Law On Obligations and Contracts Rabuyapdf

BOOK IV
OBLIGATIONS AND CONTRACTS
TITLE I — OBLIGATIONS
CHAPTER 1
GENERAL PROVISIONS
Article 1156. An obligation is a juridical necessity to

give, to do or not to do. 1
Concept of Obligations. — Evidently, the above definition of

a n obligation is adopted from Sanchez Roman’s classic definition of
a n obligation as “the juridical necessity to comply with a prestation.” 2
Manresa, on the other hand, defines it as a “legal relation established

between one person and another, whereby the latter is bound to the
fulfillment of a prestation which the former may demand of him.’’ 3
It must be observed, however, t h a t obligations may be either

civil or natural. A civil obligation is one which has a binding force in
4
law, and which gives to the obligee or creditor the right of enforcing it
against the obligor or debtor in a court of justice. This is the obligation
which is defined in Art. 1156 of the Code. A natural obligation, on
the other hand, is one which cannot be enforced by action, but which
is binding on the party who makes it in conscience and according to
1
New provision.
2
4 Sanchez Roman 53.
3
8 Manresa, 5th Ed., Bk. 1, p. 21.
4
Art. 1423, Civil Code.
1
Art. 1156 OBLIGATIONS
the n at ural law. Thus, when a n action has prescribed in accordance

5
with the stat ute of limitations, a nat ural obligation still subsists,
although the civil obligation is extinguished. This may be illustrated
by the following example: If A has a right of action, evidenced by
a promissory note, to collect one thousand pesos from B, and such
promissory note prescribes after the expiration of ten years from
the time it accrues, although the latter is no longer bound to pay
6
the obligation in accordance with the statut e of limitations, he is

still bound to pay in accordance with equity and natur al law. It is, 7
therefore, clear t h a t a civil obligation and a n at ural obligation may

be distinguished from each other as follows:
(1)A civil obligation is based on positive law, while a natural
obligation is based on equity and natur al law; and
(2)The former is enforceable in courts of justice, while the
latter is not. 8
Requisites of Obligations. — An obligation h as four

essential requisites. They are:
(3)A juridical or legal tie, which binds the parties to the
obligation, and which may arise from either bilateral or unilateral
acts of persons;
(4)An active subject known as the obligee or creditor, who
can demand the fulfillment of the obligation;
(5)A passive subject known as the obligor or debtor, against
whom the obligation is juridically demandable; and
(6)The fact, prestation or service which constitutes the object of
the obligation. 9
The form in which the obligation is manifested is sometimes

added as a fifth requisite. As a general rule, however, it cannot be
considered as essential. Obligations arising from law, quasi-con-
tracts, acts or omissions punished by law, and quasi-delicts do not
require any form whatsoever, yet there can be no question regard-
5
3 Bouvier’s Law Dictionary, 2394-2395.
6
7
Agoncillo vs. Javier, 38 Phil. 424; Villaroel vs. Estrada, 71 Phil. 40.
8
9
Giorgi, Teoria de las Obligaciones, Vol. 1, p. 13; 3 Castan, 7th Ed., p. 20.
2
GENERAL PROVISIONS Art. 1156
ing their validity or binding force. It is only in obligations arising

from certain contracts t h a t it becomes essential. Thus, in a con-
tract involving a donation of personal property whose value exceeds
P5,000.00, the law requires t h a t the donation and the acceptance
shall be made in writing; in a contract of sale of a piece of land or
10
any interest therein through a n agent, the law requires t h a t the

authority of the latter shall be in writing; in a contract of simple
11
loan or mutuum, the law requires t h a t any agreement with respect

to interest shall be expressly stipulated in writing; in a contract of
12
antichresis, the law requires t h a t the amount of the principal and

of the interest shall be specified in writing; in a contract involving
13
a donation of immovable property, the law requires t h a t the dona-

tion shall be made in a public document, while the acceptance shall
be made either in the same deed of donation or in a separate public
document; in a contract of partnership where immovable property
14
or real rights are contributed to the common fund, the law requires
t h a t the contract shall be in a public instrument to which a n inven-
tory of the property or real rights, signed by the partners, must be
attached; in a contract of chattel mortgage, the law requires that
15
the personal property which is the subject m atter of the contract

shall be recorded in the Chattel Mortgage Register as a security
for the performance of a n obligation; and in a contract involving
16
the sale or transfer of large cattle, the law requires t h a t the sale or
transfer shall be registered. Non-compliance with such formalities
17
would have the effect of rendering the contract or agreement void or

inexistent.
Classification of Obligations. — The following is the primary

classification of obligations under the Civil Code:
(1) Pure and conditional (Arts. 1179-1192).
(2) With a period (Arts. 1193-1198).
(3) Alternative and facultative (Arts. 1199-1206).
10
11
12
13
14
15
Arts. 1771, 1773,
Civil Code.
16
17
Sec. 22, Act No. 1147;
3
(4) Joint and solidary (Arts. 1207-1222).

(5) Divisible and indivisible (Arts. 1223-1225).
(6) With a penal clause (Arts. 1226-1230).
There are, however, other classifications of a secondary char-
acter which can be gathered from scattered provisions of the Civil
Code, such as:
(7) Legal, conventional and penal; 18
(8) Real and personal; 19
(9) Determinate and generic; 20
(10) Positive and negative; 21
(11) Unilateral and bilateral; 22
(12) Individual and collective; 23
(13) Accessory and principal. 24
The following, on the other hand, is the classification of

obligations according to Sanchez Roman: 25
(14) As to juridical quality:

(a)Natural — when the obligation is in accordance with
natural law.
(b)Civil — when the obligation is in accordance with
positive law.
(c)Mixed — when the obligation is in accordance with
both natural and positive law.
18
Arts. 1158-1162, Civil Code.
19
20
21
22
23
Arts. 1207, 1223, Civil Code.
24
Arts. 1166, 1226, et seq.,
Civil Code.
25
8 Sanchez Roman 20-40.
4
GENERAL PROVISIONS
Art. 1156
2. As to parties:
(a)Unilateral and bilateral — unilateral, where only
one party is bound, and bilateral, where both parties are mu-
tually or reciprocally bound.
(b)Individual and collective — individual, where there is
only one obligor, and collective, where there are several ob-
ligors. The latter may be joint, when each obligor is liable only
for his proportionate share of the obligation, or solidary, when
each obligor may be held liable for the entire obligation.
3. As to object:
(a)Determinate and generic — determinate, when the
object is specific; generic, when the object is designated by its
class or genus.
(b)Simple and multiple — simple, when there is only
one undertaking; multiple, when there are several undertak-
ings. Multiple obligations may be conjunctive, when all of the
undertakings are demandable a t the same time, or distribu-
tive, when only one undertaking out of several is demandable.
Distributive obligations, on the other hand, may be alterna-
tive, when the obligor is allowed to choose one out of several
obligations which may be due and demandable, or facultative,
when the obligor is allowed to substitute another obligation for
one which is due and demandable.
(c)Positive and negative — positive, when the obligor is
obliged to give or do something; negative, when the obligor
must refrain from giving or doing something.
(d)Real and personal — real, when the obligation con-
sists in giving something; personal, when the obligation con-
sists in doing or not doing something.
(e)Possible and impossible — possible, when the ob-
ligation is capable of fulfillment in nat ure as well as in law;
impossible, when the obligation is not capable of fulfillment
either in nat ure or in law.
(f)Divisible and indivisible — divisible, when the obli-
gation is susceptible of partial performance; indivisible, when
the obligation is not susceptible of partial performance.
5
(g) Principal and accessory — principal, when it is the

main undertaking; accessory, when it is merely a n undertaking
to guarantee the fulfillment of the principal obligation.
4. As to perfection and extinguishment:
(a)Pure — when the obligation is not subject to any
condition or term and is immediately demandable.
(b)Conditional — when the obligation is subject to a
condition which may be suspensive, in which case the happen-
ing or fulfillment of the condition results in the birth of the
obligation, or resolutory, in which case the happening or ful-
fillment of the condition results in the extinguishment of the
obligation.
(c)With a term or period (a plazo) — when the obligation
is subject to a term or period which may be suspensive or from
a day certain, in which case the obligation is demandable only
upon the expiration of the term, or resolutory or to a day
certain, in which case the obligation terminates upon the
expiration of the term.
Art. 1157. Obligations arise from:

5. Law;
6. Contracts;
7. Quasi-contracts;
8. Acts or omissions punished by law; and
9. Quasi-delicts. 26
Sources of Obligations. — In Roman law, the sources of

obligations are: (1) contractu; (2) quasi-contractu; (3) maleficio;
and (4) quasi-maleficio. These sources are preserved in the Civil
27
Code with the addition of law or lege. The addition of lege as an

28
independent source of obligations, however, has been criticized as

theoretically erroneous. Thus, according to the Supreme Court:
26
Art. 1089, Spanish Civil Code, in amended form.
27
28
6
“This enumeration of the sources of obligations supposes that

the quasi-contractual obligation and the obligation imposed by
law are of different types. The learned Italian jurist, Jorge Giorgi,
criticizes this assumption and says t h a t the classification embodied
in the Code is theoretically erroneous. His conclusion is t h a t one
or the other of these categories should have been suppressed and
merged in the other. (Giorgi, Teoria de las Obligaciones, Spanish
Ed., Vol. 5, Arts. 5, 7, 9) The validity of the criticism is, we think,
self-evident and it is of interest to note t h a t the common law makes
no distinction between the two sources of liability. The obligations
which in the Code are indicated as quasi-contracts, as well as those
arising ex lege, are in the common law system merged into the
category of obligations imposed by law, and all are denominated
implied contracts.’’ 29
Art. 1158. Obligations derived from law are not pre-

sumed. 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. 30
Obligations Arising from Law. — Unlike other obligations,

those derived from law can never be presumed. Consequently, only
those expressly determined in the Civil Code or in special laws are
demandable. These obligations shall be regulated by the precepts
of the law which establishes them, and as to what has not been
foreseen, by the provisions of Book IV of the Civil Code. 31
How can we determine whether a n obligation arises from

law or from some other source, such as a contract, quasi-contract,
criminal offense or quasi-delict? It must be noted t h a t in the birth or
generation of a n obligation, there is always a concurrence between
the law which establishes or recognizes it and a n act or condition
upon which the obligation is based or predicated. According to
Manresa, when the law establishes the obligation and the act or
condition upon which it is based is nothing more th an a factor for
determining the moment when it becomes demandable, then the law
29
Leung Ben vs. O’Brien, 38 Phil. 182.
30
Art. 1090, Spanish Civil Code.
31
7
itself is the source of the obligation; however, when the law merely
recognizes or acknowledges the existence of a n obligation generated
by a n act which may constitute a contract, quasi-contract, criminal
offense or quasi-delict and its only purpose is to regulate such
obligation, then the act itself is the source of the obligation and not
the law. Thus, if A loses a certain amount to B in a game of chance,
32
according to Art. 2014 of the Civil Code, the former may recover his
loss from the latter, with legal interest from the time he paid the
amount lost. It is evident t h a t in this particular case the source of
the obligation of B to refund to A the amount which he had won from
the latter is not a contract, quasi-contract, criminal offense or quasi-
delict, but the law itself. The same can also be said with regard to
33
the obligation of the spouses to support each other, the obligations 34
of employers under the Labor Code, the obligations of the owners of

35
the dominant and servient estates in legal easements, and others 36
scattered in the Civil Code and in special laws.
Art. 1159. Obligations arising from contracts have the

force of law between the contracting parties and should be
complied with in good faith. 37
Obligations Arising from Contracts. — A contract is a

meeting of minds between two persons whereby one binds himself,
with respect to the other, to give something or to render some service. 38
As a rule, 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 of the consequences
which according to their nature may be in keeping with good faith,
usage and law. These contracts are commonly called consensual
39
contracts. Once the contract is perfected, the valid contract has the
force of law binding the parties to comply therewith in good faith,
where neither one may renege therefrom without the consent of the
other. (Tiu Peck vs. CA 221 SCRA 618 [1993]) There are certain

32
Leung Ben vs. O’Brien, 38 Phil. 182.

33
34
Art. 291, Civil Code; Pelayo vs. Lauron, 12 Phil. 453.
35
Bautista vs. Borromeo, 35 SCRA 119.
36
37
Art. 1091, Spanish Civil Code, in modified form.
38
39
8
contracts, however, called real contracts, such as deposit, pledge

and commodatum, which are not perfected until the delivery of the
object of the obligation. Whether the contract is consensual or real,
40
the rule is t h a t from the moment it is perfected, obligations which

may be either reciprocal or unilateral arise. Reciprocal obligations
are those where the parties are mutually or reciprocally obliged to
do or to give something; unilateral obligations, on the other hand,
are those where only one of the parties, the obligor, is obliged to do
or to give something.
Unlike other kinds of obligations, those arising from contracts
are governed primarily by the agreement of the contracting parties.
This is clearly deducible not only from the nature of contracts, but
also from Art. 1169 of the Code which declares t h a t such obligations
have the force of law between the contracting parties and should
be complied with in good faith. “Compliance in good faith’’ means
performance in accordance with the stipulations, clauses, terms
and conditions of the contract. Consequently, the Code recognizes
the right of such contracting parties to establish such stipulations,
clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public
order or public policy. Good faith must, therefore, be observed to
41
prevent one party from taking unfair advantage over the other
party. In the case of Royal Lines, Inc. vs. Court of Appeals, 143
SCRA 608 (1986), it was ruled t h a t evasion by a party of legitimate
obligations after receiving the benefits under the contract would
constitute unjust enrichment on his part. However, in default of a n
agreement, the rules found in the Civil Code regulating such
obligations are applicable. 42
Art. 1160. Obligations derived from quasi-contracts

shall be subject to the provisions of Chapter 1, Title XVII, of
this Book. 43
Obligations Arising from Quasi-Contracts. — Quasi-

contracts are those juridical relations arising from lawful, voluntary
40
41
42
Art. 1305, et seq., Civil Code.
43
New provision.
9
and unilateral acts, by virtue of which the parties become bound

to each other, based on the principle t h a t no one shall be unjustly
enriched or benefited a t the expense of another. The most 44
important of these juridical relations which are recognized and

regulated by the Civil Code are negotiorum gestio and solutio
45
indebiti. Negotiorum gestio is the juridical relation which arises

46
whenever a person voluntarily takes charge of the agency or

management of the business or property of another without any
power or authority from the latter. In this type of quasi-contract,
47
once the gestor or officious manager has assumed the agency or

management of the business or property, he shall be obliged to
continue such agency or management until the termination of the
affair and its incidents, exercising such rights and complying with
48
such obligations as provided for in the Code. Solutio indebiti, on

49
the other hand, is the juridical relation which arises whenever a

person unduly delivers a thing through mistake to another who
has no right to demand it. In this type of quasi-contract, once the
50
delivery has been made, the person to whom the delivery is unduly
made shall have the obligation to r et urn the property delivered or
the money paid. 51
The Civil Code provides other instances of quasi-contract.

Examples are those found in Articles 2159, 2164 to 2175.
In the case of Perez vs. Palomar, 2 Phil. 682, it was significantly
noted t h a t in a quasi contract where no express consent is given by
the other party, the consent needed in a contract is provided by law
through presumption (presumptive consent). Presumptive consent
gives rise to multiple juridical relations resulting in obligations for
delivery of the thing and rendering of service.
Art. 1161. Civil obligations arising from offenses shall

be governed by the penal laws, subject to the provisions of
Article 2177, and of the pertinent provisions of Chapter 2,
44
45
46
47
48
Ibid.
49
Arts. 2144-2152, Civil
Code.
50
51 Art. 2154, Civil Code.
Ibid.
10
Preliminary Title, on Human Relations, and of Title XVIII of

this Book, regulating damages. 52
Obligations Arising from Criminal Offenses. — As a rule,

every person liable for a felony is also civilly liable. This principle
53
is based on the fact that, generally, a crime has a dual aspect — the
criminal aspect and the civil aspect. Although these two aspects are
separate and distinct from each other in the sense t h a t one affects
the social order and the other, private rights, so t h a t the purpose of
the first is to punish or correct the offender, while the purpose of the
second is to repair the damages suffered by the aggrieved party, it
is evident t h a t the basis of the civil liability is the criminal liability
itself.
Please note, however, t h a t there are offenses and special crimes
without civil liability. Examples are crimes of treason, rebellion,
illegal possession of firearm and gambling. But a person who is not
criminally liable may still be civilly liable.
Idem; Enforcement of civil liability. — In general and
prior to the Revised Rules of Criminal Procedure 2000, the following
rules are observed in the enforcement or prosecution of civil liability
arising from criminal offenses:
(1) Institution of criminal and civil actions. — When a
criminal action is instituted, the civil action for recovery of civil
liability arising from the offense charged is impliedly instituted with
the criminal action, unless the offended party (i) expressly waives
the civil action, or (ii) reserves his right to institute it separately, or
(iii) institutes the civil action prior to the criminal action.
(2) Independent civil action. — In the cases provided in
Articles 31, 32, 33, 34 and 2177 of the Civil Code of the Philippines,
a n independent civil action entirely separate and distinct from the
criminal action, may be brought by the injured party during the
pendency of the criminal case, provided the right is reserved. Such
civil action shall proceed independently of the criminal prosecution,
and shall require only a preponderance of evidence.
52
53
Art. 100, Revised Penal Code. This rule, however, is subject to the rules stated
in Arts. 101, 102 and 103, Revised Penal Code.
11
(3)Other civil actions arising from offenses. — In all cases

not included in the preceding rules, the following rules are observed:
(a)Criminal and civil actions arising from the same
offense may be instituted separately, but after the criminal
action has been commenced, the civil action cannot be instituted
until final judgment has been rendered in the criminal action;
(b)If the civil action has been filed ahead of the criminal
action, and the criminal action is subsequently commenced, the
civil action shall be suspended in whatever stage before final
judgment it may be found, until final judgment in criminal
action has been rendered. However, if no final judgment
has been rendered by the trial court in the civil action, the
same may be consolidated with the criminal action upon
application with the court trying the criminal action. If the
application is granted, the evidence prevented and admitted
in the civil action shall be deemed automatically reproduced
in the criminal action, without prejudice to the admission of
additional evidence t h a t any party may wish to present. In case
of consolidation, both the criminal and the civil action shall be
tried and decided jointly;
(c)Extinction of the penal action does not carry with it
extinction of the civil, unless the extinction proceeds from a
declaration in a final judgment t h a t the fact from which the
civil might arise did not exist. In other cases, the person
entitled to the civil action may institute it in the jurisdiction
and in the m anner provided by law against the person who
may be liable for restitution of the thing and reparation or
indemnity for the damage suffered.
P u r s ua n t to Sec. 2, Rule III of the Revised Rules of Criminal
Procedure 2000, however, it is stated t h a t except for civil actions
provided for in Articles 32, 33, 34 and 2176 of the Civil Code, the
civil action which has been reserved cannot be instituted until final
judgment h as been rendered in the criminal action. The action
contemplated, as pointed out by Justice Oscar Herrera in his
Treatise on Criminal Procedure, is a civil action arising from a crime
if reserved or filed separately and a criminal case is filed if it has to
be suspended to await final judgment in the criminal action.
The rule clarifies that, “During the pendency of the
criminal
action, the period of prescription of the civil action which cannot
12
be instituted separately or whose proceeding has been suspended

shall not run.’’ Otherwise stated, the period of prescription of the
civil actions under Section 3 of the aforementioned rules shall not be
suspended because they can be instituted separately. This refers to
civil actions arising from the offense charged which have not been
reserved or civil actions t h a t have been filed ahead of the criminal
action but have been suspended. (Justice Oscar M. Herrera, Treatise
on Historical Development and Highlights of Amendment of Rules
on Criminal Procedure, February 2001).
(4)Judgment in civil action not a bar. — A final judgment
rendered in a civil action absolving the defendant from civil liability
is no bar to a criminal action.
(5)Suspension by reason of prejudicial question. — A petition for
suspension of the criminal action based upon the pendency of a
prejudicial question in a civil action may be filed in the office of
the fiscal (prosecutor) or the court conducting the preliminary
investigation. When the criminal action has been filed in court for
trial, the petition to suspend shall be filed in the same criminal
action a t any time before the prosecution rests.
Section 7 of the Revised Rules of Criminal Procedure 2000
provides for the elements of a prejudicial question. They are: (a) the
previously instituted civil action which involves a n issue similar or
intimately related to the issue raised in the subsequent criminal
action, and (b) the resolution of such issue determines whether or
not the criminal action may proceed.
Section 7 limits a prejudicial question to a “previously insti-
tuted civil action’’ in order to minimize possible abuses by the sub-
sequent filing of a civil action as a n after thought for the purpose of
suspending the criminal action. (Justice Oscar M. Herrera, Treatise
on Criminal Procedure, February 2001)
At a glance, therefore, the following are the salient changes
brought about by the Revised Rules of Criminal Procedure 2000,
as more specifically discussed hereunder by Justice Herrera in his
Treatise on Criminal Procedure:
a.The rule changes the 1985 rule as amended in 1988.
Under the 1985 Rule, the action for recovery of civil liability
arising from crime including the civil liability under Articles
32, 33, 34 and 2176 of the Civil Code of the Philippines arising
13
from the same act or omission are deemed impliedly instituted

with the criminal action unless the offended party waives the
civil action, reserves his right to institute it separately, or
institutes the civil action prior to the criminal action.
Under the present rule, only the civil liability arising from
the offense charged is deemed instituted with the criminal
unless the offended party waives the civil action, reserves his
right to institute it separately, or institutes the civil action
prior to the criminal action.
b.Under the former rule, a waiver of any of three civil
actions extinguishes the others. The institution of, or the res-
ervation of the right to file any of said civil actions separately
waives the others. This is no longer provided for. The reserva-
tion and waiver refers only to the civil action for the recovery
of civil liability arising from the offense charged. This does not
include recovery of civil liability under Articles 32, 33, 34 and
2176 of the Civil Code of the Philippines arising from the same
act or omission which may be prosecuted separately even with-
out a reservation.
c.The rulings in Shafer vs. Judge, RTC of Olongapo
City, 167 SCRA 376, allowing a third-party complaint, and the
ruling in Javier vs. Intermediate Appellate Court, 1 71 SCRA
376, as well as Cabaero vs. Cantos allowing a counterclaim are
no longer in force. Under the 2000 Rules, these pleadings are
no longer allowed. Any claim which could have been the subject
thereof may be litigated in a separate civil action.
d.The rule also incorporated Circular 57-97 on the
filing of actions for violation of Batas Pam bansa Blg. 22
mandating the inclusion of the corresponding civil action for
which the filing fee shall be paid based on the amount of the
check involved. In other cases, no filing fees shall be required
for actual damages.
Idem; Id. — Effect of acquittal. — If the accused in a

criminal action is acquitted of the offense charged, can a civil action
for damages based on the same act or omission still be instituted?
This question requires a qualified answer. If the acquittal of the
accused is based on the ground t h a t his guilt has not been proved
beyond reasonable doubt, a civil action to recover damages based
14
on the same act or omission may still be instituted. In such case,

54
mere preponderance of evidence shall be sufficient in order that

the plaintiff will be able to recover from the defendant. On the 55
other hand, if the acquittal is based on the ground t h a t he did not

commit the offense charged, or what amounts to the same thing, if
the acquittal proceeds from a declaration in a final judgment that
the fact from which the civil liability might arise did not exist, the
subsequent institution of a civil action to recover damages is, as a
general rule, no longer possible. 56
Idem; id. — Effect of independent civil actions. — As a

rule, the civil action to recover damages from the person criminally
liable is not independent from the criminal action. This is true even
where it has, to a certain extent, been separated by the injured
party from the criminal proceedings either by reserving his right to
file a separate civil action or by commencing the action to recover
damages ahead of the criminal action. In the first, the right to file a
civil action shall depend upon the result of the criminal action, while
in the second, once the criminal action is instituted, the action to
recover damages shall be suspended. There are, however, certain
57
exceptional cases or instances under the Civil Code where the civil
action to recover damages is entirely separate and independent from
the criminal action, although the act or omission which is the basis
thereof may be a criminal offense. They are: first, where the civil
action is based on a n obligation not arising from the act or omission
complained of as a criminal offense or felony; and second, where the
58
law grants to the injured party the right to institute a civil action
which is entirely separate and distinct from the criminal action. As 59
a m atter of fact, we can even go to the extent of saying t h a t these

cases or instances also constitute the exceptions to the rule t h a t if
the accused in the criminal action is acquitted on the ground t h at he
did not commit the offense charged, the subsequent institution of a
civil action is no longer possible.
54
55
Ibid.
56
Sec. 3(c), Rule 111, New Rules of Court.
57
Sec. 3(b), Rule 111, New Rules of Court.
58
59
Arts. 32, 33, 34, Civil Code.
15
With regard to the first, it must be noted t h a t where the civil

action is based on a n obligation not arising from the act or omission
complained of as a criminal offense or felony, such action may
proceed independently of the criminal action and regardless of the
result of the latter. It is evident t h a t in such case the basis of the
60
civil action may be a n obligation arising from the law, contract,

quasi-contract, or quasi-delict. Thus, a postmaster, who has been
charged criminally for malversation of government funds under
his custody, may still be made a defendant in a civil case for the
recovery of the funds, not on the ground of malversation, but on
the ground t h a t under Sec. 633 of the Revised Administrative Code,
he can be held accountable therefor. The basis of the civil action
61
in such case is not the obligation arising from the criminal offense
of malversation, but the obligation arising from the law. Similarly,
if a passenger in a certain bus institutes a civil action to recover
damages from the operator of the bus line for injuries sustained in
a n accident, such action is separate and distinct from the criminal
prosecution of the driver for criminal negligence and may, therefore,
be continued regardless of the result of the latter. Consequently,
he can still recover damages even if the driver is acquitted in the
criminal action, because it is clear t h a t the action in such case is
based on culpa contractual and not on the act or omission of the
driver complained of as felony. The same principle is also applicable
62
if the offense charged constitutes what is known as culpa aquiliana

or quasi-delict under the Civil Code. In such case, the injured party
63
can always institute a civil action to recover damages independently

of the criminal action and regardless of the result of the latter. This
is so even granting t ha t the accused is acquitted in the criminal
action either on the ground of reasonable doubt or on the ground
t h a t he did not commit the offense charged. The reason for this is
t h a t the basis of the civil action is no longer the criminal liability of
the defendant, but a quasi-delict or tort. 64
60
61
Tolentino vs. Carlos, 39 Off. Gaz., No. 6, p. 121.
62
San Pedro Bus Line vs. Navarro, 94 Phil. 840; Bernaldes vs. Bohol Land Trans.
Co., 7 SCRA 276.
63
64
Art. 2177, Civil Code; Barredo vs. Garcia and Almario, 73 Phil. 607; Dyogi vs.
Yatco, 100 Phil. 1095; Calo vs. Peggy, 103 Phil. 1112; Stanvac vs. Tan, 107 Phil. 109.
16
With regard to the second, it m ust be observed t h a t there are

five exceptional cases or instances, in addition to t h a t which is stated
in Art. 31 of the New Civil Code, where the law itself expressly
grants to the injured party the right to institute a civil action which
is entirely separate and distinct from the criminal action. They
are: (1) interferences by public officers or employees or by private
individuals with civil rights and liberties, (2) defamation, (3)
65 66
fraud, (4) physical injuries, and (5) refusal or neglect of a city

67 68
or municipal police officer to render aid or protection in case of

danger to life or property. In all of these cases or instances,
69
although the act or omission may constitute a criminal offense

in accordance with our penal laws, the injured party may institute
a civil action to recover damages which is entirely separate and
distinct from the criminal action. Once the action is instituted,
then it may proceed independently of the criminal action, and
shall require only a preponderance of evidence. 70
Idem; id.; id. — Effect of failure to make reservation. —

Section 2 of Rule 111 of the New Rules of Court states: “In the cases
provided for in Articles 31, 32, 33, 34 and 2177 of the Civil Code of
the Philippines, a n independent civil action entirely separate and
distinct from the criminal action, may be brought by the injured
party during the pendency of the criminal case, provided that the
right is reserved as required in the preceding section.’’ The insertion
in the foregoing provision of the phrase provided the right is reserved
as required in the preceding section, resulted in a debate among
academicians which lasted for more th an twenty years.
Finally, interpreting the above provision, the Supreme Court,
in Garcia vs. Florido, declared:
71
“As we have stated at the outset, the same negligent act

causing damages may produce a civil liability arising from crime
or create a n action for quasi-delict or culpa extra-contractual.
65
66
67
Ibid.
68
Ibid.
69
70
Arts. 32, 33, 34,
Civil Code.
SCRA7152 SCRA 420. This
113.
case was also cited
and quoted in
17
Mendoza vs. Arrieta,
91
The former is a violation of the criminal law, while the latter is

a distinct and independent negligence, having always had its
own foundation and individuality. Some legal writers are of the
view t hat in accordance with Article 31, the civil action based
upon quasi-delict may proceed independently of the criminal
proceeding for criminal negligence and regardless of the result
of the latter. Hence, ‘the proviso in Section 2 of Rule 111 with
reference to Articles 32, 33 and 34 of the Civil Code is contrary
to the letter and spirit of the said articles, for these articles
were drafted and are intended to constitute as exceptions to
the general rule stated in what is now Section 1 of Rule 111.
The proviso, which is procedural, may also be regarded as an
unauthorized amendment of substantive law.’ x x x’’
Again, in Abellana vs. Marabe, the Supreme Court

72
declared:
“The restrictive interpretation x x x does not only result

in its emasculation but also gives rise to a serious constitutional
doubt. Article 33 is quite clear: ‘In case of x x x physical injuries,
a civil action for damages entirely separate and distinct from the
criminal action, may be brought by the injured party. Such civil
action shall proceed independently of the criminal prosecution,
and shall require only preponderance of evidence.’ T hat is a
substantive right not to be frittered away by a construction
th at would render it nugatory, if through oversight, the
offended parties failed at the initial stage to seek recovery for
damages in a civil suit. x x x The grant of power to this Court
both in the present Constitution and under the 1935 Charter
does not extend to any diminution, increase or modification of
substantive right. It is a well-settled doctrine t h at a court is to
avoid construing a statute or legal norm in such a mann er as
would give rise to a constitutional doubt. x x x The law as an
instrument of social control will fail in its function if through an
ingenious construction sought to be fastened on a legal norm,
particularly a procedural rule, there is placed a n impediment to
a litigant being given an opportunity of vindicating a n alleged
right.’’
Thus, in Elcano vs. Hill, where the first defendant had

73
been previously charged with the criminal offense of homicide and

subsequently acquitted on the ground t h a t his act is not criminal,
72
57 SCRA 106.
73
77 SCRA 98.
18
because of lack of intent to kill, coupled with a mistake, the Supreme

Court held, despite the fact t h a t the plaintiffs (who are the parents
of the alleged victim) failed to make a reservation of their right
to institute the civil action separately, t h a t such acquittal of the
defendant in the criminal case has not extinguished his liability
for quasi-delict under Art. 2176 of the Civil Code; hence, that
acquittal is not a bar to the civil action against him. The same
ruling was applied in Mendoza vs. Arrieta. In effect, the procedural
74
requirement provided for in Section 2 of Rule 111 of the New Rules

of Court is not mandatory.
Removal of Reservation Requirement For Independent
Civil Actions
Accordingly, Section 2 of the New Rules of Court was likewise
amended to read as:
“SEC. 3. When civil action may proceed independently.

— In the cases provided in Articles 32, 33, 34 and 2176
of the Civil Code of the Philippines, the independent civil
action may be brought by the offended party. It shall proceed
independently of the criminal action and shall require only a
preponderance of evidence. In no case, however, may the
offended party recover damages twice for the same act or
omission charged in the criminal action.’’ (Revised Rules of
Criminal Procedure 2000).
Under the former rule, the foregoing actions may only be

allowed if there is a reservation, or were filed ahead of the criminal
action. (Justice Oscar M. Herrera, Treatise on Criminal Procedure,
February 2001).
Art. 1162. Obligations derived from quasi-delicts shall

be governed by the provisions of Chapter 2, Title XVII of the
Book, and by special laws. 75
Obligations Arising from Quasi-Delicts. — As it is used

in this p ar t of the Civil Code, the term “quasi-delicts” refers to all
76
of those obligations which do not arise from law, contracts, quasi-

74
91 SCRA 113.
75
76
In Spanish law, “cuasi-delitos’’ is sometimes known as “culpa aquiliana’’ or
“culpa extra-contractual.’’
19
contracts, or criminal offenses. Thus, using Art. 2176 of the Civil

77
Code and decided cases as bases or anchors, it may be defined as the

fault or negligence of a person, who, by his act or omission, connected
or unconnected with, but independent from, any contractual relation,
causes damage to another person. It is, therefore, the equivalent of
the term “tort” in Anglo-American law. 78
Idem; Persons liable. — Obligations arising from quasi-

delicts are demandable not only from the person directly responsible
for the damage incurred, but also against the following:
79
(1)The father and, in case of his death or incapacity, the

mother, with respect to damages caused by the minor children who
live in their company;
(2)Guardians, with respect to damages caused by the minors or
incapacitated persons who are under their authority and who live in
their company;
(3)The owners and managers of a n establishment or
enterprise, with respect to damages caused by their employees in
the service of the branches in which the latter are employed or on
the occasion of their functions;
(4)Employers with respect to damages caused by their
employees and household helpers acting within the scope of their
assigned tasks, even though the former are not engaged in any
business or industry;
(5)The State, when it acts through a special agent; but not
when the damage has been caused by the official to whom the task
done properly pertains; and
(6)Lastly, teachers or heads of establishments of art s and
trades, with respect to damages caused by their pupils and students
or apprentices, so long as they remain in their custody. 80
It must be noted, however, t h a t the responsibility of the above

persons or entities shall cease if they can prove t h a t they have
77
Report of the Code Commission, p. 161.
78
See Elcano and Elcano vs. Hill and Hill, 77 SCRA 98.
79
80
20
observed all the diligence of a good father of a family to prevent

damage. 81
Idem; Requisites of liability. — In actions based on quasi-

delicts, before the person injured can recover damages from the
defendant, it is necessary t h a t he must be able to prove the following
facts:
(1) The fault or negligence of the defendant;
(2) The damage suffered or incurred by the plaintiff; and
(3)The relation of cause and effect between the fault or
negligence of the defendant and the damage incurred by the
plaintiff.
82
Idem; Quasi-delicts and crimes. — Quasi-delicts and crimi-

nal offenses are sometimes difficult to distinguish from each other.
However, they may be distinguished from each other in the follow-
ing ways:
(4)Crimes affect the public interest, while quasi-delicts are
only of private concern;
(5)The Penal Code punishes or corrects the criminal act,
while the Civil Code, by means of indemnification, merely repairs
the damages incurred;
(6)Generally, there are two liabilities in crime: criminal and
civil. In quasi-delict, there is only civil liability; and
(7)Crimes are not as broad as quasi-delicts, because the
former are punished only if there is a law clearly covering them,
while the latter include all acts in which any kind of fault or
negligence intervenes. 83
Idem; Scope of quasi-delicts. — In Elcano vs. Hill (G.R. No.

L-24303, May 26, 1977), the Supreme Court held t h a t quasi-delicts
include acts which are criminal in character or in violation of the
penal law, whether voluntary or negligent. Using the exact language
of the Court, “it is ‘more congruent with the spirit of law, equity
and justice, and more in harmony with modern progress,’ to hold, as
Ibid.
81
Taylor vs. Manila Electric Co., 16 Phil. 8.

