because they both have voluntarily entered into
the contract knowing that what they were doing violated the
Constitution (they are presumed to know the law). Well
established is the doctrine that where the parties are in pari
delicto, no affirmative relief of any kind will be given to one
against the other. It is true that this doctrine is subject to one
important limitation, namely, “whenever public policy is
considered as advanced by allowing either party to sue for
relief against the transaction.” The cases in which this
limitation may apply only “include the class of contracts which
are intrinsically contrary to public policy—contracts in which
the illegality itself consists in their opposition to public policy,
and any other species of illegal contracts (example: usurious
contracts, marriage-brokerage contracts). The present case
does not fall under the exception because it is not intrinsically
contrary to public policy as its illegality consists in its being
against the Constitution.
Phil Banking Corp vs Lui She
Justina Santos and her sister Lorenza were the owners of a
piece of land in Manila. The sisters lived in one of the houses
while they leased the other house to a Chinese named Wong
Heng and his family. When Lorenza died with no other heir,
Justina became the sole owner of the property. As she was
then already about 90 years, Wong was her trusted man,
trusting him with receiving rentals for her other properties
and paying for her other expenses. In grateful
acknowledgement, Justina entered into a number of contracts
with Wong (a lease covering more than the current portion
occupied by Wong, a contract of option to buy leased
premises payable in ten years, another contract extending the
lease term to 99 years, and another fixing the term of the
option to 50 years).
This petition was filed alleging that the contracts were
obtained by Wong “through fraud, misrepresentation,
inequitable conduct, undue influence and abuse of
confidence…” and the Court was asked to cancel the
registration of the contracts.
TC rendered decision declaring all of the contracts null and
void except for the first contract of lease. Both parties
appealed.
SC modified TC’s decision in that it also declared the first
contract of lease as null and void along with the rest.
page 56

Doctrine: SC cancelled the contract of lease in this case not
on the basis of it allegedly being contrary to the expressed
will of one of the contracting parties (Santos’), rather it was
voided because of its illegal causa. Based on the testimonies
gathered, the contracts were entered into in an effort to
circumvent the Constitutional prohibition against the transfer
of lands to aliens. It became clear that the arrangement was
a virtual transfer of ownership whereby the owner divests
himself in stages not only of the right to enjoy the land, but
also of the right to dispose of it—rights the sum total of which
is ownership. Thus, this illicit purpose became the illegal
causa rendering the contracts void.
Francisco vs. Herrera
Eligio Herrera Sr., father of respondent is the owner of two
parcels of land. Petitioner Julian Francisco brought from said
land owner the first parcel, and later on, also the second.
Contending that the contract price was inadequate, the
children of Herrera tried to negotiate to increase the purchase
price. When Francisco refused, the Herreras filed a complaint
for annulment of sale alleging that the sale was null and void
on the ground that at the time of sale, Eligio Sr was
incapacitated to give consent to the contract because he was
afflicted with senile dementia, characterized by deteriorating
mental and physical condition.
TC, later on affirmed by CA, declared the contract to be null
and void, ordered Francisco to return the lots in question and
the Herreras to return to the former the purchase price paid.
Francisco appealed, contesting that the CA erred in
completely ignoring the basic difference between a void and
merely voidable contract. Issue before the SC thereby is:
whether the assailed contracts of sale are void or merely
voidable and hence capable of being ratified.
SC reversed the CA decision, the assailed contracts are only
voidable and were in fact ratified, therefore valid and binding.
Doctrine: A void or inexistent contract is one which has no
force and effect from the beginning. These are of two types:
(1) those where one of the essential requisites as provided for
by Art 1318 is wanting;
(2) those declared to be so under Art 1409.
By contrast, a voidable or annullable contract is one in which
the essential requirements for validity under Art 1318 are
present, but vitiated. Such contracts may be rendered
perfectly valid by ratification, which can be express or
implied.
Art 1327 provides that insane or demented persons cannot
enter into contracts, But, if ever they do, the legal effect is
that the contract is voidable or annullable as provided for in
Art 1390. Hence, the contract in above case is merely
voidable. Ratification in this case is implied and consisted in
Eligio’s children receiving payments on behalf of their father
and their non-immediate filing of an action for reconveyance
as in fact they only filed it after Francisco did not agree to
them increasing the purchase price.
Agan, Jr. vs Philippine International Air Terminals Co.,
Inc.
Petitioner seek to prohibit the Manila International Airport
Authority (MIAA) and the Dept of Transportation and
Communications (DOTC) from implementing contracts and
agreements executed by the Philippine Givernment through
the DOTC and the MIAA and the Phil Intl Air Terminals Co.,
OBLIGATIONS AND CONTRACTS
REVIEWER
Inc (PIATCO).
DOTC engaged the services of Aeroport de Paris (ADP) to
conduct a comprehensive study of the Ninoy Aquino Intl
Airport (NAIA) and determine whether the present airport can
cope with the traffic development up to 2010. A group of
business leaders formed Asia’s Emerging Dragor Corp (AEDC)
to explore the possibility of investing in the construction and
operation of a new airport terminal. AEDC submitted an
unsolicited proposal to the Government through DOTC/MIAA
for the development of NAIA International Passenger Terminal
III (NAIA IPT III). A committee called the Prequalification Bids
and Awards Committee (PBAC) was constituted by the DOTC
for the implementation of the NAIA IPT III project. A
consortium headed by People’s Air Cargo and Warehousing
Co., Inc. (Paircargo), among others, submitted their proposal
to PBAC. PBAC found Paircargo as the most qualified to
undertake the project. Sometime after this determination,
Paircargo incorporated with PIATCO. AEDC, along with a slew
of other petitioners, filed with the RTC Pasig a petition to
declare the 1997 Concession Agreement between the
Government and PIATCO null and void for being contrary to
the Constitution, the BOT (Build-Operate-Transfer) Law and
its Implementing Rules and Regulations.
SC declared the assailed agreement as void for being contrary
to public policy. A close comparison of the draft Concession
Agreement attached to the Bid Documents and the 1997
Concession Agreement reveals that the documents differ in at
least two very important respects. While the Court concedes
that a winning bidder is not precluded from modifying certain
provisions of the contract bidded upon, such changes must
not constitute substantial or material amendments that would
alter the basic parameters of the contract and would
constitute a denial to the other bidders of the opportunity to
bid on the same terms
Doctrine: It is inherent in public biddings that there shall be
fair competition among the bidders. Any contract that
circumvents this concept shall be declared null as being
contrary to public policy.
III. NATURAL OBLIGATIONS
1. Definition
Natural obligations are those based on equity and natural law,
which are not enforceable by means of court action, but
which, after voluntary fulfillment by the obligor, authorize the
retention by the oblige of what has been delivered or
rendered by reason thereof. In other words, they refer to
those obligations without sanction, susceptible of voluntary
performance, but not through compulsion by legal means.
2. vs Civil Obligations
Natural Obligations Civil Obligations
Basis Equity and natural law Positive law
Enforceability Not enforceable by Enforceable by court
court action action
3. vs Moral Obligations
Natural Obligations Moral Obligations
Existence of juridical There exists a juridical No juridical tie
tie tie between the parties whatsoever.
not enforceable by
court action.
Effect of fulfillment Voluntary fulfillment Voluntary fulfillment
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produces legal effects does not produce  legal

Constructive Trust—no intention to create a trust is present,
which the courts effects which the courts
but a trust is nevertheless created by law to prevent unjust
recognize and protect. recognize and protect.
enrichment or oppression (cf 1456)
4. Example  The law of trusts has been much more frequently applied in
One example would be the one that is regulated in Art 1424 England and in the US than in Spain, so we may draw freely
of the NCC. According to this article, when a right to sue upon from American precedents in determining the effects of
an obligation has lapsed by extinctive prescription, the obligor trusts.
who voluntarily performs the contract cannot recover what he CHAPTER 2
has delivered or the value of the service he has rendered. EXPRESS TRUSTS
IV. TRUSTS Formalities Re Express Trusts:
What is a trust?
1. Trust is a legal relationship between one person having an  Express trusts are to be written for enforceability and not for
equitable ownership in property and another person owning validity as to between the parties; hence, by analogy, can be
the legal title to such property, the equitable ownership of the included under the Statute of Frauds.
former entitling him to the performance of certain duties and  By implication, since the article applies to immovable property
the exercise of certain powers by the latter (Tolentino) only, trust over personal property on oral agreement is valid
1. It is the right to beneficial enjoyment of property, the legal and enforceable between the parties.
title of which is vested in another. It is a fiduciary relationship  3rd Persons—trust must be made in a public instrument and
concerning property which obliges the person holding it to REGISTERED in the Registry of Property, if it concerns Real
deal with the property for the benefit of another (Paras). Property.
Characteristics of a Trust (Paras) How an Express Trust is Created:
1. It is a fiduciary relationship. 1. By conveyance to the trustee by an act inter vivos or mortis
2. Created by law or agreement. causa (as in a will).
3. Where the legal title is held by one, the equitable title or 2. By admission of the trustee that he holds the property, only
beneficial title is held by another. as a trustee.
Trust distinguished from Guardianship or Executorship: 3. Clear Intent—there must be a clear intention to create a trust.
 In a trust, the trustee or holder has LEGAL title to the 4. Capacity—The trustor must be capacitated to convey property
property. (hence, a minor cannot create an express or conventional
 A guardian, administrator or executor does not have. trust of any kind).
Trust distinguished from a Stipulation Pour Autrui 5. Administration of the trust. The trustee must:
a. File a bond
 A trust may exist because of a legal provision or because of b. Make an inventory of the real and personal property in trust
an agreement; a stipulation pour autrui can arise only in the c. Manage and dispose of the estate and faithfully discharge his
case of contracts. trust in relation thereto, according to the law or terms of the
 A trust refers to specific property; a stipulation pour autrui trust as long as they are legal and possible.
refers to a specific property or to other things. d. Render a true and clear account.
Co-Ownership as Trust e. Not acquire property held in trust by prescription as long as
 A Co-Ownership is a form of trust, with each co-owner being the trust is admitted.
a trustee for each of the others. Effect if Trustee Declines
CHAPTER 1  The trust ordinarily continues even if the trustee
GENERAL PROVISIONS declines. Why? The Court will appoint a new trustee unless
Parties to a Trust otherwise provided for in the trust instrument (Sec. 3, Rule
7. trustor or settler –he establishes the trust (may at the same 98, Rules of Court). A new trustee has to be appointed;
time be the beneficiary) otherwise the trust will not exist.
8. trustee –hold the property in trust for the benefit of another  Beneficiary necessarily has to accept either expressly,
9. beneficiary or cestui que trust –the person for whose benefit impliedly or presumably. Acceptance is presumed if the
the trust has been created. granting of benefit is purely gratuitous (no onerous
Elements of a Trust: condition).
1. parties to the trust How Express Trusts are ended:
2. the trust property or the trust estate or the subject matter of 1. Mutual agreement by all parties.
the trust. 2. Expiration of the Term
Note: cf this with the ratio of the Mindanao Development 3. Fulfillment of the resolutory condition
Authority v. CA & Ang Bansing case below 4. Rescission or annulment
 Express Trusts—created by the parties, or by intention of the 5. Loss of subject matter of the trust
trustor 6. Order of the court
 Implied Trusts—created by operation of the law; two kinds 7. Merger
 Resulting trust (also bare or passive trusts)—there is intent to 8. Accomplishment of the purpose of the trust.
create a trust but it is not effective as an express trust (cf Art. CHAPTER 3
1451). IMPLIED TRUSTS

page 58

 Trusts are recognized only if they are not in conflict with the ■
Civil Code, Code of Commerce, Rules of Court and Special
Laws.
 5.
This is a resulting trust because a trust is intended.
 Example: 1.
 A buys a piece of land from B. A pays the price so that he (A) 1.
may have the beneficial interest in the land BUT the legal title
is given to C. C is the trustee and A is the beneficiary.
 This is again a resulting trust where the donee becomes the
trustee of the real beneficiary.
 Example:
 A donated land to B. But it was agreed that B is supposed to
have only 1/3 of the products of said land. There is a trust
here and B is the trustee.
 This is a constructive trust, the reason of the law being to
prevent unjust enrichment.
 Example:
 A wants to buy land from B but A has no money. So A asks C
to pay for the land. The land is then given in C’s name. This is
supposed to be C’s security until the debt of A is paid. Here,
an implied trust is created. C is a trustee and the beneficiary
is A. When A has the money, he may redeem the property
from C and compel a conveyance to A.
NOTE: This is not the same as mortgage. Mortgage is
when A borrows money from C and A later buys land in
his own name. A then executes a mortgage on the land
in favor of C. This is not an implied trust.
Trust Receipts
 Partakes of a nature of a conditional sale…the importer being
the absolute owner of the imported merchandise as soon as
he has paid its price; until the owner or the person who
advanced payment has been paid in full, or if the
merchandise has already been sold, the proceeds turned over
to him, the ownership continues to be vested in such person.”
 This is a resulting trust for a trust is intended.
 Example:
 A inherited a piece of land from his father, but A caused the
legal title to be put in the name of X, a brother. Here a trust
is impliedly established, with X as trustee and A as
beneficiary.
 This is a resulting trust in view of the intent to create a trust.
 Example:
 A group of Chinese wanted to buy a lot with a house on it to
be used a clubhouse. The name of the property was
registered under only one of them. The registered owner
leased the property, collected rents and when asked for
accounting, refused to on account that he was the
owner. Nope, he is a mere trustee and is therefore obliged
render proper accounting. The beneficiaries are all members
 WON there was a trust between Juan and Ambrosia Salao
of the club.
 This is a resulting trust in view of the owner’s intention to
create a trust.
5.
 Example:
OBLIGATIONS AND CONTRACTS
REVIEWER
A bought from B a parcel of land and it was conveyed to A on
A’s statement or declaration that he would hold it in behalf of
C. Here, A is merely a trustee and C is the beneficiary.
This is a constructive trust the purpose of the law to prevent
unjust enrichment to the prejudice of the true owner.
Example:
A owe’s B. To guarantee his debt, A sold her parcel of land to
B. Here, a trust is created. If A pays his debt when it becomes
due, A may demand the resale of property to her.
 This is a constructive trust and this article applies to any
trustee, guardian or persons holding a fiduciary relationship
(eg, an agent).
 Example:
 An agent using his principal’s money purchases land in his
own name. He also registers it under his name. Here, he will
only be considered a trustee and the principal is the
beneficiary. The principal can bring an action for conveyance
of the property to himself, so long as the rights of innocent
third persons are not adversely affected.
 This is a constructive trust.
1. Example:
 A was given a car by B although it should have been given to
C. A is considered merely a trustee of the car for the benefit
of C.
NOTE: The mistake referred to in this article is one
made my a third person, not one who is a party to the
contract. If made by any of the parties, then no trusts
is created.
DO TRUSTS PRESCRIBE?
5. Express trusts DO NOT. Implied Trusts—resulting trusts do
not prescribe but constructive trusts do prescribe (see Salao
v. Salao in the cases below)
 This article applies whether it is real or personal
property. Even if it is oral evidence, said evidence must be
trustworthy oral evidence, for oral evidence may be easily
fabricated.
CASES
Salao v. Salao
Facts:
 Spouses Manuel Salao and Valentina Ignacio has 4
children—Patricio (who died survived by son Valentin),
Alejandra, Juan and Ambrosia. Spouses died leaving partition
of different fishponds to the three surviving children and
nephew Valentin.
 Main contention in this case is the Calunuran fishpond which
the plaintiffs assert were co-owned by Juan, Ambrosia and
Valentin and that Juan and Ambrosia were just holding in
trust the part of Valentin. Plaintiffs here are the heirs of
Valentin against the heirs of Juan and Ambrosia. Plaintiffs say
that they are enforcing a trust that Juan Salao violated.
Issue:
with Valentin Salao?
Held:
No, there was no trust—either express or implied (resulting
and constructive trust)
Ratio:
page 59

 A trust is defined as the right, enforceable solely on equity, to
the beneficial enjoyment of property, the legal title to which is
vested in another, but the word “trust” is frequently employed 5.
to indicate duties, relations and responsibilities which are not
strictly technical trusts.
 Not a scintilla of documentary evidence was presented by the
plaintiffs to prove that there was an express trust over the
Calunuran fishpond in favor of Valentin Salao. Purely parol
evidence was offered by them to prove the alleged
trust. Their claim that in the oral partition in 1919 of the two
fishponds was assigned to Valentin Salao is legally
untenable—Article 1443—parol evidence cannot be used to
prove an express trust.
 How about an implied trust? It was not proven by any
competent evidence. It is quite improbable because the
alleged estate of Manuel Salao was likewise not satisfactorily
proven. The Court found it incredible that 47 hectares of 6.
Calunuran fishpond would be adjudicated merely by word of
mouth. The plaintiffs also never bothered (for nearly 40
years) to procure any documentary evidence to establish their
supposed interest or participation in the two
fishponds. Prescription and laches applies.
 There was no resulting trusts because there was never any
intention on the part of Juan Salao, Ambrosia and Valentin to
create a trust—the registration of the fishpond were
registered in the names of Juan and Ambrosia and was not 7.
vitiated by fraud or mistake.
 Even if there was an implied trust, laches and prescription has
barred their action—they slept on their rights (vigilanti
prospiciunt jura or the law protects him who is watchful of his
rights). There was not mention of a period for laches or
prescription to apply.
 Plaintiffs failed to measure up to the yardstick that a trust
8.
must be proven by clear, satisfactory and convincing
evidence. It cannot rest on vague and uncertain evidence or
on loose, equivocal or indefinite declarations.
4.