82
83
Barredo vs. Garcia and Almario, 73 Phil. 607.
21
we do hold, t h a t Article 2176, where it refers to fault or negligence,

covers not only acts not punishable by law but also acts criminal in
character, whether intentional or voluntary or negligent.’’
The above pronouncement of the Supreme Court is

startling. It expands the coverage of quasi-delicts beyond what
was originally contemplated by the lawmaker.
Under the general plan of our law on obligations, the scope
of obligations arising from the law, contracts, quasi-contracts,
and acts or omissions punished by law is well-defined. Their
boundaries are clearly delineated and drawn with precision. It
is only with respect to obligations arising from quasi-delicts that
there is a problem and this is natural because of the very nature
of such obligations. Under our system of liabilities, quasi-delicts
must necessarily be a sort of “dumping ground’’ or “garbage can’’
for all kinds of actionable wrongs not falling within the purview
of the four sources of obligations. As we look a t it, the original
plan envisaged by the lawmaker is as follows:
The coverage of quasi-delicts which do not overlap with
crimes under the Revised Penal Code and special laws (and
which we can very well call the general rule) are: first, negligent
acts or omissions not punishable as criminal offenses; second,
intentional quasi-delicts or torts, such as those regulated by
Arts. 19, 21, 22, 26, 27, 28 and 1314 of the Civil Code; and
third, the so-called strict liability torts where there is neither
negligence nor intent to cause damage or injury, such as in the
case contemplated in Art. 23 of the Civil Code or in the case of
actionable nuisances under Arts. 694 and 705 of the Civil Code.
The coverage of quasi-delicts which overlap with acts
or omissions punishable under the Revised Penal Code (and
which we can very well call the exceptions) are: first, criminal
negligence; and second, acts or omissions punishable as crimes
under the Revised Penal Code but the Civil Code expressly
declares th at the civil action arising therefrom is separate and
independent from the criminal action. (Arts. 31, 32, 33 and 34 of
the Civil Code)
We believe t hat the above arrangement was deliberately
planned. Thus, according to the Code Commission in its Report:
“The Commission also thought of the possibility of adopting
the word ‘tort’ from Anglo-American law. But ‘tort’ under that
system is much broader th an the Spanish-Philippine concept
of obligations arising from non-contractual negligence. ‘Tort’ in
Anglo-American jurisprudence includes not only negligence, but
22
also intentional criminal acts, such as assault and battery, false

imprisonment and deceit. In the general plan of the Philippine
legal system, intentional and malicious acts are governed by
the Penal Code, although certain exceptions are made in the
Project.’’ (Report, pp. 161-162)
Idem; Character of remedy. — In Padua vs. Robles, in his 84
concurring opinion, Justice Barredo declared: “It is by now beyond

all cavil, as to dispense with the citation of jurisprudence, t h at a
negligent act, such as t h a t committed in this case, gives rise to at
least two separate and independent liabilities, namely (1) the civil
liability arising from crime or culpa criminal and (2) the liability
arising from civil negligence or the so-called culpa aquiliana.
These two concepts of faults are so distinct from each other that
exoneration from one does not result in exoneration from the other.
Adjectively and substantively, they can be prosecuted separately
and independently of each other, although Article 2177 of the Civil
Code precludes recovery of damages twice for the same negligent
act or omission, which means t h a t should there be varying amounts
awarded in two separate cases, the plaintiff may recover, in effect,
only the bigger amount. That is to say, if the plaintiff had already
been ordered paid a n amount in one case and in the other case the
amount adjudged is bigger, he shall be entitled in the second case
only to the excess over the one fixed in the first case, but if he had
already been paid a bigger amount in the first case, he may not
recover anymore in the second case.’’
The above opinion was confirmed in Elcano vs. Hill. Thus, 85
according to the Supreme Court: “Consequently, a separate civil

action lies against the offender in a criminal act, whether or not he
is criminally prosecuted and found guilty or acquitted, provided that
the offended party is not allowed, if he is actually charged criminally,
to recover damages on both scores, and would be entitled in such
eventuality only to the bigger award of the two assuming t h a t the
awards made in the two cases vary. In other words, the extinction of
the civil liability referred to in Par. (e) of Section 3, Rule 111, refers
exclusively to civil liability founded on Article 100 of the Revised
Penal Code, whereas the civil liability for the same act considered
84
66 SCRA 485.
85
77 SCRA 98.
23
as a quasi-delict only and not as a crime is not extinguished even by

a declaration in the criminal case t h a t the criminal act charged has
not happened or h as not been committed by the accused.”
However, in Mendoza vs. Arrieta, a more recent case, there was
86
a r eturn to the old doctrine of selection of remedies. In this case, the

Supreme Court categorically held t h a t since the offended or injured
party had chosen the remedy of proceeding under the Revised Penal
Code by allowing the civil action to be impliedly instituted in the
criminal action, and since the court had expressly declared t h a t the
fact from which the civil liability did not exist, therefore, the civil
action for damages subsequently commenced by said injured party
against the defendant has already been extinguished in consonance
with Sec. 3(c), Rule 111 of the Rules of Court. And even if plaintiff’s
cause of action against defendant is not ex-delicto, the end result
would be the same, it being clear from the judgment in the criminal
case t h a t defendant’s acquittal was not based upon reasonable
doubt.
Thus, the problem is still very much with us. The debate
rages
on.
Barredo vs. Garcia and Almario

73 Phil. 607
This case come up from the Court of Appeals which held

the petitioner herein, Fausto Barredo, liable in damages for
the death of Faustino Garcia caused by the negligence of Pedro
Fontanilla, a taxi driver employed by said Fausto Barredo.
At about half past one in the morning of May 3, 1936,
on the road between Malabon and Navotas, Province of Rizal,
there was a head-on collision between a taxi of the Malate
Taxicab driven by Pedro Fontanilla and a carretela guided by
Pedro Dimapilis. The carretela was overturned, and one of its
passengers, 16-year-old Faustino Garcia, suffered injuries from
which he died two days later. A criminal action was filed against
Fontanilla in the Court of First Instance of Rizal, and he was
convicted and sentenced to an indeterminate sentence of one
year and one day to two years of prision correccional. The court
in the criminal case granted the petition t ha t the right to bring a
separate civil action be reserved. The Court of Appeals affirmed
86
91 SCRA 113.
24
the sentence of the lower court in the criminal case. Severino

Garcia and Timotea Almario, parents of the deceased on March
7, 1939, brought an action in the Court of First Instance of
Manila against Faustino Barredo as the sole proprietor of the
Malate Taxicab and employer of Pedro Fontanilla. On July 8,
1939, the Court of First Instance of Manila awarded damages
in favor of the plaintiffs for P2,000 plus legal interest from the
date of the complaint. This decision was modified by the Court of
Appeals by reducing the damages to P1,000 with legal interest
from the time the action was instituted. It is undisputed that
Fontanilla’s negligence was the cause of the mishap, as he was
driving on the wrong side of the road, and a t high speed. As to
Barredo’s responsibility, the Court of Appeals found:
“* * * It is admitted t h a t defendant is Fontanilla’s
employer. There is no proof t h a t he exercised the diligence of a
good father of a family to prevent the damage. (See p. 22,
appellant’s brief.) In fact it is shown he was careless in
employing Fontanilla who had been caught several times for
violation of the Automobile Law and speeding (Exhibit A) —
violations which appeared in the records of the Bureau of
Public Works available to the public and to himself. Therefore,
he m u st indemnify plaintiffs under the provisions of Article
1903 of the Civil Code.’’
The main theory of the defense is t h at the liability of
Fausto Barredo is governed by the Revised Penal Code; hence,
his liability is only subsidiary, and as there has been no civil
action against Pedro Fontanilla, the person criminally liable,
Barredo cannot be held responsible in this case. The petitioner’s
brief states on page 10:
“* * * The Court of Appeals holds t h at the petitioner is
being sued for his failure to exercise all the diligence of a good
father of a family in the selection and supervision of Pedro
Fontanilla to prevent damages suffered by the respondents. In
other words, the Court of Appeals insists on applying in
this case Article 1903 of the Civil Code. Article 1903 of the
Civil Code is found in Chapter 11, Title 16, Book IV of the Civil
Code. This fact makes said article inapplicable to a civil
liability arising from a crime as in the case a t bar simply
because Chapter II of Title 16 of Book lV of the Civil Code, in
precise words of Article 1903 of the Civil Code itself, is
applicable only to “those (obligations) arising from wrongful or
negligent acts or omissions not punishable by law.’ ’’
The gist of the decision of the Court of Appeals is
expressed
thus:
25
“* * * We cannot agree to the defendant’s contention.

The liability sought to be imposed upon him in this action is
not a civil obligation arising from a felony or a misdemeanor
(the crime of Pedro Fontanilla), but a n obligation imposed in
Article .1903 of the Civil Code by reason of his negligence in the
selection or supervision of his servant or employee.”
Speaking through Justice Bocobo, the Supreme

Court held:
“The pivotal question in this case is whether the plaintiffs

may bring this separate civil action against Fausto Barredo,
thu s making him primarily and directly responsible under
Article 1903 (now Art. 2180, New Civil Code) of the Civil Code as
an employer of Pedro Fontanilla. The defendant maintains that
Fontanilla’s negligence being punishable by the Penal Code,
his (defendant’s) liability as a n employer is only subsidiary,
according to said Penal Code, but Fontanilla has not been sued
in a civil action and his property has not been exhausted. To
decide the main issue, we must cut through the tangle t h at has,
in the minds of many, confused and jumbled together delitos
and cuasi delitos, or crimes under the Penal Code and fault or
negligence under Articles 1902-1910 (now Arts. 2176 to 2194,
New Civil Code) of the Civil Code.
“Authorities support the proposition t h a t a quasi-delict or

“culpa aquiliana’’ is a separate legal institution under the Civil
Code, with a substantivity all its own, and individuality t h at is
entirely ap art and independent from a delict or crime. Upon this
principle, and on the wording and spirit of Article 1903 of the
Civil Code, the primary and direct responsibility of employers
may be safely anchored.
xxx
“It will thus be seen th at while the terms of Article.1902
of the Civil Code seem to be broad enough to cover the driver’s
negligence in the instant case, nevertheless Article 1093 limits
cuasi-delitos to acts or omissions “not punishable by law.’’ But
inasmuch as Article 365 of the Revised Penal Code punishes
not only reckless but even simple imprudence or negligence,
the fault or negligence under Article 1902 of the Civil Code has
apparently been crowded out. It is this overlapping t h at makes
the “confusion worse confounded.’’ However, a closer study
shows t hat such a concurrence of scope in regard to negligent
arising
acts doesfrom
not adestroy
crime the
anddistinction
the responsibility for civil
between the cuasi-delitos
liability
26
or culpa extra-contractual. The same negligent act causing

damages may produce civil liability arising from a crime under
Article 100 of the Revised Penal Code, or create a n action for
cuasi-delito or culpa extra-contractual under Articles 1902-1910
of the Civil Code.
xxx
The foregoing authorities clearly demonstrate the separate
individuality of cuasi-delitos or culpa aquiliana under the Civil
Code. Specifically they show th at there is a distinction between
civil liability arising from criminal negligence (governed by the
Penal Code) and responsibility for fault of negligence under
Articles 1902 to 1910 of the Civil Code, and t h at the same
negligent act may produce either a civil liability arising from
a crime under the Penal Code, or a separate responsibility for
fault or negligence under Articles 1902 to 1910 of the Civil
Code. Still more concretely, the authorities above cited render
it inescapable to conclude th at the employer — in this case the
defendant-petitioner — is primarily and directly liable under
Article 1903 of the Civil Code.
The legal provisions, authors, and cases already invoked
should ordinarily be sufficient to dispose of this case. But
inasmuch as we are announcing doctrines t ha t have been little
understood in the past, it might not be inappropriate to indicate
their foundations.
“Firstly, the Revised Penal Code in Article 366 punishes
not only reckless but also simple negligence. If we were to hold
th at Articles 1902 to 1910 of the Civil Code refer only to fault or
negligence not punished by law according to the literal import
of Article 1093 of the Civil Code, the legal institution of culpa
aquiliana would have very little scope and application in actual
life. Death or injury to persons and damage to property through
any degree of negligence — even the slightest — would have to
be indemnified only through the principle of civil liability arising
from a crime. In such a state of affairs, what sphere would remain
for cuasi-delito or culpa aquiliana? We are loath to impute to
the lawmaker any intention to bring about a situation so absurd
and anomalous. Nor are we, in the interpretation of the laws,
disposed to uphold the letter th at killeth rat h e r t ha n the spirit
th at giveth life. We will not use the literal meaning of the law
to smother and render almost lifeless a principle of such ancient
origin and such full-grown development as culpa aquiliana or
cuasi-delito, which is conserved and made enduring in Articles
1902 to 1910 of the Spanish Civil Code.
27
“Secondly, to find the accused guilty in a criminal case,

proof of guilt beyond reasonable doubt is required, while in
a civil case, preponderance of evidence is sufficient to make
the defendant pay in damages. There are numerous cases of
criminal negligence which can not be shown beyond reasonable
doubt, but can be proved by a preponderance of evidence. In
such cases, the defendant can and should be made responsible
in a civil action under Articles 1902 to 1910 of the Civil Code.
Otherwise, there would be many instances of unvindicated civil
wrongs. Ubi jus ibi remedium.
“Thirdly, to hold t hat there is only one way to make de-
fendant’s liability effective, and t hat is, to sue the driver and
exhaust his (the latter’s) property first, would be tantamount
to compelling the plaintiff to follow a devious and cumbersome
method of obtaining relief. True, there is such a remedy un-
der our laws, but there is also a more expeditious way, which
is based on the primary and direct responsibility of the defen-
dant under Article. 1903 of the Civil Code. Our view of the law
is more likely to facilitate remedy for civil wrongs, because the
procedure indicated by the defendant is wasteful and productive
of delay, it being a matter of common knowledge t h at profes-
sional drivers of taxis and similar public conveyances usually
do not have sufficient means with which to pay damages. Why,
then, should the plaintiff be required in all cases to go through
this roundabout, unnecessary, and probably useless procedure?
In construing the laws, courts have endeavored to shorten and
facilitate the pathways of right and justice.
“At this juncture, it should be said t h at the primary

and direct responsibility of employers and their presumed
negligence are principles calculated to protect society. Workmen
and employees should be carefully chosen and supervised in
order to avoid injury to the public. It is the masters or employers
who principally reap the profits resulting from the services of
these servants and employees. It is but right t h at they should
guarantee the latter’s careful conduct for the personal and
patrimonial safety of others. As Theilhard ha s said, “they
should reproach themselves, at least, some for their weakness,
others for their poor selection and all for their negligence.” And
according to Manresa, “It is much more equitable and just that
such responsibility should fall upon the principal or director
who could have chosen a careful and prudent employee, and not
upon the injured person who could not exercise such selection
and who used such employee because of his confidence in the
principal or director.” (Vol. 12, p. 622, 2nd Ed.) Many jurists also
28
base this primary responsibility of the employer on the principle

of representation of the principal by the agent. Thus, Oyuelos
says in the work already cited (Vol. 7, p. 747) t ha t before third
persons the employer and employee “vienen a ser como una sola
personalidad, por refundicion de la del dependiente en la de quien
le emplea y utiliza” (“become as one personality by the merging
of the person of the employee in t hat of him who employs and
utilizes him.”) All these observations acquire a peculiar force
and significance when it comes to motor accidents, and there is
need of stressing and accentuating the responsibility of owners
of motor vehicles.
“Fourthly, because of the broad sweep of the provisions of
both the Penal Code and the Civil Code on this subject, which
has given rise to the overlapping or concurrence of spheres
already discussed, and for lack of understanding of the character
and efficacy of the action for culpa aquiliana, there has grown
up a common practice to seek damages only by virtue of the
civil responsibility arising from a crime, forgetting t h at there
is another remedy, which is by invoking Articles 1902-1910 of
the Civil Code. Although this habitual method is allowed by
our laws, it has nevertheless rendered practically useless and
nugatory the more expeditious and effective remedy based on
culpa aquiliana or extra-contractual.
“In view of the foregoing, the judgment of the Court of
Appeals should be and is hereby affirmed, with costs against the
defendant-petitioner.’’
Elcano
vs. Hill 77
SCRA 98
This is a n appeal from a n order of the Court of First

Instance of Quezon City dismissing the complaint of plaintiffs
for recovery of damages from defendant Reginald Hill, a minor,
married at the time of occurrence, and his father, defendant
Marvin Hill, with whom he was living and getting subsistence,
for the killing by Reginald of the son of the plaintiffs, of which
when criminally prosecuted, the said accused was acquitted
on the ground th at his act was not criminal, because of lack of
intent to kill, coupled with a mistake. According to the Supreme
Court, speaking through Justice Barredo:
“As We view the foregoing background of this case, the two
decisive issues presented for Our resolution are:
1. Is the present civil action for damages barred by the
29
acquittal of Reginald in the criminal case wherein the action for

civil liability was not reserved?
2. May Article 2180 (2nd and last paragraphs) of the
Civil Code be applied against Atty. Hill, notwithstanding the
undisputed fact t hat at the time of the occurrence complained of,
Reginald, though a minor, living with and getting subsistence
from his father, was already legally married?
“The first issue presents no more problem t h an the need
for a reiteration and further clarification of the dual character,
criminal and civil, of fault or negligence as a source of obligation
which was firmly established in this jurisdiction in Barredo vs.
Garcia, 73 Phil. 607. In t hat case, this Court postulated, on the
basis of a scholarly dissertation by Justice Bocobo on the nature
of culpa aquiliana in relation to culpa criminal or delito and
mere culpa or fault, with pertinent citation of decisions of the
Supreme Court of Spain, the works of recognized civilians, and
earlier jurisprudence of our own, th at the same given act can
result in civil liability not only under the Penal Code but also
under the Civil Code.
“Contrary to an immediate impression one might get upon
a reading of x x x Garcia — th at the concurrence of the Penal
Code and the Civil Code therein referred to contemplate only
acts of negligence and not intentional voluntary acts — deeper
reflection would reveal t hat the thrust of the pronouncements
therein is not so limited, but t hat in fact it actually extends to
fault or culpa. This can be seen in the reference made therein to
the Sentence of the Supreme Court of Spain of February 14, 1919,
supra, which involved a case of fraud or estafa, not a negligent
act. Indeed, Article 1093 of the Civil Code of Spain, in force here
at the time of Garcia, provided textually t h at obligations which
are derived from acts or omissions, in which fault or negligence,
not punishable by law, intervene shall be the subject of Chapter
II, Title XV of this book (which refers to quasi-delicts.)’’ And it is
precisely the underlined qualification, “not punishable by law,’’
th at Justice Bocobo emphasized could lead to a n undesirable
construction or interpretation of the letter of the law that
“killeth, r ath er th an the spirit th at giveth life’’ hence, the ruling
th at “(W)e will not use the literal meaning of the law to smother
and render almost lifeless a principle of such ancient origin and
such full-grown development as culpa aquiliana or cuasi-delito,
which is conserved and made enduring in Articles 1902 to 1910
of the Spanish Civil Code.’’ And so, because Justice Bocobo was
Chairman of the Code Commission th at drafted the original
text of the new Civil Code, it is to be noted t h at the said Code,
30
which was enacted after the Garcia doctrine, no longer uses the
term, “not punishable by law,’’ thereby making it clear t h at the
concept of culpa aquiliana includes acts which are criminal in
character or in violation of the penal law, whether voluntary or
negligent. Thus, the corresponding provision to said Article 1093
in the new code, which is Article 1162, simply says, “Obligations
derived from quasi-delicts shall be governed by the provisions
of Chapter 2, Title XVII of this Book (on quasi-delicts), and by
special laws.’’ More precisely, a new provision, Article 2177 of
the new code provides:
“ART. 2177. Responsibility for fault or negligence

under the preceding article is entirely separate and distinct
from the civil liability arising from negligence under the
Penal Code. But the plaintiff cannot recover damages
twice for the same act or omission of the defendant.’’
According to the Code Commission: “The foregoing provi-

sion (Article 2177) though at first sight startling, is not so novel
or extraordinary when we consider the exact nat ure of criminal
and civil negligence. The former is a violation of the criminal
law, while the latter is a culpa aquiliana or quasi-delict, of an-
cient origin, having always had its own foundation and indi-
viduality separate from criminal negligence. Such distinction
between criminal negligence and culpa extra-contractual or cu-
asi-delito has been sustained by decisions of the Supreme Court
of Spain and outstanding Spanish jurists. Therefore, under the
proposed Article 2177, acquittal from an accusation of criminal
negligence, whether on reasonable doubt or not, shall not be
a bar to a subsequent civil action, not for civil liability arising
from criminal negligence, but for damages due to a quasi-delict
or culpa aquiliana. But said article forestalls a double recovery.”
(Report of the Code Commission, p. 162.)
Although, again, this Article 2177 does seem to literally

refer to only acts of negligence, the same argument of Justice
Bocobo about construction th at upholds “the spirit t h at giveth
life’’ rath er th an t hat which is literal th at killeth the intent of
the lawmaker should be observed in applying the same. And
considering t hat the preliminary chapter on h u m a n relations of
the new Civil Code definitely establishes the separability and
independence of liability in a civil action for acts criminal in
character (under Articles .29 to 32) from the civil responsibility
arising from crime fixed by Article 100 of the Revised Penal
Code, and, in a sense, the Rules of Court, under Sections 2 and
3(c), Rule III, contemplate also the same separability, it is “more
31
congruent with the spirit of law, equity and justice, and more
in harmony with modern progress,’’ to borrow the felicitous
relevant language in Rakes vs. Atlantic Gulf and Pacific Co., 7
Phil. 359, to hold, as We do hold, t hat Article 2176, where it refers
to “fault or negligence,’’ covers not only acts “not punishable by
law’’ but also acts criminal in character, whether intentional
and voluntary or negligent. Consequently, a separate civil action
lies against the offender in a criminal act, whether or not he is
criminally prosecuted and found guilty or acquitted, provided
th at the offended party is not allowed, if he is actually charged
also criminally, to recover damages on both scores, and would
be entitled in such eventuality only to the bigger award of the
two, assuming the awards made in the two cases vary. In other
words, the extinction of civil liability referred to in Par. (e) of
Section 3, Rule III, refers exclusively to civil liability founded on
Article 100 of the Revised Penal Code, whereas the civil liability
for the same act considered as a quasi-delict only and not as a
crime is not extinguished even by a declaration in the criminal
case th at the criminal act charged h as not happened or has not
been committed, by the accused. Briefly stated, We here hold, in
reiteration of Garcia, th at culpa aquiliana includes voluntary
and negligent acts which may be punishable by law.
It results, therefore, th at the acquittal of Reginald Hill in

the criminal case h as not extinguished his liability for quasi-
delict, hence t hat acquittal is not a bar to the i nstant action
against him.
Coming now to the second issue about the effect of
Reginald’s emancipation by marriage on the possible civil
liability of Atty. Hill, his father, it is also Our considered opinion
th at the conclusion of appellees th at Atty. Hill is already free
from responsibility cannot be upheld.
While it is true th at parental authority is terminated upon
emancipation of the child (Article 327, Civil Code), and under
Article 397, emancipation takes place “by the marriage of the
minor (child),” it is, however, also clear th a t pursuant to Article
399, emancipation by marriage of the minor is not really full
or absolute. Thus “Emancipation by marriage or by voluntary
concession shall terminate parental authority over the child’s
person. It shall enable the minor to administer his property as
though he were of age, but he cannot borrow money or alienate
or encumber real property without the consent of his father or
mother, or guardian. He can sue and be sued in court only with
the assistance of his father, mother or guardian.’’
32
Now, under Article 2180, “The obligation imposed by Article

2176 is demandable not only for one’s own acts or omissions,
but also for those of persons for whom one is responsible. The
father and, in case of his death or incapacity, the mother, are
responsible for the damages caused by the minor children who
live in their company.’’ In the in stant case, it is not controverted
th at Reginald, although married, was living with his father and
getting subsistence from him at the time of the occurrence in
question. Factually, therefore, Reginald was still subservient to
and dependent on his father, a situation which is not unusual.
“It must be borne in mind that, according to Manresa, the
reason behind the joint and solidary liability of parents with their
offending child under Article 2180 is th at it is the obligation of
the parent to supervise their minor children in order to prevent
them from causing damage to third persons. On the other hand,
the clear implication of Article 399, in providing t ha t a minor
emancipated by marriage may not nevertheless, sue or be sued
without the assistance of the parents, is th at such emancipation
does not carry with it freedom to enter into transactions or do
any act th at can give rise to judicial litigation. (See Manresa,
id., Vol. II, pp. 766-767, 776.) And surely, killing someone else
invites judicial action. Otherwise stated, the marriage of a
minor child does not relieve the parents of the duty to see to
it th at the child, while still a minor, does not give cause to any
litigation, in the same manner th at the parents are answerable
for the borrowing of money and alienation or encumbering of
real property which cannot be done by their minor married child
without their consent. (Art. 399; Manresa, supra.)
“Accordingly, in Our considered view, Article 2180 applies
to Atty. Hill notwithstanding the emancipation by marriage of
Reginald. However, inasmuch as it is evident t h at Reginald is
now of age, as a matter of equity, the liability of Atty. Hill has
become merely subsidiary to th at of his son.
“WHEREFORE, the order appealed from is reversed and
the trial court is ordered to proceed in accordance with the
foregoing opinion. Costs against appellees.’’
Mendoza vs. Arrieta

91 SCRA 113
The records show t hat a three-way vehicular accident
occurred involving a Mercedes Benz owned and driven by
Edgardo Mendoza, a private jeep owned and driven by Rodolfo
Salazar and a sand-and-gravel truck owned by Felipino Timbol
33
and driven by Freddie Montoya. As a consequence of the mishap,

two separate criminal actions for damage to property through
reckless imprudence were instituted. The first was instituted
by Mendoza against Salazar, while the second was instituted
by Salazar against Montoya. There was no reservation made
by both complainants of their right to institute a civil action
separately. After hearing the two cases jointly, the court
rendered judgment acquitting Salazar on the ground t h at his
jeep was bumped from behind by the truck causing it to collide
with the Mercedes Benz. Montoya, on the other hand, was
convicted on the ground th at his guilt was established beyond
reasonable doubt. He was ordered to pay to Salazar the amount
of P972.50 for actual damages to the latter’s jeep. After the
termination of the criminal cases, Mendoza filed a civil case.
against both Salazar and Timbol, either in the alternative or
in solidum, for indemnification for damages. Upon motions of
both defendants, the respondent court dismissed the case. The
plaintiff, as a consequence, went up to the Supreme Court by
means of a petition for certiorari seeking a review of the orders
of dismissal. Speaking through Justice Herrera, the Supreme
Court held:
“We shall first discuss the validity of the Order, dated
September 12, 1970, dismissing petitioner’s Complaint against
truck-owner Timbol.
“In dismissing the complaint against the truck-owner,
respondent Judge sustained Timbol’s allegations t h at the civil
suit is barred by the prior joint judgment in Criminal Cases Nos.
SM-227 and SM-228, wherein no reservation to file a separate
civil case was made by petitioner and where the lat ter actively
participated in the trial and tried to prove damages against
jeep-driver Salazar only; and th at the Complaint does not
state a cause of action against truck-owner Timbol inasmuch
as petitioner prosecuted jeep-owner-driver Salazar as the one
solely responsible for the damage suffered by his car.
“Well-settled is the rule t hat for a prior judgment to
constitute a bar to a subsequent case, the following requisites
must concur: (1) it must be a final judgment; (2) it must have
been rendered by a Court having jurisdiction over the subject
matter and over the parties; (3) it must be a judgment on the
merits; and (4) there must be, between the first and second
actions, identity of parties, identity of subject mat te r and
identity of cause of action.
“It is conceded t hat the first three requisites of res
judicataHowever, we agree with petitioner t h at there is
are present.
34
no identity of cause of action between Criminal Case No. SM-

227 and Civil Case No. 80803. Obvious is the fact t h at in said
criminal case truck-driver Montoya was not prosecuted for
damage to petitioner’s car but for damage to the jeep. Neither
was truck-owner Timbol a party in said case. In fact as the
trial Court had put it “the owner of the Mercedes Benz cannot
recover any damages from the accused Freddie Montoya, he
(Mendoza) being a complainant only against Rodolfo Salazar
in Criminal Case No. SM-228.’’ And more importantly, in the
criminal cases, the cause of action was the enforcement of the
civil liability arising from criminal negligence under Article
100 of the Revised Penal Code, whereas Civil Case No. 80803 is
based on quasi-delict under Article 2180, in relation to Article
2176 of the Civil Code. As held in Barredo vs. Garcia, et al.:
“The foregoing authorities clearly demonstrate the

separate individuality of cuasi-delitos or culpa aquiliana
under the Civil Code. Specifically they show t h at there is
a distinction between civil liability arising from criminal
negligence (governed by the Penal Code) and responsibility
for fault or negligence under Articles 1902 to 1910 of
the Civil Code, and t hat the same negligent act may
produce either a civil liability arising from a crime under
the Penal Code, or a separate responsibility for fault or
negligence under Articles 1902 to 1910 of the Civil Code.
Still more concretely, the authorities above cited render
it inescapable to conclude th at the employer, in this case
the defendant-petitioner, is primarily and directly liable
under Article 1903 of the Civil Code.”
“The petitioner’s cause of action against Timbol in the Civil
case is based on quasi-delict is evident from the recitals in the
complaint, to wit: t h at while petitioner was driving his car along
MacArthur Highway at Marilao, Bulacan, a jeep owned and
driven by Salazar suddenly swerved to his (petitioner’s) lane and
collided with his car; th at the sudden swerving of Salazar’s jeep
was caused either by the negligence and lack of skill of Freddie
Montoya, Timbol’s employee, who was then driving a gravel-and-
sand truck in the same direction as Salazar’s jeep; and t h at as a
consequence of the collision, petitioner’s car suffered extensive
damage amounting to P12,248.20 and th at he likewise incurred
actual and moral damages, litigation expenses and attorney’s
fees. Clearly, therefore, the two factors th at a cause of action
must consist of, namely: (1) plaintiff’s primary right, i.e., that
he is the owner of a Mercedes Benz; and (2) defendants’ delict
or wrongful act or omission which violated plaintiff’s primary
right, i.e., the negligence or lack of skill either of jeep-owner
35
Salazar or of Timbol’s employee, Montoya, in driving the truck,

causing Salazar’s jeep to swerve and collide with petitioner’s
car, were alleged in the Complaint.
“Consequently, petitioner’s cause of action being based on
quasi-delict, respondent Judge committed reversible error when
he dismissed the civil suit against the truck-owner, as said case
may proceed independently of the criminal proceedings and
regardless of the result of the latter.
“Art. 31. When the civil action is based on a n obliga-
tion not arising from the act or omission complained of as
a felony, such civil action may proceed independently of
the criminal proceedings and regardless of the result of
the latter.”
“But it is truck-owner Timbol’s submission (as well as
th at of jeep-owner-driver Salazar) th at petitioner’s failure to
make a reservation in the criminal action of his right to file an
independent civil action bars the institution of such separate
civil action, invoking Section 2, Rule 111, Rules of Court, which
says:
“Section 2. Independent civil action. — In the cases
provided for in Articles 31, 32, 33, 34 and 2177 of the
Civil Code of the Philippines, a n independent civil action
entirely separate and distinct from the criminal action
may be brought by the injured party during the pendency
of the criminal case, provided the right is reserved as
required in the preceding section, Such civil action shall
proceed independently of the criminal prosecution, and
shall require only a preponderance of evidence.’’
“Interpreting the above provision, this Court, in
Garcia vs.
Florido, said:
“As we have stated at the outset, the same negligent
act causing damages may produce a civil liability arising
from crime or create an action for quasi-delict or culpa
extra-contractual. The former is a violation of the criminal
law, while the latter is a distinct and independent
negligence, having always had its own foundation and
individuality. Some legal writers are of the view t ha t in
accordance with Article 31, the civil action based upon
quasi-delict may proceed independently of the criminal
proceeding from criminal negligence and regardless of
the result of the latter. Hence, ‘the proviso in Section 2
34 of the111
of Rule Civil
withCode is contrary
reference to x to
x xthe letter 32,
Articles and33spirit
and
36
of the said articles, for these articles were drafted x x x

and are intended to constitute as exceptions to the general
rule stated in what is now Section 1 of Rule 111. The
proviso, which is procedural may also be regarded as an
unauthorized amendment of substantive law, Articles 32,
33 and 34 of the Civil Code, which do not provide for the
reservation required in the proviso.’ x x x”
“In his concurring opinion in the above case, Mr. Justice

Antonio Barredo further observed th at inasmuch as Articles
2176 and 2177 of the Civil Code create a civil liability distinct
and different from the civil action arising from the offense of
negligence under the Revised Penal Code, no reservation,
therefore, need be made in the criminal case; t h a t Section 2 of
Rule 111 is inoperative, “it being substantive in character and
is not within the power of the Supreme Court to promulgate;
and even if it were not substantive but adjective, it cannot stand
because of its inconsistency with Article 2177, a n enactment of
the legislature superseding the Rules of 1940.”
“We declare, therefore, th at in so far as truck-owner
Timbol is concerned, Civil Case No. 80803 is not barred by the
fact th at petitioner failed to reserve, in the criminal action, his
right to file an independent civil action based on quasi-delict.
“The case as against jeep-owner-driver Salazar, who was
acquitted in Criminal Case No. SM-228, presents a different
picture altogether.
“At the outset it should be clarified t h at inasmuch as civil
liability co-exists with criminal responsibility in negligence
cases, the offended party has the option between a n action for
enforcement of civil liability based on culpa criminal under
Article 100 of the Revised Penal Code, and a n action for recovery
of damages based on culpa aquiliana under Article 2177 of the
Civil Code. The action for enforcement of civil liability based on
culpa criminal under Section 1 of Rule 111 of the Rules of Court
is deemed simultaneously instituted with the criminal action,
unless expressly waived or reserved for separate application by
the offended party.
“The circumstances attendant to the criminal case yields
the conclusion th at petitioner had opted to base his cause of
action against jeep-owner-driver Salazar on culpa criminal and
not on culpa aquiliana, as evidenced by his active participation
and intervention in the prosecution of the criminal suit against
said Salazar. The latter’s civil liability continued to be involved
in the criminal action until its termination. Such being the case,
37
there was no need for petitioner to have reserved his right to file
a separate civil action as his action for civil liability was deemed
impliedly instituted in Criminal Case No. SM-228.
“Neither would an independent civil action lie. Noteworthy
is the basis of the acquittal of jeep-owner-driver Salazar in the
criminal case, expounded by the Trial Court in this wise:
“In view of what has been proven and established

during the trial, accused Freddie Montoya would be held
liable for having bumped and hit the rear portion of the
jeep driven by the accused Rodolfo Salazar.
“Considering th at the collision between the jeep
driven by Rodolfo Salazar and the car owned and driven
by Edgardo Mendoza was the result of the hitting on the
rear of the jeep by the truck driven by Freddie Montoya,
this Court believes t hat accused Rodolfo Salazar cannot
be held liable for the damages sustained by Edgardo
Mendoza’s car.”
“Crystal clear is the trial court’s pronouncement that
under the facts of the case, jeep-owner-driver Salazar cannot
be held liable for the damages sustained by petitioner’s car. In
other words, “the fact from which the civil might arise did not
exist.’’ Accordingly, inasmuch as petitioner’s cause of action
as against jeep-owner-driver Salazar is ex-delictu, founded on
Article 100 of the Revised Penal Code, the civil action must be
held to have been extinguished in consonance with Section 3(c),
Rule 111 of the Rules of Court which provides:
“Sec. 3. Other civil actions arising from

offenses.
— In all cases not included in the preceding
section the following rules shall be observed:
xxx
(c) Extinction of the penal action does not carry
with it extinction of the civil, unless the extinction
proceeds from a declaration in a final judgment t h at the
fact from which the civil might arise did not exist. x x x’’
“And even if petitioner’s cause of action as against jeep-

owner-driver Salazar were not ex-delictu, the end result would
be the same, it being clear from the judgment in the criminal
case t hat Salazar’s acquittal was not based upon reasonable
doubt, consequently, a civil action for damages can no longer
Civil
be instituted.
Code quoted
Thishereunder:
is explicitly provided for in Article 29 of the
38
“Art. 29. When the accused in a criminal prosecution

is acquitted on the ground t hat his guilt has not been
proved beyond reasonable doubt, a civil action for damages
for the same act or omission may be instituted. Such action
requires only a preponderance of evidence. x x x
“If in a criminal case the judgment of acquittal is
based upon reasonable doubt, the court shall so declare.
In the absence of any declaration to t h at effect, it may be
inferred from the text of the decision whether or not the
acquittal is due to t hat ground.’’
‘’In so far as the suit against jeep-owner-driver Salazar
is concerned, therefore, we sustain respondent Judge’s Order
dated Jan uary 30, 1971 dismissing the complaint, albeit on
different grounds.
“WHEREFORE, 1) the Order dated September 12, 1970

dismissing Civil Case No. 80803 against private respondent
Felipino Timbol is set aside, and respondent Judge, or his
successor, is hereby ordered to proceed with the hearing on the
merits; 2) but the Orders dated Jan uary 30, 1971 and February
23, 1971 dismissing the Complaint in Civil Case No. 80803
against respondent Rodolfo Salazar are hereby upheld.’’
As discussed by Justice Herrera in his Treatise on Criminal

Procedure:
The Revised Rules on Criminal Procedure 2000 is a

virtual return to the 1940 Rules of Court which deemed as
instituted with the criminal action only the civil liability arising
from the offense charged. The civil liability is deemed instituted
— not merely “impliedly” instituted with the institution
of the criminal action. The amendment modified the
recommendation of the Committee on the Revision of the Rules
of Court to deem as impliedly instituted only the civil liability of
the accused from all sources of obligation arising from the same
act or omission. The purpose of the Committee was to limit the
civil liability to be instituted with the criminal action to t h at of
the accused and not the employer. The court, however, went
further by limiting the civil action t hat is deemed instituted
with the criminal only to the civil liability arising from the
offense charged. ALL decisions to the contrary are no longer
controlling. The independent civil actions under Articles 32, 33,
34 and 2176 are no longer deemed or impliedly instituted with
the criminal action or considered as waived even if there is no
reservation. The reservation applies
39
only to the civil liability arising from the offense charged. The
employer may no longer be held civilly liable for quasi-delict in
the criminal action as ruled in Maniago (infra.); San Ildefonso
Lines (infra.) and the pro hac vice decision in Rafael Reyes
Trucking Corporation (infra.), and all other similar cases, since
quasi delict is not deemed instituted with the criminal. If at
all, the only civil liability of the employer in the criminal action
would be his subsidiary liability under the Revised Penal Code.
The rule has also done away with third-party complaints and
counterclaims in criminal actions. These claims must have to be
ventilated in a separate civil action.’’
The Revised Rules of Criminal Procedure 2000 “is similar
to the original rule in Rule 107 of the Rules of Court.’’
“Rule 107 contemplates a case where the offended party

desires to press his right to demand indemnity from the accused
in the criminal case which he may assert either in the same
criminal case or in a separate action. Under this rule, a waiver
from failure to reserve does not include a cause of action not
arising from civil liability involved in the criminal case but from
culpa contractual, such as a civil case is based on alleged culpa
contractual incurred by the Philippine Air Lines, Inc. because of
its failure to carry safely the deceased passenger to his place of
destination. The criminal case involves the civil liability of the
accused, who bear no relation whatsoever with said entity and
are complete strangers to it. The accused are complete strangers
to the respondent company. The latter is not in any way
involved therein. Plaintiff is concerned with the civil liability of
the latter, regardless of the civil liability of the accused in the
criminal case. The failure, therefore, on the pa rt of the plaintiff
to reserve her right to institute the civil action in the criminal
case cannot in any way be deemed as a waiver on her part of the
right to institute a separate civil action against the respondent
company based on its contractual liability, or on culpa aquiliana
under Articles 1902 to 1910 to of the Civil Code. The two actions
are separate and distinct and should not be confused one with
the other.’’ (Parker vs. Panlilio, 91 Phil. 1 [1952])
“The rule has abandoned Maniago vs. Court of Appeals,

253 SCRA 174 and San Ildefonso Lines vs. Court of Appeals,
G.R. No. 119771, April 24, 1998, 289 SCRA 568, which
deemed the employer’s liability on quasi delict as instituted
with the criminal action in the absence of a reservation.
The present rule virtually adopted the ruling in Elcano vs.
Hill, 77 SCRA 98 (1977), where it was expressly held t h a t the
extinction of the
40
civil liability referred to in par. (c), Sec. 2 of Rule 111, refers ex-
clusively to civil liability arising from crime; whereas, the civil
liability for the same act considered as a quasi-delict only and
not as a crime is not extinguished even by a declaration in the
criminal case th at the criminal act charged has not happened or
has not been committed by the accused. Both actions may pro-
ceed separately; the only limitation is the prohibition to recover
damages twice based on the same act or omission.’’
Finally, in his Treatise on Criminal Procedure, Justice Herrera

discussed the effect of death on the civil liability of the accused
during the pendency of the criminal action as follows:
Death of Accused on Appeal