Doctrine:
 Prescription applies to constructive trusts. Parol evidence
cannot be accepted in an express trust but can be accepted in 5.
an implied trust if it is trustworthy.
Fabian v. Fabian
Facts:
 Pablo Fabian bought Lot 164 from the Phil. Gov’t. He died 
leaving four children who are the plaintiffs in this case. Silbina
Fabian and Teodora Fabian, niece of Pablo Fabian, executed
an affidavit saying that they are legal heirs and as such a sale
certificate was issued to them. In 1929, they took physical
possession of the land, enjoyed its fruits and from 1929 to 
present (1960), has been paying real estate taxes thereon.
 Plaintiffs filed this action for reconveyance averring that the
certificate of sale was gained through fraud. Defendants aver
that Pablo did not really own the land in question at the time 
of his death and the present action for reconveyance has
already prescribed.
Issue:
 WON defendants have acquired the property by acquisitive 
prescription?
OBLIGATIONS AND CONTRACTS
REVIEWER
Held: Yes
Ratio:
The Friar Lands Act governs the sale of land to Pablo Fabian
wherein title of the land sold is reserved to the Gov’t until the
purchaser makes full payment of all required installments and
the interest thereon. The equitable and beneficial title really
went to the purchaser the moment he paid the first
installment and was given a certificate of sale. Pending the
completion of the purchase price, the purchaser is entitled to
all the benefits and advantages which may accrue to the land
as well as suffer the loss. He was therefore the owner of the
land and as such the legal rights to the land passed onto his
four daughters. Therefore, Silbina and Teodora were just
trustees of the land in question upon the principle that if
property is acquired through fraud, the person obtaining it is
considered a trustee of an implied trust for the benefit of the
person from whom the property comes.
However, laches may bar an action to enforce a constructive
trust such as the one in the case at bar. Defendants herein
have been in possession of the land in question since 1928 up
to present publicly and continuously under claim of
ownership; they have cultivated it, harvested and
appropriated the fruits for themselves. The statute of
limitations is within four years from the discovery of the
fraud—this may start when they first registered the land (not
mentioned in the case when).
The court also used sec. 41 of Act 190 saying that 10 years of
actual adverse possession by any person claiming to be the
owner for that time of any land or interest in land,
uninterruptedly continued for ten years by occupancy,
descents, grants, or otherwise, in whatever way such
occupancy may have commenced or continued shall vest in
every actual occupant or possessor of such land in full and
complete title.
Plaintiffs’ action has prescribed and defendants have acquired
the land by acquisitive prescription.
Doctrine/s:
Prescription bars an action for constructive trusts—within 4
years, and actual possession and occupancy of land entitles
one to acquire such land.
Property gained through fraud is considered held in trust (Art.
1456)
Bueno v. Reyes
Facts
Francisco H. Reyes claimed property in Laoag as belonging to
him and his two brothers—Juan and Mateo (defendants
herein). Plaintiffs are the heirs of Jorge Bueno whom they say
was the original owner. One of his children is Eugenia who
was supposedly the wife of Francisco Reyes.
Francisco Reyes was entrusted to file an answer in a cadastral
proceeding in acquiring that certain property in Laoag. He was
entrusted with obtaining a title thereto for and in behalf of all
the heirs of Jorge Bueno, including the wife Eugenia Bueno.
Plaintiffs say that either in bad faith or by mistake, Francisco
Reyes filed an answer and obtained title to the property in his
name and the defendant’s. Plaintiffs allege that they only
have discovered these things this year.
CFI and defendants proceeded on the theory that the action
for reconveyance was predicated on an implied trust and as
such, the action prescribes in 10 years (1936—Francisco
page 60

Reyes acquired title on the land; 1962—time of the petition of
reconveyance, total of 23 years).
Issues:
 WON the trust was express or implied. WON the action for
reconveyance has prescribed.
Held:
2. The trust was implied and remanded to lower court for further
proceedings to determine whether there has been
constructive notice.
Ratio
 The trust given to Francisco Reyes was supposed to be an
express trust but it never materialized. This was an implied
trust arising by operation of the law. This was specifically a
constructive trust since the allegation avers that the property
was taken by mistake or fraud (Art. 1456). Hence,
prescription can supervene. Remember that an express trust
is imprescriptible. Under Sec. 40 of the Old CivPro, action for
recovery of property prescribes in 10 years.
 From what time should the prescriptive period start? The
cadastral proceeding where Reyes and his brothers obtained k. The President of the Philippines issued Proclamation no. 459
title thereto cannot be taken as constructive notice since it is
an action in rem. Case remanded to trail court for further
proceedings to establish when the prescriptive period started.
Doctrine/s:
5. Constructive implied trusts prescribe 10 years from the time
defendants are given constructive notice. Express trusts do
not prescribe. Constructive notice can be the actual
registration of the land since this is a notice to the whole l.
world.
Tamayo v. Callejo
Facts
2. Mariano and Marcos Tamayo appealed from the decision of
the CA granting the petition of Aurelio Callejo that a certain 
piece of land belonged to Callejo.
3. Spouses Vicente and Cirila Tamayo owned a piece of land in
Pangasinan. Vicente died leaving to his sons the property
(wife waived her portion). Before he died, he sold part of the
land to Domantay who in turn subsequently sold it to Aurelio
Callejo. When Mariano sold a part of his land to someone and
a surveyor went to check it out, the surveyor was denied
access by Callejo, saying that that part of the land is
his. Thus, this petition.
4. Mariano Tamayo’s defense is that the land in dispute is
outside the perimeter of the certificate of title and he also
alleged prescription. Tamayo argues that if the land bought
by Domantay was erroneously included in his certificate of
title, then it created an implied trust between him and
Domantay but the action for reconveyance has already 
prescribed in 10 years (1915—when title was issued to
him; this case was instituted 1952).
Issue:
9. WON the action for reconveyance has prescribed.
Held: No
Ratio:
 While it may have been a constructive, implied trust, its
substance was substantially affected when Mariano Tamayo
and Domantay executed a public instrument whereby Mariano
explicitly acknowledged that his parents had sold to
Domantay the parcel of land and stipulating that Domantay is
OBLIGATIONS AND CONTRACTS
REVIEWER
the absolute owner. This action made it an express trust
which is subsisting, not subject to the statute of limitations
until repudiated, in which event the period of prescription
begins to run only from the time of the repudiation. This took
place in June 1952 when Mariano rejected Callejo’s
demand. Prescription does not attach since the action for
reconveyance was instituted a few days after the express
trust was repudiated.
Doctrine:
 Express trusts do not prescribe unless repudiated in which
event the period of prescription starts from the repudiation.
Mindanao Dev’t Authority v. CA & Ang Bansing
Facts
j. Francisco Ang Bansing owned a 300,000 sq.m. piece of land
in Davao wherein he sold part of it to Juan Cruz who
subsequently sold it also to the Commonwealth of the
Philippines. In the contract between Juan Cruz and Ang
Bansing, it is stipulated that Juan Cruz will agree to work for
the titling of the entire area of land under his own expenses
and the expenses for the titling of the portion sold to him.
transferring the ownership of certain parcels of lands in Davao
to the Mindanao Dev’t Authority (MDA) subject to private
rights, if any. MDA filed a complaint against Ang Bansing for
reconveyance alleging that the stipulation in the contract
between Juan Cruz and Ang Bansing made Ang Bansing a
trustee thereby obligating Ang Bansing to deliver the portion
of land sold to Juan Cruz.
Ang Bansing alleges that any ownership right over the
property has prescribes since it has already been 30 years.
m. CFI found that there was an express trust. CA says there was
no express trust.
Issue:
WON there was an express trust created between Juan Cruz
and Ang Bansing.
Held: Nada
Ratio:
 Trusts are either express or implied. A trusts necessarily
includes the following: (1) competent trustor and trustee, (2)
an ascertainable trust res, and (3) sufficiently certain
beneficiaries.
 The stipulation alluded to is nothing but a condition that Ang
Bansig shall pay the expenses for the registration of his land
and for Juan Cruz to shoulder the expenses for the
registration of the land sold to him. The stipulation does not
categorically create an obligation on the part of Ang Bansing
to hold the property in trust for Juan Cruz.
There is no express trust as there was no unequivocal
disposition of property making himself a trustee for the
benefit of another. The intent to create a trust must be
definitive and particular.
 Even if we consider it as an implied trust, it has already
prescribed because more than 28 years has passed. Acton for
reconveyance has prescribed.
Doctrine:
 Trusts are created unequivocally and with the clear intent to
create a trust.
Tala Realty v. Banco Filipino Savings and Mortgage
page 61
 OBLIGATIONS AND CONTRACTS
REVIEWER

Bank
Facts
2. Tala Realty Services is the absolute owner of several parcels
of land by virtue of a Deed of Sale executed between Tala and
respondent Bank. At issue here is one of those parcels of
land-the Bulacan property. On the same day that Tala
acquired the property, Tala and the Bank executed a lease
contract renewable in 20 years and subsequently changed to
11 years, renewable for 9 years. After 11 years, Tala
reminded the Bank that the contract will expire soon and
negotiated for a renewable of the lease agreement.