“The death of the accused after arraignment and during
the pendency of the criminal action shall extinguish the civil
liability arising from the delict.
The original proposal of the Committee was to require
the criminal court to proceed with the determination of the civil
liability th at is deemed impliedly instituted with the criminal
action other th an the civil liability arising from the crime to
modify the ruling in Bayotas vs. Court of Appeals, which then
held th at since death extinguished the civil liability of the
accused and the corresponding civil liability arising from a
crime, the offended party should file a separate civil action to
recover civil liability arising from other sources of civil liability.
The ruling was then criticized. Since the civil liability arising
from other sources were deemed impliedly instituted with the
criminal action unless there is a waiver, reservation or separate
civil, then the same should be resolved in the same proceedings
despite the death of the accused. Since, however, The Revised
Rules on Criminal Procedure limited the civil liability to what
is deemed impliedly instituted with the criminal action to civil
liability arising from crime, there would have been no need for
the amendment as death of the accused would only extinguish
such civil liability. The rule was, however, retained by the court
to apply to the civil actions under Section 3 of the Rule. The
rule would, however, apply only if any of the civil actions under
Section 3 is consolidated with the criminal action, otherwise,
since the actions under Section 3 are purely civil actions, the
effects of death of a party are to be governed by the Rules on
Civil Procedure.’’ (Rule 3, Secs. 16, 17 and 20, 1997 RCP)
41
OBLIGATIONS
CHAPTER 2
NATURE AND EFFECT OF OBLIGATIONS
Art. 1163. Every person obliged to give something is also

obliged to take care of it with the proper diligence of a good
father of a family, unless the law or the stipulation of the
parties requires another standard of care.1
Art. 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.2
Art. 1165. When what is to be delivered is a determinate
thing, the creditor, in addition, to the right granted him by
Article 1170, may compel the debtor to make the 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 thing to two or more persons who do not have the same
interest he shall be responsible for any fortuitous event until
he has effected the delivery.3
Art. 1166. The obligation to give a determinate thing
includes that of delivering all its accessions and accessories,
even though they may not have been mentioned.4
1
2
3
4
Art. 1097, par. 1, Civil Code.
42
NATURE AND EFFECT OF OBLIGATIONS Arts. 1163-1166
Obligations To Give. — An obligation to give a thing may

be either determinate or generic. It is determinate when the object
is particularly designated or physically segregated from all others
of the same class. 5 It is generic or indeterminate when the object
is designated merely by its class or genus without any particular
designation or physical segregation from all others of the same class.
In other words, in the first the object is a concrete, particularized
thing, indicated by its own individuality, while in the second the
object is one whose determination is confined to t h a t of its nat ure —
to the genus to which it pertains, such as a horse or a chair. 6 Thus,
when the obligor or debtor binds himself to deliver to the obligee or
creditor the white horse which won the Senior Grand Derby in 1979,
the object of the obligation is said to be determinate. Since it has
already been individually determined, the obligor cannot fulfill his
obligation by delivering another horse as a substitute. 7 On the other
hand, when the obligor or debtor binds himself to deliver “a horse” or
“ten horses,’’ the object of the obligation is said to be indeterminate
or generic. Since the horse or horses have not yet been particularly
designated or physically segregated from all others of the same
class, the obligor can fulfill his obligation by delivering any horse or
horses which are neither of superior nor inferior quality. 8
Idem; Nature of right of creditor. — In obligations to give,
the obligee or creditor has a right to the thing which is the object
of the obligation as well as the fruits thereof from the time the
obligation to deliver it arises. This is evident from the provision of
Art. 1164 of the Code. The question, however, is — when does the
obligation to deliver the thing and the fruits arise? The answer to
this question depends upon the nature of the obligation itself. In
case of obligations arising from the law, quasi-contracts, criminal
offenses, and quasi-delicts, the obligation to deliver arises from the
time designated by the provisions of the Civil Code or of special
laws creating or regulating them. In case of obligations arising from
contracts, the obligation to deliver arises, as a general rule, from the
moment of the perfection of the contract. The basis for the latter rule
can be found in Art. 1537 of the Code which states t h a t the vendor is
bound to deliver the thing sold and its accessions and accessories in
5
6
Soriano vs. De Leon, 48 Off. Gaz. 2245; 8 Manresa, 5th Ed., Bk. 1, p.
102.
8
Art. 1246,
7
Art. Civil
1244, Code.
Civil Code.
43
Arts. 1163-1166 OBLIGATIONS
the condition in which they were upon the perfection of the contract.
According to Manresa, the principle declared in Art. 1164 is merely
a n extension of t h a t declared in Art. 1537 considering the fact that
a n obligation arising from a contract of sale is the prototype of all
contractual obligations. 9 Generalizing the provision of the latter
article, we can, therefore, say t h a t the obligor or debtor is bound to
deliver the thing which is the object of the obligation as well as the
fruits thereof from the moment the contract is perfected. In other
words, with respect to the thing itself, the obligation to deliver arises
from the time of perfection of the contract; with respect to the fruits,
the obligation to deliver also arises from the time of the perfection
of the contract. It must be noted, however, t h a t these rules are not
absolute in character. In case there is a contrary stipulation of the
parties with respect to the time when the thing or fruits shall be
delivered, such stipulation shall govern. Hence, if the obligation
is subject to a suspensive condition, the obligation to deliver the
thing as well as the fruits shall arise only from the moment of the
fulfillment of the condition, and if it is subject to a suspensive term
or period, the obligation to deliver arises only upon the expiration of
the designated term or period.
If the creditor has a right to the thing as well as to the fruits
thereof from the time the obligation to deliver it arises, what is the
nature of such right? Before answering this question, we must first
know the meaning of personal and real right. According to an eminent
Spanish commentator, a personal right is “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.’’ It is a jus ad
rem, a right enforceable only against a definite person or group of
persons, such as the right of a creditor to demand from the debtor
the delivery of the object of the obligation after the perfection of the
contract. A real right, on the other hand, is a “right pertaining to a
person over a specific thing, without a passive subject individually
determined against whom such right may be personally enforced.’’10
It is a jus in re, a right enforceable against the whole world, such
as the right of ownership, possession, usufruct or easement. It is
clear from these definitions t h a t before delivery, the creditor, in
obligations to give, has merely a personal right against the debtor
9
8 Manresa, 5th Ed., Bk. 1, pp. 97-98.
10
3 Sanchez 6-8.
44
—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, a right which is enforceable against the whole world.
This explains why according to Art. 1164 of the Code, although the
creditor acquires a right to the fruits of the thing from the time the
obligation to deliver it arises, he does not acquire any real right over
it until the same has been delivered to him. Thus, if A and B enter
into a written agreement whereby the former promises to deliver a
parcel of land to the latter for a price of P100,000, the obligations
to deliver the land on the par t of the former and the purchase price
of P100,000 on the par t of the latter arise only from the moment of
the perfection of the contract. As far as B is concerned, although
he is entitled to all of the fruits of the land from the moment of the
perfection of the contract, a t most, he h as only a personal right to
compel A to deliver the land and such fruits in case he, himself, is
also ready to comply with what is incumbent upon him. 1 1 In other
words, he does not acquire a real right or right of ownership over the
land and over the fruits thereof, until the same have been delivered
to him. That is why, according to Art. 1477 of the Civil Code, the
ownership of the thing sold shall be transferred to the vendee only
upon the actual or constructive delivery thereof.
Idem; Rights of creditor in determinate obligations. — If
the obligation to give is determinate, the rights of the creditor are as
follows:
(1)To compel specific performance. This right is expressly
recognized by the first paragraph of Art. 1165 of the Code which
states t h a t the creditor may compel the debtor to make the delivery.
It is complemented by the first paragraph of Art. 1244 which states
t h a t 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 t ha n t h a t which is due. Consequently, if the debtor does not
comply with his obligation a t the time when the obligation to deliver
arises or if he insists on delivering a different one, the remedy of
the creditor is to file a n action against the debtor to compel specific
performance. In such case, the debtor cannot even plead pecuniary
impossibility of performance. It is a n undisputed principle of equity
11
Cruzado vs. Bustos and Escaler, 34 Phil. 17; see also Fidelity and Deposit Co.
vs. Wilson, 8 Phil. 51; Garchitorena vs. Almeda, CA, 48 Off. Gaz. 3432; Lundberg vs.
Gancayco, CA, 50 Off. Gaz. 172.
45
jurisprudence, and this is also true in this jurisdiction, t h a t mere

pecuniary inability to fulfill a n engagement does not discharge the
obligation, nor does it constitute any defense to a decree for specific
performance. 1 2
(2) To recover damages for breach of the obligation. Besides
the right to compel specific performance, the creditor has also the
right to recover damages from the debtor in case of breach of the
obligation through delay, fraud, negligence or contravention of the
tenor thereof. 1 3
It will be observed t h a t the above remedies are not incompatible
with each other. Hence, the creditor may file a n action against the
debtor for specific performance under the first paragraph of Art.
1165 and, a t the same time, avail of the action for damages against
the said debtor under Art. 1170.14
Idem; Rights of creditor in generic obligations. — If the
obligation to give is generic, the rights of the creditor are as follows:
(1)To ask for performance of the obligation. Whether the object of
an obligation to give is determinate or generic, it is undeniable that
the creditor has the right to ask for the performance of the
obligation. The only difference is t ha t in determinate obligations
to give, the creditor can compel specific performance, while in
indeterminate or generic obligations to give, he can only ask for the
delivery of a thing or object belonging to the class or genus
stipulated which must be neither of superior nor inferior quality. 1 5
Thus, if the debtor binds himself to deliver ten horses to the
creditor, the former must comply with the obligation by delivering to
the latter any ten horses which must be neither of the highest nor
poorest quality. The creditor in such case cannot compel specific
performance by demanding the delivery of ten horses of superior
quality.
(2)To ask t h a t the obligation be complied with a t the
expense of the debtor. If the debtor refuses or is unable to comply
with his obligation, the creditor can even ask t h a t the obligation be
complied with a t the expense of such debtor. 1 6 Thus, if the debtor
12
Gutierrez Repide vs. Afzelius, 39 Phil. 190.
13
Arts. 1165, par. 1, and 1170, Civil Code.
14
15Art. 1165, par. 2, Civil Code.
16
46
had promised to deliver ten horses to the creditor a t a specific date,

and upon the arrival of the stipulated date he was unable to comply
with the obligation after demand was made, the creditor can then
order the delivery of ten horses which must be neither of superior
nor inferior quality from any third person and all expenses incurred
shall be charged against him.
(3) To recover damages for breach of the obligation. In case
of failure of the debtor to comply with his obligation, or in case of
breach by reason of fraud, negligence, delay or contravention of the
tenor of the obligation, the creditor can demand for indemnification
for damages. Although Art. 1165 is silent with respect to the
applicability of Art. 1170 to indeterminate or generic obligations,
the scope of the article is broad enough to apply even to such class of
obligations. 1 7
Idem; Obligations of debtor in determinate
obligations.
— If the obligation to give is determinate, the obligations of
the debtor are as follows:
(1)To perform the obligation specifically. In obligations to
give a determinate thing, the obligor or debtor binds himself to
deliver to the obligee or creditor a thing or object which is particularly
designated or physically segregated from all others of the same class.
Hence, he cannot comply with his obligation by delivering a thing
which is different from t h a t which is designated although belonging
to the same class or genus. This is so even though the thing delivered
may be of superior quality. 1 8 Thus, if he binds himself to deliver to
the creditor a certain 80 Toyota Corona specifically described in the
contract, he must deliver the specified car and no other.
(2)To take care of the thing with the proper diligence of a
good father of a family. This accessory obligation which is expressly
imposed upon the debtor by the provision of Art. 1163 of the Code
and which is applicable only to determinate obligations and not to
generic ones, 1 9 is established merely for the purpose of insuring the
efficacy and performance of the obligation. As a general rule, the
standard of care which must be exercised for the preservation of the
17
18
19
2 De Diego 65.
47
thing must be the diligence of a good father of a family. 2 0 This rule,

however, is subject to two exceptions. The first is if the law requires
another standard of care. Thus, Art. 1733 of the Civil Code provides
t h a t common carriers, from the nat ure of their business and for
reasons of public policy, are bound to observe extraordinary diligence
in the vigilance over the goods, and for the safety of the passengers
transported by them, according to all of the circumstances of each
case. The second is if the parties stipulate another st andard of care.
Thus, the parties may agree t h a t the standard to be followed by
the debtor in taking care of the thing pending its delivery or in the
delivery itself shall be either extraordinary care or slight care.
(3) To deliver all accessions and accessories of the thing, even
though they may not have been mentioned. This accessory obligation
is expressly imposed upon the debtor by the provision of Art. 1166
of the Code. The term “accessions’’ signifies all of those things which
are produced by the thing which is the object of the obligation as well
as all of those which are naturally or artificially attached thereto. 2 1
Consequently, it comprehends all of the different kinds of accessions
which are defined and regulated by the provisions of Art. 441 to Art.
475 of the Civil Code, such as accesión discreta (natural, industrial
and civil fruits) as well as accesión industrial (building, planting
and sowing), accesión natural (alluvion, avulsion, abandoned
river beds, and islands formed in non-navigable or non-floatable
rivers) and accession with respect to movable property (adjunction
or conjunction, confusion or commixtion, and specification).
“Accessories,’’ on the other hand, must be understood in its current
and popular sense. It signifies all of those things which have for
their object the embellishment, use or preservation of another thing
which is more important and to which they are not incorporated or
attached. In other words, it includes all of those things which are
necessary or convenient for the perfection of another thing, such as
the equipment of a factory, the spare parts and tools of a machine,
the key of a house, and others of a similar nature. 2 2
It must be noted t h a t under the old law, “accessions” were not
included, in view of which, according to the Supreme Court of Spain,
20
Art. 1163, Civil Code; see Bishop of Jaro vs. De la Peña, 26 Phil. 144.
21
22
48
if a piece of land is sold without mentioning the house thereon, the

sale does not include the house because it is not a n “accessory,” but
a n “accession.” However, the Code Commission, considering that
when a piece of land is sold, ordinarily all the improvements thereon
are intended as included in the sale, inserted the word “accessions.”23
In the case of Pormellosa vs. Land Tenure Administration,
1 SCRA 375 (1961), it was ruled t h at a sale of the house and
improvements upon a land is not sufficient to convey title or any
right to the land, thus enunciating the rule t h a t a n obligation to
deliver the accessions or accessories of a thing does not include the
thing unless otherwise stipulated.
(4) To be liable for damages in case of breach of the obligation
by reason of delay, fraud, negligence or contravention of the tenor
thereof. This obligation is expressly imposed upon the debtor by
the provision of Art. 1170 of the Code. It must be noted, however,
t h a t this liability does not arise if the breach is due to a fortuitous
event. 2 4 In other words, such liability extends only to a breach which
is voluntary in character, and not to one which is involuntary. Thus,
if the debtor binds himself to deliver to the creditor a specified
automobile by the end of November, 1980, and said automobile was
destroyed when the garage in which it was kept was gutted by a
fire of accidental origin before the date of delivery, the obligation is
extinguished. There can, therefore, be no liability of the debtor for
breach of the obligation.
It must also be noted t h a t under the third paragraph of Art.
1165, it is provided t ha t if the obligor delays, or has promised to
deliver the same thing to two or more persons who do not have the
same interest, he shall be responsible for any fortuitous event until
he had effected the delivery. It is evident t h a t this rule is applicable
only to obligations to give a determinate thing. This is so because
only a determinate thing can be destroyed by a fortuitous event. An
indeterminate or generic thing, on the other hand, can never perish.
It is also evident t h a t the two cases mentioned in the provision are
exceptions expressly specified by law to the rule t h a t there can be
no liability in case of fortuitous events. In both cases, when the
determinate thing which is the object of the obligation is lost or
23
Capistrano, Civil Code, 1950 Ed., Vol. 3, p. 2.
24
49
destroyed before the date of the delivery, the obligor or debtor shall
be liable to the creditor.
Idem; Obligations of debtor in generic obligations. — If
the obligation to give is innominate or generic, the obligations of the
debtor are as follows:
(1)To deliver a thing which is neither of superior nor inferior
quality. 2 5 Consequently, the creditor cannot demand a thing of
superior quality; neither can the debtor deliver a thing of inferior
quality. However, in the determination of the quality of the thing
which is to be delivered, the purpose of the obligation and other
circumstances shall have to be taken into consideration. 2 6
(2)To be liable for damages in case of breach of the obligation by
reason of delay, fraud, negligence or contravention of the tenor
thereof. 2 7 This liability includes the obligation to reimburse all
expenses incurred by the creditor in those cases where the latter
avails himself of the right to ask a third person to perform the
obligation a t the expense of the debtor. 2 8 It must be noted, however,
t h a t the doctrine enunciated in Art. 1174 of the Code, by virtue of
which the obligation is extinguished in case the object thereof is lost
or destroyed through a fortuitous event, is not applicable to this
type of obligation. This is clearly deducible from the provision of Art.
1263 of the Civil Code which states t h a t in a n obligation to deliver
a generic thing, the loss or destruction of anything of the same
class or genus as t h a t which constitutes the object thereof shall not
extinguish the obligation. This precept is based on the maxim that
the genus of a thing can never perish (genus nunquam peruit). Thus,
if a certain company agreed to pay a pension to any of its employees
who may have completed 20 years of service and who may have
attained the age of 50, the fact t ha t heavy losses were incurred by
said company during the war does not exempt it from liability on the
ground t h a t such obligation to pay is generic and, consequently, is
not extinguished. 2 9 Similarly, if a certain person promised to deliver
25
26
Ibid.
27
28
29
Philippine Long Distance Co. vs. Jeturian, 97 Phil. 78; see also Reyes vs. Cal-
tex, 47 Off. Gaz. 1193.
50
5,700 cavans of rice to another within a stipulated period, but due to

Huk depredations in Central Luzon he was unable to comply fully
with the terms of the contract, he can still be held liable. 3 0
Problem — A bound himself to deliver to B a 21-inch

1983 model TV set, and the 13 cubic feet White Westinghouse
refrigerator, with Motor No. WERT-385, which B saw in A’s
store, and to repair B’s piano. A did none of these things.
May the court compel A to deliver the TV set and the
refrigerator and repair the piano? Why? If not, what relief may
the court grant B? Why? (1983)
Answer — B cannot compel A to deliver the 21-inch
1983 model TV set. The reason is obvious. The obligation is a
generic obligation because the object is designated merely by its
class or genus without any particular designation or physical
segregation from others of the same class. An action for specific
performance is, therefore, legally and physically impossible.
Consequently, the remedy of B is to ask for the delivery of a 21-
inch 1983 model TV set which must be neither of superior nor
inferior quality. This is explicitly recognized by the New Civil
Code. As a matter of fact, he can even ask t ha t the obligation be
complied with at the expense of A. Additionally, he can ask for
damages. These remedies are also explicitly recognized by the
New Civil Code.
In the case of the refrigerator, the situation is different. The
court may compel A to comply with the obligation specifically.
The reason is obvious. The obligation is determinate. Under
the New Civil Code, if the debtor or obligor refuses or is unable
to comply with his obligation, assuming t h at the obligation is
a determinate obligation to give, the remedy of the creditor or
obligee is to bring an action against the debtor or obligor for
specific performance. Additionally, he can recover damages.
On the other hand, the court cannot compel A to repair
the piano. The reason is also obvious. The obligation of A is an
obligation to do. In this type of obligation, the law recognizes
the individual’s freedom to choose between doing t h at which
he has promised to do and not doing it. It falls within what
commentators call a personal act, of which courts may not
compel compliance as it is an act of violence to do so. The remedy,
therefore, of B is to have the obligation executed a t the expense
30
Soriano vs. De Leon, 48 Off. Gaz. 2245.
51
of A. Additionally, he can recover damages from A. (Note: The

above answer is based on Arts. 1165, par. 1, 1167 and 1170, New
Civil Code.)
Art. 1167. If a person obliged to do something fails to do

it, the same shall be executed at his cost.
The 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.31
Obligations To Do; Effects of Breach. — In obligation to do

(positive personal obligations), if the obligor fails to do t h a t which
he h as obligated himself to do, the obligee can have the obligation
performed or executed a t the expense of the former, 3 2 and, a t the
same time, demand for damages by reason of the breach. 3 3
Unlike obligations to give, in obligations to do the obligee
does not possess the power to compel the obligor to comply with
his obligation. In this type of obligation the law recognizes the
individual’s freedom or liberty to choose between doing t h a t which
he has promised to do and not doing it. It falls within what Spanish
commentators have called a personal act (acto personalisimo), of
which courts may not compel compliance as it is considered a n act of
violence to do so.34 Consequently, since compliance or fulfillment can
only be voluntary, the Code in the first paragraph of Art. 1167 has
granted a remedy to the obligee to have the obligation performed or
executed a t the expense of the obligor, a remedy which, although
irregular, is most analogous to fulfillment. 3 5 Thus, if A h as an
obligation to construct a garage for B for P5,000 and he fails or
refuses to construct it within the period specified in the contract,
B h as a right to ask another contractor to perform the undertaking
even for a higher price. In such case, he can recover the difference
from A.
It must be observed, however, t h a t the right of the obligee to
have the prestation executed a t the expense of the obligor cannot be
31
Art. 1098, Spanish Civil
Code. 32
Art. 1167, par. 2, Civil
Code. 33
34
Woodhouse vs. Halili, 93
8 Manresa,
Phil.
35
5th Ed.,
526, quoting 19 Bk. 2, pp. 116-117.
Scaevola
428, 431-432.
52
NATURE AND EFFECT OF OBLIGATIONS Art. 1167
availed of when such prestation consists of a n act where the personal

and special qualification of the obligor is the principal motive for
the establishment of the obligation, as for instance, the talent and
prestige of a n artist. In such case, there is no other remedy of the
obligee except to proceed against the obligor for damages under Art.
1170 of the Code.36
On the other hand, if there has been a performance of the
obligation, but in contravention of the tenor thereof, the following
rights are available to the obligee: (1) To have the obligation
performed or executed a t the expense of the obligor;37 (2) to ask that
what has been poorly done be undone; 3 8 and (3) to recover damages
because of breach of the obligation. 3 9
Problem — “O,’’ lot owner, contracted with “B,” builder,

to build a multi-storey building designed by “A,’’ architect. “A”
was paid a fee to supervise the construction and execution of his
design. When completed, “O” accepted the work and occupied the
building, but within one year, it collapsed in a n earthquake that
destroyed only the building and not the surrounding buildings.
Construction was faulty. The building cost P3,000,000.00, but
reconstruction cost would reach P10,000,000.00.
Question No. 1. — What are the rights of “O’’ against “A’’
and “B’’? Explain briefly. (1981 Bar Problem)
Answer — “O’’ can hold “A’’ and “B’’ solidarily liable for
damages. This is clear from the Civil Code, which declares
th at the contractor is liable for damages if within fifteen years
from the completion of the edifice or structure, the same should
collapse on account of defects in the construction. lf the engineer
or architect who drew up the plans and specifications of the
building supervises the construction, he shall be solidarily liable
with the contractor. Acceptance of the building, after completion,
does not imply waiver of the cause of action. However, the action
must be brought within ten years following the collapse of the
building.
(Note: The above answer is based on Art. 1723 of the Civil
Code.)
36
Ibid.
37
38
39
53
Question No. 2 — Could “O’’ demand reconstruction of the

building? On what ground? Amplify. (1981 Bar Problem)
Answer — “O’’ can demand reconstruction of the building.
The obligation of both “A” and “B” is a n obligation to do. Conse-
quently, Art. 1167 of the Civil Code is applicable. According to
this article, if a person obliged to do something does it in contra-
vention of the tenor of the obligation, the same shall be executed
at his cost. It is obvious t hat the builder “B” and the architect
“A’’ performed their jobs in contravention of the tenor of the obli-
gation. As a matter of fact, had the building not collapsed, under
the same article, it may even be decreed t ha t what h as been
poorly done be undone. Consequently, “C’’ can now demand for
the reconstruction of the building by “A’’ and “B’’ or by another
at their cost.
Code and on Manresa, vol. 8, pp. 116-117.)
Problem — X delivered a play station to Y for repair, Y did
not finish the job. Finally, despite repeated reminders of X for Y
to finish the job, Y returned the play station with his job undone
and where some parts were missing. Z then repaired the play
station. Z charged X the amount of P500.00 for the repair and
the amount of P300.00 for the missing parts. The lower court
ruled th at Y should pay only P300.00.
Question — Is Y liable also for the cost of the repair or the
amount of P300.00?
Answer — Yes. Since Y failed to repair the play station,
with some missing parts, Y contravened the tenor of his
obligation. Y is liable for such contravention under Art. 1167 of
the Civil Code, considering th at the obligation of Y was to repair
the play station. He is likewise liable under Art. 1170 of the
Code for the missing parts considering th at Y failed to return
the play station in the same condition as when it was received.
(Tanguilig vs. Court of Appeals, 266 SCRA 78 [1997].)
Art. 1168. When the obligation consists in not doing, and

the obligor does what has been forbidden him, it shall also be
undone at his expense.40
Obligations Not To Do; Effects of Breach. — In obligations
not to do (negative personal obligations), the object of the obligation
40
54
is fulfilled or realized so long as t h a t which is forbidden is not done

by the obligor. If the obligor does what has been forbidden him, two
remedies are available to the obligee — to have it undone a t the
expense of the obligor in accordance with Art. 1168 and to ask for
damages in accordance with Art. 1170. Thus, if the obligor obligated
himself not to construct his house beyond a certain height in order not
to obstruct the view from the house of the obligee, and subsequently,
he adds another story beyond the stipulated height, the obligee has
the right to demand for the demolition of the additional storey a t the
expense of the obligor. In addition, he can also demand indemnity
for damages.
The first remedy is logical because it is the only way by which the
end or object of the obligation may be effectively realized since what
is demanded is not the performance of a n act but a n omission. With
respect to the second remedy, it must be noted t h a t in obligations
of this type (not to do), delay or mora is not possible unlike positive
obligations. This is so because in negative obligations, the obligation
is either fulfilled or not fulfilled.41
There are, however, certain cases where the remedy provided
for in Art. 1168 is not available. In the first place, there are those
cases where the effects of the act which is forbidden are definite in
character, in which case, even if it is possible for the obligee to ask
t h a t the act be undone a t the expense of the obligor, consequences
contrary to the object of the obligation will have been produced
which are permanent in character. In the second place, there are
those cases where it would be physically or legally impossible to
undo what has been done because of the very nature of the act itself,
or because of a provision of the law, or because of conflicting rights
of third persons. Hence, in these cases, the only remedy available
to the obligee would be to proceed against the obligor for damages
under Art. 1170 of the Code.42
Art. 1169. Those obliged to deliver or to do something

incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their
obligation.
41
42
Ibid., p. 123.
55
However, the demand by the creditor shall not be neces-

sary in order that delay may exist:
(1)When the obligation or the law expressly so de-
clares; or
(2)When from the nature and the circumstances of the
obligation it appears that the designation of the time when
the thing is to be delivered or the service is to be rendered was
a controlling motive for the establishment of the contract; or
(3)When demand would be useless, as when the obligor
has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay
if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay by the
other begins.43
Art. 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.44
Art. 1171. Responsibility arising from fraud is demand-
able in all obligations. Any waiver of an action for future
fraud is void.45
Art. 1172. Responsibility arising from negligence in the
performance of every kind of obligation is also demandable,
but such liability may be regulated by the courts, according
to the circumstances.46
Art. 1173. The fault or negligence of the obligor consists
in the omission of that diligence which is required by the
nature of the obligation and corresponds with the circum-
stances of the persons, of the time and of the place. When
negligence shows bad faith, the provisions of Articles 1171
and 2201, paragraph 2, shall apply.
43
44
45
46
56
If the law or contract does not state the diligence which

is to be observed in the performance, that which is expected
of a good father of a family shall be required.47
Breach of Obligations. — In general, the breach of a n ob-

ligation may be either voluntary or involuntary. It is voluntary if
the debtor or obligor in the performance of his obligation is guilty of
default (mora), or fraud (dolo), or negligence (culpa), or in any man-
ner contravenes the tenor thereof. 4 8 It is involuntary if he is unable
to comply with his obligation because of a n event which cannot be
foreseen, or which, though foreseen, was inevitable. 4 9 In the first he
is liable for damages, in the second he is not.
Voluntary Breach Through Default or Mora. — The first
kind of voluntary breach of an obligation regulated by the Civil Code
is t h a t which takes place by reason of default or mora. Default or
mora signifies the idea of delay in the fulfillment of a n obligation
with respect to time.
There are three kinds of default or mora. They are:
(1)Mora solvendi or the delay of the obligor or debtor to
perform his obligation. This delay is called mora solvendi ex re when
the obligation is a n obligation to give or mora solvendi ex persona
when the obligation is a n obligation to do.
(2)Mora accipiendi or the delay of the obligee or creditor to
accept the delivery of the thing which is the object of the obligation.
(3)Compensatio morae or the delay of the parties or obligors in
reciprocal obligations. 5 0
There are three requisites which should be present in order
t ha t the obligor or debtor may be considered in default. They are:
(4) The obligation is demandable and already liquidated;
(5) The obligor or debtor delays performance; and
47
48
49
50
57
(3) The creditor requires the performance judicially or extra-

judicially. (Aerospace Chemical Industries, Inc. vs. CA, 315 SCRA
94.)
In the case of Bricktown Devt. Corp. vs. Amor Tierra Devt.
Corp., 239 SCRA 126 (1994), the Court ruled t h a t a grace period is
not a n obligation of the debtor but a right. It must not be likened
to a n obligation the non-payment of which under Art. 1169 would
generally still require judicial or extrajudicial demand before default
can arise. When unconditionally conferred, it is effective without
further need of demand either for the payment of the obligation or
for honoring the right.
Idem; Default in positive obligations. — In obligations
to give or to do (positive obligations), the obligor or debtor incurs
in delay from the time the obligee or creditor demands from him
the fulfillment of the obligation. 5 1 This demand may be judicial or
extrajudicial. It is judicial if the creditor files a complaint against the
debtor for the fulfillment of the obligation; it is extrajudicial if the
creditor demands from the debtor the fulfillment of the obligation
either orally or in writing. Whether the demand is judicial or
extrajudicial, if the obligor or debtor fails to fulfill or perform his
obligation, he is in mora solvendi, and therefore, liable for damages.
The significance of this rule may be illustrated by the following
problem:
On October 1, 1976, A borrowed P10,000 from B evidenced by
a promissory note whereby he undertook to pay the indebtedness on
October 1, 1978. On October 1, 1980, B brought a n action against
A for the payment of the obligation as well as legal interest from
the date of maturity by way of damages. There is no evidence that
any demand for payment was ever made prior to the presentation of
the complaint. From wh at time shall the legal interest be computed
— shall it be computed from October 1, 1978, when the
obligation became due and demandable, or from October 1, 1980,
when the complaint was filed? According to the decided cases,
the interest
shall be computed from October 1, 1980, when the
complaint was
filed, because it was only then t h a t the debtor had incurred in
delay.52
Off. Gaz. 1421.

51
52
Compania General de Tabacos vs. Araza, 7 Phil. 55; Veloso vs. Fontanosa, 13
Phil. 79; Bayala vs. Silang Traffic Co., 7358 Phil. 557; Adiarte vs. Court of Appeals, 49
The result would be different had the creditor made a n extrajudicial

demand upon the debtor on October 1, 1978, when the obligation
became due and demandable, or soon thereafter. In such case, the
legal interest would have to be computed from such date.
Idem; id. — When demand is not necessary. — However,
demand by the creditor is not necessary in order t h a t delay may
exist in the following cases:
(1) When the obligation or the law expressly so declares. 5 3
Attention must be called to the fact t h a t what the law means is
t h a t the obligation or the law itself must expressly declare that
the demand is not necessary in order t h a t the debtor shall incur in
delay. This may be illustrated by the following examples:
Let us assume t h a t D borrowed P20,000 from C on Dec. 5, 1976.
He executed a promissory note promising to pay the indebtedness on
Dec. 5, 1978. Upon the arrival of the designated date for payment,
is it necessary t h a t C shall make a demand upon D for payment
in order t h a t the latter shall incur in delay? Evidently, such a
demand is necessary. In order t h a t the exception stated in No. 1 of
the second paragraph of Art. 1169 shall apply, it is indispensable
t h a t the obligation itself must expressly declare t h a t “demand is not
necessary in order t h a t D shall incur in delay” or t h a t “D shall incur
in delay if he does not pay the obligation upon the arrival of the
designated date for payment.’’54
Let us, however, assume t h a t A and B entered into a contract
of partnership for the purpose of buying and selling textbooks, with
the former as capitalist partner and the latter as industrial partner.
It was agreed t h a t A shall contribute P20,000 to the common fund
on Ja nua ry 5, 1980. Upon the arrival of the designated date for
payment, is demand necessary in order t h a t A shall incur in delay?
In this case, such a demand is not necessary in order t ha t A shall
incur in delay. According to Art. 1788 of the Civil Code, where one
of the partners who has undertaken to contribute a sum of money
to the common fund a t a specified date fails to do so, he becomes
a debtor of the partnership not only for the amount which he has
Art. 1169, No. 1, Civil Code.

53
Bayala vs. Silang Traffic Co., 73 Phil. 557; Adiarte vs. Court of Appeals, 49 Off.
54
Gaz., 1421; 8 Manresa, 5th Ed., Bk. 1, p. 127.
59
promised to contribute but also for interest and damages from the
time he should have complied with his obligation.
(2)When from the n at ure and the circumstances of the
obligation it appears t h a t the designation of the time when the
thing is to be delivered or the service is to be rendered was a
controlling motive for the establishment of the contract. 5 5 The basis
of this exception is the fact t h a t the designation of the time is of
such fundamental importance in the fulfillment of the obligation
t h a t it would be logical to assume t h a t the intention of the parties
was to make fulfillment of the obligation upon the arrival of such
designated time a n essential part of the contract. In other words, the
time element for the fulfillment of the obligation is of the essence of
the contract. Therefore, it must be established t h a t the designation
of the time when the obligation shall be fulfilled was a controlling
motive for the execution of the contract. This can be inferred from
the nat ure and circumstances of the obligation. 5 6 Thus, where in
the contract of sale entered into between plaintiff and defendant
there is a stipulation t h a t the machinery which is the object of the
sale was already on the way from the United States to Manila, but
it is established t h a t it was actually shipped several days after
the execution of the contract and, as a consequence, plaintiff was
unable to deliver it within a reasonably short time to the defendant,
it was held t h a t the plaintiff has already incurred in delay since,
undoubtedly, the representation t h a t such machinery was already
on the way was one of the determining elements of the contract.
Consequently, the subsequent refusal of the defendant to accept the
delivery is justified.57
(3)When demand would be useless, as when the obligor has
rendered it beyond his power to perform. 5 8 Thus, if A, for instance,
has promised to deliver his automobile to B on the 15th day of
November, 1980, but a few days before such date, the automobile
was completely destroyed through his fault, and the fact of its
destruction was known to B, demand by the latter would be useless.
55
Art. 1169, par. 2, No. 2, Civil Code.
56
57
Soler vs. Chesley, 43 Phil. 529. To the same effect: Hanlon vs. Ha usserma n and
Beam, 40 Phil. 795.
58
Art. 1169, par. 2, No. 3, Civil Code.
60
In such case, A will incur in delay without the need of any demand
from B.
Idem; Default in negative obligations. — The obligor can
not possibly incur in delay in negative obligations (not to do). Ac-
cording to Manresa, these obligations have a peculiarity of their own
which the law does not show but which is evident from their spe-
cial nature. Fulfillment and violation are possible, but not default or
mora. This peculiarity is what differentiates this class of obligations
from positive obligations (to give and to do).59
Idem; Default in reciprocal obligations. — Reciprocal obli-
gations are those which are created or established a t the same time,
out of the same cause, and which result in mutual relationships of
creditor and debtor between the parties. These obligations are con-
ditional in the sense t ha t fulfillment of a n obligation by one party
depends upon the fulfillment of the obligation by the other. Thus, in
a contract of sale of a n automobile for P54,000, the vendor is obliged
to deliver the automobile to the vendee, while the vendee is obliged
to pay the price of P54,000 to the vendor. It is clear t h a t the vendor
will not deliver the automobile to the vendee unless the latter will
pay the price, while the vendee will not pay the price to the vendor
unless the latter will deliver the automobile. Hence, in reciprocal ob-
ligations, the general rule is t h a t fulfillment by both parties should
be simultaneous or a t the same time. There are, however, cases in
which different dates for performance or fulfillment of the recipro-
cal obligations may be fixed by the parties, in which case, the rule
stated in the first paragraph in Art. 1169 shall apply. 6 0
The rule then is t h a t in reciprocal obligations, one party incurs
in delay from the moment the other party fulfills his obligation,
while he himself does not comply or is not ready to comply in a
proper ma nner with what is incumbent upon him. 6 1 If neither party
complies or is ready to comply with what is incumbent upon him,
the default of one compensates for the default of the other. In such
case, there can be no legal delay. These rules may be illlustrated
by the following example: A sold his automobile to B for P30,000.
They agreed t h a t delivery and payment shall be made on the 15th
59
60
Ibid., pp. 133-134.
61
61
of November, 1980. On t h a t date, A was not ready to deliver the

automobile, neither was B ready to pay. In such case, neither party
has incurred in delay. If A, however, delivered or was ready to
deliver the automobile, but B did not pay or was not ready to pay,
then B is said to have incurred in delay.62
Idem; id. — Effect of default. — Once the obligor or debtor
has incurred in delay, he can be held liable by the obligee or creditor
for damages. 6 3 This liability subsists even if the thing which consti-
tutes the object of the obligation may have been lost or destroyed
through a fortuitous event. 6 4
If the obligation consists in the payment of a sum of money, and
the debtor incurs in delay, the indemnity for damages, there being
no stipulation to the contrary, shall be the payment of the interest
agreed upon, and in the absence of stipulation, the legal interest. 6 5
Interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent upon this point. 6 6
In Malayan Insurance Co., Inc. vs. IAC, 146 SCRA 45, the
Supreme Court reiterated the rule t h a t a debtor who is in delay
(default) is liable for damages, in the form of interest.
The Supreme Court ruled in the case of Llorente, Jr. vs.
Sandiganbayan, 287 SCRA 382 (1998) t h a t the provisions under
Title XV of the Civil Code on Damages govern in determining the
measure of recoverable damages. It is fundamental in the law on
Damages t h a t one who is injured by a breach of a contract, or by a
wrongful act or omission, shall have a fair and just compensation
commensurate to the loss sustained as a consequence of the
defendant’s act.
Voluntary Breach Through Fraud or Dolo. — The second
kind of voluntary breach of a n obligation regulated by the Civil Code
is t h a t which takes place by reason of fraud or dolo. According to
Manresa, fraud or dolo consists in the conscious and intentional
62
For illustrative cases — see Martinez vs. Cavives, 25 Phil. 581; Causing vs.
Bencer, 37 Phil. 417.
63
64
65
Art. 2209, Civil Code, see Reforma vs. Tomol, 139 SCRA 260, with regard to the
meaning of legal interest.
66
62
proposition to evade the normal fulfillment of a n obligation. 6 7

This type of fraud, which is present during the performance of
a n obligation, must not be confused with the causal or incidental
fraud, which is present a t the time of the birth of a n obligation.
Under our legal system, fraud in general may be classified into civil
and criminal fraud. Civil fraud, in turn, may be classified into the
following: first, the fraud or dolo in the performance of a n obligation; 6 8
and second, the fraud or dolo in the constitution or establishment of
a n obligation. 6 9 The two may be distinguished from each other as
follows:
(1)The first is present only during the performance of a pre-
existing obligation, while the second is present only a t the time of
the birth of the obligation.
(2)The first is employed for the purpose of evading the
normal fulfillment of a n obligation, while the second is employed for
the purpose of securing the consent of the other party to enter into
the contract.
(3)The first results in the nonfulfillment or breach of the
obligation, while the second, if it is the reason for the other party
upon whom it is employed for entering into the contract, results in
the vitiation of his consent.
(4)The first gives rise to a right of the creditor or obligee to
recover damages from the debtor or obligor, while the second gives
rise to a right of the innocent party to ask for the annulment of the
contract if the fraud is causal or to recover damages if it is
incidental.
Thus, if A engages to tow a launch belonging to B from Iloilo
to Manila, using a steamer for t h a t purpose, and on the way the
launch is cast adrift and lost, Art. 1170, in relation to Art. 1171, is
applicable. B can hold A liable for damages. 7 0 On the other hand, if
a certain applicant for a n insurance substitutes another person for
himself during the medical examination, it is evident t h a t there has
been causal fraud or dolo causante in securing the consent of the
67
68
69
70
Guzman vs. Behn, Meyer & Co., 9 Phil. 112.
63
insurance company which will entitle the latter to ask for annulment
of the contract. 7 1
Idem; Effect of fraud. — If there is a breach or non-fulfill-
ment of the obligation by reason of fraud or dolo on the part of the
obligor or debtor, he can be held liable for damages. As a ground
for damages, malice or dishonesty is implied. It cannot cover cas-
es of mistake and errors of judgment made in good faith. F rau d or
dolo is synonymous to bad faith. (O’leary Macondray & Co., 45 Phil.
812 [1924].) The liability is expressly recognized by the provisions
of Arts. 1170 and 1171 of the Code. It is also a rule t h a t the liabil-
ity cannot be waived or renounced. It must be noted, however, that
wh at is prohibited is the waiver or renunciation which is made in
advance or in anticipation of the fraud, and not t h a t which is made
after the fraud h as already been committed. In other words, under
Art. 1171, what is prohibited is the renunciation of the action for a
fraud which has not yet been committed. 7 2
Thus, waiver for future fraud is contrary to law and public
policy. As such, said waiver is void. But waiver for a past fraud is
valid since such waiver can be deemed a n act of generosity. Further,
wh at is renounced is the effect of fraud, more particularly the right
of the party to indemnity.
What is the extent of damages which the obligee or creditor can
recover from the obligor or debtor in case of breach or nonfulfillment
of the obligation by reason of fraud or dolo? According to the law on
damages in the Civil Code, it shall comprehend all damages which
may be reasonably attributed to the breach or nonfulfillment of the
obligation, regardless of whether such consequences are natural or
unnatural, probable or improbable, foreseeable or unforeseeable. 7 3
In addition to such damages, the obligee or creditor can also recover
moral and exemplary damages. 7 4 Moral damages may be recovered
in addition to other damages. (Far East Bank & Trust Co. vs. Court
of Appeals, 59 SCAD 253, 241 SCRA 671 [1995].)
Voluntary Breach Through Negligence or Culpa. — The
third kind of voluntary breach of a n obligation regulated by the Civil
71
Eguaras vs. Great Eastern Life Ass. Co., 33 Phil. 263.
72
73
74
Arts. 2220 a nd 2232, Civil Code.
64
Code is t h a t which takes place by reason of the negligence or culpa

of the debtor or obligor. It consists in the omission of t h a t diligence
which is required by the nat ure of the obligation and corresponds
with the circumstances of the persons, of the time and of the place.75
From this definition, it is evident t h a t negligence is simply the
absence of due care required by the natur e of the obligation. 7 6 It is
a relative or comparative, not a n absolute term, and its application
depends upon the situation of the parties and the degree of care and
vigilance which the circumstances reasonably require. Where the
danger is great, a high degree of care is necessary, and the failure to
observe it is a want of ordinary care under the circumstances. 7 7 It is
in each case practically a question of fact whether the proper degree
of care has been exercised taking into consideration what a
reasonable and prudent m a n would have done under the
circumstances. 7 8 Thus, according to the second paragraph of Art.
1173, if the law or contract does not state the diligence which is
to be observed in the performance of the obligation, t h a t which is
expected of a good father of a family shall be required. Hence, the
law has adopted the standar d supposed to be supplied by the
imaginary conduct of the discreet pater familias of the Roman
Law. 7 9
It is, therefore, clear t h a t the degree of care t h a t must be
observed by the obligor in the performance of his obligation shall
depend not only upon the natu re of the obligation, but also upon the
circumstances of persons, time and place. In other words, there are
as many degrees of care as there are obligations.
Idem; Kinds of negligence. — Negligence or culpa may be
either civil or criminal. The first is governed by Arts. 1170, 1172,
1173, and other provisions of the New Civil Code, while the second
is governed by Art. 365 of the Revised Penal Code.
Civil negligence, in turn, may be either culpa contractual
or culpa aquiliana (quasi-delicts). Using the general definition of
negligence enunciated in Art. 1173 as basis, the first may be defined
as the fault or negligence of the obligor by virtue of which he is
unable to perform his obligation arising from a pre-existing contract,
75
76
Picart vs. Smith, 37 Phil. 809.
77
U.S. vs. Juanillo, 23 Phil. 212.
78
Picart vs. Smith, 37 Phil. 809.
79
Ibid.
65
because of the omission of the diligence which is required by the

nature of the obligation and corresponds with the circumstances
of the persons, of the time and of the place. The second, on the
other hand, may be defined as the fault or negligence of a person,
who, because of the omission of the diligence which is required by
the n at ure of the obligation and which must correspond with the
circumstances of the persons, of the time and of the place, causes
damage to another.
From the above definitions, it is clear t h a t whether the negli-
gence is culpa contractual or culpa aquiliana, the provision of Art.
1173 of the Civil Code applies. The negligence of the defendant in
both cases is characterized by the omission of t ha t diligence which
is required by the natu re of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. The simi-
larity, however, ends there. They are different with respect to an-
tecedents and consequences. They may be distinguished from each
other as follows:
(1)As regards the character of the negligence of the defendant: In
culpa contractual, the negligence of the defendant is merely an
incident in the performance of a n obligation; in culpa aquiliana it is
substantive and independent.
(2)As regards the relationship of the parties: In the first
there is always a pre-existing contractual relation; in the second
there may or may not be a pre-existing contractual relation.
(3)As regards the source of the obligation: In the first the
source of the obligation of the defendant to pay damages to the
plaintiff is the breach or nonfulfillment of the contract; in the second
the source is the defendant’s negligent act or omission itself.
(4)As regards the proof required for recovery: In the first proof of
the existence of the contract and of its breach or nonfulfillment is
sufficient prima facie to wa rr ant a recovery; in the second the
negligence of the defendant must be proved.
(5)As regards the availability of due diligence as a defense: In
the first proof of diligence in the selection and supervision of
employees is not available as a defense; in the second it is.
Problem — Taxi driver D, driving recklessly, killed

pedestrian P and his passenger Y. Discuss the source of the
66
obligation of D and of his employer to P and to Y, and the defense

available to the employer. (1977 Bar Problem)
Answer — There are three overlapping sources of the
obligation of D and of his employer. They are:
(1)Under the Revised Penal Code: The heirs of P and Y
may proceed against D and his employer under the Penal Code.
In this case, the source of the liability of D and of his employer is
the crime committed by D (culpa criminal). The liability of D is
direct and primary (Art. 100, RPC); the liability of his employer
is subsidiary (Art. 103, RPC). The latter cannot relieve himself
of liability by proving due diligence of a good father of a family.
This is so because of the very nature of his obligation.
(2) Under the Civil Code:
(a)Heirs of P: The heirs of pedestrian P may proceed
against both D and his employer, or against the latter only. In
this case, the source of the liability of D and his employer is the
quasi-delict (culpa aquiliana) committed by D (Arts. 2176, 2180,
CC). The liability of both is direct and primary. D’s employer
can relieve himself of liability by proving due diligence of a good
father of a family in the selection and supervision of his drivers
(Art. 2180, CC).
(b)Heirs of Y: On the other hand, the heirs of Y may
proceed against D’s employer only. The source of the liability
of D’s employer, in this case, is the breach of his contract of
carriage with Y (culpa contractual). His liability is direct and
primary. He cannot relieve himself of liability by proving due
diligence of a good father of a family (Art. 1759, CC). This is so
because under our law on common carriers, we do not adhere to
the principle of respondeat superior; we adhere to the principle
th at there is always a n implied duty of a common carrier to
carry the passenger safely to his place of destination. However,
although not available as a defense, such proof of due diligence
may serve to mitigate the employer’s liability.
Idem; Negligence distinguished from fraud. — Negligence

or culpa, especially in relation to obligations, signifies a n act or
omission which is voluntary in character by virtue of which another
person suffers damage or injury due to a failure to observe the
diligence which is required by the nature of the obligation and which
must correspond with the circumstances of persons, time and place.
It should be distinguished from fraud or dolo which is the conscious
and intentional proposition to evade the normal fulfillment of the
67
obligation. The distinguishing element, therefore, is the element

of intention. If there is intent to cause damage or injury, there is
dolo; if there is merely abandonment, inattention, carelessness, or
lack of diligence, there is culpa.80 It must be observed, however, that
when negligence shows bad faith the rules on fraud or dolo shall
govern. 8 1 In other words, when the negligent act or omission of the
obligor while performing his obligation is so gross t h a t it amounts
to a wanton attitude on his part, the laws governing the liability
of a n obligor in case of fraud shall then apply. In such a case, the
boundary line between negligence and fraud practically disappears.
Idem; Test of negligence. — The test by which we can
determine the existence of negligence in a particular case may be
stated as follows: Did the defendant in doing the alleged negligent
act use the reasonable care and caution which a n ordinarily prudent
person would have used in the same situation? If not, then he is
guilty of negligence. The law here in effect adopts the standard
supposed to be supplied by the imaginary conduct of the discreet
pater familias of the Roman Law. 8 2
Cangco vs. Manila Railroad Co.

38 Phil. 763
The records show th at plaintiff, who was a passenger in
a train belonging to the defendant company, alighted from the
said train while it was still moving before coming to a complete
stop. In so alighting, he stepped upon a sack of watermelons
and as a result he fell violently on the platform. Because of
the violence of his fall, he rolled from the platform and was
drawn under the moving car, as a result of which his right arm
was badly crashed and lacerated. In this action for damages
commenced by the plaintiff against the defendant company, the
former contends th at the proximate cause of the accident was
the negligence of the latter in allowing the sack of watermelons
to be placed in its platform where passengers may alight, while
the latter contends th at the proximate cause was the negligence
of the former in alighting while the train was still moving.
Granting t h at the defendant company was negligent in allowing
the sack of watermelons to be placed in its platform, was the
80
81
82
Picart vs. Smith, 37 Phil. 809; Cangco vs. Manila Railroad Co., 38 Phil. 768.
68
plaintiff also negligent in alighting from the train while it was

still moving?
Held: “The test by which to determine whether the
passenger has been guilty of negligence in attempting to alight
from a moving railway train, is th at of ordinary or reasonable
care. It is to be considered whether a n ordinarily prudent
person, of the age, sex and condition of the passenger, would
have acted as the passenger acted under the circumstances
disclosed by the evidence. This care h as been defined to be
not the care which may or should be used by the prudent man
generally, but the care which a man of ordinary prudence would
use, under similar circumstances, to avoid injury. (Thompson,
Commentaries on Negligence, Vol. 3, Sec. 2010.) Or, if we prefer
the mode of exposition used by this court in Picart vs. Smith
(37 Phil. Rep. 809), we may say th at the test is this: Was there
anything in the circumstances surrounding the plaintiff a t the
time he alighted from the train which would have admonished
a person of average prudence th at to get off the train under
the conditions then existing was dangerous? If so, the plaintiff
should have desisted from alighting; and his failure to so desist
was contributory negligence.
“As the case now before us presents itself, the only
fact from which a conclusion can be drawn to the effect that
the plaintiff was guilty of contributory negligence is t h at he
stepped off the car without being able to discern clearly the
condition of the platform and while the t rain was yet slowly
moving. In considering the situation th us presented, it should
not be overlooked th at plaintiff was ignorant of the fact of the
obstruction which was caused by the sacks of watermelons
piled on the platform. The place was dark, or dimly lighted.
Furthermore, the plaintiff was possessed of the vigor and agility
of young manhood, and it was by no means so risky for him to get
off while the train was yet moving as the same act would have
been in an aged or feeble person. In determining the question of
contributory negligence in performing such act — t ha t is to say,
whether the passenger acted prudently or recklessly — the age,
sex and physical condition of the passenger are circumstances
necessarily affecting the safety of the passenger, and should
be considered. Women, it has been observed, as a general rule,
are less capable th an men of alighting with safety under such
conditions, as the nature of their wearing apparel obstructs
the free movement of the limbs. Again, it may be noted that
the place was perfectly familiar to the plaintiff as it was his
daily custom to get on and off the train a t this station. There
could, therefore, be no uncertainty in his mind with regard
69
either to the length of the step which he was required to take

or the character of the platform where he was alighting. Our
conclusion is th at the conduct of the plaintiff in undertaking
to alight while the train was yet slightly under way was not
characterized by imprudence and that, therefore, he was not
guilty of contributory negligence.”
Idem; Effects of negligence. — If the debtor or obligor

is unable to comply with his obligation because of his fault or
negligence, the creditor or obligee can hold him liable for damages. 8 3
This liability subsists even if he has been acquitted in a criminal
action charging him with a criminal offense based on his negligent
act or omission.84
It must be observed, however, t h a t Art. 1172 which enunciates
the principle of the demandability of the responsibility of the
obligor in case of negligence is different from Art. 1171 which also
enunciates the same principle in case of fraud in the sense that
in the former, nothing is said with regard to the renunciation or
waiver of the action, while in the latter, it is stated t h a t any waiver
of an action for future fraud is void. Consequently, may a n action
for negligence be waived? There is no question t h a t if the action is
based on a negligent act or omission which has already happened,
the action may be waived since it can also be done in the case of fraud
and negligence is certainly not as serious as fraud. The question is
with respect to a n action for future negligence. Can it be waived?
Authorities agree t h a t it can be waived, unless the nat ure of the
obligation and public policy should require extraordinary diligence
as in the case of common carriers. 8 5 Thus, the Supreme Court in the
case of Heacock vs. Macondray & Co.,86 stated:
“Three kinds of stipulation have often been made in a bill

of lading. The first is one exempting the carrier from any and
all liability for loss or damage occasioned by its own negligence.
The second is one providing for an unqualified limitation of such
liability to an agreed valuation, and the third is one limiting the
83
Art. 1170, Civil Code; Baer, Senior & Co. vs. Compania Maritima, 6 Phil. 215;
Guzman vs. Behn, Meyer & Co., 9 Phil. 112.
84
San Pedro Bus Lines vs. Navarro, 94 Phil. 846; see Art. 31, Civil Code.
85
Art. 1733, Civil Code; see also Arts. 1745, 1749, 1750, Civil Code.
86
42 Phil. 205. This excerpts from Heacock vs. Macondray is now modified by the
provisions of Arts. 1749 to 1750 of the New Civil Code.
70
liability of the carrier to an agreed valuation unless the shipper

declares a higher value and pays a higher rate of freight.
According to an almost uniform weight of authority the first and
second kinds of stipulations are is valid as being contrary to
public policy, but the third is valid and enforceable.”
In the case of Southeastern College, Inc., vs. Court of Appeals,

Juanita de Jesus Vda. De Dimaano, et al., (July 10, 1998, 292
SCRA 422), the Supreme Court observed t h a t a t the outset, it bears
emphasizing t h a t a person claiming damages for the negligence
of another has the burden of proving the existence of fault or
negligence causative of his injury or loss. The facts constitutive of
negligence must be affirmatively established by competent evidence,
not merely by presumptions and conclusions without basis in fact.
Private respondents, in establishing the culpability of petitioner,
merely relied on the aforementioned report submitted by a team
which made a n ocular inspection of petitioner’s school building after
the typhoon. As the term imparts, a n ocular inspection is one that
is conducted by means of actual sight or viewing. What is visual to
the eye though, is not always reflective of the real cause behind.
For instance, one who hears a gunshot and then sees a wounded
person, cannot always definitely conclude t h a t a third person shot
the victim. It could have been self-inflicted or caused accidentally by
a stray bullet. The relationship of cause and effect must be clearly
shown.
Idem; id. — Regulatory power of the courts. — Under Art.
1172, liability arising from negligence in the performance of every
kind of obligation may be regulated by the courts. Consequently,
the court may increase or decrease the liability of the party a t fault
depending upon the circumstances of each case. Thus, the court
may take into consideration the good or bad faith of the obligor
(defendant) or the conduct of the obligee (plaintiff) when the damage
was incurred.
Idem; id.; id. — Effect of good faith. — If the debtor or
obligor has acted in good faith, he shall be liable only for natural
and probable consequences of the breach of the obligation and which
the parties have foreseen or could have reasonably foreseen a t the
time the obligation was constituted. 8 7
87
Art. 2201, par. 1, Civil Code; De Guia vs. Manila Electric Co., 40 Phil.
706.
71
Idem; id.; id. — Effect of bad faith. — If the negligence of

the obligor shows bad faith, then, by express provision of Art. 1173,
the provisions of Arts. 1171 and 2201, par. 2, shall apply. It is in this
case t h a t the boundary line, a t least with regard to effects, between
negligence and fraud disappears altogether. Hence, the obligor
can be held responsible for all damages which may be reasonably
attributed to the nonperformance of the obligation. 8 8 Furthermore,
any waiver or renunciation which is made in anticipation of such
liability is null and void.89
Idem; id.; id. — Effect of contributory negligence. — If
there was contributory negligence of the obligee or creditor, the
effect is to reduce or mitigate the damages which he can recover
from the obligor or debtor as a result of the breach of the obligation.
This doctrine has always been consistently upheld by the Supreme
Court. 9 0 Attention, however, must be called to the fact t h a t if the
negligent act or omission of the obligee concurred with the negligent
act or omission of the obligor in causing the injury complained of,
in other words, if the negligent act or omission of the obligee was
a proximate cause of the event which led to the damage or injury
complained of, he cannot recover. It is, therefore, of the utmost
importance to determine whether the negligence of the obligee or
creditor was a proximate cause of the accident or event which led to
the injury or merely contributory to his own injury. The test is given
in the following case:
Rakes vs. Atlantic Gulf and Pacific Co.

7 Phil. 359
This is a n action to recover damages. The plaintiff, one

of a gang of eight Negro laborers in the employment of the
defendant, was at work transporting rails from a barge in the
harbor to the company’s yard near the Malecon in Manila. The
rails lay upon two crosspieces secured to the cars, but without
sidepieces or guards to prevent them from slipping off. At a
certain spot at or near the water’s edge the track sagged, the tie
88
89
90
Rakes vs. Atlantic, Gulf and Pacific Co., 7 Phil. 359; Cangco vs. Manila Rail-
road Co., 36 Phil. 766; Borromeo vs. Manila Railroad Co., 44 Phil. 165; Del Prado vs.
Manila Electric Co., 52 Phil. 900.
72
broke, the car canted, the rails slid off and caught the plaintiff,
breaking his leg, which was afterwards amputated a t about the
knee. The cause of the sagging of the track is admitted to be the
dislodging of the crosspiece under the stringer by the water of
the bay raised by a recent typhoon. The superintendent of the
company attributed it to the giving way of the block laid in the
sand. No effort was made to repair the injury a t the time of the
occurrence. According to the plaintiff’s witnesses, a depression
of the track was apparent to the eye, and a fellow workman of
the plaintiff swears th at the day before the accident he called the
attention of the foreman to it and asked him to have it repaired.
It is also admitted th at there was a prohibition imposed by the
defendant company against walking by the side of the car and
th at the plaintiff was walking by the side of the car when the
rails slid off. The question now is — what effect is to be given to
such act of contributory negligence?
Held: “Difficulty seems to be apprehended in deciding
which acts of the injured party shall be considered immediate
causes of the accident. The test is simple. Distinction must be
made between the accident and the injury, between the event
itself, without which there could have been no accident, and
those acts of the victim not entering into it, but contributing
to his own proper hurt. For instance, the cause of the accident
under review was the displacement of the crosspiece or the
failure to replace it. This produced the event giving occasion for
damages th at is the sinking of the track and the sliding of the
iron rails. To this event, the act of the plaintiff in walking by
the side of the car did not contribute although it was a n element
of the damage which came to himself. Had the crosspiece been
out of place wholly or partly through his act or omission of duty,
th at would have been one of the determining causes of the
event or accident, for which he would have been responsible.
Where he contributes to the principal occurrence, as one of its
determining factors, he cannot recover. Where, in conjunction
with the occurrence, he contributes only to his own injury, he
may recover the amount th at the defendant responsible for the
event should pay for such injury, less a sum deemed a suitable
equivalent for his own imprudence.
“Accepting, though with some hesitation, the judgment
of the trial court, fixing the damage incurred by the plaintiff
at 5,000 pesos, the equivalent of 2,500 dollars, United States
money, we deduct therefrom 2,500 pesos, the amount fairly
attributed to his negligence, and direct judgment to be entered
in favor of the plaintiff for the resulting sum of 2,500 pesos, with
73
costs to both instances and ten days thereafter let the case be
remanded to the court below for proper action.”
Idem; id.; id. — Other circumstances. — Besides the

circumstances referred to in the preceding sections, the courts may
also equitably mitigate the damages in the following instances:
(1)Where the plaintiff himself has contravened the terms of
the contract;
(2)Where the plaintiff has derived some benefit as a result of
the contract;
(3)In cases where exemplary damages are to be awarded,
where the defendant acted upon the advice of counsel;
(4) Where the loss would have resulted in any event; and
(5)Where upon the filing of the action, the defendant has
done his best to lessen the plaintiff’s loss or injury. 9 1
Voluntary Breach Through Contravention of Tenor
of Obligation. — Under Art. 1170 of the Civil Code, not only
debtors guilty of fraud, negligence or default in the performance
of obligations are decreed liable; in general, every debtor who fails
in the performance of his obligations is bound to indemnify the
creditor for the damages caused thereby. The phrase “in any manner
contravene the tenor” of the obligation includes not only any illicit
act which impairs the strict and faithful fulfillment of the obligation,
but also every kind of defective performance. 9 2
Art. 1174. Except in cases expressly specified by the law,

or when it is otherwise declared by stipulation, or when the
nature of the obligation requires the assumption of risk, no
person shall be responsible for those events which, could not
be foreseen, or which, though foreseen, were inevitable.93
Concept of Fortuitous Event. — According to the above
article, fortuitous event may be defined as a n event which could
not be foreseen, or which, though foreseen, was inevitable. It is
91
92
Arrieta vs. National Rice and Corn Corp., 10 SCRA 79.
93
74
clear from this definition t ha t the presence of either the element

of unforeseability or inevitability would be sufficient to classify
the event as fortuitous in character. Hence, even if the event was
not inevitable if it could not have been foreseen, or even if it could
have been foreseen if it was inevitable, it would be considered as a
fortuitous event. It is evident, therefore, t h a t the definition is broad
enough to comprehend “acts of God” or those which are absolutely
independent of h u m a n intervention, such as rains, typhoons, floods,
cyclones, earthquakes or any other similar calamity brought about
by nat ural forces. It is also broad enough to include force majeure
or events which arise from legitimate or illegitimate acts of persons
other th an the obligor, such as commotions, riots, wars, robbery, and
similar acts.
The antecedent of fortuitous event or caso fortuito is found
in the Partidas which defines it as “an event which takes place by
accident and could not have been foreseen.’’ Escriche elaborates it as
“an unexpected event or act of God which could neither be foreseen
nor resisted.’’ Civilist Arturo M. Tolentino adds t h a t “[f]ortuitous
events may be produced by two general causes: (1) by nature, such as
earthquakes, storms, floods, epidemics, fires, etc. and (2) by the act
of man, such as a n armed invasion, attack by bandits, governmental
prohibitions, robbery, etc.’’ (Southeastern College, Inc. vs. Court of
Appeals, July 10, 1998, 292 SCRA 422.)
Classification. — Fortuitous events may be classified into
fortuitous event proper (act of God) and force majeure (fuerza mayor)
depending upon whether there is hu m a n intervention or not. The
first refers to a n event which is absolutely independent of human
intervention, while the second refers to a n event which arises from
legitimate or illegitimate acts of persons other th an the obligor.94
The distinction, however, is merely technical. Essentially, there is
no substantial difference between the two; both refer to a n event or
cause which is independent of the will of the obligor.95
As to foreseeability, fortuitous events may also be classified into
ordinary and extraordinary fortuitous event. The first refers to an
event which usually happens or which could have been reasonably
foreseen, while the second refers to a n event which does not usually
94
95
University of Santo Tomas vs. Descals, 38 Phil. 267.
75
happen and which could not have been reasonably foreseen, such as
fire, war, pestilence, unusual flood, locust, earthquake, and others of
a similar nature. 9 6
Effect upon Obligation. — If the obligor is unable to comply
with his obligation by reason of a fortuitous event, the general rule
is t h a t he is exempted from any liability whatsoever. 9 7 In other
words, his obligation is extinguished. 9 8
Thus, where the obligor is unable to surrender his revolver to
the government upon demand because it was lost during a storm, 9 9
or to return some photographic negatives t h a t were entrusted to him
by the obligee because of a fire of accidental origin which destroyed
his place of business, 1 0 0 or to deliver certain animals which he had
contracted to give to the obligee a t a specified date because they dies
of natura l causes or were killed during a n epidemic before he could
deliver them to such obligee,101 it was held t h a t since the breach of
the obligation is due to a fortuitous event, it is thereby extinguished;
consequently, he cannot be held liable for damages.
The application of this rule is even more evident in motor ve-
hicle accidents. Thus, where it was established t h a t the defendant’s
bus was bumped by another bus which caused the driver to swerve it
to the left so as to prevent it from falling into a canal and as a result
it struck a tree, which led the bus to skid and capsize, it was held
t h a t since the injury can be attributed or imputed only to a n inevi-
table accident and not the misconduct or negligence of the operator
or of the driver, there can be no possible recovery of damages. 1 0 2 But
where the accident is due to a defect of a n equipment or of a n appli-
ance purchased from a manufacturer, it is clear t h a t such a defect
cannot be considered a fortuitous event within the meaning of the
law. This doctrine is very well illustrated in the case of Necesito vs.
Paras.103 In this case, it was proved t h a t the bus, where one of the
96
97
98
See Arts. 1262, 1266, Civil Code.
99
Government vs. Bingham, 13 Phil. 185 but see Government vs. Amechazurra,
10 Phil. 637.
100
Brown vs. Robert, 40 Phil. 990; Lizares vs. Hernaez, 40 Phil. 981.
101
Palacio vs. Sudario, 7 Phil. 275; Crame vs. Gonzaga, 10 Phil. 646.
102
Ampang vs. Guinco Trans. Co., 92 Phil. 1085.
103
104 Phil. 75.
76
plaintiffs and his mother were riding as passengers, was on its regu-
lar r un when all of a sudden the steering knuckle broke, as a result
of which the driver lost control of the wheel, causing the bus to fall
into a ditch. The aforesaid plaintiff was injured, while his mother
was killed. Subsequently, a n action to recover damages was brought
directly against the operator of the bus. Defendant now claims that
the cause of the accident is a fortuitous event. Refusing to accept
this defense, the Supreme Court declared:
“The preponderance of authority is in favor of the doctrine

t hat a passenger is entitled to recover damages from a carrier
for a n injury resulting from a defect in an appliance purchased
from a manufacturer, whenever it appears t h at the defect would
have been discovered by the carrier if it had exercised the degree
of care which under the circumstances was incumbent upon it
with regard to the inspection and application of the necessary
test. For the purposes of this doctrine, the manufacturer is
considered as being in law the agent or servant of the carrier, as
far as the work of constructing the appliance. According to this
theory, the good repute of the manufacturer will not relieve the
carrier from liability. (10 Am. Jur. 205, s. 1324; and cases cited
therein.) The rationale of the carrier’s liability is the fact t h at the
passenger has neither choice nor control over the carrier in the
selection and use of the equipment and appliances in use by the
carrier. Having no privity whatever with the manufacturer or
vendor of the defective equipment, the passenger has no remedy
against him, while the carrier usually has. It is but logical,
therefore, th at the carrier, while not an insurer of the safety of
his passengers, should nevertheless be held to answer for the
flaws of his equipment if such flaws were a t all discoverable.
“In the case at bar, the record is to the effect t h at the only
test applied to the steering knuckle in question was a purely
visual inspection every 30 days, to see if any crack developed.
It nowhere appears t hat either the manufacturer or the carrier
at anytime tested the steering knuckle to ascertain whether its
strength was up to standard, or th at it had no hidden flaws that
would impair t hat strength. This periodical visual inspection
of the steering knuckle as practised by the carrier’s agents
did not measure up to the required legal st andard of ‘utmost
diligence of very cautious persons’ . . . ‘as far as h u m a n care and
foresight can provide.’ Therefore the knuckle’s failure can not
be considered a fortuitous event th at would exempt the carrier
from responsibility. (Lasam vs. Smith, 46 Phil. 657; Son vs.
Cebu Autobus Co., L-6155, April 30, 1954.)”
77
The above doctrine was also applied in a much more recent

case — the case of La Mallorca vs. De Jesus.104 Although there is
authority to the effect t h a t a tire blowout as a proximate cause for
a motor vehicle accident can be classified as a fortuitous event, 1 0 5
nevertheless, where it was established t h a t the bus involved in the
accident was running quite fast immediately before said accident,
and t h a t the cause of the blowout was a mechanical defect of the
conveyance or of its equipment which could easier have been
discovered if the bus had been subjected to a more thorough or rigid
check-up before its use, it was held t h a t the plea of caso fortuito in
such case cannot be entertained. 1 0 6
In connection with the doctrine enunciated in the above cases,
the following decision penned by Chief Justice Enrique Fernando is
interesting.
Tugade vs. Court of Appeals

85 SCRA 226
There is nothing impressive about this petition seeking

to justify a review of a decision of respondent Court of Appeals
on the ground th at instead of relying on what counsel considers
applicable rulings of respondent Court, the judgment was
based on a case decided by this Tribunal. Moreover, counsel for
petitioner ignored earlier doctrines of this Court consistently
holding t hat a mishap caused by defective brakes could not
be considered as fortuitous in character and t hus called for an
acquittal of the driver if subsequently haled to court. This Court,
nonetheless, was persuaded to give due course to the petition
primarily for clarifying the state of the law and thu s hopefully
avoid any further lurking doubt on the matter. It is quite
evident th at a reversal of the decision sought to be reviewed is
not justified.
The decision of respondent Court, with Justice Juliano
Agrava as ponente, set forth the relevant facts thus: “At
about 9:15 o’clock in the morning of Jan u ar y 4, 1972, Rodolfo
[Rayandayan] was driving a Holden Kingwood car (the [Holden]
car), bearing Plate No. 52-19V (L-Rizal ’71), owned by the Sta.
Ines Mining Corp. and assigned for use of its manager, on Ayala
17 SCRA 23.
104
Rodriguez vs. Red Line Trans. Co., CA, 51 Off. Gaz. 3006.
105
106
La Mallorca vs. De Jesus, 17 SCRA 23.
78
Avenue in Makati, Rizal, going northwards. At the intersection

of Ayala Avenue and Makati Avenue, [Rayandayan] was going
to tu rn left on Makati Avenue but he stopped to wait for the
left-turn signal and because a jeep in front of him was also at
a stop * * *. While in th at stop position, the [Holden] car was
bumped from behind by Blue Car Taxi, bearing Plate No. 55-
71R (TX-QC ’71) and driven by Inocencio [Tugade] causing
damage to the [Holden] car, the repairs of which cost P778.10
* * * [Tugade] was then charged with Reckless Imprudence
Resulting in Damage to Property. He pleaded not guilty and
while admitting t hat the collision was caused by faulty brakes
of his taxicab, sought to exculpate himself with the explanation
th at this fault could not and should not be traced to him. After
trial, the lower court held: ‘[Accordingly], the Court finds
th at accused Inocencio Tugade was guilty beyond reasonable
doubt of the crime of reckless imprudence resulting in damage
to property and hereby sentences him to pay a [fine of one
thousand (P1,000.00) pesos], with subsidiary imprisonment in
case of insolvency in accordance with the provisions of Article
39 of the Revised Penal Code, as amended, to indemnify the Sta.
Ines Mining Corporation in the amount of P778.10 by way of
actual damages; and to pay the costs.’ While [Tugade] admitted
the facts of the case as set out above, he, nevertheless, appealed
from the judgment reiterating th at ‘the malfunctioning of the
brakes at the time of the accident was due to a mechanical
defect which even the exercise of due diligence of a good father of
a family cannot have prevented.’ As the lower court had found:
‘this witness ([Tugade]) testified t hat after the accident, he
admitted t h at his taxicab bumped the car on his front because
the brakes of his vehicle malfunctioned; and t h at the document
** * is the handwritten statement he prepared to this effect.’ ’’
Respondent Court of Appeals, after stating t h a t upon review of
the record, it agreed with the trial court, rendered its decision
affirming in toto the judgment appealed from.
As noted at the outset, petitioner is not entitled to
acquittal. His plea for the reversal of the decision reached by
respondent Court is not impressed with merit. At the most, as
was likewise previously mentioned, the fine imposed could be
reduced.
1.Counsel for petitioner vigorously contends that
respondent Court of Appeals ought not to have applied the
pronouncement in La Mallorca and Pampanga Bus Co. vs.
De Jesus on the ground t hat it was obiter dictum. Th at is not
the case at all. A little more time and attention in the study of
the above decision could have resulted in its correct appraisal.
79
He would have realized then th at respondent Court acted

correctly. This Tribunal passed squarely on the specific issue
raised. The opinion penned by the then Justice, later Chief
Justice Makalintal is categorical: “Petitioner maintains t h a t a
tire blow-out is a fortuitous event and gives rise to no liability
for negligence, citing the rulings of the Court of Appeals in
Rodriguez vs. Red Line Transportation Co., CA-G.R. No. 8136,
December 29, 1954, and People vs. Palapal, CA-G.R. No. 18480,
June 27, 1958. These rulings, however, not only are not binding
on this Court but were based on considerations quite different
from those t hat obtain in the case at bar.’’ The above doctrine is
controlling. The reference to the Court of Appeals decisions is of
no moment. 107 It may be pointed out t hat they were not ignored
in the opinion of Justice Agrava, six of its nine pages being
devoted to distinguishing them. Even without the La Mallorca
ruling then, the decision of respondent Court sought to be
reviewed can stand the test of strict scrutiny. It is this Tribunal,
not respondent Court of Appeals, th at speaks authoritatively.
2. Respondent Court of Appeals really was devoid of
any choice at all. It could not have ruled in any other way on the
legal question raised. This Tribunal having spoken, its duty was
to obey. It is simple as that. There is relevance to this excerpt
from Barrera vs. Barrera:108 “The delicate task of ascertaining
the significance th at attaches to a constitutional or statutory
provision, an executive order, a procedural norm or a municipal
ordinance is committed to the judiciary. It t hus discharges
a role no less crucial th an th at appertaining to the other two
departments in the maintenance of the rule of law. To assure
stability in legal relations and avoid confusion, it has to speak
with one voice. It does so with finality, logically, and
rightly, through the highest judicial organ, this Court. What
it says then should be definitive and authoritative, binding
on those occupying the lower rank s in the judicial hierarchy.
They have
to defer and to submit.”109 The ensuing paragraph of the opinion
in Barrera further emphasizes the point: “Such a thought was
reiterated in an opinion of Justice J.B.L. Reyes and further
107
The cases follow: People vs. Hatton, CA-GR No. 8310-R, Feb. 11, 1953; Peo-
ple vs. Oligan, CA-G.R. No. 05583-CR, Aug. 17, 1967; People vs. Palapal, CA-G.R.
No. 18480-Cr., J un e 27, 1958; People vs. Bandonil, CA-G.R. No. 25513-R, May 25,
1959; People vs. Aralar, CA-GR No. 01451-Cr., November 29, 1963; and People vs.
Buenaventura, CA-G.R. No. 00626-Cr., April 30, 1964.
108
L-31589, July 31, 1970, 34 SCRA 98.
109
Ibid., 107. The opinion of Justice Laurel in People vs. Vera, 65 Phil. 56 (1937)
was cited.
80
emphasized in these words: ‘Judge Gaudencio Cloribel need not

be reminded th at the Supreme Court, by tradition and in our
system of judicial administration, has the last word on what the
law is; it is the final arbiter of any justifiable controversy. There
is only one Supreme Court whose decisions all other courts
should take their bearings.’ ’’110
3. The lack of merit in this petition becomes even more
obvious when it is recalled t hat the La Mallorca decision did not
enunciate a new principle. As far back as Lasam vs. Smith,111
promulgated more th an half a century ago, in 1924 to be exact,
this Court has been committed to such a doctrine. Thus: “As
will be seen, these authorities agree th at some extraordinary
circumstance independent of the will of the obligor, or of his
employees, is an essential element of a caso fortuito. Turning
to the present case, it is at once apparent t ha t this element is
lacking. It is not suggested t hat the accident in question was
due to an act of God or to adverse road conditions which could
not have been foreseen. As far as the record shows, the accident
was caused either by defects in the automobile or else through
the negligence of its driver. That is not a caso fortuito.’’112 Lasam
was cited with approval in the two subsequent cases of Son vs.
Cebu Autobus Co.113 and Necesito vs. Paras.114
WHEREFORE, The decision of respondent Court of
Appeals of December 15, 1977 is affirmed. No costs.
The following decision penned by Justice Gutierrez, Jr. is
equally interesting:
Juntilla vs.
Fontanar 136 SCRA
625
This is a petition for review, on questions of law, of the
decision of the Court of First Instance of Cebu which reversed
the decision of the City Court of Cebu and exonerated the
respondents from any liability arising from a vehicular accident.
The background facts which led to the filing of a complaint
for breach of contract and damages against the respondents are
summarized by the Court of First Instance of Cebu as follows:
110
Ibid., Justice J.B.L. Reyes spoke thus in Albert vs. Court of First Instance of
Manila (Br. VI), L-26364, May 29, 1968, 23 SCRA 948, 961.
111
45 Phil. 657.
112
Ibid., 661-662.
113
94 Phil. 892 (1954).
114
104 Phil. 75 (1958).
81
“The facts established after trial show t ha t the plaintiff

was a passenger of the public utility jeepney bearing plate No.
PUJ-71-7 on the course of the trip from Danao City to Cebu City.
The jeepney was driven by defendant Berfol Camoro. It was
registered under the franchise of defendant Clemente Fontanar
but was actually owned by defendant Fernando Banzon. When
the jeepney reached Mandaue City, the right rear tire exploded
causing the vehicle to tu rn turtle. In the process, the plaintiff
who was sitting at the front seat was thrown out of the vehicle.
Upon landing on the ground, the plaintiff momentarily lost
consciousness. When he came to his senses, he found t h at he
had a lacerated wound on his right palm. Aside from this, he
suffered injuries on his left arm, right thigh and on his back.
(Exh. “D”) Because of his shock and injuries, he went back to
Danao City but on the way, he discovered t ha t his ‘Omega’ wrist
watch was lost. Upon his arrival in Danao City, he immediately
entered the Danao City Hospital to attend to his injuries, and
also requested his father-in-law to proceed immediately to the
place of the accident and look for the watch. In spite of the
efforts of his father-in-law, the wrist watch, which he bought for
P852.70 (Exh. “B’’) could no longer be found.’’
xxx xxx xxx
Petitioner Roberto Juntilla filed Civil Case No. R-17378
for breach of contract with damages before the City Court of
Cebu City, Branch I against Clemente Fontanar, Fernando
Banzon and Berfol Camoro.
The respondents filed their answer, alleging inter alia
th at the accident th at caused losses to the petitioner was beyond
the control of the respondents taking into account t ha t the tire
th at exploded was newly bought and was only slightly used at
the time it blewout.
After trial, Judge Romulo R. Senining the City Court of
Cebu rendered judgment in favor of the petitioner and against
the respondents. The dispositive portion of the decision reads:
“WHEREFORE, judgment is hereby rendered in
favor of the plaintiff and against the defendants and the
latter are hereby ordered, jointly and severally, to pay
the plaintiff the sum of P750.00 as reimbursement for the
lost Omega wrist watch, the su m of P246.64 as unrealized
salary of the plaintiff from his employer, the further sum
of P100.00 for the doctor’s fees and medicine, a n additional
su m of P300.00 for attorney’s fees and the costs.”
82
The respondents appealed to the Court of First Instance of