3. There was no final agreement and in the end when the Bank
was not able to comply with the requirements of Tala, Tala
filed complaints for ejectment and/or unlawful detainer.
4. The Bank’s defense story was that it undertook an expansion
program where they will buy a head office but if they do so,
they would exceed the limit of real estate investment set by
the General Bankings Act. To avoid the limit set by law, they
reduced their branch site holdings by leasing instead of
owning branch sites. Thus they entered into a “warehousing
agreement” with Tala wherein it is stipulated that the
properties will be reconveyed to the Bank at the Bank’s
demand or pleasure. This was not written in the contract but
the Bank was confident that Tala will honor this agreement.
Issue:
 WON the conveyance of property was a trust under the
“warehousing agreement.”
Held: No
Ratio:
 It is clear that the Bank transferred ownership to Tala when
the former sold it to the latter. The Bank counters that it was
not really a sale because what Tala paid was actually the
advance rentals that the Bank gave to Tala and therefore the
contract should be understood as a “warehousing agreement”
whereby Tala holds the property for the bank (just like a
trust). Not meritorious.
 While there may have been a contract of sale and lease back
of the property which created an implied trust “warehousing
agreement” for the reconveyance of the property, under the
law, this implied trust is inexistent and void for being contrary
to law (the “warehousing agreement” was meant to curtail
the limitations set by the General Bankings Act which
prohibits a Bank from owning more than the limit of real
estate investment).
 An implied trust could not have been formed between the
Bank and Tala “where the purchase is made in violation of an
existing statute and in evasion of its express provision, no
trust can result in favor of the party who is guilty of the
fraud.
Using Ramos v. CA, the Court held that “if the purpose of the
payor of the consideration having title placed in the name of
the another was to evade some rule of common or statute
law, the Courts will not assist the payor in achieving his
improper purpose by enforcing a resultant

page 62
What is an obligation
➢ A juridical necessity to give (real), to
do or not to do (personal). (1156)
Define juridical necessity
➢ In case of non-compliance, there will
be legal sanctions.
What are the elements of an obligation?
1. Active subject - creditor
2. Passive subject - debtor
3. Prestation - object
4. Efficient Cause - juridical tie
What are the sources of obligations?
1. Law
2. Contracts
3. Quasi-Contracts
4. Delicts
5. Quasi-Delicts
(1157)
If an obligation does not arise from a
contract, where does it arise from?
➢ From law.
If an obligation does not arise from a law
or contract, is it valid?
➢ No. The list in Art. 1157 is exclusive.
What is a contract?
➢ A meeting of the minds between two
persons whereby one person binds
himself to another to render some
service or give something
How are contracts perfected?
➢ By mere consent
What governs obligations arising from
contracts?
➢ Their own stipulations, the civil code
only applies suppletorily. (1159)
T/F - all and any stipulations included in a
contract are enforceable.
➢ False. If the prestations are
unconscionable or unreasonable,
they may not be enforced totally.
When does a creditor have a right to the
fruits of a thing?
➢ From the time the obligation to deliver
it arises. (1164)
What are the kinds of delivery?
1. Real tradition - actual delivery
2. Constructive tradition - symbolic
delivery
(1164)
How is ownership transferred?
➢ By delivery. Mere perfection of a
contract is not enough.
Differentiate a real right and a personal
right.
➢ Real right - power over a specific
property
➢ Personal right - power to demand
(1164)
Differentiate a determinate and an
indeterminate thing.
➢ Determinate - susceptible of
particular designation or specification
➢ Indeterminate - not particularized,
refers only to a class or genus
What are the remedies when a debtor fails
to deliver a determinate thing?
1. Complaint for specific performance
 2. Complaint for recission
3. Complaint for resolution
4. Complaint for damages
What is the general rule on loss with no
fault?
➢ No liability is incurred and the
obligation is extinguished
What are the instances when a debtor is
still liable under fortuitous events?
1. In cases expressly provided by law
2. When stipulated
3. When the obligation requires an
assumption of risk
4. When the obligor promised the
same thing to two or more persons
5. When the obligor is guilty of fraud,
negligence or delay
Define accessions and accessories.
➢ Accessions - everything produced
➢ Accessories - everything included
(1166)
T/F - An obligation to deliver a specific
thing always includes all of the
accessions and accessories
➢ False. If otherwise stipulated, certain
accessions or accessories may be
excluded
In an obligation to do, what is the remedy
of the creditor when the debtor fails to
do?
➢ It will be executed at the debtors cost
(1167)
In an obligation to do, what is the remedy
of the creditor when the debtor does it in
contravention of the tenor of the
obligation?
➢ It will be executed at the debtors cost
(1167)
In an obligation to do, what is the remedy
of the creditor when the debtor performs
poorly?
➢ It will be undone at his cost (1167)
If only the debtor can perform the act, can
he be compelled to perform?
➢ No. The remedy will be for damages.
When the debtor does what is forbidden,
what is the remedy?
➢ The thing shall be undone at the
debtors expense.
➢ If the act cannot be undone, the
remedy is for damages.
What must be done to put a debtor in
delay?
➢ There must be demand, either
judicially or extra-judicially. (1169)
What are the instances when demand is
not necessary to put someone in delay?
1. When the law or obligation
expressly declares
2. When time is of the essence
3. When demand would be useless
4. When the debtor admits that he is
in delay
(1169)
When is time not considered essential?
➢ When there is no date fixed for the
delivery of the thing (Smith vs Matti)
What are the kinds of delay?
➢ Mora Solvendi - debtor
➢ Mora Accipendi - creditor
➢ Compensatio Morae - reciprocal
When does Compensatio Morae arise?
➢ When in a reciprocal obligations, one
party fulfills his obligation and the
other party fails to do so
What is negligence?
➢ Omission of the diligence required
T/F - a party may waive an action for
future fraud
➢ False. Such waiver is void. Liability
arising from fraud is demandable in
all obligations. (1170)
T/F - liability arising from negligence is
always demandable in full
➢ False. Liability may be regulated by
courts.
What are some instances when the court
will mitigate the liability arising from
negligence?
➢ The plaintiff has contravened the
contract
➢ The plaintiff derived some benefit
➢ The loss would have resulted in any
event
➢ The defendant did his best to prevent
the loss or injury
➢ The creditor contributed to the
damage
What are the kinds of diligence?
1. Diligence stipulate upon
2. Diligence required by law
3. In the absence of any, the diligence
of a good father
(1173)
What is a fortuitous event?
➢ An occurrence which could not have
been foreseen, or even if foreseen, is
inevitable (1174)
Differentiate between fortuitous event
and force majeure.
➢ In fortuitous event, it is completely
independent of human will. In Force
majeure, there is an intervention of
human will.
What are the requisites for a debtor to be
exempt from liability in case of fortuitous
event?
1. The cause must be independent of
the debtor's will
2. Unforeseeable or unavoidable
3. Rendered the obligation
impossible
4. The debtor must not aggravate the
injury to the creditor
Has the Usury Law been repealed?
➢ No. CBP Circular No. 905-82 merely
suspended its operation (1175)
Due to the suspension of the Usury Law,
can parties agree upon any interest rate?
➢ No. Stipulated interest rates will be
struck down if they are found to be
unconscionable
When the creditor issues a receipt for the
principal obligation, what is the
presumption?
➢ The interest has already been paid.
(1176)
When the creditor issues a receipt for a
latter installment, what is the
presumption?
➢ The previous installments have
already been paid (1176)
What are the remedies that a creditor can
pursue in order to protect his rights?
1. Exhaustion of the debtors
properties
2. Accion Subrogatoria - the creditor
goes after the debtors of the debtor
3. Accion Pauliana - recission of the
debtors acts designed to defraud the
creditor
(1177)
Are all rights transmissible?
➢ Yes. Subject to laws and stipulations
if any. (1178)
What is a condition?
➢ An event that is BOTH future and
uncertain to which an obligation is
dependent on
What is a pure obligation?
➢ An obligation that does not depend
on any condition or term
What is a suspensive condition?
➢ The fulfillment of the condition gives
rise to the obligation (1179)
What is a resolutory condition?
➢ The fulfillment of the condition
extinguishes the obligation (1179)
Can a past event be the subject of a
condition?
➢ Yes. The condition must be based on
future knowledge or proof the past
event and not the past event itself.
(1179)
What is a potestative condition?
➢ The fulfillment of the obligation
depends on the will of the debtor
When is an obligation deemed to be with
a period?
➢ When the debtor binds himself to pay
(1180)
Can a creditor make a demand when there
is no period?
➢ No. The court may first fix a period.
➢ BUT when the action of fixing a
period will serve no other purpose but
delay, immediate action may be
allowed (Pineda, p.84)
Is a suspensive condition that is
dependent solely on the will of the debtor
valid?
➢ No. (1182)
Is a resolutory condition that is
dependent solely on the will of the debtor
valid?
➢ Yes.
Is a suspensive condition that is
dependent solely on the will of the
creditor valid?
➢ Yes.
Are causal or mixed conditions valid?
➢ Yes
What happens when the condition is
impossible?
➢ The obligation will be void (1183)
What is the result when there is an
impossible condition in a divisible
obligation?
➢ The portion which is not affected by
the impossible condition shall be valid
(1183)
What happens when the debtor
voluntarily prevents the fulfillment of a
condition?
➢ The condition is deemed fulfilled.
(1186)
➢ Note: mere intention to prevent is not
enough
What is the effect of the fulfillment of a
suspensive condition?
➢ The effect of the conditional
obligation shall retroact to the date of
the constitution of the obligation
(1187)
In an obligation with reciprocal
prestations, what is the effect on fruits an
interests?
➢ They are deemed mutually
compensated during the pendency of
the condition. (1188)
Can the debtor alienate a specific thing
during the pendency of a suspensive
condition?
➢ No.
What are the remedies of a creditor if the
debtor alienates a specific thing during
the pendency of the suspensive
condition?
➢ If the third person buyer is in good
faith, the creditor cannot recover and
can only sue for damages against the
debtor.
➢ If the third person buyer is in bad
faith, the creditor can compel the
former to deliver such thing plus
damages.
What are the rules provided for in Art.
1189?
1. Lost w/o debtors fault, obligation is
extinguished
2. Lost w/ debtors fault, damages
3. Deteriorates w/o debtors fault,
expenses borne by creditor
4. Deteriorates w/ debtors fault,
creditor may rescind or fulfillment,
with damages
5. Improves by nature, inures to
creditor
6. Improves at debtors expense,
usufruct only
When is a thing lost?
➢ When it perishes, or goes out of
commerce, or disappears in a way
that its existence is unknown or it
cannot be recovered
When is thing detriorated?
➢ When there is an impairment or
decrease in value, not amounting to a
total loss
What is the result of the fulfillment of a
resolutory condition?
➢ The obligation is deemed to have not
existed at all.
➢ The parties are now bound to return
to one another what they have
received.
(1190)
What are the rules to be followed during
the pendency of a resolutory condition?
➢ Art. 1189 will apply. The party bound
to return the thing shall be considered
the debtor. (Pineda, p. 106)
What is a breach of contract?
➢ Failure without reason to comply with
the terms of a contract
Differentiate recission under 1191 and
1381?
➢ 1191 - resolution, merely cancels the
contract, 10 yrs prescription
 ➢ 1381 - recission, abrogates the
contract from the beginning, 4yrs
prescription
What is a reciprocal obligation
➢ two parties are mutually creditor and
debtor of one another in the same
transaction
Who has the right to demand recission in
reciprocal obligations?
➢ The party that is ready, willing and
able to comply with his own obligation
while the other isn't.
What remedies can an aggrieved party in
a reciprocal obligation pursue?
1. Specific performance
2. Recission with damages
(1191)
Can an injured party demand recission
with damages after he has chosen
specific performance?
➢ Yes if the fulfillment has become
impossible (1191)
When is judicial approval not needed for
recission?
1. When there is an express
stipulation for automatic recission
2. When the debtor voluntarily
returned the thing
What are the effects of recission?
➢ The parties must return to one
another what they have recieved
When does recission take effect?
➢ Upon judicial approval (1191)
When does automatic recission take
effect?
➢ Upon notice to the other party
What is the result when both parties
committed a breach?
➢ The liability of the first infractor shall
be equitably tempered by the court
What is the result when both parties
committed a breach and it cannot be
determined who was the first infractor?
➢ The contract shall be extinguished
and each party shall bear his own
damages (1192)
What is a period?
➢ A length of time which upon the
arrival of such will give rise or
extinguish an obligation (1193)
What is the effect of obligations with a
period?
➢ They are only demandable upon the
arrival of the day fixed (1193)
What are the two kinds of periods?
➢ Ex Die - Suspensive
➢ In Diem - Resolutory
(1193)
What are the requisites for a valid period?
➢ Future
➢ Certain
➢ Possible
What are the rules in Art. 1194?
➢ Same as Art. 1189
1. Lost w/o debtors fault, obligation is
extinguished
2. Lost w/ debtors fault, damages
3. Deteriorates w/o debtors fault,
expenses borne by creditor
4. Deteriorates w/ debtors fault,
creditor may rescind or fulfillment,
with damages
 5. Improves by nature, inures to
creditor
6. Improves at debtors expense,
usufruct only
Can a debtor recover what he paid if he
pays before the arrival of the period?
➢ Yes, if he was not aware of the period
or belived that the obligation is due.
➢ Otherwise, it is deemed that he
waived the benefit of the period.
(1195)
Even if the debtor is unaware of the
period or believed the debt was due, what
are the instances where there can be no
recovery?
➢ Reciprocal obligations
➢ Loans
➢ When the period is exclusively for the
benefit of the creditor
When a period is established, what is the
presumption on benefit?
➢ It is presumed that the period was
established for both the creditor and
the debtor. Unless circumstances
would prove that one is favored over
the other (1196)
If there is a period, can the creditor
demand performance or payment before
expiration of the period?
➢ No. Neither can the debtor demand
acceptance of the payment or
performance.
When can the courts fix a period?
1. When from the nature and
circumstances of the obligation, a
period was intended
2. When the period depends solely on
the will of the debtor
(1197)
Can the the period be changed after it has
been fixed by the court?
➢ No.
What is the prescriptive period for filing
an action for fixing of a period?
➢ 10 years.
When does a debtor lose the right to make
use of the period?
1. When he becomes insolvent
2. When he fails to furnish the
securities and guaranties
3. When the securities or guaranties
are impaired by the debtor or are lost
due to a fortuitous event - UNLESS
he replaces the same
4. When the debtor violates any
undertaking
5. When the debtor attempts to
abscond
(1198)
Differentiate a conjunctive obligation and
an alternative obligation.
➢ Conjuctive - debtor must perform all
prestations to extinguish the
obligation
➢ Alternative - debtor must perform only
one one out of the alternative
prestations to extinguish the
obligation
(1199)
Can a creditor be compelled to receive
part of one prestation and part of
another?
➢ No. But if the creditor agrees, it is
valid. (Pineda, p.143)
Who has the right of choice in alternative
obligations?
➢ The debtor. (1200)
When does the choice of the debtor take
effect?
➢ From the time is has been
communicated (1201)
When is the right of choice lost?
➢ When there is a delay in making the
choice
If there is only one practicable choice,
what must the debtor do?
➢ He must choose that sole practicable
choice. The obligation becomes
simple. (1202)
What happens if the debtor cannot make
a choice due to the creditors acts?
➢ The debtor may rescind the contract
(1203)
If the choice is granted to the debtor, and
all the things are lost through his fault or
has become impossible, what can the
creditor do?
➢ The creditor will have a right to
indemnity for damages. The basis will
for such will be the last thing lost.
(1204)
When the choice is given to the creditor,
what are the rules in case of loss?
1. If one of the things is lost w/o
debtors fault, creditor will choose
among what remains
2. If one of the things is lost w/
debtors fault, creditor may choose
among what remains or choose the
price of the thing lost
3. If all of the things are lost w/
debtors fault, creditor may choose the
price of any one of the things.
(1205)
What is a facultative obligation?
➢ An obligation where the debtor is
obliged to perform only one
prestation but may substitute
another. (1206)
What is the rule on loss or deterioration in
facultative obligations?
➢ If the loss or deterioration of the
substitute happened before the
substitution was made, the obligor is
not liable.
➢ If the loss of deterioration of the
substitute happened after the
substitution was made, the obligor is
liable (1206)
What is a solidary obligation?
➢ An obligation in which each of the
debtors is liable for the entire
obligation and each of the creditors is
entitled to demand the satisfaction of
the whole obligation from any of all of
the debtors (PH Credit vs CA)
What is a joint obligation?
➢ An obligation in which each debtor is
liable only for the proportionate part
of the debt and the creditor is entitled
to demand only a proportionate part
of the the credit from each debtor.
(PH Credit vs CA)
When there is a plurality of debtors or
creditors, does it give rise to solidarity?
➢ No. There is only solidarity only when
expressly stated (conventional),
required by law (legal) or required by
its nature (real)
(1207)
When there are two or more debtors or
creditors, what is the presumption?
➢ In the absence of any express and
idubitable terms characterizing the
obligation as solidary, the
 presumption is that the obligation is
only joint. (Escaño vs Ortigas Jr.)
What are the two kinds of solidarity?
➢ Passive - solidarity on the part of the
debtors
➢ Active - solidarity on the part of the
creditors
Give an example of legal solidarity.
➢ Art. 94, Family Code - "If the
community property is insufficient to
cover the foregoing liabilities, except
those falling under paragraph (9), the
spouses shall be solidarily liable for
the unpaid balance with their
separate properties."