Cebu Branch XIV.
Judge Leonardo B. Cañares reversed the judgment of the
City Court of Cebu upon finding th at the accident in question
was due to a fortuitous event. The dispositive portion of the
decision reads:
“WHEREFORE, judgment is hereby rendered exonerating
the defendants from any liability to the plaintiff without
pronouncement as to costs.”
A motion for reconsideration was denied by the Court of
First Instance.
The petitioner raises the following alleged errors
committed by the Court of First Instance of Cebu on appeal —
“a. The Honorable Court below committed grave
abuse of discretion in failing to take cognizance of the fact
th at defendants and/or their employee failed to exercise
‘utmost and/or extraordinary diligence’ required of common
carriers contemplated under Art. 1755 of the Civil Code of the
Philippines.
“b. The Honorable Court below committed grave abuse
of discretion by deciding the case contrary to the doctrine laid
down by the Honorable Supreme Court in the case of Necesito,
et al. vs. Paras, et al.’’
We find the petition impressed with merit.
The City Court and the Court of First Instance of Cebu
found t hat the right rear tire of the passenger jeepney in which
the petitioner was riding blewout causing the vehicle to fall on its
side. The petitioner questions the conclusion of the respondent
court drawn from this finding of fact.
The Court of First Instance of Cebu erred when it absolved
the carrier from any liability upon a finding t h a t the tire blowout
is a fortuitous event. The Court of First Instance of Cebu ruled
that:
“After reviewing the records of the case, this Court
finds th at the accident in question was due to a fortuitous
event. A tire blowout, such as what happened in the case
at bar, is an inevitable accident th at exempts the carrier
from liability, there being absence of a showing t h at there
was misconduct or negligence on the part of the operator
in the operation and maintenance of the vehicle involved.
83
The fact th at the right rear tire exploded, despite being

brand new, constitutes a clear case of caso fortuito which
can be a proper basis for exonerating the defendants from
liability. x x x’’
The Court of First Instance relied on the ruling of the
Court of Appeals in Rodriguez vs. Red Line Transportation
Co., CA-G.R. No. 8136, December 29, 1954, where the Court of
Appeals ruled that:
“A tire blowout does not constitute negligence unless

the tire was already old and should not have been used at
all. Indeed, this would be a clear case of fortuitous event.’’
The foregoing conclusions of the Court of First Instance
of Cebu are based on a misapprehension of overall facts from
which a conclusion should be drawn. The reliance of the Court
of First Instance on the Rodriguez case is not in order. In La
Mallorca and Pampanga Bus Co. vs. De Jesus, et al. (17 SCRA
23), we held that:
“Petitioner maintains t hat a tire blowout is a

fortuitous event and gives rise to no liability for negligence,
citing the rulings of the Court of Appeals in Rodriguez vs.
Red Line Transportation Co., CA-G.R. No. 8136, Decembr
29, 1954, and People vs. Palapad, CA-G.R. No. 18480,
June 27, 1958. These rulings, however, not only are not
binding on this Court but were based on considerations
quite different from those obtained in the case a t bar. The
appellate court there made no findings of any specific acts
of negligence on the part of the defendants and confined
itself to the question of whether or not a tire blowout by
itself alone and without a showing as to the causative
factors would generate liability. x x x’’
In the case at bar, there are specific acts of negligence on
the part of the respondents. The records show t h at the passenger
jeepney turned turtle and jumped into a ditch immediately
after its right rear tire exploded. The evidence shows t h at the
passenger jeepney was running at a very fast speed before the
accident. We agree with the observation of the petitioner t h a t a
public utility jeep running at a regular and safe speed will not
jump into a ditch when its right rear tire blows up. There is also
evidence to show t hat the passenger jeepney was overloaded
at the time of the accident. The petitioner stated t h a t there
were three (3) passengers in the front seat and fourteen (14)
passengers in the rear.
84
While it may be true th at the tire t h at blewout was still

good because the grooves of the tire were still visible, this fact
alone does not make the explosion of the tire a fortuitous event.
No evidence was presented to show t hat the accident was due to
adverse road conditions or t hat precautions were taken by the
jeepney driver to compensate for any conditions liable to cause
accidents. The sudden blowing out, therefore, could have been
caused by too much air pressure injected into the tire coupled
by the fact th at the jeepney was overloaded and speeding a t the
time of the accident.
In Lasam vs. Smith (45 Phil. 657), we laid down the
following essential characteristics of caso fortuito:
xxx xxx xxx
x x x ‘In a legal sense and, consequently, also in
relation to contracts, a caso fortuito presents the following
essential characteristics: (1) The cause of the unforeseen
and unexpected occurrence, or of the failure of the debtor
to comply with his obligation, must be independent of the
h u man will; (2) It must be impossible to foresee the event
which constitutes the caso fortuito, or if it can be foreseen,
it must be impossible to avoid; (3) The occurrence must be
such as to render it impossible for the debtor to fulfill his
obligation in a normal manner; and (4) The obligor (debtor)
must be free from any participation in the aggravation
of the injury resulting to the creditor.’ (5 Encyclopedia
Juridica Española, 309.)’’
In the case at bar, the cause of the unforeseen and
unexpected occurrence was not independent of the h u m a n will.
The accident was caused either through the negligence of the
driver or because of mechanical defects in the tire. Common
carriers should teach their drivers not to overload their vehicles,
not to exceed safe and legal speed limits, and to know the
correct measures to take when a tire blows out t hus insuring
the safety of passengers at all times. Relative to the contingency
of mechanical defects, we held in Necesito, et al. vs. Paras, et al.
(102 Phil. 75), that:
“x x x The preponderance of authority is in favor of
the doctrine that a passenger is entitled to recover damages
from a carrier for a n injury resulting from a defect in an
appliance purchased from a manufacturer, whenever it
appears t hat the defect would have been discovered by the
carrier if it had exercised the degree of care which under
the circumstances was incumbent upon it, with regard to
85
inspection and application of the necessary tests. For the

purposes of this doctrine, the manufacturer is considered
as being in law the agent or servant of the carrier, as far as
regards the work of constructing the appliance. According
to this theory, the good repute of the manufacturer will
not relieve the carrier from liability.’ (10 Am. Jur. 205, s.
1324; see also Pennsylvania R. Co. vs. Roy, 102 U.S. 451;
20 L. Ed. 141; Southern R. Co. vs. Hussey, 74 ALR 1172,
42 Fed. 2d 70; and Ed. Note, 29 ALR 788; Ann. Cas. 1916E
929)
The rationale of the carrier’s liability is the fact t h a t the
passenger has neither choice nor control over the carrier in the
selection and use of the equipment and appliances in use by the
carrier. Having no privity whatever with the manufacturer or
vendor of the defective equipment, the passenger has no rem-
edy against him, while the carrier usually has. It is but logical,
therefore, t hat the carrier, while not a n insurer of the safety of
his passengers, should nevertheless be held to answer for the
flaws of his equipment if such flaws were at all discoverable.
x x x”
It is sufficient to reiterate th at the source of a common
carrier’s legal liability is the contract of carriage, and by entering
into the said contract, it binds itself to carry the passengers
safely as far as h u man care and foresight can provide, using the
utmost diligence of a very cautious person, with a due regard for
all the circumstances. The records show t h at this obligation was
not met by the respondents.
The respondents likewise argue t hat the petitioner cannot
recover any amount for failure to prove such damages during
the trial. The respondents submit th at if the petitioner was
really injured, why was he treated in Danao City and not in
Mandaue City where the accident took place. The respondents
argue th at the doctor who issued the medical certificate was not
presented during the trial, and hence not cross-examined. The
respondents also claim th at the petitioner was not wearing any
wrist watch during the accident.
It should be noted t hat the City Court of Cebu found that
the petitioner had a lacerated wound on his right palm aside
from injuries on his left arm, right thigh and on his back and
th at on his way back to Danao City, he discovered t h at his
“Omega” wrist watch was lost. These are findings of facts of the
City Court of Cebu which we find no reason to disturb. More
so when we consider the fact t hat the Court of First Instance
86
of Cebu impliedly concurred in these matters when it confined

itself to the question of whether or not the tire blowout was a
fortuitous event.
WHEREFORE, the decision of the Court of First Instance
of Cebu, Branch IV appealed from is hereby REVERSED and
SET ASIDE, and the decision of the City Court of Cebu, Branch
I is REINSTATED, with the modification t h at the damages
shall earn interest at 12% per an nu m and the attorney’s fees
are increased to SIX HUNDRED PESOS (P600.00). Damages
shall earn interest from Janu ary 27, 1975.
SO ORDERED.
Further, in the case of Southeastern College, Inc. vs. Court of

Appeals (July 10, 1998, 292 SCRA 422), the Supreme Court ruled
t ha t in order t h a t a fortuitous event may exempt a person from
liability, it is necessary t h a t he be free from any previous negligence
or misconduct by reason of which the loss may have been occasioned.
An act of God cannot be invoked for the protection of a person who
has been guilty of gross negligence in not trying to forestall its
possible adverse consequences. When a person’s negligence concurs
with a n act of God in producing damage or injury to another, such
person is not exempt from liability by showing t h a t the immediate
or proximate cause of the damage or injury was a fortuitous event.
When the effect is found to be partly the result of the participation of
m a n — whether it be from active intervention, or neglect, or failure
to act — the whole occurrence is hereby humanized, and removed
from the rules applicable to acts of God.
Moreover, in the aforementioned case of Southeastern College,
Inc. vs. Court of Appeals, the Supreme Court also ruled t h a t there is
no question t h a t a typhoon or storm is a fortuitous event, a natural
occurrence which may be foreseen but is unavoidable despite any
amount of foresight, diligence or care. In order to be exempt from
liability arising from any adverse consequence engendered thereby,
there should have been no h u m a n participation amounting to a
negligent act. In other words, the person seeking exoneration from
liability must not be guilty of negligence. Negligence, as commonly
understood, is conduct which naturally or reasonably creates undue
risk or h a r m to others. It may be the failure to observe t h a t degree
of care, precaution, and vigilance which the circumstances justly
demand, or the omission to do something which a prudent and
87
reasonable man, guided by considerations which ordinarily regulate

the conduct of h u m an affairs, would do.
It must be observed, however, t h a t the general rule stated
in Art. 1174 can be applied only to determinate obligations and
not to generic ones. Consequently, where the obligation consists
115
in the payment of money, or in the delivery of any generic or

116
indeterminate thing, such as several cavans of rice or several 117
piculs of sugar or several tons of copra, the fact t h a t the obligor

118 119
was unable to comply with his obligation by reason of a fortuitous

event will not constitute a valid defense; he can still be held liable.
Idem; Essential conditions. — There are several essential
conditions which must concur in order t ha t the general rule stated
in Art. 1174 can be applied. These conditions are: first, t h a t the event
must be independent of the will of the obligor; second, t h a t the event
must be either unforeseeable or inevitable; third, that the event must
be of such a character as to render it impossible for the obligor to
fulfill his obligation in a normal manner; and fourth, t ha t the obligor
must be free from any participation in the aggravation of the injury
resulting to the obligee or creditor. 1 2 0 In other words, there must
be a n entire exclusion of h u m a n agency from the cause of injury or
loss (Virginia Real vs. Sisenando H. Belo, G.R. No.146224, Jan. 26,
2007). In the Virginia Real vs. Sisenando case, the Court held that
it is established by evidence t h a t the fire originated from leaking
fumes from the LPG stove and tank installed a t petitioner’s fastfood
stall and her employees failed to prevent the fire from spreading
and destroying the other fastfood stalls. Such circumstances do not
support the petitioner’s theory of fortuitous event.
Hence, if the negligence of the obligor or debtor concurred
with the fortuitous event in bringing about the injury complained
of, the obligation is not extinguished. In other words, if the loss or
destruction of the object of the obligation was caused by a n act of
See supra.
115
Reyes vs. Caltex, 47 Off. Gaz. 1193; Philippine Long Distance Co. vs. Jeturian,
116
97 Phil. 781.
117
118
Yu Tek Co. vs. Gonzales, 29 Phil. 384; Lacson vs. Diaz, 47 Off. Gaz. 337.
119
Bunje Corp. vs. Elena Camenforte & Co., 48 Off. Gaz. 3377.
120
5 Encyclopedia Juridica Española, 309 cited in L asam vs. Smith, 45 Phil.
990.
88
God, with the negligence of the obligor or debtor mingling with it

as a n active and cooperative cause, such obligor or debtor is still
responsible. In order to relieve such obligor or debtor of any liability,
the act of God or fortuitous event must not only be the proximate
cause of the loss or destruction, but the better opinion is t h a t it
must be the sole cause. This doctrine, which is well established in
American law, was enunciated by the Supreme Court in the cases of
Tan Chiong Sian vs. Inchausti & Co.121 and Limpangco vs. Yangco
Steamship Co.122 and the latest of which is in Nakpil & Sons, et al.
vs. CA, et al., (144 SCRA 596). Thus, in the Tan Chiong case, the
Supreme Court declared:
“An act of God cannot be urged for the protection of a

person who has been guilty of gross negligence in not trying
to avert its result. One who h as accepted responsibility to pay
cannot weakly fold his h and and say he was prevented from
meeting th at responsibility by a n act of God when the exercise
or ordinary care and prudence would have averted the results
flowing from the act. One who has placed the property of another,
entrusted to his care, in a n unseaworthy craft, upon dangerous
waters, cannot absolve himself by crying ‘an act of God’ when
every effect which a typhoon produced upon t ha t property could
have been avoided by the exercise of common care and prudence.
When the negligence of the carrier concurs with a n act of God
in producing a loss, the carrier is not exempted from liability by
showing th at the immediate cause of the damage was the act
of God; or, as it has been expressed, ‘when the loss is caused by
the act of God, if the negligence of the carrier mingles with it as
an active and cooperative cause, he is still liable.’ The loss and
damage to perishable articles in consequence of the weather will
not excuse the carrier if it could have been prevented by due
care and diligence. The carrier must not only show t h at it did all
th at was usual, but all t hat was necessary to be done under the
circumstances. To be exempt from liability for loss because of an
act of God, the common carrier must be free from any previous
negligence or misconduct by which the loss or damage may have
been occasioned. For, although the immediate or proximate
cause of a loss in any given instance may have been what is
termed a n act of God, yet if the carrier unnecessarily exposed
the property to such accident by a culpable act or omission of his
own he is not excused. In the case of Wolf vs. American Express
121
32 Phil. 152.
122
34 Phil. 597.
89
Co., 43 Mo., 421, Wagner, J., said: ‘The act of God which excuses
the carrier must not only be the proximate cause of the loss; the
better opinion is t hat it must be the sole cause. And where the
carrier mingles with it as an active and cooperative cause, he is
still responsible.’ (Ames vs. Stevens, 1 Stra., 128.)”
Austria vs. Court of Appeals

39 SCRA 527
Defendant received from plaintiff a pendant with dia-

monds to be sold on commission basis or to be returned on de-
mand. In the evening of Feb. 1, 1961, while walking home, two
men snatched her purse containing the pendant. Subsequently,
the snatchers were apprehended and charged. During the pen-
dency of the criminal case, plaintiff brought a n action against
defendant for recovery of the pendant or of its value and dam-
ages. The latter interposed the defense of fortuitous event, but
the former contended: (a) t hat the defense is untenable because
there was negligence on the part of the defendant; and (b) that
if the defense is tenable, nevertheless, there must be a prior
conviction for robbery before it can be availed of.
Held: Defendant is not liable. To constitute a caso fortuito
t hat would exempt a person from responsibility, it is
necessary
(1) th at the event must be independent of the will of the debtor;
(2)t hat it must be either unforeseeable or unavoidable; (3) that
the occurrence must render it impossible for the debtor to fulfill
the obligation in a normal manner; and (4) t h at the debtor must
be free of participation in, or aggravation of, the injury to the
creditor.
All of the above requisites or conditions are present in
this case. It is undeniable th at in order to completely exonerate
the debtor by reason of a fortuitous event, such debtor must,
in addition to the casus itself, be free of any concurrent or
contributory fault or negligence. We believe, however, that
her act in traveling alone in the evening, carrying jewelry of
considerable value, cannot be considered as either concurrent or
contributory negligence. While it may be so considered now, we
are not persuaded th at the same rule should obtain ten years
previously when the robbery in question took place, for a t that
time criminality h ad not by far reached the levels attained in
the present day.
There is likewise no merit in the contention t h at to allow
the fact of robbery to be recognized in this case before conviction
90
is secured in the criminal action would prejudice the latter case,

or would result in inconsistency should the accused obtain an
acquittal or should the criminal case be dismissed. It must be
realized th at a court finding th at a robbery has happened would
not necessarily mean t hat those accused in the criminal action
would be found guilty of the crime; nor would a ruling t ha t those
actually accused did not commit the robbery be inconsistent
with a finding t hat a robbery did take place. The evidence to
establish these facts would not necessarily be the same.
Vasquez vs. Court of Appeals

138 SCRA 553
Plaintiffs Pedro Vasquez and Soledad Ortega are the

parents of Alfonso Vasquez; plaintiffs Cleto Bagaipo and
Agustina Virtudes are the parents of Filipinas Bagaipo; and
plaintiffs Romeo Vasquez and Maximina Cainay are the parents
of the child, Mario Marlon Vasquez. They seek the recovery of
damages due to the loss of Alfonso Vasquez, Filipinas Bagaipo
and Mario Marlon Vasquez during said voyage.
At the pre-trial, the defendant admitted its contract of
carriage with Alfonso Vasquez, Filipinas Bagaipo and Mario
Marlon Vasquez, and the fact of the sinking of the MV ‘Pioneer
Cebu.’ The issues of the case were limited to the defenses alleged
by the defendant t hat the sinking of the vessel was caused
by force majeure, and th at the defendant’s liability had been
extinguished by the total loss of the vessel.
The evidence on record as to the circumstances of the last
voyage of the MV ‘Pioneer Cebu’ came mainly, if not exclusively,
from the defendant. The MV ‘Pioneer Cebu’ was owned and
operated by the defendant and used in the transportation of
goods and passengers in the inter-island shipping. Scheduled to
leave the Port of Manila at 9:00 p.m. on May 14, 1966, it actually
left port at 5:00 a.m. the following day, May 15, 1966. It ha d a
passenger capacity of three hundred twenty-two (322) including
the crew. It undertook the said voyage on a special permit issued
by the Collector of Customs inasmuch as, upon inspection, it was
found to be without an emergency electrical power system. The
special permit authorized the vessel to carry only two hundred
sixty (260) passengers due to the said deficiency and for lack
of safety devices for 322 passengers (Exh. 2). A headcount was
made of the passengers on board, resulting on the tallying of 168
adults and 20 minors, although the passengers manifest only
listed 106 passengers. It has been admitted, however, t h at the
91
headcount is not reliable inasmuch as it was only done by one

man on board the vessel.
When the vessel left Manila, its officers were already
aware of the typhoon Klaring building up somewhere in
Mindanao. There being no typhoon signals on the route from
Manila to Cebu, and the vessel having been cleared by the
Customs authorities, the MV ‘Pioneer Cebu’ left on its voyage
to Cebu despite the typhoon. When it reached Romblon island,
it was decided not to seek shelter thereat, inasmuch as the
weather condition was still good. After passing Romblon and
while near Jintotolo island, the barometer still indicated the
existence of good weather condition and this continued until the
vessel approached Tanguingui island. Upon passing the latter
island, however, the weather suddenly changed and heavy
rains fell. Fearing t hat due to zero visibility, the vessel might
hit the Chocolate island group, the captain ordered a reversal
of the course so th at the vessel could ‘weather out’ the typhoon
by facing the winds and the waves in the open. Unfortunately,
at about noontime on May 16, 1966, the vessel struck a reef
near Malapascua Island, sustained leaks and eventually sunk,
bringing with her Captain Flor Yap who was in command of the
vessel.’’
Due to the loss of their children, petitioners sued for
damages before the Court of First Instance of Manila (Civil Case
No. 67139). Respondent defended on the plea of force majeure,
and the extinction of its liability by the actual total loss of the
vessel.
After proper proceedings the Trial Court awarded
damages, thus:
WHEREFORE, judgment is hereby rendered order-
ing the defendant to pay:
(a)Plaintiffs Pedro Vasquez and Soledad Ortega the
sums of P15,000.00 for the loss of earning capacity of the
deceased Alfonso Vasquez; P2,100.00 for support; and
P10,000.00 for moral damages;
(b)Plaintiffs Cleto B. Bagaipo and Agustina
Virtudes the sum of P17,000.00 for loss of earning capacity
of deceased Filipinas Bagaipo; and P10,000.00 for moral
damages; and
(c)Plaintiffs Romeo Vasquez and Maximina
Cainay the sum of P10,000.00 by way of moral damages
by reason of the death of Mario Marlon Vasquez.
92
On appeal, respondent Court reversed the aforementioned

judgment and absolved private respondent from any and all
liability.
Hence, this Petition for Review on Certiorari, the basic
issue being the liability for damages of private respondent for
the presumptive death of petitioners’ children.
The Trial Court found the defense of caso
fortuito
untenable due to various decisive factors, thus:
“x x x It is an admitted fact t h at even before the

vessel left on its last voyage, its officers and crew were
already aware of the typhoon brewing somewhere in the
same general direction to which the vessel was going. The
crew of the vessel took a calculated risk when it proceeded
despite the typhoon advisory. This is quite evident from
the fact t hat the officers of the vessel had to conduct
conferences amongst themselves to decide whether or not
to proceed. The crew assumed a greater risk when, instead
of seeking shelter in Romblon and other islands the vessel
passed enroute, they decided to take a chance on the
expected continuation of the good weather the vessel was
encountering, and the possibility th at the typhoon would
veer to some other directions. The eagerness of the crew
of the vessel to proceed on its voyage and to arrive a t its
destination is readily understandable. It is undeniably
lamentable, however, t hat they did so a t the risk of the
lives of the passengers on board.’’
Contrariwise, respondent Appellate Court believed that
the calamity was caused solely and proximately by fortuitous
event which not even extraordinary diligence of the highest
degree could have guarded against; and t ha t there was no
negligence on the part of the common carrier in the discharge of
its duties.
Upon the evidence and the applicable law, we sustain the
Trial Court. “To constitute a caso fortuito t ha t would exempt
a person from responsibility, it is necessary that: (1) the event
must be independent of the h u man will; (2) the occurrence
must render it impossible for the debtor to fulfill the obligation
in a normal manner; and th at (3) the obligor must be free of
participation in, or aggravation of, the injury to the creditor.’’123
SCRA 527 (1971).

123
Lasam vs. Smith, 45 Phil. 657, 661 (1924); Austria vs. Court
of Appeals, 39
93
In the language of the law, the event must have been impossible
to foresee, or if it could be foreseen, must have been impossible
to avoid.124 There must be an entire exclusion of h u m a n agency
from the cause of injury or loss.125
Turning to this case, before they sailed from the port of
Manila, the officers and crew were aware of typhoon “Klaring’’
th at was reported building up at 260 kms. east of Surigao. In
fact, they had lashed all the cargo in the hold before sailing in
anticipation of strong winds and rough waters. 1 2 6 They proceeded
on their way, as did other vessels th at day. Upon reaching
Romblon, they received the weather report t h at the typhoon
was 154 kms. east southeast of Tacloban and was moving west
northwest. 1 2 7 Since they were still not within the radius of
the typhoon and the weather was clear, they deliberated and
decided to proceed with the course. At Jintotolo Island, the
typhoon was already reported to be reaching the mainland of
Samar. 1 2 8 They still decided to proceed noting t ha t the weather
was still “good’’ although, according to the Chief Forecaster of
the Weather Bureau, they were already within the typhoon
zone.129 At Tanguingui Island, about 2:00 A.M. of May 16, 1966,
the typhoon was in a n area quite close to Catbalogan, placing
Tanguingui also within the typhoon zone. Despite knowledge of
th at fact, they again decided to proceed relying on the forecast
th at the typhoon would weaken upon crossing the mainland
of Samar. 1 3 0 After about half a n hour of navigation towards
Chocolate Island, there was a sudden fall of the barometer
accompanied by heavy downpour, big waves, and zero visibility.
The Captain of the vessel decided to reverse course and face the
waves in the open sea but because the visibility did not improve
they were in total darkness and, as a consequence, the vessel
ra n aground a reef and san k on May 16, 1966 around 12:45 P.M.
near Malapascua island somewhere north of the island of Cebu.
Under the circumstances, while, indeed, the typhoon was
a n inevitable occurrence, yet, having been kept posted on the
course of the typhoon by weather bulletins a t intervals of six
hours, the captain and crew were well aware of the risk they
Art. 1174, Civil Code; L asam vs. Smith, 45 Phil. 657

124
(1924). Tolentino, Commentaries on the Civil Code, Vol. V,

125
p. 252. 126
T.s.n, August 8, 1967, p. 22.
127
Domestic Bulletin No. 16 of the Weather Bureau.
128
Domestic Bulletin, No. 17.
129
T.s.n., December 15, 1967, p. 21.
130
Domestic Bulletin, No. 18.
94
were taking as they hopped from island to island from Romblon

up to Tanguingui. They held frequent conferences, and oblivious
of the utmost diligence required of very cautious persons,131
they decided to take a calculated risk. In so doing, they failed to
observe th at extraordinary diligence required of them explicitly
by law for the safety of the passengers transported by them with
due regard for all circumstances 1 3 2 and unnecessarily exposed
the vessel and passengers to the tragic mishap. They failed to
overcome th at presumption of fault or negligence t ha t arises in
case of death or injuries to passengers. 1 3 3
While the Board of Marine Inquiry, which investigated
the disaster, exonerated the captain from any negligence, it was
because it had considered the question of negligence as “moot
and academic,” the captain having “lived up to the true tradition
of the profession.” While we are bound by the Board’s factual
findings, we disagree with its conclusion since it obviously had
not taken into account the legal responsibility of a common
carrier towards the safety of the passengers involved.
With respect to private respondent’s submission t h a t the
total loss of the vessel extinguished its liability pursuant to
Article 587 of the Code of Commerce134 as construed in Yangco
vs. Laserna, 73 Phil. 330 (1941), suffice it to state t h a t even in
the cited case, it was held t h at the liability of a shipowner is
limited to the value of the vessel or to the insurance thereon.
Despite the total loss of the vessel therefore, its insurance
answers for the damages th at a shipowner or agent may be held
liable for by reason of the death of its passengers.
WHEREFORE, the appealed judgment is hereby
REVERSED and the judgment of the then Court of First
Instance of Manila, Branch V, in Civil Case No. 67139, is hereby
reinstated. No costs.
SO ORDERED.
131
132
Art. 1733, Ibid.
133
Art. 1756, Ibid.
134
“Art. 587. The ship agent shall also be civilly liable for the indemnities in fa-
vor of third persons which may arise from the conduct of the captain in the vigilance
over the goods which the vessel carried; but he may exempt himself therefrom by
abandoning the vessel with all he r equipments and the freight he may have earned
during the voyage.’’
95
Idem; Exceptions. — There are, however, exceptions to the

rule t ha t the obligor or debtor cannot be held liable in case of his
inability to comply with his obligation by reason of a fortuitous
event. They are: first, where such liability is expressly specified by
law; second, where it is declared by stipulation of the parties; and
third, where the nat ure of the obligation requires the assumption of
risk. 1 3 5
The first exception may be illustrated by provisions of the Civil
Code, such as those found in Arts. 552, par. 2, 1165, par. 3, 1268,
1942, 1979, 2147, 2148, and 2159.
Assumption of risk, on the other hand, ordinarily requires
knowledge and appreciation of the risk and a voluntary choice
to encounter it. As applied to obligations, it refers to a situation
in which the obligor or debtor, with full knowledge of the risk
voluntarily enters into some relation with the obligee or creditor.
It is based on the doctrine of volenti non fit injuria — no wrong
is done to one who consents. 1 3 6 Hence, if the obligor enters into
a n obligation which by its very nature involves the assumption
of risks, he shall be liable to the obligee for breach even in case of
fortuitous events. This is illustrated by obligations arising from
insurance contracts and workmen’s compensation acts. To a certain
extent, it is also illustrated by obligations of common carriers. 1 3 7 The
liability of a common carrier which is for public service, however,
should be limited to those risks which are typical of the business;
it cannot extend to those which are not typical, such as lightning or
earthquake causing injury to a passenger. 1 3 8
Problem — A received from X a pendant with diamonds

valued at P4,500 to be sold on commission basis or to be re-
turned on demand. In the evening of Feb. 1, 1961, while walking
home to her residence, two men snatched her purse containing
the pendant and ra n away. Subsequently, the snatchers were
apprehended and charged. During the pendency of the criminal
case, X brought a n action against A for recovery of the pendant
or of its value and damages. The latter interposed the defense
135
136
Prosser on Torts, pp. 377-378.
137
138
4 Tolentino, Civil Code, 1956 Ed., p. 123.
96
of fortuitous event, but the former contends: (a) t h at the defense

of fortuitous event is untenable because there was negligence on
the part of the defendant; and (b) th at if the defense is tenable,
nevertheless, there must be a prior conviction for robbery before
it can be availed of. Decide the case.
Answer — The factual setting of the above problem is
identical to th at of Austria vs. CA 39 SCRA 527. In t h a t case,
the Supreme Court held th at defendant is not liable.
To constitute a caso fortuito t hat would exempt a person
from responsibility, it is necessary: (1) t h at the event must
be independent of the will of the debtor; (2) t ha t it must be
either unforeseeable or unavoidable; (3) t ha t the occurrence
must render it impossible for the debtor to fulfill the obligation
in a normal manner; and (4) th at the debtor must be free of
participation in, or aggravation of the injury to the creditor.
All of the above requisites or conditions are present in
this case. It is undeniable th at in order to completely exonerate
the debtor by reason of a fortuitous event, such debtor must,
in addition to the casus itself, be free of any concurrent or
contributory fault or negligence. We believe, however, that
her act in travelling alone in the evening, carrying jewelry of
considerable value, cannot be considered as either concurrent or
contributory negligence. While it may be so considered now, we
are not persuaded th at the same rule should obtain ten years
previously when the robbery in question took place, for a t that
time criminality h ad not by far reached the levels attained in
the present day.
There is likewise no merit in the contention t h at to allow
the fact of robbery to be recognized in this case before conviction
is secured in the criminal action, would prejudice the latter case,
or would result in inconsistency should the accused obtain an
acquittal or should the criminal case be dismissed. It must be
realized th at a court finding th at a robbery has happened would
not necessarily mean th at those accused in the criminal action
would be found guilty of the crime; nor would a ruling t h at those
actually accused did not commit the robbery be inconsistent
with a finding th at a robbery did take place. The evidence to
establish these facts would not necessarily be the same.
Problem — A barge belonging to the Luzon Stevedoring
Corporation, while passing under the Nagt ahan Bridge in
Manila, rammed the bridge supports causing damage thereto.
In this action for damages instituted by the Government against
the defendant corporation, the latter interposed the defense
97
th at there was no negligence or fault on its part and t h a t the

proximate cause of the accident was a fortuitous event. Decide
the case.
Answer — As far as the negligence of the defendant
corporation is concerned, it is clear th at the doctrine of res ipsa
loquitur is applicable. It is undeniable t ha t the unusual event
th at the barge, exclusively controlled by defendant, rammed the
bridge supports raises a presumption of negligence on the part
of defendant or its employees manning the barge or the tugs
th at towed it. In the ordinary course of events, such a thing does
not happen if proper care is used.
As far as the defense of fortuitous event is concerned, caso
fortuito by definition refers to those extraordinary events not
foreseeable or avoidable, “events th at could not be foreseen,
or which though foreseen, were inevitable.” (Art. 1174, NCC.)
It is, therefore, not enough th at the event could not have been
foreseen or anticipated, as is commonly believed, but it must
be one impossible to foresee or to avoid. The mere difficulty to
foresee the happening is not impossible to foresee the same.
Hence, the proximate cause of the accident cannot be classified
as a fortuitous event. Consequently, defendant is liable. (Rep. of
the Phil. vs. Luzon Stevedoring Corp., 21 SCRA 279.)
Problem — A was injured while he was a passenger in
a bus operated by X Co. The proximate cause of the accident
was the failure of the steering knuckle to work causing the
driver to lose control of the wheel as a result of which the bus
fell into a ditch. Can the operator now relieve itself of liability
by claiming th at the real cause of the accident was a fortuitous
event? Suppose th at the proximate cause of the accident was a
tire blowout, would t hat make a different in your answer?
Answer —The operator cannot relieve itself of liability by
claiming t hat the real cause of the accident was a fortuitous
event. The weight of authority sustains the view t ha t a
passenger is entitled to recover damages from the carrier for
an injury resulting from a defect in a n equipment purchased
from a manufacturer, unless extraordinary diligence has
been exercised with regard to inspection and application
of the necessary tests. For the purpose of this doctrine, the
manufacturer is considered in law the agent of the carrier. The
rationale of the carrier’s liability is t hat the passenger has no
privity with the manufacturer and, therefore, ha s no remedy
whatever against him, while the carrier usually has. (Necesito
vs. Paras, 104 Phil. 75.) If the proximate cause of the accident
98
is a tire blowout, t hat will not make a difference in my answer

so long as it can be established th at the bus involved in the
accident was running fast immediately before the accident and
th at the cause of the blowout could have been discovered if the
bus had been subjected to a more rigid check-up before its use.
This was the doctrine enunciated in La Mallorca vs. De Jesus
(17 SCRA 23).
(Note: The question of whether or not a defective part of
a vehicle, such as a defective brake, or a tire blowout can be
classified per se as a fortuitous event was again taken up by
the SC in Tugade vs. CA , 85 SCRA 226. In this case, a Holden
car was badly damaged when it was bumped from behind by a
Blue Car Taxi driven by petitioner. The lat ter admits t h a t the
accident was caused by the faulty brakes of the taxicab but he
contends th at the sudden malfunctioning of the brakes a t that
particular moment before the accident was something which
even the due diligence of a good father of a family could not
have prevented. Consequently, the cause of the accident is a
fortuitous event. He then invokes a long line of decisions of the
CA in order to support his theory.
Speaking through Justice [now deceased Chief Justice]

Fernando, the SC declared t hat the primary reason why the
petition was given due course was to clarify the state of the
law and thus hopefully avoid any further lurking doubt on the
matter.
Speaking of the decisions of the CA cited by petitioner in
support of his theory, the SC reminded the petitioner of what
Justice J.B.L. Reyes once said t hat “the SC, by tradition and in
our system of judicial administration, h as the last word on what
the law is; it is the final arbiter of any justiciable controversy.
There is only one SC from whose decisions all other courts
should take their bearings.’’
Speaking of the merits of the theory of petitioner, the SC
finally held th at the doctrine enunciated in La Mallorca vs. De
Jesus [17 SCRA 23], Lasam vs. Smith [45 Phil. 657], Son vs.
Cebu Autobus Co. [94 Phil. 892], and Necesito vs. Paras [104
Phil. 75] controls. Defective brakes, tire blowouts and others of
a similar nature cannot be classified as fortuitous events per se
within the meaning of the law.
Problem — What are the exceptions to the rule t h at the
obligor or debtor cannot be held liable for breach of the obligation
by reason of a fortuitous event? Illustrate.
99
Answer — The exceptions to the rule t h a t the obligor

or debtor cannot be held liable for breach of the obligation by
reason of a fortuitous event are as follows:
(1)Where such liability is expressly specified by the
law. This may be illustrated by provisions of the NCC, such as
those found in Arts. 552, par. 2, 1165, par. 3, 1268, 1942, 1979,
2147, 2148, and 2159, NCC.
(2)Where such liability is declared by stipulation of the
parties. Thus, if the contracting parties expressly agree t h at the
debtor can be held liable even in case of fortuitous events, such
an agreement shall be binding.
(3)Where the nature of the agreement requires the
assumption of risk. This is an aspect of what is known as the
doctrine of assumption of risk. As applied to obligations, it refers
to a situation in which the obligor or debtor, with full knowledge
of the risk, voluntarily enters into some obligatory relation with
the creditor or obligee. It is based on the principle of volenti
non fit injuria — no wrong is done to one who consents. This is
illustrated by obligations arising from insurance contracts and
workmen’s compensation acts.
Problem — Cite three instances where a person is made
civilly liable for failure to comply with his obligations although
he was prevented from doing so by a fortuitous event. (1983)
Answer —In the following instances, a person is still civilly
liable for failure to comply with his obligation although he was
prevented from doing so by a fortuitous event:
(1) When by law, the debtor is liable even for fortuitous
events;
(2) When by stipulation of the parties, the debtor is
liable even for fortuitous events;
(3) When the natu re of the obligation requires the
assumption of risk;
(4)When the object of the obligation is lost and the loss is
due partly to the fault of the debtor;
(5)When the object of the obligation is lost and the loss
occurs after the debtor has incurred in delay;
(6)When the debtor promised to deliver the same thing to
two or more persons who do not have the same interest;
(7)When the obligation to deliver arises from a criminal
offense; and
100
(8) When the obligation is generic.

(Note: Any 3 of the 8 should be a correct answer. Nos. 1, 2
and 3 are based on Arts. 1174 and 1262, NCC; Nos. 4, 5, and 6
are based on Arts. 1165 and 1262, NCC; while Nos. 7 and 8 are
based on Arts. 1268 and 1263, NCC.)
Problem — Jacinto Tanguilig constructed a windmill sys-
tem for Vicente Herce, Jr. for P60,000 with a one-year guaranty.
Herce made a downpayment of P30,000 and a n installment pay-
ment of P15,000, leaving a balance of P15,000. He refused to
pay the balance because the windmill system collapsed after a
strong wind hit the place. Is Tanguilig exempt from liability due
to fortuitous event?
Answer — No. In order for a party to claim exemption from
liability due to fortuitous event, one requisite is t h at the event
must be either unforeseeable or unavoidable. A strong wind in
this case cannot be fortuitous, unforeseeable, or unavoidable.
On the contrary, a strong wind should be present in places
where windmills are constructed, otherwise the windmills will
not turn. Given the newly-constructed windmill system, the
same would not have collapsed had there been no inherent
defect in it which could only be attributable to Tanguilig. When
the windmill failed to function properly, it became incumbent
upon Tanguilig to repair it in accordance with his guaranty and
bear the expenses therefor. (Tanguilig vs. CA and Herce, G.R.
No. 117190, Jan. 2, 1997).)
Art. 1175. Usurious transactions shall be governed by

special laws.139
Usurious Transactions. — Usury may be defined as
contracting for or receiving something in excess of the amount
allowed by law for the loan or forbearance of money, goods or
chattels. It is the taking of more interest for the use of money, goods
or chattels or credit t ha n the law allows.140
The special laws referred to in Art. 1175 are the Usury Law
(Act No. 2655) and the different laws amending it.141
139
New Provision.
140
Tolentino vs. Gonzales, 50 Phil. 558.
141
See comments unde r Art. 1413, infra.
101
Note: Prior to Jan uar y 1, 1983 and under the Treasury Laws,
no person shall receive a rate of interest, including commissions,
premiums, fines and penalties, higher th an 12% per a nnu m or the
maximum r at e prescribed by the Monetary Board for a loan secured
by a mortgage upon real estate the title to which is duly registered.
Under Central Bank (CB) Circular No. 905, which became effective
on Jan. 1, 1983, whereby the Monetary Board is authorized to fix
interest rates, the ceiling rates under the Usury law [Act No. 2655,
as amended by P.D. No. 116] have been abolished.
It should be noted t h a t Circular No. 905 did not repeal nor
in any way amend the Usury Law but simply suspended the
latter’s effectivity. The legislation of usury is wholly the creature of
legislation. A CB Circular cannot repeal a law. Only a law can repeal
another law. Thus, retroactive application of a CB Circular cannot,
and should not, be presumed. (Development Bank of the Philippines
vs. Perez, G.R. No. 148541, Nov. 11, 2004.)
Art. 1176. The receipt of the principal by the creditor,

without reservation with respect to the interest, shall give
rise to the presumption that said interest has 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.142
Extinguishment of Interests and Prior Installments. —

According to the first paragraph of Art. 1176, if the debtor is issued a
receipt by the creditor and on the face of the receipt it is shown that
the principal has been paid without any reservation with respect to
the interest, there arises a disputable presumption t ha t the interest
has also been paid. This is in conformity with the rule t ha t if the
debt produces interest, payment of the principal shall not be deemed
to have been made until the interests have been covered.143
According to the second paragraph, if the debtor is issued
a receipt by the creditor acknowledging payment of a latter
installment of a specified debt without any reservation with respect

142
Art. 1253, Civil Code; Hill vs. Veloso, 31 Phil. 160; Vda. de Ongsiaco vs. Cabat-
143
uando, 105 Phil. 1262.
102
to prior installments, there also arises a disputable presumption

t h a t such prior installments have already been paid. This rule is
in conformity with the rule stated in Rule 131, Sec. 5, subsec. (i),
of the New Rules of Court. Thus, in the case of a lease of a certain
property, such as, let us say, a n apartment, if the lessor gives a
receipt to the lessee acknowledging payment of the rental for the
month of November without any reservation as to the rentals for
the months of September and October which are not yet paid, there
arises a presumption t h a t such rentals have already been paid.
This presumption, however, can be properly rebutted by competent
evidence to the contrary.
Art. 1177. The creditors, after having pursued the prop-

erty 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.144
Remedies of Creditor To Protect Credit. — Under Art.