➢ Art. 2194, Civil Code - "The
responsibility of two or more persons
who are liable for quasi-delict is
solidary"
➢ Art. 1824, Civil Code - "Art. 1824. All
partners are liable solidarily with the
partnership for everything chargeable
to the partnership under Articles 1822
and 1823"
When an obligation is joint, what is the
presumption with regard to shares?
➢ The credit or debt is presumed to be
divided into as many equal shares as
there are creditors or debtors. (1208)
If a joint debtor is insolvent, are the other
co-debtors liable for his share?
➢ No.
If there is a breach in the obligation made
by a joint debtor, are his co-debtors liable
for damages?
➢ No.
How is compliance enforced in a joint
indivisible obligation?
➢ Compliance can only be enforced by
proceeding against all of them.
In a joint indivisible obligation, when is
the creditor entitled to indemnity?
➢ From the time anyone of the debtors
fails to comply with his undertaking.
(1224)
In a joint indivisible obligation, how can
the rights of the creditors be prejudiced?
➢ Only by their collective acts. (1209)
Does indivisibility give rise to solidarity?
➢ No. Nor does solidarity give rise to
indivisibility. (1210)
Differentiate solidarity and indivisibility.
➢ Solidarity - refers to the juridical tie
➢ Indivisibility - refers to the object
If the debtors are not bound in the same
manner and the same periods and
conditions, is solidarity affected?
➢ No. (1211)
May a solidary creditor do an act
prejudicial to the other creditors?
➢ No. If he does a prejudicial act, he
shall be liable to his co-creditors.
(1212)
How can a solidary creditor assign his
rights?
➢ He must secure the consent of all the
solidary creditors. (1213)
Which solidary creditor should the debtor
pay?
➢ Any of one of them. But if any
demand has been made, payment
shall be made to that creditor. (1214)
Which solidary debtor may the creditor
proceed against?
➢ Any, some or all of the debtors.
(1216)
If a solidary creditor makes an
extrajudicial demand on a solidary debtor
and the latter did not pay, can he demand
from the other soldiary debtors?
➢ Yes. (1216).
If a judicial demand is made by a creditor,
what are the effects?
1. If the decision is favorable to the
solidary creditor, acting as an agent
for the others, the judgement will
benefit them all.
2. If the solidary debtor is insolvent
and the case was only against him,
the judgement cannot be executed
upon the other solidary debtors that
were not a party to the suit.
3. If the decision is against the
solidary creditor, the judgement will
constitute res judicata.
(1216)(Pineda, p.181)
If two or more solidary debtors offer to
pay, which one does the creditor accept?
➢ Either. (1217)
What is the effect if a solidary debtor pays
of the entire obligation?
➢ The one who paid may claim from his
co-debtors only the share which
corresponds to each, with interest
from the date of payment.
➢ If debt is paid before it is due, no
interest can be demanded.
(1217)
If a solidary debtor pays after the
obligation has prescribed or has become
illegal, is he entitled to reimbursement?
➢ No. (1218)
If the obligation has been remitted after
one of the solidary debtors paid the entire
obligation, can the debtor that paid
collect reimbursement from his co-
debtors?
➢ Yes. (1219)
If the whole obligation is remitted, does
the solidary debtor who obtained such
entitled to reimbursement?
➢ No. (1220)
If the remission is only partial, can a
solidary debtor demand reimbursement?
➢ Yes, but only with respect to the
amount he actually paid. (1220)
What are the rules on loss or impossiblity
in solidary obligations?
1. If there is no fault, obligation is
extinguished
2. If there is fault on the part of any of
the debtors, all of them will be liable.
3. If the loss or impossibility is due to
a fortuitous event, no liability unless
there is delay. In this case, the
solidary debtors can go against the
guilty debtor. (1221)
What are the kinds of defenses that a
solidary debtor may avail of?
1. Defenses arising from the nature of
the obligation
2. Defenses which are personal to
him
3. Defenses which are personal to the
other debtors but only as regards that
part of the debt for which the latter are
liable. (1222)
What is the test of divisibility?
➢ Whether or not the prestation is
susceptible of partial performance or
compliance. (1225)
T/F - A physically divisible object or
service can be indivisible.
➢ True, if the law so provides or if it is
intended by the parties (1225)
Give examples of circumstances which
point to divisibility.
➢ When the object of the obligation is
the:
• Execution of a certain number
of days of work
• Accomplishment of work in
metrical units
• Susceptible of partial
compliance
• Payment of installments
(1225)
Can there be partial performance in an
indivisible obligation?
➢ No. In that case, it is tantamount to
non-performance.
What is a penal clause?
➢ An accessory obligation which
imposes an additional liability in case
of breach of the principal obligation.
(1226)
In order to be entitled to the penalty, is
proof of actual damages necessary?
➢ No. (1228)
If the penalty is imposed, can additional
damages still be recovered?
➢ As a general rule, no.
➢ But if the debtor refuses to pay the
penalty, or the debtor is guilty of fraud
or there is an express stipulation,
additional damages may be
recovered. (1226)
T/F - Penalty clauses can impose any
penalty.
➢ False. If the penalty to be imposed is
immoral, excessive or against public
order, it should not be enforced.
Can the debtor pay the penalty instead of
fulfilling the principal obligation?
➢ No, except when the debtor is
expressly given the right to do so.
(1227)
Can the creditor demand fulfillment of the
obligation and the penalty at the same
time?
➢ No, except when the creditor is
expressly given the right to do so or
when the fulfillment is no longer
possible due to the debtors fault.
(1227)
When can the courts reduce the penalty?
1. When the principal obligation has
been partly complied with
2. When the principal obligation has
been irregularly complied with
3. When the penalty is
unconscionable
If the penalty is void, is the obligation
void?
➢ No, the penalty clause is merely an
accessory.
When is the penalty not enforceable?
1. Obligation has become impossible
due to fortuitous events
2. The debtor is prevented by the
creditor to fulfill the obligation
3. The penalty is contrary to good
morals and customs
 4. Both parties are guilty of breach
5. No breach at all
6. The breach is committed by the
creditor
If the principal obligation is void, is the
penalty clause also void?
➢ Yes, the accessory cannot exist
alone.
What is a payment?
➢ The satisfaction or fulfillment of a
prestation that is due, resulting in the
extinguishment of the obligation
(1232)
What are the requisites for a valid
payment?
1. Capacity of the payor
2. Capacity of the payee
3. Delivery of the full amount or the
full performance
4. Propriety of the time, place and
manner of payment
5. Acceptance of the payment by the
creditor
(Pineda,p.214)
When is a debt considered paid?
➢ When the full amount has been
delivered or the service for which the
obligation consisted has been
rendered (1233)
What is the best proof of payment?
➢ A receipt
Can an obligor recover even if the
payment or performance was not
fulfilled?
➢ Generally, no. But if there is
substantial compliance in good faith,
the obligor may recover, less
damages suffered by the oblige.
(1234)
What is substantial compliance?
➢ When in good faith, he has attempted
to perform the contract or prestation
but through oversight or any
excusable neglect, he failed to make
a full and complete performance, for
which the other party may be
indemnified.
What is the effect when a creditor accepts
the performance knowing its
incompleteness or irregularity and
without expressing any protest?
➢ He is placed under estoppel. He has
waived his right to question to the
defect or irregularity. The obligation is
then deemed complied with. (1235)
What does it mean "to accept"?
➢ To take as satisfactory or sufficient.
T/F - Recovery based on substantial
compliance can be made even if there is
willfull or intentional deviation from the
obligation.
➢ False. Such omission or defect must
not be material. (Pineda, p. 216)
Can a creditor accept payment from a
third person?
➢ Generally, no. Except when there is a
stipulation or when the third person
has an interest in the fulfillment of the
obligation. (1236)
How much can a third person recover if
he pays on behalf of the debtor?
➢ If the third person pays with the
knowledge and consent of the debtor,
he is entitled to full reimbursement.
➢ If the third person pays without the
knowledge or against the consent of
 the debtor, he is entitled to
reimbursement only up to the amount
by which the debtor was benefited.
(1236)
Can a third person that paid on behalf of
the debtor without the knowledge or
against the will of the debtor compel the
latter to subrogate him in his rights?
➢ No. (1237)
If a third person pays on behalf of the
debtor gratuitously, what requirement
must be present?
➢ The debtors consent. (1238)
If the debtor does not consent to the
gratuitous payment by a third person,
what is the effect on the obligation?
➢ The obligation is still extinguished.
(1238)
If a debtor pays but does not have free
disposal of the thing, what is the effect?
➢ It is invalid. (1239)
To whom shall payment be made?
1. The creditor himself
2. The successors of the creditor
3. Anyone duly authorized to receive
the payment
4. A third person, by which the
creditor benefits
(1240)
What is the result when payment is made
to an incapacitated creditor?