1177, there are three general remedies which are available to the
creditor for the protection and enforcement of his right against the
debtor. They are: first, to exhaust the property in possession of the
debtor; second, to be subrogated to all of the rights and actions of
the debtor save those which are inherent in his person; and third,
to impugn all of the acts which the debtor may have done to defraud
him. The second and third, however, are subsidiary to the first.
Idem; Exhaustion of debtor’s property. — The principal
remedy of the creditor to protect and enforce his credit is to exhaust
all properties in the possession of the debtor. This remedy is in
conformity with the rule stated in Art. 2236 of the Civil Code which
states t h a t the debtor is liable with all his property, present and
future, for the fulfillment of his obligations subject to the exemptions
provided by law. The exemptions referred to are found in Sec. 12,
Rule 39 of the New Rules of Court, Sec. 118 of the Public Land Law
(Com. Act No. 141), and in scattered provisions of the Civil Code,
such as Arts. 223, 232, 243, 302 and 1708.
144
103
Idem; Accion subrogatoria. — Actually, the debtor may

defeat the right of the creditor by mere omission or inaction. In other
words, he may simply fail, or neglect, or refuse to collect any credit
which he may have against a third person. In order to prevent this,
the law expressly grants to the creditor the right to exercise all of
the rights and bring all of the actions which the debtor may have
against third persons. This right or remedy is sometimes known
in Spanish law as accion subrogatoria. It must be noted t h a t the
property of the debtor which can be attached or exhausted for the
payment of his debts may consist of corporeal as well as incorporeal
properties. It may happen, however, t h a t his corporeal or tangible
properties may not be sufficient to pay all of his debts, but his
incorporeal or intangible properties may be more t han sufficient.
Such properties may be in the form of rights and actions against
third persons. Because of his inaction or his failure to proceed
against such third persons, his own creditors are prejudiced. Hence,
in order to prevent this, the law expressly recognizes the right of a
creditor to proceed against such third persons invested as it were
with the personality of the debtor. 1 4 5 But certain conditions must
be present before the creditor can avail of this remedy. In the first
place, the debtor to whom the right or action properly pertains must
be indebted to the creditor; in the second place, the latter must be
prejudiced by the inaction or failure of the debtor to proceed against
the third person; and in the third place, the creditor must have first
pursued or exhausted all of the properties of the debtor which are
not exempted from execution. When all of these conditions are
present, the creditor can then proceed directly against the third
person in place of the debtor. 1 4 6
Attention must be called to the fact t h a t this right is different
from legal and conventional subrogations which will be taken up in a
subsequent chapter. The latter involves a change of creditors, while
the former does not. In accion subrogatoria, the creditor merely acts
in the nam e and for the account of the debtor after exhausting all of
the assets of the latter. 1 4 7
The right of the creditor to exercise all of the rights and to
bring all of the actions of the debtor against third persons is, howev-
145
Castan, 7th Ed., pp. 173-174; 2 De Diego 35.
146
2 De Diego, 35-36; 3 Castan, 7th Ed., pp. 175-176.
147
3 Castan, 7th Ed., p. 174; 8 Manresa, 5th Ed., Bk. 1, p. 272.
104
er, subject to one very important exception. Rights which are purely
personal in the sense t ha t they are inherent in the person of the
debtor, such as rights arising from purely personal or family rela-
tions or those which are public or honorary in character, cannot be
included within the scope of this remedy. 1 4 8
Idem; Accion pauliana. — Another method by which the
debtor may defeat the right of the creditor is by means of a positive act
whereby the latter is defrauded or prejudiced. This may be illustrated
by alienations or conveyances of property made by the debtor to
third persons in fraud of creditors. According to Art. 1177, such acts
can be impugned or attacked directly by means of a rescissory action
a t the instance of the creditors who are prejudiced. 1 4 9 This action is
sometimes known as accion pauliana in Spanish law. As in the case
of accion subrogatoria, it is based on the principle t h a t the property
of the debtor, whether present or future, stands as a guaranty for
the payment of the obligation or credit. Accion pauliana, therefore,
refers to the right available to the creditor by virtue of which he can
secure the rescission of any act of the debtor which is in fraud and
to the prejudice of his rights as a creditor. By its very nature, it is
subsidiary in character. 1 5 0 In other words, it can only be availed of
in the absence of any other legal remedy to obtain reparation for the
injury. 1 5 1
Art. 1178. Subject to the laws, all rights acquired in

virtue of an obligation are transmissible, if there has been
no stipulation to the contrary.152
Transmissibility of Rights. — Rights of obligations or
those rights which are acquired by virtue of a n obligation are as
a general rule transmissible in character. Consequently, they may
be alienated or assigned to third persons. There are, however,
several exceptions to this rule. They are: first, where they are
not transmissible by their very nature, such as in the case of a
purely personal right; second, where there is a stipulation of the
parties t h a t they are not transmissible; and third, where they
148
149
This rescissory action is regulated by Arts. 1380-1389, Civil Code.
150
151
2 Diego, 37-38.
152
105
are not transmissible by operation of law. 1 5 3 It must be observed,

however, t h a t intransmissibility by stipulation of the parties, being
exceptional and contrary to the general rule, should not be easily
implied, but must be clearly established, or a t the very least, clearly
inferable from the provisions of the contract itself.154
153
154
Estate of Hernandez vs. Luzon Surety Co., 100 Phil. 388.
106
CHAPTER 3
DIFFERENT KINDS OF OBLIGATIONS
Section 1. — Pure and Conditional Obligations
Art. 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.1
Art. 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
1197.2
Pure Obligations. — The effects as well as the concept of
pure obligations are contained in the formula which is given in the
first paragraph of Art. 1179, although, as Castan says, the concept
is incomplete because it only excludes the condition and not the
term. 3 Using the provision as a basis and bearing in mind this
criticism, we can, therefore, define a pure obligation as one whose
effectivity or extinguishment does not depend upon the fulfillment
or nonfulfillment of a condition or upon the expiration of a term or
period, and which, as a consequence, is characterized by the quality
of immediate demandability.
The distinctive characteristic of a pure obligation is its imme-
diate demandability. This quality, however, must not be understood
1
2
New provision.
3
3 Castan, 7th Ed., p. 104.
107
in such a way as to lead to absurd interpretations which would lit-

erally require the obligor or debtor to comply immediately with his
obligation. A distinction must be made between the immediate de-
mandability of the obligation and its performance or fulfillment by
the obligor or debtor. Although the obligee or creditor can demand
the performance of the obligation immediately, the quality of imme-
diate demandability is not infringed or violated when a reasonable
period is granted for performance. 4 Thus, where the debtor had ex-
ecuted a simple and unconditional promissory note promising to pay
a certain indebtedness to the creditor without fixing any particular
date for payment, it was held t h a t the obligation is pure and that,
although the creditor can demand for the payment of the same im-
mediately, a reasonable period of grace, which in this case was fixed
a t ten days after the obligation was contracted, should be given to
the debtor within which to pay. 5
Conditional Obligations. — In its juridical sense, a condi-
tion may be defined as a future and uncertain fact or event upon
which a n obligation is subordinated or made to depend. A condi-
tional obligation may, therefore, be defined as one whose effectivity
is subordinated to the fulfillment or nonfulfillment of a future and
uncertain fact or event. 6
Although the first paragraph of Art. 1179 would seem to
indicate t h a t either the requisite of futurity or uncertainty would be
sufficient in order t h a t the event upon which the performance of the
obligation shall depend will be considered a condition, it is, however,
essential t h a t both requisites must concur. In other words, the event
must not only be future, but it must also be uncertain. The reason
why the disjunctive term is used is t h a t said paragraph is intended
primarily as a definition of a pure obligation using the process of
exclusion. Hence, it must exclude not only conditional obligations,
but also obligations with a term. 7
From the literal text of the first paragraph of Art. 1179, it
seems t h a t a past but uncertain event is also considered a condition.
4
8 Manresa, 5th Ed., Bk 1, pp. 305-306.
5
Floriano vs. Delgado, 11 Phil. 154; for other cases — see People’s
Bank vs.
Odom, 64 Phil. 128; Galar vs. Isasi; Aberri vs. Galar, CA, 47 Off. Gaz. 6241.
7 8 Manresa,
Ibid., 6pp. 309-310. 5th Ed., Bk 1, p. 309.
108
DIFFERENT KINDS OF OBLIGATIONS Arts. 1179-1180
Pu re and Conditional Obligations
This is not, however, accurate. The event itself can never constitute
a condition because in order t h a t it can be classified as such, the
requisites of futurity and uncertainty must be present. But the proof
or ascertainment of the fact or event, as distinguished from the fact
or event itself, may constitute either a condition or a term depending
upon the circumstances of each case.
Thus, if the proof or ascertainment of the fact or event will
surely come to pass, although it may not be known when, it is clear
t h a t it constitutes a term or period, such as when A promises to pay
B a certain sum of money if the latter can prove by proper authorities
t h a t the Civil Code of the Philippines took effect on Aug. 30, 1950. In
such case, the requisites of futurity and certainty in order t h a t a fact
or event shall constitute a term or period are certainly present. On
the other hand, if the past event is unknown to the parties as well as
to the whole world, so t ha t the proof or ascertainment thereof may or
may not happen or come to pass, it is also clear t h a t it constitutes a
condition, such as when A promises to pay B a certain sum of money
if the latter can prove by proper evidence t h a t Rizal did not retract
Freemasonry, or t h a t a priest broke the seal of the confessional in
order to reveal the secret of the Katipunan.
However, 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 Art. 1197.8
Consequently, 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. 9
Thus, it has been held t h a t if it is stipulated by the contracting
parties t h a t the debtor shall pay “as soon as he has the money,”
the creditor’s remedy is to resort to the courts for the
determination of the duration of the period in accordance with the
provisions of Art. 1197 of the Code.10
Idem; Classification of conditions. — Conditions are
traditionally classified as follows:
(1) a. Suspensive — when the fulfillment of the condition results
in the acquisition of rights arising out of the obligation.
8
9
10
Patente vs. Omega, 49 Off. Gaz. 4846.
109
b. Resolutory — when the fulfillment of the condition

results in the extinguishment of rights arising out of the
obligation.
(2) a. Potestative — when the fulfillment of the
condition depends upon the will of a party to the obligation.
b. Casual — when the fulfillment of the condition depends
upon chance and/or upon the will of a third person.
c. Mixed — when the fulfillment of the condition depends
partly upon the will of a party to the obligation and partly
upon chance and/or the will of a third person.
(3) a. Possible — when the condition is capable of
realization according to nature, law, public policy or good
customs.
b. Impossible — when the condition is not capable of
realization according to nature, law, public policy or good
customs.
(4) a.
Positive — when the condition involves the performance
of a n act.
b. Negative — when the condition involves the omission of
a n act.
(5) a. Divisible — when the condition is susceptible of
partial realization.
b. Indivisible — when the condition is not susceptible of
partial realization.
(6) a Conjunctive — when there are several conditions,
all of which must be realized.
b. Alternative — when there are several conditions, but only
one must be realized.
(7) a. Express — when the condition is stated expressly.
b. Implied — when the condition is tacit. 1 1
11
110
DIFFERENT KINDS OF OBLIGATIONS Art. 1181
Art. 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.12
Suspensive and Resolutory Conditions. — A suspensive
condition (condition precedent) is a future and uncertain event
upon the happening or fulfillment of which rights arising out
of the obligation are acquired. Stated in another way, it signifies
a future and uncertain event upon the fulfillment of which the
obligation becomes effective. Hence, when the obligation depends
upon a suspensive condition, the acquisition of rights by the obligee
or creditor is subordinated to the fulfillment of the event which
constitutes the condition. In other words, the birth or effectivity of
the obligation is suspended until the happening or fulfillment of the
event which constitutes the condition. Thus, if A obligates himself
to give to B P100,000 if the latter gets married to C, the condition is
suspensive in character. In such case, B cannot acquire the P100,000
unless he gets married to C. If X obligates himself to give to Y a
certain house and lot if the latter passes the bar examinations in
his first attempt, the condition is also suspensive in character. He
cannot acquire the house and lot unless the condition is fulfilled.
It is, therefore, evident t h a t when the obligation is subject to a
suspensive condition, its birth or effectivity can take place only if
and when the event which contitutes the condition happens or is
fulfilled. Thus, the Supreme Court, in the case of Javier vs. Court
of Appeals (183 SCRA 172) held t h a t when a contract is subject to
a suspensive condition, its birth or effectivity can take place only if
and when the event which constitutes the condition happens or is
fulfilled. If the suspensive condition does not take place, the parties
would stand as if the conditional obligation had never existed.
A resolutory condition (condition subsequent), on the other
hand, is a future and uncertain event upon the happening or
fulfillment of which rights which are already acquired by virtue of
the obligation are extinguished or lost. Hence, when the obligation
is subject to a resolutory condition, the juridical relation which is
established as a result of the obligation is subject to the thr ea t of
extinction. Thus, if a person donates a parcel of land to the City of
Manila subject to the
12
Art. 1114, Spanish Code.
111
condition t h a t the City shall transform it into a public park within

a period of one year from the time of the perfection of the donation,
the condition which is imposed is resolutory in character. If the City
fails to transform the land into a public park within the stipulated
period, the rights which it acquired over the land as a result of the
donation are resolved or extinguished altogether. The same is true
in case a person sells a parcel of land with right of repurchase. Once
the sale with pacto de retro is perfected, the vendee a retro becomes
the owner of the property. However, his right is not absolute in
character because it may be extinguished or lost if the vendor a
retro exercises his right of repurchase within the legal or stipulated
period of redemption.
Idem; Effects. — It is, therefore, clear from what had been
stated t h a t if a n obligation is subject to a suspensive condition, the
acquisition of rights shall depend upon the happening or fulfillment
of the fact or event which constitutes the condition.13 In other words,
the obligation shall become effective only upon the fulfillment of
the condition. Consequently, what is acquired by the obligee or
creditor upon the constitution of the obligation is only a mere hope
or expectancy. Unlike other hopes or expectancies, however, it is
protected by the law. 1 4
On the other hand, if the obligation is subject to a resolutory
condition, it becomes demandable immediately after its establishment
or constitution. This is evident from the provision of the second
paragraph of Art. 1179. Consequently, unlike a n obligation with a
suspensive condition, rights arising out of the obligation are acquired
immediately and vested in the obligee or creditor. 1 5 However, this
is without prejudice to the happening or fulfillment of the event
which constitutes the condition. In other words, although rights are
immediately vested in the obligee or creditor upon the constitution of
the obligation, such rights are always subject to the threat or danger
of extinction. Thus, in the case of a sale with pacto de retro, the
vendee a retro becomes the owner of the property which is sold once
it is delivered to him. This right of ownership, however, is subject
13
Art. 1181, Civil Code; for illustrative cases, see Wise & Co. vs. Kelly, 37 Phil.
696; Santiago vs. Millar, 68 Phil. 39; Phil. Nat. Bank vs. Phil. Trust Co., 68 Phil. 48;
Panganiban vs. Batangas Trans. Co., CA, 46 Off. Gaz. 3167.
14
Art. 1188, Civil Code; Phil. Long Distance Co. vs. Jeturian, 97 Phil. 981.
15
112
to a resolutory condition. If the vendor a retro exercises his right of

repurchase within the period of redemption, the right of the vendee
a retro over the property is extinguished; if he does not, the right is
consolidated. 1 6
Problem — On J u n e 5, 1960, DP delivered possession of

his house and lot in the Poblacion of Polo, Bulacan to AB who in
tu rn delivered to the former possession of his 2-hectare rice land.
Both properties were unregistered. They executed a document
entitled “Barter’’ which, among others, provided t h at both
parties shall enjoy the material possession of their respective
properties: t hat neither party shall encumber, alienate or
dispose of their respective properties as bartered without the
consent of the other; and th at DP shall be obliged to return
the property to AB when the latter’s son shall attai n majority
and decide to return DP’s property. After AB’s death and his
son S attained majority in 1977, the latter demanded for the
return of the 2 hectares of rice land which had t hen increased
tremendously in value. DP refused and so S filed a n action for
recovery of the land. Will the action prosper? Why? (1979 Bar
Problem)
Answer — Yes, the action will prosper. The stipulations
in the barter agreement are clear. All t ha t the parties intended
was to transfer the material possession and use of the subject
properties to the other. There was, therefore, no conveyance of
their right of ownership. In fact, the parties retained their rights
to alienate their right of ownership, a right which is one element
of ownership. What was, therefore, transferred was merely their
right of usufruct. But then, the document also says t h a t DP
shall be obliged to return the property to AB when the latter’s
son shall attain majority and decide to ret urn DP’s property.
The mutual agreement, therefore, was subject to a resolutory
condition the happening of which would extinguish or terminate
their right of usufruct over the subject properties. The facts are
clear. Said condition h as already been fulfilled. (Baluran vs.
Navarro, 79 SCRA 309.)
It is, therefore, evident t h a t a resolutory condition affects the

obligation to which it is attached in a ma nne r which is diametrically
opposed to t h a t of a suspensive condition. If the suspensive condition
is fulfilled, the obligation arises or becomes effective; if the resolutory
16
113
condition is fulfilled, the obligation is extinguished. If the first is not

fulfilled, no juridical relation is created; if the second is not fulfilled,
the juridical relation is consolidated. In other words, in the first,
rights are not yet acquired, but there is a hope or expectancy that
they will soon be acquired; in the second, rights are already acquired,
but subject to the threat of extinction. 1 7
These distinctions between a suspensive and a resolutory
condition are illustrated in the following case:
Parks vs. Province of Tarlac

49 Phil. 142
Plaintiff bought the land which is the subject mat te r of

this litigation from Concepcion Cirer and Jame s Hill, who,
several years ago, prior to the sale, h ad donated the land to
the municipality of Tarlac subject to the condition t h at it will
be used absolutely and exclusively for the erection of a central
school and a public park, the work to commence within a period
of six months from the date of ratification of the donation by the
parties. The question now is: has the plaintiff a right of action to
recover the parcel of land from the municipality of Tarlac on the
ground th at the condition imposed is suspensive, and therefore,
the said municipality had never acquired a right thereto since
the condition was never performed?
Held: “The appellant contends th at a condition precedent
having been imposed in the donation and the same not having
been complied with, the donation never became effective. We
find no merit in this contention. The appellant refers to the
condition imposed th at one of the parcels donated was to be
used absolutely and exclusively for the erection of a central
school and the other for a public park, the work to commence
in both cases within the period of six months from the date of
the ratification by the parties of the document evidencing the
donation. lt is true t hat this condition has not been complied
with. The allegation, however, th at it is a condition precedent
is erroneous. The characteristic of a condition precedent is that
the acquisition of the right is not effected while said condition is
not complied with or is not deemed complied with. Meanwhile,
nothing is acquired and there is only an expectancy of right.
Consequently, when a condition is imposed, the compliance
17
114
of which cannot be effected except when the right is deemed

acquired, such condition cannot be a condition precedent. In the
present case, the condition th at a public school be erected and
a public park made on the donated land, work on the same to
commence within six months from the date of the ratification of
the donation by the parties, could not be complied with except
after giving effect to the donation. The donee could not do any
work on the donated land if the donation had not really been
effected, because it would be an invasion of another’s title, for
the land would have continued to belong to the donor so long
as the condition imposed was not complied with. The condition,
therefore, was a condition subsequent.’’18
Art. 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.19
Potestative, Casual and Mixed Conditions. — As regards
the cause upon which its fulfillment depends, a condition may be
either potestative, casual or mixed. A purely potestative condition
is one whose fulfillment depends exclusively upon the will of either
one of the parties to the obligation. A casual condition is one whose
fulfillment depends exclusively upon chance and/or upon the will of
a third person. A mixed condition is one whose fulfillment depends
jointly upon the will of either one of the parties to the obligation and
upon chance and/or the will of a third person.
Idem; Effect of potestative conditions. — A distinction
must be made between the effects of a potestative condition whose
fulfillment depends exclusively upon the will of the creditor and the
effects of one whose fulfillment depends exclusively upon the will of
the debtor. In the first the condition as well as the obligation is valid,
while in the second not only the condition, but even the obligation
itself, is void.
Although the law is silent with regard to potestative conditions
whose fulfillment depends exclusively upon the will of the creditor,
it is undeniable t h a t it cannot have the effect of nullifying the
18
For a similar case, see Prieto vs. Quezon City, 99 Phil. 1059.
19
115
obligation to which it is attached. This is so because the creditor

is naturally interested in the fulfillment of the condition since it is
only by such fulfillment t h a t the obligation can become effective.
Furthermore, the prohibition directed against potestative conditions
which can be clearly inferred from the provision of Art. 1182 extends
only to those which are potestative to the debtor and not to those
which are potestative to the creditor. 2 0
On the other hand, the law expressly states t h a t the
conditional obligation shall be void if it is subject to a
potestative condition whose fulfillment depends exclusively upon
the will of the debtor. 2 1 The reason behind this precept is evident. To
allow conditions whose fulfillment depends exclusively upon the will
of the debtor would be equivalent to sanctioning obligations which
are illusory.22 Besides, it would be in direct contravention of the
principle announced in Art. 1308 of the Code t h a t the validity and
fulfillment of contracts cannot be left to the will of one of the
contracting parties. Thus, where the obligor subscribed to 200
shares of capital stock to a certain college with a par value of
P100.00 each subject to the condition t h a t she will pay as soon as
she h ad harvested fish from her fishpond, it was held t h a t even
granting t h a t the college had accepted the condition, the obligation
would still be void in accordance with Art. 1182 of the Code, since
the fulfillment of the condition depends exclusively upon the will of
the obligor.23
It must be noted, however, t h a t the precept contained in
the first sentence of Art. 1182 is applicable only to a suspensive
condition. Hence, if the condition is resolutory and, a t the same
time, potestative, the obligation, as well as the condition, is valid
even though the fulfillment of the condition is made to depend upon
the sole will of the obligor or debtor. This is logical because it is
but nat ural t h a t the debtor is interested in the fulfillment of the
resolutory condition since it is only by such fulfillment t h a t he can
reacquire the rights which have already been vested in the obligee or
creditor upon the constitution of the obligation. 2 4 In other words, the
position of the debtor when the condition is resolutory is exactly the
20
21
22
23
Trillana vs. Quezon Colleges, 93 Phil. 383.
24
116
same as the position of the creditor when the condition is suspensive.

Hence, to make the fulfillment of the resolutory condition depend
upon the debtor’s will does not render the obligation illusory. Thus,
in the case of Taylor vs. Uy Tieng,25 where plaintiff and defendant
agreed t h a t should the machinery, which the latter had ordered from
the United States, not arrive in Manila within six months for any
reason whatsoever, he can then cancel the contract a t his option, the
Supreme Court, although admitting the potestative character of the
condition, declared:
“In Spanish jurisprudence a condition like t h at under

discussion is designated by Manresa a facultative condition
(Vol. 7, p. 611), and we gather from his comment on Articles
1115 and 1119 (now Arts. 1182 and 1186) of the Civil Code that
a condition, facultative as to the debtor, is obnoxious to the first
sentence contained in Article 1115 (now Art. 1182) and renders
the whole obligation void (Vol. 8, p. 131). T hat statement is
no doubt correct in the sense intended by the learned author,
but it must be remembered th at he evidently has in mind
the suspensive condition, such as is contemplated in Article
1115 (now Art. 1182). Said article can have no application to
the resolutory condition, the validity of which is recognized in
Article 1113 (now Art 1179) of the Civil Code. ln other words, a
condition at once facultative and resolutory may be valid though
the condition is made to depend upon the will of the obligor.’’
It must also be noted t h a t the rule t h a t the conditional

obligation shall be void is applicable only to a n obligation which
depends for its perfection upon a condition which is potestative to
the debtor and not to a pre-existing obligation. Thus, if the debtor
binds himself to deliver to the creditor a certain automobile by the
end of December, 1980, provided t h a t he is in the mood to do so,
the obligation is void; in this case it is evident t h a t the obligation
depends for its perfection upon the fulfillment of a condition which is
potestative. If the debtor, however, binds himself to pay a previous
indebtedness of P2,000 to the creditor by the end of December, 1980,
provided t h a t he is in the mood to do so, although the condition is
void on the ground t h a t its fulfillment depends exclusively upon the
will of the debtor, the obligation itself is not void since it refers to a
pre-existing indebtedness.
25
43 Phil. 873.
117
Osmeña vs. Rama

14 Phil. 99
This is a n action commenced by the plaintiff in the Court
of First Instance of Cebu for the collection of a n indebtedness
evidenced by a promissory note, signed by the defendant. Under
this note, defendant stated: “I promise, in the presence of two
witnesses, that, if the house of strong materials in which I live is
sold, I will pay my indebtedness to Don Tomas Osmeña x x x.’’ Is
the condition potestative within the meaning of the prohibition
in what is now Art. 1182 of the Civil Code or not?
Held: “The only questions raised by the appellant were
questions of fact. It was suggested during the discussion of the
case in this court that, in the acknowledgment above-quoted
of the indebtedness made by the defendant, she imposed the
condition t hat she would pay the obligation if she sold her
house. If th at statement found in her acknowledgment of
the indebtedness should be regarded as a condition, it was a
condition which depended upon her exclusive will and this is,
therefore, void.’’26
Idem; Effect of casual conditions. — When the fulfillment

of the condition depends upon chance and/or the will of a third
person, the obligation including such condition shall take effect.27
Thus, if the obligor promises to deliver his automobile to the obligee
if a certain candidate is elected to the position of President of the
Philippines in 1969, the obligation is valid because it is evident that
the fulfillment of the condition to which it is subject depends upon
the will of others. The same is true if the obligor promises to give
P10,000 to the obligee after the lapse of two years, provided that
during such period war shall not break out between Russia and the
United States.
Idem; Effect of mixed conditions. — When the fulfillment
of the condition depends partly upon the will of a party to the
obligation and partly upon chance and/or the will of a third person,
the obligation including such condition shall take effect. Thus, where
the payment of the balance of the purchase price of a house and lot
26
In Hermosa vs. Longara (93 Phil. 971), a much more recent case, the Supreme
Court declared t ha t the above ruling was merely a n assumption and the same was
not the actual ruling of the case.
27
118
is subject to the condition t h a t the premises shall be vacated by the

occupant and t h a t the vendee shall see to it t h a t said premises shall
be vacated, it was held t h a t the fulfillment of the condition depends
partly upon the will of the debtor and partly upon the will of a
third person, and therefore, the contract is valid and enforceable. 2 8
Similarly, where the debtor promises to pay his debts to the creditor
as soon as he shall have received funds derived from the sale of his
house, it was held t h a t the fulfillment of the condition depends
partly upon the will of the debtor and partly upon the will of third
persons, as a consequence of which it is perfectly valid and
enforceable. 2 9 But where the debtor promises to pay his debts “if he
decides to sell his house’’ or “if he likes to pay the sums advanced,”
the condition would be void, since its fulfillment would then depend
exclusively upon his will.30
Smith, Bell & Co. vs. Sotelo Matti

44 Phil. 875
In August, 1918, during the first World War, plaintiff and

defendant entered into several contracts whereby the former
agreed to sell, and the latter to purchase, two steel tanks for
P21,000, the same to be shipped from New York and delivered
in Manila “within three or four months,” two expellers at
P25,000 each, which were to be shipped from Sa n Francisco
in “September, 1918, or as soon as possible,” and two electric
motors, approximate delivery of which was to be made “within
ninety days, although not guaranteed.” Because of the war that
was going on, there was a stipulation in all of the contracts
th at delivery of the machineries shall be subject to government
regulations, embargoes and other requirements. Upon their
arrival in Manila, defendant refused to accept the machineries
on the ground th at plaintiff had incurred in delay. As a result,
the latter brought this action against the former for specific
performance. Holding t hat the defendant can still be compelled
to comply with the obligation, the Supreme Court declared:
“Considering these contracts in the light of the civil
law, we cannot but conclude t hat the term which the parties
attempted to fix is so uncertain th at one cannot tell just whether,
as a matte r of fact, these articles could be brought to Manila or
28
Jacinto vs. Chua Leng, CA, 45 Off. Gaz. 2919.
29
Hermosa vs. Longara, 93 Phil. 971.
30
Ibid.
119
not. If th at is the case, as we think it is, the obligation must be

regarded as conditional.
“And as the export of the machinery in question was, as
stated in the contract, contingent upon the sellers obtaining
a certificate of priority and permission of the United States
Government, subject to the rules and regulations, as well as the
railroad embargoes, then the delivery was subject to a condition
the fulfillment of which depended not only upon the effort of the
herein plaintiff, but upon the will of third persons who could not
be compelled to fulfill the condition. In cases like this, which are
not expressly provided for, but impliedly covered by the Civil
Code, the obligor will be deemed to have sufficiently performed
his part of the obligation, if he has done all t ha t was in his
power, even if the condition has not been fulfilled in reality.”
Problem — Give the effects of potestative, casual and
mixed conditions upon the obligation.
Answer — If the condition is potestative in the sense that
its fulfillment depends exclusively upon the will of the debtor,
the conditional obligation shall be void. (Art. 1182, NCC.)
If the condition is potestative in the sense that its fulfillment
depends exclusively upon the will of the creditor, the conditional
obligation shall be valid. This is so because the provision of the
first sentence of Art. 1182 extends only to conditions which
are potestative to the obligor or debtor. Besides, the creditor is
naturally interested in the fulfillment of the condition since it
is only by such fulfillment th at the obligation arises or becomes
effective. (Art. 1181, NCC; 8 Manresa, 5th Ed., Bk. 1, p. 327.)
If the condition is casual in the sense t h at its fulfillment
depends upon chance and/or upon the will of a third person, the
obligation shall be valid. (Art. 1182, NCC.)
If the condition is mixed in the sense t h at its fulfillment
depends partly upon the will of a party to the obligation and
partly upon chance and/or the will of a third person, the
obligation shall be valid. (Smith, Bell & Co. vs. Sotelo, 44 Phil.
875; Hermosa vs. Longara, 93 Phil. 971.)
Problem — Suppose t hat the debtor executed a promissory
note promising to pay his obligation to the creditor as soon as
he has received funds derived from the sale of his property in a
certain place, is the condition potestative or mixed?
Answer — According to the Supreme Court in the case
of Hermosa vs. Longara, 93 Phil. 971, the condition is mixed
120
because its fulfillment depends not only upon the will of the
debtor but also upon the concurrence of other factors, such as
the acceptability of the price and other conditions of the sale,
as well as the presence of a buyer, ready, able and willing to
purchase the property.
Problem — Suppose t hat in the above problem, the debtor
promised to pay his obligation if a house belonging to him is
sold, will th at make a difference in your answer?
Answer — It will not make a difference in my answer.
The condition is still mixed because its fulfillment depends not
only upon the will of the debtor but also upon the concurrence
of other factors, such as the acceptability of the price and other
conditions of the sale, as well as the presence of a buyer, ready,
able and willing to purchase the property.
True, apparently, in Osmeña vs. Rama (14 Phil. 99), the
Supreme Court declared t hat the above condition is potestative
with respect to the debtor, but a closer perusal of the case
will show th at the declaration or statement was merely an
assumption and the same was not the actual ruling. (Hermosa
vs. Longara.)
Hence, the condition is valid. And it cannot be said t ha t if
the debtor so desires, he can always prevent the sale. According
to the NCC (Art. 1186.), if he prevents the consummation of the
sale voluntarily, the condition would be deemed or considered
complied with. (Ibid.)
Problem — Suppose t hat in the above problem, the debtor
promised to pay his obligation as soon as he ha s received the
funds derived from the sale of the property if he finally decides
to sell it, will th at make a difference in your answer?
Answer — Yes. In such case, it is evident t h at the condition
is potestative with respect to the debtor because its fulfillment
would then depend exclusively upon his will. Consequently, the
condition is void. (Hermosa vs. Longara.) The validity of the
obligation is, of course, not affected, because the rule stated
in Art. 1182 of the NCC to the effect th at when the fulfillment
of the condition depends upon the sole will of the debtor, the
conditional obligation itself shall be void, is applicable only
when the obligation shall depend for its perfection upon the
fulfillment of the condition and not when the obligation is a pre-
existing one. (See Trillana vs. Quezon Colleges, 93 Phil. 383.)
Problem — Art. 1182 of the New Civil Code declares
when that
the fulfillment of the condition depends upon the sole will
121
of the debtor, and conditional obligation shall be void. Is this

rule absolute in the sense th at it is applicable to all conditional
obligations regardless of the nature of the condition as well as of
the obligation?
Answer — The rule is not absolute. There are 2 well-
known limitations. They are as follows:
The rule is applicable only to a suspensive condition. Hence,
if the condition is resolutory and potestative, the obligation is
valid even if the fulfillment of the condition is made to depend
upon the sole will of the debtor. This is logical because it is but
natural th at the debtor is interested in the fulfillment of the
condition since it is only by such fulfillment t h a t he can reacquire
the rights which have already been vested in the creditor upon
the constitution of the obligation. In other words, the position of
the debtor when the condition is resolutory is exactly the same
as the position of the creditor when the condition is suspensive.
(Taylor vs. Uy Tieng Piao, 43 Phil. 873.)
The rule th at even the obligation itself shall be void is
applicable only to a n obligation which depends for its perfection
upon the fulfillment of the potestative condition and not to a
pre-existing obligation. Thus, if the debtor binds himself to
pay a previous indebtedness as soon as he decides to sell his
house, although the condition is void because of its potestative
character, the obligation itself is not affected since it refers to
a pre-existing indebtedness. (Trillana vs. Quezon Colleges, 93
Phil. 383.)
Art. 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 obli-
gation 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.31
Possible and Impossible Conditions. — The condition upon

which a n obligation is made to depend may also be classified as
possible or impossible. It is possible when it is capable of realization
not only according to its nature, but also according to the law, good
31
122
customs and public policy. It is impossible when it is not capable of

realization either according to its natur e or according to law, good
customs or public policy.
Idem; Effects. — According to Art. 1183 of the Civil Code,
impossible conditions as well as those which are contrary to good
customs or public policy and those which are prohibited by law
shall annul the obligation which depends upon them. 3 2 This rule
is logical considering t h a t the obligation depends for its perfection
upon the fulfillment of a condition which is either impossible, illegal,
inappropriate or illicit in character. Thus, if A obligates himself to
pay to B P10,000 if the latter can contract the inhabitants of Mars,
the obligation is a nullity because the condition is impossible. If C
promises to give to D a parcel of land if the latter secures a divorce
from his wife, the obligation is also a nullity because the condition is
contrary to law, good customs and public policy. If E binds himself to
deliver to F a n automobile if the latter will go with him around the
world on a trial honeymoon, the obligation is certainly void because
the condition is contrary to good customs. If the obligation, however,
is a pre-existing obligation, and therefore, does not depend upon the
fulfillment of the condition for its perfection, it is quite clear that
only the condition is void, but not the obligation.
It must be observed t h a t if the obligation is divisible, t h a t part
which is not affected by the impossible or unlawful condition shall be
valid. 3 3 Thus, if A and B enter into a n agreement whereby the former
binds himself to give P5,000 to the latter in two equal installments
— the first installment to be given if the latter is able to
dispose of a cache of opium belonging to the former and the second
installment to be given if the latter gets married to C, since the
obligation is divisible, t h a t part (the second part) which is not
affected by the unlawful condition shall be valid.
Furthermore, if the condition is not to do a n impossible thing, it
shall be considered as not having been agreed upon. 3 4 Consequently,
the obligation becomes pure, and therefore, immediately
demandable.
32
Luneta Motor Co. vs. Abad, 67 Phil. 23; Reyes vs. Gonzales, CA, 45 Off. Gaz.
831; Theater’s Supply Corp. vs. Malolos, CA, 48 Off. Gaz. 1803; Santos vs. Sec.
of Agriculture, 48 Off. Gaz. 3367.
33
34
Ibid.
123
Attention must also be called to the fact t ha t there is a differ-

ence with respect to effect between a condition which is impossible,
illegal, inappropriate or illicit when it is attached to a n obligation 3 5
and the same condition when it is attached to a simple or remunera-
tory donation 3 6 or to a testamentary disposition. 3 7 In the first, the ob-
ligation itself is void, while in the second, the condition is considered
as not imposed, although the donation or testamentary disposition
itself is valid.
Art. 1184. The condition that some event happen at a

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.38
Art. 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 contemplat-
ed, bearing in mind the nature of the obligation.39
Positive and Negative Conditions. — The condition upon

which a n obligation is made to depend may also be classified as
positive or negative. It is positive if it involves the performance of
a n act or the fulfillment of a n event; it is negative if it involves the
nonperformance of a n act or the nonfulfillment of a n event.
Idem; Effects. — The condition t h a t some event happen at
a determinate time shall extinguish the obligation as soon as the
time expires or if it becomes indubitable t h a t the event will not take
place. 4 0 Thus, if A binds himself to give to B P2,000 if the latter
passes the bar examinations in his first attempt, and B flunks the
examinations, the obligation is extinguished. If X binds himself
35
Ibid.
36
37
38
39
40
124
to give a new Studebaker car to Y if the latter gets married to Z

within a period of five years from the time of the constitution of
the obligation, and a t the expiration of five years, Y had not yet
complied with the condition, the obligation is also extinguished.
The condition t h a t some event will not happen a t a determinate
time shall render the obligation effective from the moment the time
indicated has elapsed, or if it has become evident t h a t the event
cannot occur.41 Thus, if A binds himself to give P5,000 to B provided
t ha t the latter shall not get married before reaching the age of
twenty-five, the condition is negative. If B is not yet married a t the
time when he finally reaches the age of twenty-five, the obligation
becomes effective.
Attention must be called to the rule stated in the second
paragraph of Art. 1185. The intention of the parties, taking into
consideration the n at ure of the obligation, shall govern if no time
has been fixed for the fulfillment of the condition. It is evident that
the same rule can also be applied to a positive condition.
Art. 1186. The condition shall be deemed fulfilled when

the obligor voluntarily prevents its fulfillment.42
Constructive Fulfillment of Suspensive Conditions. —
The above article enunciates the doctrine of constructive fulfillment
of suspensive conditions. In order t h a t this doctrine can be applied,
it is, however, necessary t h a t the obligor must have actually
prevented the obligee from complying with the condition, and that
such prevention must have been voluntary or willful in character.
Thus, where the conditions which are imposed by a certain company
in order t h a t its employees will be entitled to retirement benefits can
no longer be complied with because the retirement or pension plan
was willfully abrogated by a unilateral act of the Board of Directors
of the company, it was held t hat such conditions are deemed complied
with in conformity with Art. 1186; consequently, such employees are
now entitled to retirement benefits.43
41
42
43
Phil. Long Distance Co. vs. Jeturian, 97 Phil. 981.
125
It must be noted, however, t h a t the doctrine can be applied

only to suspensive and not to resolutory conditions. In the words of
the Supreme Court:
“This provision supposes a case where the obligor

intentionally impedes the fulfillment of a condition which would
entitle the obligee to exact performance from the obligor; and
an assumption underlying the provision is t h at the obligor
prevents the obligee from performing some act which the obligee
is entitled to perform as a condition precedent to the exaction of
what is due to him. Such a n act must be considered unwarranted
and unlawful, involving per se a breach of the implied terms of
the contract. The article can have no application to a n external
contingency which is lawfully within the control of the obligor.”44
Art. 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 par-
ties, the fruits and interests during the pendency of the con-
dition 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 de-
termine, in each case, the retroactive effect or the condition
that has been complied with.45
Art. 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.46
Effect of Suspensive Conditions Before Fulfillment. — If
the obligation depends upon a suspensive condition, the demand-
44
Taylor vs. Uy Tieng, 43 Phil. 760.
45
46
126
ability as well as the acquisition or effectivity of rights arising from

the obligation is suspended pending the happening or fulfillment
of the fact or event which constitutes the condition. It is but logi-
cal, therefore, t ha t during the pendency of the condition, the obli-
gee or creditor has only a mere hope or expectancy. This hope or
expectancy, however is protected by the law. This is evident from
the provision of the first paragraph of Art. 1188. Inasmuch as the
obligee or creditor has a n expectant right to the eventual fulfillment
or performance of the obligation, it is but just and proper t h a t the
law accords to him the right to avail of all remedies for the protec-
tion or preservation of such right. Thus, if the obligor has promised
in writing to sell a parcel of land to the obligee upon the happening
of a certain condition, and subsequently, before the fulfillment of the
condition, he changes his mind and finally decides to sell the land to
another person, the obligee can bring a n appropriate action, such as
a petition for the issuance of a writ of injunction, to prevent the sale
in order to preserve his right.
In the case of the obligor or debtor, it is also logical t h a t during
the pendency of the condition, his obligation to comply with the
prestation which constitutes the object of the obligation is held in
suspense until the fulfillment of the condition. Or more accurately,
his obligation to comply with the prestation arises only if and
when the event which constitutes the condition is finally fulfilled.
Consequently, if he has paid anything by mistake during the
pendency of the condition, he can recover what h as been paid. 4 7
Problem — Before the war, the Phil. Long Distance Co.

(PLDT) adopted a pension plan for its employees by virtue of
which all employees who have reached the age of 50 years and
who have rendered 20 years or more service may be retired with
a pension. After the war, the Board of Directors of the Company
passed a resolution abrogating the pension plan. Subsequently,
sixty employees who were affected filed a complaint against
the Company claiming monetary benefits under the pension
plan. The Company interposed the following defenses: (1) that
the obligation to pay a pension to the plaintiffs is subject to
certain suspensive conditions; consequently, such plaintiffs
have no personality to ask for monetary benefits until after
such conditions are fulfilled; (2) t hat even granting without
47
127
admitting th at they have, they are not entitled to such benefits

until after the conditions are fulfilled; and (3) t ha t war losses
had extinguished the Company’s obligation to proceed with the
pension plan. If you are the judge, how will you decide the case?
Reasons.
Answer — The facts of the above problem are exactly the
same as those in the case of PLDT Co. vs. Jeturian, et al., 97
Phil. 981, where the Supreme Court decided in favor of the
plaintiffs. For purposes of clarity, let us take up the defenses
advanced by the defendant company separately.
(1)The 1st defense is untenable. While it is t rue that
when an obligation is subject to a suspensive condition, what
is acquired by the creditor is only a mere hope or expectancy,
nevertheless, it is a hope or expectancy th at is protected by the
law. According to Art. 1188 of the NCC, the creditor may, before
the fulfillment of the condition, bring the appropriate actions for
the preservation of his right.
(2)The second defense is untenable. According to Art.
1186 of the NCC, the condition shall be deemed fulfilled when
the obligor voluntarily prevents its fulfillment. The act of the
Board of Directors of the Phil. Long Distance Co. in abrogating
the pension plan certainly falls within the sphere or purview of
this rule.
(3)The third defense is also untenable. This is so
because the defense of fortuitous event is available only if the
obligation is determinate and not if the obligation is generic.
Here, the obligation is clearly generic since it involves the
payment of money.
From the foregoing, it is clear th at the case should be
decided in favor of the plaintiffs.
Effect of Suspensive Conditions After Fulfillment. —

Once the event which constitutes the condition is fulfilled, the
obligation arises or becomes effective. The right of the creditor,
which, before the fulfillment of the condition, was a mere hope or
expectancy, is perfected. It becomes effective and demandable. The
obligor or debtor, on the other hand, can thereafter be compelled to
comply with what is incumbent upon him.
Idem; Retroactivity of effect. — There is, however, a
very important precept or principle which must be noted once the
condition upon which the obligation depends is finally fulfilled. This
128
refers to the retroactive character of the effects of the fulfillment of

the condition.48 The basis of this precept is simple. The condition
which is imposed is only a n accidental, not a n essential, element of
the obligation. Consequently, once the event which constitutes the
condition is fulfilled thus resulting in the effectivity of the obligation,
its effects must logically retroact to the moment when the essential
elements which gave birth to the obligation have taken place and
not to the moment when the accidental element was fulfilled.49
The principle of retroactivity can only apply to consensual
contracts. It can have no application to real contracts, such as
deposit, pledge or commodatum which can only be perfected by
delivery. Neither can it have any application to those contracts in
which the obligation arising therefor can only be realized within
successive periods or intervals, such as lease, hire of service, life
annuity, and similar contracts. 5 0
The application of the principle of retroactivity must, howev-
er, be tempered by principles of justice and practicability. The law,
therefore, has provided for certain limitations which must be com-
plied with in the application of the principle.
Idem; id. — In obligations to give. — 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. Thus, if A had obligated
himself to sell a certain parcel of land to B for P100,000 subject to a
condition of a suspensive character, and such condition was fulfilled
two years after the perfection of the contract, a literal application of
the principle of retroactivity would have the effect of compelling A
to deliver to B not only the land, but also all of the fruits which he
may have gathered or received therefrom during the period from the
time of the perfection of the contract to the time of the fulfillment
of the condition; and as far as B is concerned, it would have the
effect of compelling him to pay to A not only the P100,000, but also
the interest thereon during the same period. But because of the
reciprocal character of the obligation, the law, as a m atter of justice
and convenience, considers the fruits and interests as the equivalent
48
Art. 1187, Civil Code, pp. 334-335.
49
50
7 Planiol and Ripert 353-354.
129
of each other. In other words, they are deemed to compensate each

other mutually. 5 1
When the obligation is unilateral, the debtor shall appropriate
the fruits and interests received, unless from the nature and
circumstances of the obligation it can be inferred t h a t the intention
of the person constituting the same was different. This rule is based
on justice. Since the obligor or debtor does not receive any equivalent
or valuable consideration from the obligee or creditor when the
obligation is unilateral, it is but logical t h a t he shall be entitled to
all of the fruits or interests of the thing pending the fulfillment of the
condition, unless there is a contrary intention on his part. Thus, if A
had obligated himself to give to B a parcel of land if the latter gets
married to C, and the condition is fulfilled only after two years from
the time of the constitution of the obligation, he shall be obligated to
deliver only the land and not the fruits which he may have gathered
or received therefrom during the pendency of the condition.52
Idem; id. — In obligations to do or not to do. — In case of
personal obligations, the courts will have to determine in each case
the retroactive effect of the condition t h a t has been complied with.
This duty of the courts includes the power to determine whether the
effects of the fulfillment of the condition shall retroact to the very
moment of the constitution of the obligation or only to a specified
date before fulfillment. It can even include the power to determine
whether or not there will be any retroactivity of effects.53
Art. 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:
(1)If the thing is lost without the fault of the debtor,
the obligation shall be extinguished;
(2)If the thing is lost through the fault of the debtor,
he shall be obliged to pay damages; it is understood that the
51
52
Ibid., p. 335.
53
Ibid.
130
thing is lost when it perishes, or goes out of commerce, or

disappears in such a way that its existence is unknown or it
cannot be recovered;
(3)When the thing deteriorates without the fault of
the debtor, the impairment is to be borne by the creditor;
(4)If it deteriorates through the fault of the debtor, the
creditor may choose between the rescission of the obligation
and its fulfillment, with indemnity for damages in either
case;
(5)If the thing is improved by its nature, or by time,
the improvement shall inure to the benefit of the creditor;
(6)If it is improved at the expense of the debtor, he shall
have no other right than that granted to the usufructuary.54
Effect of Loss, Deterioration or Improvement. — What
is the effect of the loss, deterioration or improvement of the thing
which constitutes the object of the obligation during the pendency
of the condition? This question is answered by the rules which are
stated in Art. 1189.
These rules are natu ral consequences of the principle of
retroactivity which is embodied in Art. 1187. They refer only to
conditional obligations to give a determinate thing. Although the
loss, deterioration or improvement occurs during the pendency of
the condition, such rules are predicated on the fulfillment of such
conditions.
Idem; Losses. — Loss of the thing due must be understood
in its technical, not vulgar, sense. Thus, according to the Code, it is
understood t h a t the thing is lost: (1) when it perishes; or (2) when it
goes out of commerce; or (3) when it disappears in such a way that
its existence is unknown or it cannot be recovered.55 It is evident
from a n examination of the first and second rules stated in Art.
1189 t h a t the effect of the loss or destruction of the thing which
constitutes the object of the obligation shall depend upon whether
the loss or destruction occurred without the fault of the debtor or
through his fault. If the thing is lost without any fault of the debtor,
54
55
131
the obligation is extinguished. However, if it is lost through his

fault, the obligation is converted into one of indemnity for damages.
The first rule is in conformity with Art. 1262 of the Code.
Idem; Deteriorations. — The rules contained in Nos. 3
and 4 of Art. 1189 are self-explanatory. If the thing deteriorates
without the fault of the debtor, the impairment is to be borne by the
creditor. However, if it deteriorates through the fault of the debtor,
the creditor may choose between bringing a n action for rescission
of the obligation with damages and bringing a n action for specific
performance with damages.
Idem; Improvements. — If the thing is improved by its
nature or by time, the improvement shall inure to the benefit of
the creditor. Thus, in case of natural accessions, such as alluvion,
avulsion, abandoned river beds, or islands which are formed, the
accession shall inure to the benefit of the creditor. However, if the
thing is improved a t the expense of the debtor, he shall have no
other right tha n t h a t granted to a usufructuary. Consequently,
the debtor cannot ask reimbursement for the expenses incurred
for useful improvements or for improvements for mere pleasure; 5 6
he can, however, ask reimbursement for necessary expenses. 5 7
Although he cannot ask the creditor to reimburse his expenses for
useful improvements and improvements for mere pleasure, he has
the right to remove such improvements, provided it is possible to
do so without damage to the thing or property. 5 8 He may also set off
the improvements he may have made on the property against any
damage to the same. 5 9
Problem — Suppose th at an obligation is subject to a

suspensive condition, but before the fulfillment of the condition
the object of the obligation was lost or it h as deteriorated, or
improvements were made thereon, what is the effect of such
loss, or deterioration, or improvements if the condition is finally
fulfilled?
Answer — When the conditions have been imposed with
the intention of suspending the efficacy of a n obligation to give,
the following rules shall be observed in case of the improvement,
56
Art. 579, Civil
Code. 57Art. 546, Civil
Code.
59
132
loss or deterioration of the thing during the pendency of the

condition:
(1)If the thing is lost without the fault of the debtor, the
obligation shall be extinguished;
(2)If the thing is lost through the fault of the debtor, he
shall be obliged to pay damages; it is understood t h at the thing
is lost when it perishes, or goes out of commerce, or disappears
in such a way t hat its existence is unknown or it cannot be
recovered;
(3)When the thing deteriorates without the fault of the
debtor, the impairment is to be borne by the creditor;
(4)If it deteriorates through the fault of the debtor, the
creditor may choose between the rescission of the obligation and
its fulfillment, with indemnity for damages in either case;
(5)If the thing is improved by its nature, or by time, the
improvement shall inure to the benefit of the creditor;
(6)If it is improved at the expense of the debtor, he
shall have no other right th an th at granted to the usufructuary.
(Art. 1189, NCC.)
Problem — Are the above rules also applicable if the
condition is resolutory?
Answer — Yes. (Art. 1190, NCC.) However, in applying
these rules, the “debtor” is the person obliged to retu rn the
object of the obligation in case of fulfillment of the condition,
while the “creditor” is the person to whom the thing or object
must be returned.
Art. 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 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.60
60
133
Effect of Resolutory Conditions Before Fulfillment. —

Because of the fact that in obligations with a resolutory condition, the
right which the obligee or creditor has already acquired by virtue of
the obligation is always subject to the threat of extinction during the
pendency of the condition, the obligor or debtor is placed in a position
which is very similar to t h a t of the obligee or creditor in obligations
with a suspensive condition. Like the latter he has also a hope or
expectancy during the pendency of the condition. This is so because
if and when the event which constitutes the resolutory condition
happens or is fulfilled, he will certainly reacquire whatever he may
have paid or delivered to the obligee or creditor. Consequently, the
same right which is available to the creditor during the pendency
of the condition in obligations which a suspensive condition is also
available to the debtor in obligations with a resolutory condition.
Since the latter has a hope or expectancy of reacquiring whatever he
may have paid or delivered to the creditor, this hope or expectancy
must be protected. Hence, commentators are unanimous in holding
t ha t the right which is explicitly recognized in the first paragraph
of Art. 1188 is also available to the debtor in obligations with a
resolutory condition. Although apparently this right is available
only to the creditor in obligations with a suspensive condition,
justice demands t h a t the rights must also be available to the debtor
in obligations with a resolutory condition during pendency of the
said condition.61
Effect of Resolutory Conditions After Fulfillment. —
As noted in the preceding sections, rights which are vested in the
obligee or creditor in obligations with a resolutory condition are
always subject to a threat of extinction during the pendency of the
condition. If the resolutory condition is not fulfilled, such rights are
consolidated; in other words, they become absolute in character.
If it is fulfilled, such rights are extinguished altogether; in other
words, whatever may have been paid or delivered by one or both of
the parties upon the constitution of the obligation shall have to be
returned upon the fulfillment of the condition. There is, therefore, a
return to the status quo.62
Idem; Retroactivity of effect. — It is evident from an
examination of the first paragraph of Art. 1190 t h a t the retroactivity
61
62
Ibid.
134
of effects of a resolutory condition is more patent t ha n t h a t of a

suspensive condition, notwithstanding the fact t h a t here there is
no positive declaration of the principle as in the case of the first
paragraph of Art. 1187. This is so because, unlike Art. 1187 which
provides for certain exceptions or limitations to the principle of
retroactivity, here there are no exceptions.
Thus, in obligations to give, upon the fulfillment of the
resolutory condition, the parties shall r eturn to each other what
they have received. This rule is applicable whether the obligation
is reciprocal or unilateral. There are no exceptions or limitations
similar to those provided for in suspensive conditions. The basis
for the difference, according to Manresa, lies in the fact t h a t in
obligations with a resolutory condition, the fulfillment of the condition
and its retroactivity have the effect of signifying the nonexistence of
the obligation and what is nonexistent must not give rise to any
effect whatsoever. Consequently, the fiction of retroactivity must
be carried to its full consummation. Therefore, every vestige of the
obligation must be effaced as much as possible through the process
of restitution. 6 3
However, the process of restitution must be accompanied by a
consequence which is not stated in Art. 1190, but which is required
by the most elementary concept of justice. According to Art. 443 of
the Code, “he who receives the fruits has the obligation to pay the
expenses made by a third person in their production, gathering,
and preservation.’’ Consequently, when a party to the obligation is
obliged to return whatever he may have received including the fruits
thereof to the other by reason of the fulfillment of the condition, he
has the right to demand reimbursement for all expenses which he
may have incurred in the production, gathering, and preservation of
the said fruits. 6 4
In obligations to do or not do, the retroactivity of effects of the
resolutory condition shall depend upon the discretion of the courts,
as in the case of suspensive conditions.
Idem; Effect of loss, deterioration or improvement. —
In case of loss, deterioration or improvement of the thing during
the pendency of the condition, the rules laid down in Art. 1189
63
Ibid., pp. 345-346.
64
Ibid., p. 346.
135
are applicable. Consequently, what had been said regarding the

effect of loss, deterioration or improvement of the thing during the
pendency of a suspensive condition once the condition is fulfilled
are also applicable here. However, in the application of the rules
stated in Art. 1189 to obligations subject to a resolutory condition,
the “debtor” is the person obliged to return, while the “creditor” is
the person to whom the thing or object must be returned.
Art. 1191. The power to rescind obligations is implied

in reciprocal ones, in case one of the obligors should not
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.65
Concept of Reciprocal Obligations. — Reciprocal

obligations are those which are created or established a t the same
time, out of the same cause, and which result in m u tu al
relationships of creditor and debtor between the parties. The
outstanding characteristic of this type of obligation is reciprocity
arising from identity of cause by virtue of which one obligation is a
correlative of the other. Thus, in a contract of sale, the obligation
of the vendee to pay the price is a correlative of the obligation of
the vendor to deliver the thing sold; in a contract of lease, the
obligation of the lessee to pay the rental or price of the lease is a
correlative of the obligation of the lessor to permit the use by the
lessee of the thing leased. Although reciprocal obligations are
bilateral in character, they m u s t not be confused with those
obligations in which the parties are mutually, bu t not
reciprocally obligated, as when a person is the debtor of another by
65
136
virtue of a contract of loan and, a t the same time, the creditor by

virtue of a contract of agency.66
Tacit Resolutory Condition. — Because of the fact t h a t in
reciprocal obligations the obligation of one party is the correlative
of the obligation of the other, the Code in the first paragraph of Art.
1191 has established the principle t h a t if one of the parties fails to
comply with what is incumbent upon him, there is a right on the
part of the other to rescind (or “resolve” in accordance with accepted
translations of the Spanish Civil Code) the obligation. This condition
is implied as a general rule in all reciprocal obligations. Since it
has the effect of extinguishing rights which are already acquired or
vested, it is resolutory in character.
Idem; Necessity of judicial action. — The right to rescind
or resolve the obligation is a right which belongs to the injured party
alone. 6 7 However, it is essential t h a t it must be invoked judicially. 6 8
This is evident from the provision of the third paragraph of Art.
1191 which states t h a t the court shall decree the rescission, unless
there be a just cause authorizing the fixing of a period. 6 9 Therefore,
the mere failure of a party to comply with wh at is incumbent upon
him does not ipso jure produce the rescission or resolution of the
obligation. In other words, the party entitled to rescind must invoke
judicial aid by filing the proper action for rescission. Consequently,
in a contract of sale, the fact t h a t the vendee failed to pay the
purchase price of the thing sold does not mean t h a t the vendor can
just take possession of the thing which had already been delivered
to the vendee. He must invoke judicial aid by filing a n action for
rescission or resolution of the contract if he so elects. 7 0 As stated by
the Supreme Court, it is the judgment of the court and not the mere
will of the vendor which produces the rescission of the sale. 7 1
It must be noted, however, t h a t where the contract itself
contains a resolutory provision by virtue of which the obligation
maybe cancelled or extinguished by the injured party in case of
66
67
Mateos vs. Lopez, 6 Phil. 206; Bosque vs. Yu Chipeco, 14 Phil. 95.
68
Guevara vs. Pascual, 12 Phil. 311; Escueta vs. Pando, 76 Phil. 256; Republic of
the Phil. vs. Hospital San J u a n de Dios a nd Burt, 47 Off. Gaz. 1833.
69
Escueta vs. Pando, 76 Phil. 256.
70
Ocejo, Perez & Co. vs. International Banking Corp., 37 Phil. 631.
71
Ibid.
137
breach, judicial permission to cancel or rescind the contract is no

longer necessary. 7 2 In Taylor vs. Uy Tieng Piao, 43 Phil. 873, the
defendant was expressly given the right to terminate plaintiff’s
employment should the machinery expected fail to arrive in six
months. It was held t h a t the defendant had the right to cancel
the contract. In Caridad Estates, Inc. vs. Santero, 71 Phil. 114, a
provision granting the vendor the option to recover possession of
the property sold if the vendee should fail to make the necessary
payments was also recognized and given full effect. The only
limitation on the exercise of the right to terminate a contract is
t h a t it must not be contrary to law, morals, good customs, public
order or public policy.73 In the recent case of Sison vs. CA (164 SCRA
339), the Supreme Court in deciding whether the rescission of the
contract to sell a subdivision lot after the lot buyer has failed to
pay several installments was valid, the Court said: judicial action
for the rescission of a contract is not necessary where the contract
provides t h a t it may be cancelled for violation of any of its terms and
conditions. Consequently, Art. 1191 of the Civil Code can be applied
only to reciprocal contracts which contain no resolutory conditions.
The use of the word “implied” in the article supports this conclusion.
The right to rescind is “implied’’ only if not expressly granted; no
right can be said to be implied if expressly recognized.74
It must also be noted t h a t Art. 1191 cannot be applied to
contracts of partnership where one of the partners fails to pay
the whole amount which he has bound himself to contribute to
the common fund. In such a case, the provisions of Arts. 1786 and
1788 would be applicable. This is so because Art. 1191 refers to
the resolution of reciprocal obligations in general, while Arts. 1786
and 1788 refer to contracts of partnership in particular. And it is
a well-known principle t h a t special provisions prevail over general
provisions. 7 5
It must also be noted t h a t the above article cannot be applied to
sales of real property or sales of personal property by installments.
The first is governed by the Recto Law (Arts. 1484 to 1486, Civil
72
Hanlon vs. Ha u se r ma n n and Beam, 40 Phil. 796; De la Rama Steamship Co.
vs. Tan, 99 Phil. 1034.
73
De la R ama Steamship Co. vs. Tan, 99 Phil. 1034.
74
See also Froilan vs. P a n Oriental Shipping Co., 12 SCRA 276.
75
Sancho vs. Lizarraga, 55 Phil. 601.
138
Code), while the second is governed by the Maceda Law (Rep. Act
No. 6552).
Idem; Nature of Breach. — What must be the natu re of
the breach which will entitle the injured party to file an action
for the rescission of the obligation? This question was answered
by the Supreme Court in the case of Song Fo & Co. vs. Hawaiian-
Philippine Co.76 The facts of this case are as follows: Plaintiff and
defendant had entered into a contract whereby the latter bound
itself to deliver to the former 300,000 gallons of molasses within a
certain period, payment to be made upon presentation of accounts
a t the end of each month. It appears t h a t a request for payment of
accounts for molasses delivered was sent to the plaintiff in January,
1923. Instead of paying a t the end of said month, plaintiff defaulted
and paid only on February 20, 1923. Thereupon, defendant gave
notice to the plaintiff rescinding the contract for failure to pay a t the
stipulated date. Subsequently, the plaintiff commenced this action
to recover damages from the defendant for breach of contract. The
question, therefore, which must be resolved is whether the defendant
company had the right to rescind the contract or not. The Supreme
Court held:
“The terms of payment fixed by the parties are controlling.

The time of payment stipulated in the contract should be treated
as of the essence of the contract. Theoretically, agreeable to
certain conditions which could easily be imagined, the Hawaiian-
Philippine Co. would have the right to rescind the contract
because of the breach of Song Fo & Co. But actually, there is
here present no outstanding fact which would legally sanction
the rescission of the contract by the Hawaiian-Philippine Co.
“The general rule is th at rescission will not be permitted
for a slight or casual breach of the contract, but only for such
breaches as are substantial and fundamental as to defeat
the object of the parties in making the agreement. A delay in
payment for a small quantity of molasses for some twenty days
is not such a violation of an essential condition of the contract as
warrants rescission for nonperformance. Not only this, but the
Hawaiian-Philippine Co. waived this condition when it arose
by accepting payment of the overdue accounts and continuing
76
47 Phil. 821. See also Villanueva vs. Yulo, G.R. No. L-12985, Dec. 29, 1959;
Universal Food Corp. vs. Court of Appeals, 33 SCRA 1.
139
with the contract. Thereafter, Song Fo & Co. was not in default
in payment so th at the Hawaiian-Philippine Co. had in reality
no excuse for writing its letter of April 2, 1923, cancelling the
contract.
“We rule th at the appellant has no legal right to rescind
the contract of sale because of the failure of Song Fo & Co. to pay
for the molasses within the time agreed upon by the parties.”
In Delta Motor Corp. vs. Gentino (170 SCRA 29), the Supreme
Court reiterated the rule t h a t rescission will be ordered only where
the breach complained of is substantial as to defeat the object of
the parties in entering into the agreement. It will not be granted
where the breach is slight or casual. Thus, in a subsequent case of
Ang vs. CA (170 SCRA 2863) it was held t h a t while it is true t h a t in
reciprocal obligation, such as the contract of purchase and sale, the
power to rescind is implied and any of contracting parties may, upon
non-fulfillment by other party of his p ar t of the obligation, resolve
the contract, rescission will not be permitted for a slight casual
breach of the contract.
Idem; Alternative remedies of injured party. — In case
one of the parties 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. These remedies are alternative, not cumulative; in other
words, the injured party cannot seek both. 7 7 Thus, in a case where
the lessee was unable to pay rentals for two months, holding that
the lessor has the right to rescind the contract of lease, the Supreme
Court declared:
“In Article 1124 (now Art. 1191) of the Civil Code it is

declared th at a n obligation may be resolved if one of the obligors
fails to comply with th at which is incumbent upon him; and
it is declared t hat the person prejudiced may elect between
the fulfillment of the obligation (specific performance) and its
resolution, with compensation for damages and payment of
interest in either case. This general principle is substantially
reproduced in the special provisions of the Civil Code dealing
77
San J u a n vs. Cotay, 26 Phil. 328; Rios vs. Jacinto, 49 Phil. 9; Heacock vs. Butal
Manufacturing Co., 66 Phil. 245; Magdalena Estate, Inc. vs. Myrick, 71 Phil. 344;
Ramirez vs. Court of Appeals, 52 Off. Gaz. 779; Castro vs. Lim, CA, 52 Off. Gaz. 2056;
Albert vs. Univ. Publishing Co., 104 Phil. 1054.
140
with the rights and obligations of lessors and lessees. In the first
paragraph of Article 1555 (now Art. 1657), it is declared to be
the duty of the lessee to pay the price of the lease in the manner
agreed upon. In Article 1556 (now Art. 1659), the failure of the
lessee to comply with this obligation is declared to be a found for
the rescission of the contract and the recovery of damages, or
the latter only, leaving the contract in force. It will t hus be seen
th at the lessor is permitted to elect between the two remedies
of (1) rescission, or resolution, with damages and (2) specific
performance, with damages.’’78
It must, however, be observed t h a t even after the injured party

has chosen fulfillment and such fulfillment should become impossible,
he can still seek the rescission or resolution of the obligation. 7 9 It
must also be observed t h a t the right to choose between fulfillment
and rescission is not incompatible with a n alternative prayer for
fulfillment or rescission in the complaint. 8 0 As a ma tter of fact,
even if the plaintiff apparently seeks to avail of both remedies, the
presumption is t h a t he is leaving the matt er to the sound discretion
of the court. 8 1
Idem; id. — Damages to be awarded. — Whether the
injured party chooses specific fulfillment or rescission, the rule
is t h a t he can recover damages. 8 2 In estimating the damages to be
awarded in case of rescission, only those elements of damages can
be admitted t h a t are compatible with the idea of rescission; and
of course, in estimating the damages to be awarded in case the
injured party elects specific performance, only the elements of
damages can be admitted which are compatible with the idea of
specific performance. It follows t h a t damages which would be
inconsistent with the idea of specific performance cannot be
awarded in an action where rescission is sought. 8 3 Thus, in the case
of the rescission of a contract of sale for failure of the purchaser to
pay the stipulated price, the seller is entitled to be restored to the
possession of the thing sold, if it has already been delivered. Bu t
he cannot have both the thing sold and
78
Rios vs. Jacinto, et al., 49 Phil. 1.
79
80
81
Mindanao Prospecting Ass. Inc. vs. Golden Gate Mining Co., CA, 48 Off. Gaz.
3955.
82
83
Rios vs. Jacinto, et al., 49 Phil. 7.
141
the price agreed upon for the resolution or rescission of the contract
has the effect of destroying the obligation to pay the price. Similarly,
in case of the rescission of a contract of lease, the lessor is entitled
to be restored to the possession of the leased premises but he cannot
have both the possession of the leased premises and the rent which
the other party had contracted to pay. The termination of the lease
has the effect of destroying the obligation to pay rent for the future. 8 4
Idem; Judicial discretion to decree rescission. — Accord-
ing to the third paragraph of Art. 1191, the court shall decree the
rescission claimed, unless there is a just cause authorizing the fix-
ing of a period. It is clear from this provision t h a t the right of the
injured party in reciprocal obligations to rescind in case of failure of
the other to comply with what is incumbent upon him is not absolute
in character. This is so because the court is given the discretionary
power to fix a period within which the obligor in default may be
permitted to comply with what is incumbent upon him. 8 5 It m ust be
noted, however, t h a t this rule cannot be applied to reciprocal obliga-
tions arising from a contract of lease. This is so because such obliga-
tions are governed by the provisions of Art. 1659 of the Code and not
by those of Art. 1191, and although Art. 1659 is practically a restate-
ment of Art. 1191, and there is, however, a difference, for whereas
under Art. 1191 courts have the discretionary power to refuse the
rescission of contracts if in their judgment the circumstances of the
case wa rr ant the fixing of a term within which the obligor or debtor
may fulfill his obligation, under Art. 1659 there is no such discre-
tionary power granted to courts. 8 6
Idem; Effect of rescission. — When a n obligation has been
rescinded or resolved, it is the duty of the court to require the parties
to surrender whatever they may have received from the other; in
other words, the parties must be placed as far as practicable in
their original situation. 8 7 This should, however, be understood to
be without prejudice to the liability of the party who was unable
to comply with what was incumbent upon him for damages.
Thus, where a contract of sale of a certain lot was rescinded by
Ibid.
84
85
Ocejo, Perez & Co. vs. International Banking Corp., 37 Phil. 361; Kapisanan
Banahaw vs. Dejarme, 55 Phil. 338; Puerto vs. Go Ye Pin, 47 Off. Gaz. 264.
86
Mina and Bacalla vs. Rodriguez, CA, 40 Off. Gaz. 65.
87
Po Pauco vs. Singuenza, 49 Phil. 404.
142
the vendor because of the failure of the vendee to pay for several
monthly installments, it was held t ha t since the contract contains
no provision authorizing the vendor, in the event of the failure of
the vendee to continue in the payment of the stipulated monthly
installments, to retain the amounts already paid to him, the parties
should be restored as far as practicable to their original situation
which can be approximated only by ordering the r eturn of the things
which are the object of the contract with their fruits and of the price
with its interests computed from the date of the institution of the
action. 8 8 The rescission, however, may be partial in character. 8 9
Idem; id. — Effect upon third persons. — According to
the fourth paragraph of Art. 1191, the decree of rescission shall be
understood to be without prejudice to the rights of third persons who
have acquired the thing in accordance with Arts. 1385 and 1388 and
the Mortgage Law. Consequently, the rescission of a contract can
no longer be demanded when he who demands it is no longer in a
position to r eturn whatever he may be obliged to restore; neither can
it be demanded when the thing which is the object of the contract is
already legally in the possession of a third person who did not act in
bad faith. 9 0 In such case, the only remedy of the injured party is to
proceed against the party responsible for the transfer or conveyance
for damages. 9 1 However, if the third person had acquired the thing
in bad faith, the injured party can still go after the property. If for
any cause the thing can no longer be recovered, the only remedy of
the injured party is to proceed against the third person who had
acted in bad faith for damages. 9 2
Problem — What is the effect if one of the obligors in

reciprocal obligations should not comply with wha t is incumbent
upon him?
Answer — 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
88
Magdalena Estate, Inc. vs. Myrick, 71
Phil. 344. 8 9 Tan Guat vs. Pamintua n, CA, 37 Off.
Gaz. 2494. 90Art. 1385, Civil Code.
91
Ibid.
92
143
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, 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. (Art. 1191,
NCC.)
Problem — A sold a parcel of land to B for P20,000. In the
deed of sale, there is a stipulation th at the purchase price shall
be paid on a certain date and t hat in case of failure to pay on
such a date, A can rescind the contract. Suppose t h at B fails to
pay on the date stipulated in the contract, is Article 1191 of the
NCC applicable? Why?
Answer — Art. 1191 is not applicable. Where the contract
itself contains a resolutory provision by virtue of which the
obligation may be cancelled or extinguished in case of breach,
judicial permission to rescind the contract is no longer necessary.
(Hanlon vs. Hausermann, 40 Phil. 796; De la Rama Steamship
Co. vs. Tan, 99 Phil. 1034.) The use of the word “implied” in the
article supports this conclusion. The right to rescind is “implied”
only if not expressly granted; no right can be said to be implied
if expressly recognized. Consequently, in the i nst ant case, Art.
1191 is not applicable. The rule t hat is applicable is found in
Art. 1592 under the law on sales.
Problem — L leased a house to J. The contract stipulates
th at in case of non-payment of the rent, L can eject L without
court action. J defaulted for two months. As a result, L ejected
him. Can J claim damages because the renunciation of his day
in court as stipulated in the contract is void? (1977)
Answer — J cannot claim damages because the renuncia-
tion of his day in court as stipulated in the contract is void. True,
under the NCC, in reciprocal obligations there is always a tacit
resolutory condition t hat if one party is unable to comply with
what is incumbent upon him, the injured party has the power
to rescind the obligation. (Art. 1191.) This is reiterated in the
law on lease. (Art. 1659.) True also, it is a well-settled rule that
the injured party must invoke judicial aid. But then, this rule
can be applied only to a case where the obligation is silent with
respect to the power to rescind. The right to rescind is implied
only if not expressly granted; no right can be said to be implied
if expressly recognized. This is also well-settled. In the instant
144
case, the right of L to eject J without a court action in case of

non-payment of the rent was expressly recognized in the con-
tract itself. What L did was merely to enforce what was agreed
upon.
Problem — (a) Are the provisions of Art. 1191 of the New
Civil Code applicable to obligations arising from contracts of
lease or of partnership? Explain.
(b) What must be the nature or character of the breach
which will justify the injured party in bringing a n action either
for fulfillment of the obligation plus damages or for rescission
plus damages?
Answer — (a) In the case of obligations arising from a
contract of lease, what are applicable are the provisions of Art.
1659 of the New Civil Code and not those of Art. 1191. Although
Art. 1659 is practically a restatement of Art. 1191, yet there
is a difference. Under Art. 1191, courts have the discretionary
power to refuse the rescission of contracts if in their judgment
the circumstances of the case warran t the fixing of a t erm within
which the obligor may fulfill the obligation, while under Art.
1659, there is no such discretionary power granted to courts.
(Mina and Bacalla vs. Rodriguez, CA, 40 Off. Gaz. 65.)
In the case of obligations arising from a contract of
partnership, as a general rule, Art. 1191 is applicable. However,
this article cannot be applied where one of the partners fails to
pay the whole amount which he has bound to contribute to the
common fund. This is so because in such case Arts. 1786 and
1788 of the NCC are applicable. These provisions are particular
provisions. Consequently, they prevail over the general
provisions of Art. 1191 which refer to the resolution of reciprocal
obligations in general. (Sancho vs. Lizarraga, 55 Phil. 601.)
(b) The general rule is t hat rescission will not be per-
mitted for a slight or casual breach of the contract, but only for
such breaches as are substantial or fundamental as to defeat the
object of the parties in making the agreement. Consequently, a
delay in payment for a small quantity of molasses for some 20
days is not such a violation of an essential condition as war-
rant s rescission for non-performance. (Song Fo vs. Hawaiian-
Philippine Co., 47 Phil. 821; Villanueva vs. Yulo, L-12985, Dec.
29, 1959; Universal Food Corp. vs. Court of Appeals, 33 SCRA
1.)
145
Art. 1192. In case both parties have committed a breach

of the obligation, the liability of the first infractor shall be
equitably tempered by the courts. If it cannot be determined
which of the parties first violated the contract, the same
shall be deemed extinguished, and each shall bear his own
damages.93
Effect of Breach by Both Parties. — The above rules are

deemed just. The first one is fair to both parties because the second
infractor also derived, or thought he would derive, some advantage
by his own act or neglect. The second rule is likewise just because
it is presumed t h a t both a t about the same time tried to reap some
benefit. 9 4
Section 2. — Obligations with a Period
Art. 1193. Obligations for whose fulfillment a day certain

has been fixed, shall be demandable only when that day
comes.
Obligations with a resolutory period take effect at once,
but terminate upon arrival of the day certain.
A day certain is understood to be that which must
necessarily come, although it may not be known when.
If the uncertainty consists in whether the day will come
or not, the obligation is conditional, and it shall be regulated
by the rules of the preceding section.95
Concept of Term or Period. — According to Manresa’s

classic definition, a term or period is an interval of time,
which, exerting a n influence on a n obligation as a consequence
of a juridical act, either suspends its demandability or produces its
extinguishment. 9 6 Hence, obligations with a period may be
defined as those whose demandability or extinguishment is
subject to the expiration of a term or period.
93
New provision.
94
95
96
146
Obligations with a Period
Idem; Distingished from condition. — A term or period

must not be confused with a condition. As we have already seen,
a condition is a future and uncertain fact or event upon which an
obligation is made to depend. Hence, the two may be distinguished
from each other in the following ways:
(1)As to requisites: While a term or period refers to a n inter-
val of time which is future and certain, a condition refers to a fact or
event which is future and uncertain.
(2)As to fulfillment: While a term or period is a n interval of
time which must necessarily come, although it may not be known
when, a condition is a future and uncertain fact or event which may
or may not happen. 9 7
(3)As to influence on obligation: While a term or period
merely exerts a n influence upon the time of the demandability or
extinguishment of a n obligation, a condition exerts a n influence
upon the very existence of the obligation itself.98
(4)As to retroactivity of effects: While a term or period does
not have any retroactive effect unless there is a n agreement to the
contrary, a condition has retroactive effects.
(5)As to effect of will of debtor: When a term or period is left
exclusively to the will of the debtor, the existence of the obligation is
not affected, but when a condition is left exclusively to the will of the
debtor, the very existence of the obligation is affected.99
Classification of Term or Period. — A term or period may
be classified as follows:
(1) Suspensive or resolutory.— According to the first and
second paragraphs of Art. 1193, a period may be suspensive (ex die)
or resolutory (in diem). It is suspensive when the obligation becomes
demandable only upon the arrival of a day certain; it is resolutory
when the obligation is demandable a t once, although it is terminated
upon the arrival of a day certain. Day certain is defined in the third
paragraph of the article. Thus, if A donates a parcel of land to B to be
delivered after his death, there is a suspensive term. The time of the
97
Ibid., p. 370.
98
Ibid., p. 371.
99
147
death of the donor is a day certain because it m ust necessarily come,

although it may not be known when. On the other hand, if C donates
the usufruct or use and enjoyment of a house and lot to D for ten
years, the term is resolutory. As soon as the donation is perfected, D
can demand the delivery of the house and lot immediately. However,
after the expiration of ten years, he will have to ret ur n the house
and lot to the donor.
(2)Legal, conventional or judicial. — A period may also be
legal, conventional or judicial. It is legal when it is granted by law;
conventional, when it is stipulated by the parties; and judicial, when
it is fixed by the courts. Examples of legal periods are those provided
for in Arts. 1606, 1623, 1682, and 1687 of the Code. Judicial periods
will be discussed a t length in a subsequent part of this section.
(3)Definite or indefinite. — A period may also be definite or
indefinite. This classification can be deduced from the provision of
the third paragraph of Art. 1193 which states t h a t a day certain is
understood to be t h a t which must necessarily come, although it may
not be known when. From this it is evident t h a t a period is definite
when the date or time is known beforehand, and indefinite when it
can only be determined by a n event which must necessarily come to
pass, although it may not be known when.
If the happening of a future event is fixed by the parties for
the fulfillment or extinguishment of a n obligation, what is the
nature of the obligation — is it with a term or is it conditional? This
question requires a qualified answer. If the event will necessarily
happen or come to pass, although it may not be known when, the
event constitutes a day certain; hence, the obligation is one with a
term. 1 0 0 However, if the uncertainty consists in whether the event
will happen or come to pass, such event constitutes a condition;
hence, the obligation is conditional. 1 0 1 Thus, if the death of a person
is fixed by the parties for the demandability or extinguishment of
the obligation, it is clear t ha t the obligation is one with a term or
period because death is a n event which will certainly come, although
the date or time when it will come is uncertain. The same is true
when the parties enter into a contract whereby it is agreed t h at the
obligation cannot be performed “while the war goes on.” Although
100
101
148
the date of the termination of the war may be uncertain yet there
is no question t ha t the termination of the war must necessarily
come.102 However, if the obligor or debtor binds himself to perform
his obligation as soon as he has obtained a loan of P400,000 from a
certain bank, it is clear t h a t the granting of such loan is not definite.
Consequently, it cannot be considered a day certain, for it may or it
may not happen, the obligation is conditional.103
Effects of Term or Period. — If the term or period is sus-
pensive, the fulfillment or performance of the obligation is demand-
able only upon the arrival of the day certain or the expiration of the
term. 1 0 4 What is therefore suspended by the term is not the acquisi-
tion of the right or the effectivity of the obligation but merely its de-
mandability. In other words, the obligation itself becomes effective
upon its constitution or establishment, but once the term or period
expires it becomes demandable. However, if the term or period is
resolutory, the fulfillment or performance of the obligation is de-
mandable a t once, but it is extinguished or terminated upon the ar-
rival of the day certain or the expiration of the term. 1 0 5
Phil. National Bank vs. Lopez Vito