➢ If the creditor does not keep the thing
or is not benefited, then the payment
is invalid. (1241)
If the creditor is incapacitated, to whom
should payment be made to?
➢ His legal representative or guardian.
If payment is made to a third person, what
must be proved?
➢ That the creditor benefited.
In cases when payment is made to a third
person, what are the instance when
benefit to the creditor need not be
proven?
1. If after the payment, the third
person acquires the creditors rights.
2. If the creditor ratifies the payment
3. If by the creditors conduct, the
debtor was made to believe that third
person had the authority to receive
payment.
(1241)
If payment is made to a person in
possession of the credit, is the debtor
released from the obligation?
➢ Yes, if the payment was in good faith.
(1242)
Who is a possesor of credit?
➢ A person who has the appearances of
the creditor but who is actually not.
Is payment in contravention to a writ of
garnishment vaild?
➢ No. (1243)
What is a writ of garnishment?
➢ A proceeding by which a debtors
creditor is subject to the payment of
his own debt to another.
T/F - A debtor can compel a creditor to
receive a thing different from what is
stipulated.
➢ False. (1244)
What is dation?
➢ The alienation by the debtor of a
particular property in favor of his
creditor, with the latter's consent, for
the satisfaction of the former's money
obligation, with the effect of
extinguishing the said money
obligation.
What are the requisites of a valid dation?
1. Existence of money obligation
2. Alienation to the creditor of a
property by the debtor with the
consent of the creditor
3. Satisfaction of the money
obligation
What governs dation?
➢ The law on sales. (1245)
If the obligation consists in the delivery of
a generic thing, what quality must be
delivered?
➢ If it is not stipulated, the ordinary
quality will be delivered.
➢ The creditor may not demand a thing
of superior quality nor may the debtor
give a thing of inferior quality.
➢ The purpose and circumstances will
be taken into consideration.
(1246)
Who shall bear the expenses for
payment?
➢ The debtor. (1247)
Can a creditor receive partial payment or
performance?
➢ Generally, no. Except when it is
stipulated. (1248)
May a creditor demand the fulfillment of
an unliquidated debt?
➢ No. He may only demand for the
liquidated portion of the debt. (1249)
Can obligations be settled in foreign
currency?
➢ No, unless the parties agree to such
at the time of payment. (1249)
What is legal tender?
➢ Currency which may be used for
payment of debts and which the
creditor cannot refuse. (1249)
Are checks legal tender?
➢ No. Negotiable instruments will only
have the effect of payment once they
are encashed.
What is the basis of the currency when
there is an extraordinary inflation or
deflation?
➢ The value of the currency at the time
of the establishment of the obligation.
(1250)
What is extraordinary inflation or
deflation?
➢ When there is an increase or
decrease in the purchasing power of
the currency which is unusual or
beyond the common fluctuation in the
value, which could not have been
foreseen or was manifestly beyond
the contemplation of the parties.
(FPFC vs NAWASA)
When there is an extraordinary inflation What are the requisites for a valid
or deflation, does Art. 1250 apply application by the creditor?
automatically?
1. The debtor did not make a
➢ No. There must be an official designation
pronouncement or declaration.
2. The creditor issued a receipt
Where should payment be made? expressing the application
1. The place stipulated 3. The debtor assented to the
application
2. If there is no place stipulated,
What are the instances in which the
(a) If it is specific, at the place where
debtor cannot make an application?
the thing might be at the time of
constitution of the obligation 1. When the debt is not yet liquidated
or due
(b) If it is generic, at the domicile of
the debtor 2. When the creditor is given the
benefit of the period
(1251)
3. When there is an agreement as to
What is application of payment?
which debts shall be paid first
➢ Designation of the particular debt
4. When there is a principal obligation
being paid by the debtor who has two
that bears interest, debtor must first
or more debts of the same kind in
pay the principal
favor of the same creditor. (1252)
5. When there is a smaller debt that
Who has the right to make an application?
can be covered, debtor cannot apply
➢ The debtor. If he does not apply, the for the bigger debt
creditor may choose.
(1252)
What are the requisites for a valid
If there is no application by either the
application by the debtor?
creditor or the debtor, what is the effect?
1. There is only one creditor and
➢ Art. 1253-1254 will apply.
debtor
If a debt produces interest, when shall the
2. Debtor owes two or more debts of
principal be deemed paid?
the same kind or specie
➢ When the interests have been
3. Debts are due and demandable.
covered as well (1253)
(Except when there is a contrary
stipulation or when the application is In the absence of any application, which
made by the party who benefits from debt will be applied?
the term)
➢ The one which is most onerous.
4. The payment made by the debtor (1254)
is not sufficient to cover or settle all
the debts.
(1252)
What is an onerous debt? Give an What is tender of payment?
example.
➢ The voluntary act of the debtor
➢ A debt with a burden. whereby he offers to the creditor for
➢ Ex. Debts with interest, older debts, acceptance the immediate
mortgages. performance of the obligation.
What is cession or assignment? Is tender of payment equivalent to
consignation?
➢ A form of payment whereby the
debtor cedes his property to his ➢ No. Tender of payment is only the
creditors so that the latter may sell preliminary step for consignation.
the same and the proceeds from such
Can there be consignment even without a
will be applied to the debts of the
valid tender?
debtor. (1255)
➢ Yes.
What are the requisites of a valid cession
or assignment? 1. When the creditor is absent
1. There is a plurality of debts 2. When the creditor is incapacitated
2. Debtor is completely or partially 3. When the creditor refuses to give a
insolvent receipt
3. There are at least two creditors 4. When two or more persons claim
4. Acceptance of the cession 5. When the title of the obligation is lost.
5. Property assigned is not exempt (1256)
from execution
What are the requisites of a valid
(1255) consignation?
Give an example of a property exempt 1. There is a debt, due and
from execution. demandable
➢ A family home. 2. There is a prior valid tender of
payment
What happens when the proceeds from
the sale of the assigned property is more 3. The creditor unjustifiably refuses
than the amount of the debt owed by the
debtor? 4. There is a prior notice of
consignation
➢ The creditor must return the excess.
5. The amount or thing due tis
What is consignation? deposited with the court or competent
authority
➢ The act of depositing the object of the
obligation with the court or competent 6. Subsequent notice is given to the
authority after the creditor has creditor
unjustifiably refused to accept the
same.
What are the requisites for a valid tender
of payment?
1. It must be made before the act of
consignation
2. It must be unconditional
3. The full amount must be offered in
legal tender
Does mere sending of letters by the
debtor expressing intent constitute
tender of payment?
➢ No. (Zulueta vs Octaviano)
When the creditor is absent or unknown,
how is notice to be given?
➢ Via publication.
Who shall bear the expenses of
consignation?
➢ The creditor. (1259)
What is the effect of a valid consignation?
➢ The court will order the cancellation
of the obligation. (1260)
When can the debtor withdraw the thing
deposited?
1. When the creditor has not yet
accepted the thing deposited
2. When the court has not yet made a
judicial declaration
What is the effect of withdrawal of the
thing consigned?
➢ The obligation will remain in force.
(1260)
What is the effect if the creditor
authorizes the withdrawal?
➢ The creditor shall lose any preference
or priority of right over the thing
previously consigned (1261)
If the impossibility of the performance
exists at the beginning, does it extinguish
the obligation?
➢ No. If the impossibility exists from the
beginning, then the obligation is
ineffectual. To extinguish an
obligation, the impossibility must
arise after the establishment of the
obligation.
If there is only a partial loss, does it
extinguish the obligation?
➢ Generally, no. But if such partial loss
is so important to the obligation, then
the obligation is deemed
extinguished. (1264)
When the thing lost is in the possession
of the debtor, what is the presumption?
➢ The presumption is that he is at fault.
(1265)
➢ This presumption is rebuttable and
does not apply when the loss is due
to a natural calamity
What happens when the obligation
become legally or physically impossible?
➢ The obligation is extinguished. (1266)
When the agreed service has become
very difficult to perform or has gone
beyond the expectations of the parties,
what is the effect?
➢ The court may release the debtor
wholly or partially. (1267)
T/F - When the debt arises from a criminal
offense, the debtor will always be liable
for loss.
➢ False. Such debtor may not be
responsible for the loss if such thing
is delivered but unjustifiably refused
by the creditor (1268)
What is a condonation or remission?
➢ An act of liberality by which the
creditor, without receiving any price
or equivalent, renounces the
enforcement of the obligation. As a
result, the obligation is extinguished.
(1270)
What are the requisites of a valid
condonation?
1. Existence of a demandable debt
2. Gratuitous renunciation of the debt
3. Acceptance by the debtor
4. Donations formalities are complied
with
5. The condonation is not inofficious
(1270)
Can there be tacit condonations?
➢ Yes. Such may be deduced from the
acts of the parties confirming the
existence and acceptance of the
condonation not reduced to writing.
When the private document is delivered
to the debtor by the creditor, what is the
presumption?
➢ It is presumed that the creditor has
remitted the debt. (1271)
When the private document is with the
debtor, what is the presumption?
➢ It is presumed that the private
document was delivered voluntarily.
(1272)
If the private document is still with the
creditor, what is the presumption?
➢ It is presumed that the debt is still
unpaid.
Give an example of a private document.
➢ A promissory note.
If the private document is found in the
possession of a joint debtor, what is the
presumption?
➢ It is presumed that his share only has
been remitted. The obligation of his
co-debtors will remain in force.
If the private document is found in the
possession of a solidary debtor, what is
the presumption?
➢ It is presumed that the whole
obligation has been remitted.
If the principal obligation has been
remitted, is the accessory obligation is
extinguished as well?
➢ Yes. (1273)
If only the accessory obligation is
extinguished, is the principal also
extinguished?
➢ No. (1273)
If the thing pledged, after delivery to the
creditor, is found with the debtor, what is
the presumption?
➢ It is presumed that the pledge had
been remitted. But such presumption
that does not include the principal
obligation. (1274)
What is confusion?
➢ The merging or convergence of the
rights of a creditor and a debtor in one
person with regard to the same
obligation. (1275)
What are the requisites for a valid
confusion?
1. There is a merger in the the same
person of the characters of a creditor
and a debtor
 2. The merger must be in the Differentiate merger from compensation.
characters of a principal creditor and
➢ In compensation, there are two
a principal debtor
obligations
3. The merger is definite and ➢ In merger, there is only one obligation
complete. (1275) (Pineda, p. 313)
If the act which created the confusion is Differentiate counter-claim from
revoked, will the confusion also be compensation.
revoked?
➢ In compensation, it takes place by
➢ Yes. (Pineda, p.308) operation of law
➢ In counter-claim, it must be pleaded
Can a merger which takes place in the
(Pineda, p. 313)
person of the guarantor extinguish the
obligati on? What are the requisites for a legal
compensation?
➢ No. (1276)
1. They are bound principally as
Does confusion extinguish a joint
debtors and creditors.
obligation?
2. Debts consist of a sum of money or
➢ General rule, no. But the merger may
are of the same kind and quality
extinguish the obligation with respect
only to the share corresponding tot 3. The two debts are due
the debtor or creditor concerned.
4. The debts are liquidated and
(1277)
demandable
Does confusion extinguish a solidary
5. Debts are not subject to any
obligation?
retention or controversy (such as
➢ Yes. garnishment).
What is compensation? (1279)
➢ It is the off-setting of the respective If all the requisites for legal compensation
obligations of two persons who are are present, what is the effect?
creditors and debtors of each other,
➢ Compensation takes place by
with the effect of extinguishing their
operation of law (1279)
obligations to the concurrent amount.
(1278) Can there be compensation between
parties that are not principally bound to
Differentiate payment from
each other?
compensation.
➢ General rule, no.
➢ In compensation, it can be partial.
➢ But the guarantor may set up
➢ In payment, it must be complete.
compensation for what the creditor
➢ In compensation, it takes place by
owes the principal debtor or for what
operation of law
the creditor owes the guarantor
➢ In payment, there must be delivery
himself. (1280)
(Pineda, p. 313)
When two debts are of the same amount,
what is kind of compensation takes
place?
➢ Total. (1281)
Can there be partial compensation?
➢ Yes. (1281)
Can the parties agree upon the
compensation of debts not yet due?
➢ Yes. (1282)
If one of the parties to a suit over an
obligation has a claim for damages
against the other, can he claim
compensation?
➢ Yes. If the claim for damages is
properly pleaded and proven, it will
become liquidated. When the court
decision has become final and
executory, compensation will arise.
(1283)
Can debts which are recissible or
voidable be subject to compensation?
➢ Yes. Only before the are judicially
rescinded or voided. (1284)
If there is an assignment with the consent
of the debtor, can the debtor avail of
compensation?
➢ No. Except if at the time of the
assignment, the debtor has notified
the assignor that he is reserving his
right to compensation. (1285)
If there is an assignment with the
knowledge but without the consent of the
debtor, can the debtor avail of
compensation?
➢ Yes but only for the debts which fell
prior to the assignment. (1285)
If there is an assignment without the
knowledge and without the consent of the
debtor, can the debtor avail of
compensation?
➢ Yes, for all credits before and after the
assignment (1285)
If the debts are payable at different
places, can compensation take place?
➢ Yes. But there will de indemnity for
expenses of transportation and
exchange. (1286)
What kinds of debts or obligations are not
susceptible to compensation?
➢ Debts or obligations arising from:
1. Contracts of depositum
2. A depositary
3. A bailee in commodatum
4. Claims for support due by gratuitous
title
5. Civil liability arising from a criminal
offense
6. Goverment taxes, dues, duties, etc.
(1287)
If there are several debts susceptible of
compensation, how does compensation
take place?
➢ The rules on application of payments
shall apply to the order of
compensation. (1289)
What is novation?
➢ Extinguishment of an obligation by
substitution or change of the
obligation by a subsequent one which
terminates the first obligation. (1291)
What are the requisites for a valid If a new obligation recognizes the old one,
novation? is there novation?
1. There is a previous valid obligation ➢ No.
2. There is an agreement by the What is a real or objective novation?
parties to novate
➢ Novation effected by a change in the
3. The new obligation is valid object or principal conditions.
4. The old obligation is extinguished What is a personal or subjective
novation?
(1291)
➢ Novation effected by a substituting
How can an obligation be novated?
the debtor (passive) or subrogating a
1. By changing their object or third person in the rights of the
principal conditions creditor (active)

2. By substituting the person of the What are the kinds of passive subjective
debtor novation?

3. By subrogating a third person in ➢ Delegacion - when the substitution is

the rights of the creditor initiated by the old debtor himself
➢ Expromision - when the substitution
(1291) is initiated by a third person
What is the effect of a novation? (1293)

1. Extinguishes the old obligation What are the requisites of delegacion?

2. Creates a new obligation 1. The substitution is initiated by the

old debtor
(Conchingyan Jr. Vs. R&B Surety)
2. The creditor accepts and the new
Can there be an implied novation? debtor agrees to the proposal
➢ Yes. If the old and new obligations are 3. The old debtor is released from the
incompatible on every point (1292) obligation
What is the test of incompatibility? (1293)
➢ Whether or not the two obligations What are the requisites of expromision?
can stand together. (1292)
1. The substitution is initiated by a
If the period is increased, is there third person
novation?
2. The creditor accepts consents to
➢ No. (Inchausti vs Yulo) the proposal
If the period is decreased, is there 3. The old debtor is released from the
novation? obligation
➢ Yes. (Pineda, p.339) (1293)
Can a debtor be substituted without his
knowledge or against his will?
➢ Yes, as long as the creditor consents.
(1293)
If the new debtor in delegacion has turned
out to be insolvent, can the creditor go
after the old debtor?
➢ Generally, no.
➢ Except when debtor knew he was
insolvent or when such insolvency
was publicly known (1295)
If the new debtor in expromision has
turned out to be insolvent, can the
creditor go after the old debtor?
➢ Never. (1294)
What circumstances do not give rise to
extinctive novation via delegacion?
➢ When the third person:
1. Merely acted as a surety
2. Is merely an agent of the debtor
3. Merely agreed to assume a joint
responsibility
(Pineda, p.345)
If a principal obligation is extinguished
via novation, can an accessory obligation
subsist?
➢ Yes but only insofar as the may
benefit third persons who did not give
their consent. (1296)
If the new obligation is void, what is the
effect on the old obligation?
➢ The old obligation will subsist.
➢ Except when the parties agreed that
the old obligation will be extinguished
in any event
(1297)
If the old obligation is void, what is the
effect on the new obligation?
➢ The new obligation shall also be void.
(1298)
If the new obligation is voidable, what is
the effect on the novation?
➢ It is valid unless annulled. It may also
be ratified. (1298)
If the old obligation is voidable, what is
the effect on the new obligation?
➢ The new obligation is valid, provided
it was ratified before being annulled.
(1298)
If the old obligation was subject to a
condition, what is the effect on the new
condition?
➢ The new condition will be subject to
the same condition unless otherwise
stipulated (1299)
What is subrogation?
➢ An active subjective novation
characterized by the transfer to a
third person of all the rights
appertaining to a creditor. (1300)
What are the kinds of subrogation?
➢ Legal - takes place by operation of
law, see Art. 1302
➢ Conventional or voluntary - takes
place by agreement of the parties
Whose consent must be acquired for a
conventional subrogation?
➢ The original parties and the third
person. (1301)
When is legal subrogation presumed?
1. When a creditor pays another
creditor who is preferred
 2. When a third person, not interested
in the obligation, pays with the tacit or
express approval of the debtor
3. When a third person, interested in
the obligation, pays even without the
knowledge of the debtor (1302)
In a partial subrogation, to whom should
the debtor pay among the two creditors?
➢ The original creditor is preferred.
(1304)