52 Phil. 41
This action is for the recovery of a mortgage credit. It

appears th at the defendant spouses h ad mortgaged certain
realty to secure the payment of a loan of P24,000 granted to
them by the plaintiff. It was agreed under the mortgage contract
th at payment was to be made in ten annual installments at an
interest of 8 per cent per annum. Defendants, however, failed
to pay the sums corresponding to six yearly installments. The
question presented is with regard to the effect of defendants’
failure to pay those installments which are due and demandable
upon those which, normally, are not yet due and demandable.
Held: “It is undeniable th at the effect of the period agreed
upon by the parties is to suspend the demandability of the
obligation, in accordance with Article 1125 (now Art. 1193) of the
Civil Code, which provides th at obligations for the performance
102
Nepomuceno vs. Narciso, 84 Phil. 542.
103
Berg vs. Magdalena Estate, 92 Phil. 110; see also Smith, Bell & Co. vs. Sotelo
Matti, 44 Phil. 874.
104
105
149
of which a day certain has been fixed shall be demandable

only when th at day arrives. But the defendants’ right to avail
themselves of the period was by the will of the contracting
parties themselves made subject to the resolutory condition
contained in paragraph 5 of the contract. Said condition has
resolutory effects, since its fulfillment resolves the period
and leaves the creditor at liberty to demand the performance
of the debtor’s obligation and to proceed to the foreclosure of
the mortgage. According to the contract entered into by the
parties, the obligation of the mortgagors was to pay the debt
in yearly installments on a fixed day of each year, until it has
been fully satisfied, but in case of nonfulfillment of any of the
stipulations and conditions of the mortgage, such as the failure
to pay any of the annual installments, the mortgagee could
declare said stipulations and conditions violated and proceed to
the foreclosure of the mortgage in accordance with law. We are
of the opinion th at the nonfulfillment of the conditions of the
contract renders the period ineffective, and makes the obligation
demandable at the will of the creditor.”
Idem; Effect of fortuitous event. — In obligations with a

term or period, any stipulation in the contract to the effect t h a t in
case of a fortuitous event the contract shall be deemed suspended
during the term or period does not mean t h a t the happening of the
fortuitous event shall stop the running of the term or period agreed
upon. Its only effect is to relieve the contracting parties from the
fulfillment of their respective obligations during the term or period. 106
Problem — X Co. and Y Co. entered into a contract

whereby the latter agreed th at the sugar cane which it will
produce shall be milled by the former for a period of 30 years. It
was stipulated th at in case of any fortuitous event, the contract
shall be suspended during said period. For 4 years during the
last war and for 2 years after liberation when the mill of X Co.
was being rebuilt, Y Co. failed to deliver its sugar cane to the
central of X Co. After the expiration of the 30-year period, Y
Co. stopped the delivery of its sugar cane to the central of X Co.
Subsequently, X Co. brought a n action against Y Co. in order
to compel the latter to deliver its sugar cane for 6 additional
years on the ground t hat the fortuitous event had the effect of
stopping the running of the term or period agreed upon. Will the
action prosper? Reasons.
106
Victoria Planters vs. Victorias Milling Co., 97 Phil. 318.
150
Answer — The facts stated in the above problem are

exactly the same as those in the case of Victorias Planters vs.
Victorias Milling Co., 97 Phil. 318, where the SC held t h a t
the effect of a fortuitous event upon the term or period
agreed upon is not to stop the running of the term or period
b u t merely to relieve the contracting parties from the
fulfillment of their respective obligations during the
pendency of the event. According to the SC:
“Fortuitous event relieves the obligor from fulfilling
a contractual obligation. The stipulation in the contract
th at in the event of flood, typhoon, earthquake, or
other force majeure, war, insurrection, civil commotion,
organized strike, etc., the contract shall be deemed
suspended during said period, does not mean t h at the
happening of any of these events stops the runni ng of the
period agreed upon. It only relieves the parties from the
fulfillment of their respective obligations during t h at time
— the planters from delivering sugar cane and the
central from milling it. x x x To require the planters to
deliver the sugar cane which they failed to deliver during
the four years of the Japanese occupation and the two
years after liberation when the mill was being rebuilt is
to demand from the obligors the fulfillment of a n
obligation which was impossible of performance at the
time it became due. Memo tenetur ad impossibilia. x x x
The performance of what the law has written off
cannot be demanded and required. The prayer t h at
the plaintiffs be compelled to deliver was impossible, if
granted, would in effect be an extension of the t erm of
the contract entered into by and between the parties.’’
Art. 1194. In case of loss, deterioration or improvement

of the thing before the arrival of the day certain, the rules of
Article 1189 shall be observed.107
Art. 1195. Anything paid or delivered before the arrival
of the period, the obligor being unaware of the period or
believing that the obligation has become due and demandable,
may be recovered, with the fruits and interests.108
107
New Provision.
108
151
Effect of Advanced Payment or Delivery. — Under

Art. 1195 of the Code, if the obligor, being unaware of the period
or believing t h a t the obligation has become due and demandable,
paid or delivered anything before the arrival or expiration of the
period, he may recover what he has paid or delivered with fruits and
interests. This rule is different from t h a t found in Art. 1126 of the
Spanish Civil Code which states t h a t the obligor may recover only
the fruits or interests which the obligee may have received from the
thing. The Code Commission explains the reason for the change in
the following manner:
“The present article (Art. 1126, Civil Code of Spain) is

unjust. The thing or su m not being due when it was delivered or
paid, why should only the interest be returned? Why should not
the thing or sum delivered be returned to the debtor if he was
unaware of the period or if he believed t h at the obligation had
become due and demandable? The present article is contrary to
the manifest intention of the parties.’’109
It is obvious t h a t the above article (Art. 1195) can only apply

to obligations to give. It is also obvious t h a t before the rule can be
applied the payment or delivery must have been made by the debtor
either because he was unaware of the period or he believed t h a t the
obligation had become due and demandable. Consequently, if the
payment or delivery was made voluntarily or with knowledge of the
period or of the fact t h a t the obligation has not yet become due and
demandable, there can be no right of recovery whatsoever.
Art. 1196. Whenever in an obligation a period is

designated, it is presumed to have been established for the
benefit of both the creditor and debtor, unless from the tenor
of the same or other circumstances it should appear that the
period has been established in favor of one or of the other.110
Benefit of Term or Period. — The general rule is that
when a period is designated for the performance or fulfillment of an
obligation, it is presumed to have been established for the benefit of
both the creditor and the debtor. Consequently, as a general rule, the
109
Report of the Code Commission, pp. 130-131.
110
152
creditor cannot demand the performance of the obligation before the

expiration of the designated period; neither can the debtor perform
the obligation before the expiration of such period. 1 1 1 Thus, it has
been held t h a t in a monetary obligation contracted with a period,
the debtor has no right, unless the creditor consents, to accelerate
the time of payment even if the tender includes a n offer to pay not
only the principal, but also the interests in full.112 This is very well
illustrated by the case of De Leon vs. Syjuco.113 In 1944, during the
Japanese occupation, the debtor borrowed P216,000 in Japanese
military notes from the creditor, promising to pay “within one year
from May 5, 1948” in the legal tender of the Philippines. In the later
part of 1944, after the Americans h ad landed in the Philippines,
he tendered payment of the principal including interest up to
the date of maturity. The creditor refused to accept the payment.
Subsequently, he deposited the entire amount with the clerk of
court. After liberation, he brought a n action against the creditor to
compel him to accept the amount deposited. The Supreme Court,
however, held t h a t the refusal of the creditor to accept the tender of
payment was justified in view of the fact t h a t the term or period in
this case is presumed to have been established for the benefit of both
the creditor and the debtor in accordance with Art. 1196 of the Code;
consequently, the consignation made by the debtor is not valid. It
may be argued t h a t the creditor has nothing to lose and everything
to gain by the acceleration of payment. There are, however, several
reasons why the creditor cannot be compelled to accept payment.
They are: first, payment of interest; second, the creditor may want
to keep his money invested safely instead of having it in his hands,
in which case, by fixing the period, he is th us able to protect himself
against sudden decline in the purchasing power of the currency
loaned especially a t a time when there are many factors that
influence the fluctuation of the currency; 1 1 4 and third, under the
Usury Law, there is a special prohibition of payment of interest in
advance for more tha n one year. 1 1 5
111
8 Manresa, 5th Ed., Bk. 1, p. 381; Sarmiento vs. Javellana, 38 Phil. 880.
112
Nicolas vs. Matias, 89 Phil. 126; De Leon vs. Syjuco, 90 Phil. 311; Osorio vs.
Salutillo, 48 Off. Gaz. 103; Garcia vs. De los Santos, 49 Off. Gaz. 4830; Ochoa vs.
Lopez, CA, 50 Off. Gaz. 5890.
113
90 Phil. 311.
114
Ponce de Leon vs. Syjuco, 90 Phil. 311.
115
Nicolas vs. Matias, 89 Phil. 126.
153
Idem; Exception. — However, if it can be proved either from

the tenor of the obligation or from other circumstances t h a t the
period or term has been established in favor of the creditor or of the
debtor, the general rule or presumption will not apply. Hence, if it
should appear t h a t such period has been established for the benefit
of the creditor, he may demand the fulfillment or performance of
the obligation a t any time, but the obligor or debtor, on the other
hand, cannot compel him to accept payment before the expiration of
the period. If it should appear t h a t the period has been established
in favor of the obligor or debtor, he may oppose any premature
demand on the part of the obligee or creditor for performance of the
obligation, or if he so desires, he may renounce the benefit of the
period by performing his obligation in advance. 1 1 6 Thus, if the debtor
executed a promissory note promising to pay his indebtedness to the
creditor “al plazo de cinco años contados desde esta fecha’’ or within
a period of five years to be counted from this date, it is evident that
the term or period is for the benefit of the debtor; consequently, he
can compel the creditor to accept the payment a t any time within
the stipulated period.117 But if the debtor executed a promissory
note promising to pay his indebtedness “four years after date,’’ the
presumption is t h a t the term or period is for the benefit of both the
creditor and the debtor; consequently, the debtor cannot compel the
creditor to accept the payment until after the expiration of the four-
year period.118
Art. 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 will determine such period as
may under the circumstances have been probably contem-
plated by the parties. Once fixed by the courts, the period
cannot be changed by them.119
116
117
Sia vs. Court of Appeals, 48 Off. Gaz. 5259.
11 8
Garcia vs. De los Santos, 49 Off. Gaz. 4830.
119
154
Judicial Term or Period. — A term or period is judicial when

the duration thereof is fixed by a competent court in accordance with
the causes expressly recognized by law. Once fixed by a competent
court, the period can no longer be judicially changed. 1 2 0
Idem; When court may fix term. — Under Art. 1197, there
are two cases where the courts are empowered to fix the duration
of the term or period. They are: first, if the obligation does not fix a
period, but from its n at ure and the circumstances it can be inferred
t ha t a period was intended by the parties; and second, if the duration
of the period depends upon the will of the debtor. We might add a
third — if the debtor binds himself to pay when his means permit
him to do so.121 Strictly speaking, however, this case properly falls
within the purview of the second, because in such a case the power
to determine when the obligation will be fulfilled is in effect left
exclusively to the will of the debtor.
If the obligation does not fix a period, but from its n at ure and
the circumstances it can be inferred t h a t a period was intended, the
courts may fix the duration thereof. 1 2 2 Thus, where the donor
donated to the city of Manila a parcel of land subject to the
condition that it shall be converted into a public square, but the
deed of donation is silent with regard to the term or period for
the fulfillment of the condition, it is evident from the very
nat ure of the condition t h a t a term or period is intended by the
parties for its fulfillment; consequently, the court may fix the
duration thereof. 1 2 3 The same is true if the parties failed to fix a
definite period within which the obligor was to complete the
construction of a house. It is clear that in such a case they
intended some period but did not specify it; consequently, the
fulfillment of the obligation cannot be demanded from the obligor
until after the courts have fixed the period for compliance
therewith, and such period has arrived. 1 2 4
It must be observed, however, t h a t the mere silence of the
obligation with regard to the term or period for its fulfillment does
not necessarily mean t h a t the courts are empowered to fix the
duration thereof. In the first place, the remedy cannot be applied to
120
121
122
124
Concepcion
123 vs. People
Barretto of of
vs. City theManila,
Phil. 74 Phil. 416.
7 Phil. 163.
155
contracts for services in which no period was fixed by the parties.

In such contracts the period of employment is understood to be
implicitly fixed, in default of express stipulation, by the period for
the payment of the salary of the employee, in accordance with the
custom universally observed throughout the world.125 In the second
place, it cannot be applied to pure obligations. 1 2 6 Thus, according to
Manresa:
“While th at which is contemplated by the first paragraph

of this article appears to be a limitation upon the efficacy and
the immediate demandability of pure obligations, in reality, it
is different; in pure obligations there is no intention to grant a
period, otherwise they would not be pure; under this paragraph,
such an intention exists. For this reason in the case of the first,
there is no limitation upon the demandability of the obligation by
the creditor; rather its fulfillment by the debtor is facilitated; on
the other hand, in the case of the second, since there is actually
a period, there is a limitation upon th at demandability.”127
If the duration of the term or period depends exclusively upon

the will of the debtor, the court may also fix the duration thereof. 1 2 8
This rule is just and logical, because, otherwise, there would
always be the possibility t h a t the obligation will never be fulfilled
or performed. Thus, where the debtor h as executed a promissory
note promising to pay his indebtedness to the creditor “in partial
payments,” 1 2 9 or “little by little,’’130 or “as soon as possible,”131 or “as
soon as he has money,’’132 it is clear t h a t the duration of the term or
period for the fulfillment of the obligation depends exclusively upon
the will of the debtor; consequently, the remedy of the creditor is to
bring a n action against the debtor in accordance with the provision
of Art. 1197 in order to ask the court to fix the duration thereof. The
same remedy is also available to the lessor where it is expressly
stipulated in the contract of lease t h at the duration of the lease shall
125
Barretto vs. S a nt a Marina, 26 Phil. 440.
126
People’s Bank vs. Odom, 64 Phil. 126.
127
8 Manresa 158, quoted in Patente vs. Omega, 49 Off. Gaz. 4846.
128
129
Levy Hermanos vs. Paterno, 18 Phil. 353.
130
Seone vs. Franco, 24 Phil. 309.
131
Gonzales vs. Jose, 66 Phil. 369.
132
Patente vs. Omega, 49 Off. Gaz. 4846.
156
depend exclusively upon the will of the lessee. 1 3 3 And where there is
a n agreement between the employer and the union representatives
representing its employees and laborer regarding the payment
of salary differentials which had remained unpaid because of the
exhaustion of the funds appropriated for the purpose, the obligation
to pay said salary differentials may be considered as one with a
term whose duration has been left to the will of the debtor, so that
pursuant to Art. 1197 of the Code, the remedy of the employees
and laborers is to ask the courts to fix the duration of the term, it
being admitted t h a t in a going concern the availability of funds for
a particular purpose is a matt er t h a t does not necessarily depend
upon the cash position of the company but r at her upon the judgment
of its board of directors. 1 3 4
Gonzales vs. Jose

66 Phil. 369
This action was instituted by the plaintiff to recover from

the defendant the amount of two promissory notes worded as
follows:
“I promise to pay Mr. Benito Gonzales the sum of four
hundred three pesos and fifty-five centavos (P403.55) as soon as
possible.
Anterior ........................................................... P71.10

474.65
Sept. 12, 1922.................................................. 300.00
Balance ............................................................ 174.65
“Manila, J u n e 22, 1922.
(Sgd.) “FLORENTINO DE JOSE’’

“Quezon, Nueva Ecija’’
“I promise to pay Mr. Benito Gonzales the sum of three

hundred and seventy-three pesos and thirty centavos (P373.30)
as soon as possible.
(Sgd.) “FLORENTINO DE
JOSE”
134
Tiglao133Eleizegui
vs. Manilavs. Railroad
Manila Co.,
LawnOff. Gaz. Club,
Tennis 179. 2 Phil. 309.
157
“Defendant appealed from the decision of the Court of

First Instance of Manila ordering him to pay the plaintiff the
sum of P547.95 within thirty days from the date of notification
of said decision, plus the costs.
In his answer the defendant interposed the special
defenses th at the complaint is uncertain inasmuch as it does
not specify when the indebtedness was incurred or when it
was demandable, and that, granting th a t the plaintiff has any
cause of action, the same has prescribed in accordance with law.
Resolving the defense of prescription, the trial court held that
the action for the recovery of the amount of the two promissory
notes has not prescribed in accordance with Article 1128 (now
Art. 1197) of the Civil Code, which provides:
“Art. 1128. If the obligation does not specify a term,

but it is to be inferred from its n ature and circumstances
th at it was intended to grant the debtor time for its
performance, the period of the term shall be fixed by the
court.
“The court shall also fix the duration of the term
when it has been left to the will of the debtor.”
It is practically admitted by the parties t h at the obligations
arising from the two promissory notes should be governed by
said article, inasmuch as it was the intention of the plaintiff,
evidenced by the terms of the said notes, to grant the debtor a
period within which to pay the debts. The four errors assigned
by the defendant tu rn on the applicability of Article 1128 (now
Art. 1197) and on the prescription of the action brought by the
plaintiff. The defendant contends th at Article 1113 (now Art.
1179) of the Civil Code should be applied inasmuch as the
obligations derived from the promissory notes were demandable
from the time of their execution, and adds t h at even supposing
th at Article 1128 is applicable, the action to ask the court to fix
the period had already prescribed in accordance with Section
43(1) of the Code of Civil Procedure.
The Supreme Court, speaking through Justice
Imperial
held:
“We hold th at the two promissory notes are governed
by Article 1128 (now Art. 1197) because under the terms
thereof the plaintiff intended to grant the defendant a
period within which to pay his debts. As the promissory
notes do not fix this period, it is for the court to fix the
same. (Eleizegui
309; Barretto vs. vs.
CityManila Lawn
of Manila, Tennis
7 Phil. 416;Club, 2 Phil.
Floriano vs.
158
Delgado, 11 Phil. 154; Levy Hermanos vs. Paterno, 18

Phil. 353.) The action to ask the court to fix the period
has already prescribed in accordance with Section 43(1) of
the Code of Civil Procedure. This period of prescription is
ten years, which has already elapsed from the execution
of the promissory note until the filing of the action on
J u n e 1, 1934. The action which should be brought in
accordance with Article 1128 (now Art. 1197) is different
from the action for the recovery of the amount of the notes,
although the effects of both are the same, being, like other
civil actions, subject to the rules of prescription.
“The action brought by the plaintiff having already
prescribed, the appealed decision should be reversed
and the defendant absolved from the complaint, without
special pronouncement as to the costs in both instances.
So ordered.”
Problem — D borrowed P2,000 from C in 1958. The debt

is evidenced by a promissory note executed by D wherein he
promised to pay as soon as he has money or as soon as possible.
C h as made repeated demands upon D for payment, but up to
now no payment h as been made. Suppose t h at C will bring an
action against D for payment of the debt, will the action prosper?
(1973 Bar Problem)
Answer — No, the action will not prosper. In similar cases
decided by the Supreme Court (Gonzales vs. Jose, 66 Phil. 369;
Patente vs. Omega, 49 Off. Gaz. 4846), it was held, t ha t where
the debtor promises to pay his obligation as soon as he has
money or as soon as possible, the duration of the term or period
depends exclusively upon the will of the debtor; consequently,
the only remedy of the creditor is to bring a n action against the
debtor in accordance with Art. 1197 of the Civil Code for the
purpose of asking the court to fix the duration of the term or
period. It is only after the duration of the term or period has
been fixed by the court th at any other action involving the
fulfillment or performance of the obligation can be maintained.
This has always been the consistent doctrine in this jurisdiction.
From wh at h as been stated, it is quite clear t h a t the effect of a

potestative term or period is very different from t h a t of a potestative
condition. The latter cannot be left to the will of the debtor because
it affects the very existence of the obligation itself, since what is
delegated to the debtor is the power to determine whether or not
the obligation shall be fulfilled; the former, on the other hand, can
159
be left to the will of the debtor because its influence does not go as
far as to determine the existence of the obligation, since wh at is
delegated to the debtor is merely the power to determine when the
obligation shall be fulfilled, but in order to prevent the obligation
contracted from becoming ineffective by nonfulfillment the courts
must fix the duration of the term or period. 135
This article also applies to a lease agreement, where a contract

of lease clearly exists. Thus, the SC in the case of Millare vs.
Hernando (151 SCRA 484), it held t h a t the first paragraph of Article
1197 is clearly inapplicable, since the Contract of Lease did in fact
fix a n original period of five years, which had expired. It is also clear
from paragraph 13 of the Contract of Lease t h a t the parties reserved
to themselves the faculty of agreeing upon the period of the renewal
contract. The second paragraph of Article 1197 is equally clearly
inapplicable since the duration of the renewal period was not left to
the will of the lessee alone, but rat he r to the will of both the lessor
and the lessee. Most importantly, Article 1197 applies only where a
contract of lease clearly exists. Here, the contract was not renewed
a t all, there was in fact no contract a t all the period of which could
have been fixed.
Idem; Nature of action. — The only action t h a t can be
maintained under Art. 1197 is a n action to ask the court to fix the
duration of the term or period. It is only after the duration has
been fixed by a proper court t h a t any other action involving the
fulfillment or performance of the obligation can be maintained. 1 3 6
Thus, a n action brought purely for the collection of a debt which falls
within the purview of the article is obviously improper, because the
fulfillment of the obligation itself cannot be demanded until after
the court has fixed the period for its compliance and such period has
expired. 1 3 7 Consequently, so long as such period has not yet been
fixed by the court, legally, there can be no possibility of any breach of
contract or of failure to perform the obligation, and if it so happens
t h a t this point was never raised before the trial court, the creditor
cannot be allowed to raise it for the first time on appeal. 1 3 8
135
8 Manresa 158, quoted in Patente vs. Omega, 49 Off. Gaz. 4846.
136
Eleizegui vs. Manila Lawn Tennis Club, 2 Phil. 309; Seone vs. Franco, 24 Phil.
309; Gonzales vs. Jose, 66 Phil. 369.
137
Ungson vs. Lopez, CA, 50 Off. Gaz. 4297, citing Gonzales vs. Jose, 66 Phil. 369,
and Concepcion vs. People of the Phil., 74 Phil. 62.
138
Pages vs. Basilan Lumber Co., 104 Phil. 882.
160
In the case of Pacific Banking Corp. vs. CA (173 SCRA 102),

the Supreme Court reiterated the rule t h a t if the obligation has
no fixed period, a party is precluded from enforcing it. Thus, it
held t h a t even the pledge which modified the fixed period in the
original promissory note, did not provide for date of payment of
installments, nor of any fixed date of maturity of the whole amount of
indebtedness. Accordingly, the date of maturity of the indebtedness
should be determined by the proper court under Art. 1197 of the
Civil Code. Hence, the disputed foreclosure and subsequent sale
were premature.
It is not, however, necessary t h a t the creditor, in his complaint,
must expressly ask the court to fix the duration of the term or
period. Where the essential allegations of the pleadings describe an
obligation with a n indefinite period, the court can fix the duration of
such period although the complaint does not ask for such relief. For
this purpose two ultimate facts should be alleged in the complaint.
They are: (1) facts showing t h a t a contract was entered into imposing
on one of the parties a n obligation in favor of the other; and (2) facts
showing t h a t the performance of the obligation was left to the will
of the obligor, or clearly showing or from which a n inference can be
reasonably drawn t h a t a period was intended. 1 3 9
It must also be noted t h a t the action recognized in Art. 1197
may also prescribe like any ordinary civil action. Thus, in a n action
to ask the court to fix the duration of the period for the performance
of a n obligation which is evidenced by a promissory note filed after
the lapse of ten years from the time of the execution of the note, it
was held t h a t the action had already prescribed. 1 4 0
Idem; Effect of judicial period. — Once fixed by the courts,
the period can no longer be judicially changed. 1 4 1 This is so because
from the very moment the parties gave their consent to the period
fixed by the court, said period acquires the nature of a covenant; in
other words, it becomes a law governing their contract; consequently,
the courts can have no power to change or modify the same. 1 4 2
139
Schenker vs. Gemperle, 5 SCRA 1042.
140
Gonzales vs. Jose, 66 Phil. 369.
141
142
Barretto vs. City of Manila, 11 Phil. 624.
161
Problem — “M’’ and “N’’ were very good friends. “N’’ bor-
rowed P10,000.00 from “M.” Because of their close relationship,
the promissory note executed by “N’’ provided t h at he would pay
the loan “whenever his means permit.” Subsequently, “M’’ and
“N’’ quarelled. “M” now asks you to collect the loan because he is
in dire need of money.
What legal action, if any, would you take in behalf of “M”?
(1980 Bar Problem)
Answer — “M” must bring an action against “N’’ for the
purpose of asking the court to fix the duration of the term or
period for payment. According to the Civil Code, 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 Art. 1197. In other words, it shall be subject
to those provisions of the Code with respect to obligations with a
term or period which must be judiciary fixed. Thus, in the instant
case, the court shall determine such period as may under the
circumstances have been probably contemplated by the parties.
Once determined or fixed, it becomes a part of the covenant
of the two contracting parties. It can no longer be changed by
them. If the debtor defaults in the payment of the obligation
after the expiration of the period fixed by the court, the creditor
can then bring an action against him for collection. Any action
for collection brought before t hat would be premature. This is
well-settled.
(Note: The above answer is based on Arts. 1180 and
1197 of the Civil Code and on Gonzales vs. Jose, 66 Phil. 369;
Concepcion vs. People of the Phil. 74 Phil. 62; Pages vs. Basilan,
104 Phil. 882, and others.)
Alternative Answer — Normally, before a n action for
collection may be maintained by “M” against “N,’’ the former
must first bring an action against the latter asking the court to
fix the duration of the term or period of payment. However, an
action combining such action with th at of a n action for collection
may be allowed if it can be shown t hat a separate action for
collection would be a mere formality because no additional proofs
other t han the admitted facts will be presented and would serve
no purpose other th an to delay. Here, there is no legal obstacle
to such course of action.
(Note: The above alternative answer is based on Borromeo
vs. Court of Appeals, 47 SCRA 65.
Probably, if we combine the two answers given
result above,
would the
be a much more impressive answer.)
162
Problem — “A” Corporation, engaged in the sale of subdi-

vision residential lots, sold to “B” a lot of 1,000 square meters.
The contract provides th at the corporation should put up a n ar-
tesian well with tank, within a reasonable time from the date
thereof and sufficient for the needs of the buyers. Five years
thereafter, and no well and tank have been put up by the cor-
poration, “B” sued the corporation for specific performance. The
corporation set up a defense t hat no period having been fixed,
the court should fix the period. Decide with reason. (1982 Bar
Problem)
Answer — The action for specific performance should be
dismissed on the ground th at it is premature. It is clear that
the instant case falls within the purview of obligations with a
term or period which must be judicially fixed. Thus, “B” instead
of bringing a n action for specific performance, should bring an
action asking the court to determine the period within which
“A’’ Corporation shall put up the artesian well with tank. Once
the court has fixed the period, then such period as fixed by the
court will become a part of the covenant between the contracting
parties. It can no longer be changed by them. If the Corporation
does not put up the artesian well with t ank within the period
fixed by the court, “B” can then bring a n action for specific
performance.
Alternative Answer — Normally, before a n action for
specific performance may be maintained by “B” against “A’’
Corporation, the former must first bring a n action against the
latter asking the court to fix the duration of the term or period to
install the artesian well with tank. However, an action combining
such action with th at of an action for specific performance may
be allowed if it can be shown t hat a separate action for specific
performance would be a mere formality because no additional
proofs other t han the admitted facts will be presented and would
serve no purpose other th an to delay. Here, there is no obstacle
to such cause of action.
(Note: The above answers are based on Art. 1197 of the
Civil Code and on decided cases. Either answer should be
considered correct.)
Art. 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 give a guaranty
the debt; for
or security
163
(2)When he does not furnish to the creditor the guar-

anties or securities which he has promised;
(3)When by his own acts he has impaired said guar-
anties or securities after their establishment, and when
through a fortuitous event they disappear, unless he imme-
diately 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.143
Extinguishment of Debtor’s Right to Period. — According

to the above article, there are five different grounds or causes for
the extinguishment of the debtor’s right to make use of the term or
period.
With respect to the first, the word “insolvent” must not be
understood in its technical sense so as to require a judicial declaration
in accordance with the Insolvency Law; it must be understood in
its ordinary or popular sense. Consequently, it includes any case in
which it would not be possible financially for the debtor to comply
with his obligation. This situation is, of course, predicated upon
the proposition t h a t the insolvency of the debtor arose after the
constitution of the obligation. 1 4 4 However, if there is a guaranty or
security for the debt, the debtor, in spite of his insolvency, does not
lose his right to the period.
With respect to the second, when the debtor does not furnish
the stipulated guaranty or security, it is but logical t h a t he shall
lose his right to the term or period. Thus, where the debtor not only
failed to register the mortgage over a parcel of land in favor of the
creditor in order to secure the loan, but even mortgaged the same
parcel of land in favor of the Rehabilitation Finance Corporation in
order to secure another loan, it was held t h a t the former obligation
became pure and without any condition, and consequently, the loan
became due and immediately demandable. 1 4 5
143
144
145
Daguhoy Enterprises, Inc. vs. Ponce, 50 Off. Gaz. 5267. To the same effect
Laplana vs. Garchitorena, 48 Phil. 163.
164
With respect to the third, attention must be called to the

difference between the effect of impairment and the effect of
disappearance as applied to the guaranty or security. The rules may
be restated as follows: (1) If the guaranty or security is impaired
through the fault of the debtor, he shall lose his right to the benefit
of the period; however, if it is impaired without his fault, he shall
retain his right. (2) If the guaranty or security disappears through
any cause, even without any fault of the debtor, he shall lose his
right to the benefit of the period. In either case, however, the debtor
shall not lose his right to the benefit of the period if he gives a new
guaranty or security which is equally satisfactory.
Problem — A executed in favor of B a promissory note for

P10,000, payable after two years, secured by a mortgage on a
certain building valued at P20,000. One year after the execution
of the note, the mortgaged building was totally destroyed by a
fire of accidental origin. Can B demand from A the payment of
the value of the note immediately after the burning without
waiting for the expiration of the term? Reasons. (1932 Bar
Problem)
Answer — Yes, B can demand from A the payment of
the value of the note immediately after the burning without
waiting for the expiration of the term, unless A immediately
gives another security or guaranty which is equally satisfactory.
This is clear from the provision of No. 3 of Art. 1198 of the Civil
Code which declares th at when by his own acts the debtor has
impaired the guaranty or security, or when through a fortuitous
event the guaranty or security disappears, the debtor shall lose
the benefit of the term or period. It must be observed t h a t there
is a difference between the effect of impairment and the effect of
disappearance as applied to the security or guaranty. The rules
may be restated as follows: (1) If the guaranty or security is
impaired through the fault of the debtor, he shall lose his right
to the benefit of the period; however, if it is impaired without
his fault, he shall retain his right. (2) If the guaranty or security
disappears through any cause, even without any fault of the
debtor, he shall lose his right to the benefit of the period. In
either case, however, the debtor shall not lose his right to the
benefit of the period if he gives a new guaranty or security.
The fourth and fifth cases are new provisions. Whether the
debtor violates any undertaking, in consideration of which the credi-
tor agreed to the period, or he attempts to abscond, the rule t h a t he
shall lose his right to the benefits of the period is proper.
165
Song Fo vs. Oria

33 Phil. 3
This is a n action commenced by plaintiff to recover the

purchase price of a launch which was sold to the defendant for
P16,000 payable in quarterly installments of P1,000 and for
which the said launch was mortgaged as security. The records
show t hat the launch was delivered to the defendant in Manila
but it was wrecked while enroute to his place of business in
Samar. The records also show th at no part of the purchase price
has yet been paid to the plaintiff. The lower court rendered
judgment for P6,000 on the ground th at this amount represents
the unpaid installments which are due and demandable under
the contract. The plaintifs, however, contend t h at the judgment
should include the whole amount.
Held: “Coming now to examine the contentions of the
plaintiffs on their appeal, we think th at the trial judge erred in
declining to render judgment in their favor for the total amount
of the purchase price of the launch. He appears to have relied
upon the provisions of Article 1126 (now Art. 1193) of the Civil
Code but to have overlooked the correlated provisions of Article
1129 (now Art. 1198) of the same code.
“The security for the payment of the purchase price of the
launch itself having disappeared as a result of the unforeseen
event (vis major) and no other security having been substituted,
therefore, the plaintiffs were clearly entitled to recover judgment
not only for the installments of the indebtedness due under the
terms of the contract at the time when they instituted their
action, but also for all installments which but for the loss of the
vessel, had not matured at the time.’’
Problem — A sold his entire interest in 24,000 tons of
iron ore to B for P75,000, P10,000 of which was actually paid
upon the signing of the contract. With respect to the balance of
P65,000, it was agreed t hat it “will be paid from the first amount
derived from the sale of the ore.’’ To insure payment thereof, B
delivered to A a surety bond which provided t ha t the liability of
the surety liability would automatically expire after the lapse of
two years. Inasmuch as the ore had not yet been sold and the
surety bond had expired without being renewed and the balance
had not yet been paid in spite of repeated demands, A finally
brought a n action against B for the recovery of said balance.
B, however, interposed the defense th at his obligation to pay
is conditional and t h at inasmuch as the condition h as not yet
been fulfilled, therefore, it is not yet due and demandable. Is
this defense tenable?
166
Alternative a nd Facultative Obligations
Answer — This defense is untenable. The sale of the iron

ore is not a condition precedent to the payment of the balance
but only a suspensive term or period. There is no uncertainty
whatsoever with regard to the fact of payment; what is
undetermined is merely the exact date of payment. Normally,
therefore, A will have to wait for the actual sale of the iron ore
before he can demand from B for the payment of the unpaid
balance. However, inasmuch as by his own act B has impaired
the guaranty or security after its establishment without giving
another one which is equally satisfactory, it is clear t ha t he has
now lost the benefit of the term or period. Consequently, the
case now falls squarely within the purview of pars. 2 and 3 of
Art. 1198 of the NCC. (Gaite vs. Fonacier, 112 Phil. 728.)
Section 3. — Alternative and Facultative

Obligations
Concept. — When a n obligation comprehends several objects

or prestations it may be either conjunctive or distributive. It is
conjunctive when all of the objects or prestations are demandable
a t the same time; it is distributive when only one is demandable.
The latter, in turn, may be either alternative or facultative. It is
alternative when it comprehends several objects or prestations which
are due, but it may be complied with by the delivery or performance
of only one of them; it is facultative when it comprehends only one
object or prestation which is due, but it may be complied with by the
delivery of another object or the performance of another prestation
in substitution. 1 4 6
It is, therefore, clear t h a t the characteristic feature of an
alternative obligation is t h a t various objects being due, the payment
or performance of one of them, determined by the election which,
as a general rule, pertains to the obligor or debtor, is sufficient. 1 4 7
The characteristic feature of a facultative obligation, on the other
hand, is t ha t only one object or prestation is due, but the obligor or
debtor may deliver another object or perform another prestation in
substitution. 1 4 8
146
8 Manresa, 5th Ed., Bk. 1, p. 393; 3 Castan, 7th Ed., pp. 75-76.
147
Ibid.
148
167
Art. 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.149
Art. 1200. The right of choice belongs to the debtor, un-
less it has been expressly granted to the creditor.
The debtor shall have no right to choose those presta-
tions which are impossible, unlawful or which could not
have been the object of the obligation.150
Right of Choice in Alternative Obligations. — In alterna-

tive obligations, the general rule is t h a t the right of choice belongs or
pertains to the debtor. 1 5 1 Thus, where the debtor borrowed a certain
amount from the creditor, and in the promissory note which he had
executed it is expressly stipulated t h a t he can fulfill his obligation
either by the payment of the amount of the indebtedness or by the
delivery of a house and lot a t a n appraised valuation, it was held
t h a t such obligations are alternative in character. 1 5 2 Consequently,
upon the maturity of the note, the debtor can comply with the obli-
gation by paying the agreed amount or by delivering the house and
lot. Under the general rule stated in Art. 1200, he alone h as the
right to make the choice. Once he has made it, and such choice is
duly communicated to the creditor, the obligation becomes simple.
There are, however, two exceptions to the general rule. They
are: first, when the right of choice h as been expressly granted to
the creditor; 1 5 3 and second, when it has been expressly granted to
a third person. Although the Code does not expressly recognize the
second,there is no reason why it should not be allowed, since it is not
contrary to law, morals, good customs, public order or public policy.
Idem; Limitations upon right of choice. — The limitations
to the right of choice are given in the second paragraph of Art. 1200.
According to this provision, the debtor cannot choose those prestations
or undertakings which are impossible, unlawful or which could not
149
Code. 150
Code. 151
152
Agoncillo and Marino
vs.Art.
153
1200,38par.
Javier, 1, 244.
Phil. Civil Code.
168
have been the object of the obligation. “Prestations which could not
have been the object of the obligation” refer to those undertakings
which are not included among those from which the obligor may
select, or to those which are not yet due and demandable a t the
time the selection is made, or to those which, by reason of accident
or some other cause, have acquired a new character distinct or
different from t h a t contemplated by the parties when the obligation
was constituted. 1 5 4 It must be noted t h a t what is contemplated by
the provision of the second paragraph of Art. 1200 is a case in which
the right to choose or select is not lost or extinguished altogether,
because there are still other objects or prestations from which the
debtor can choose or select.
Art. 1201. The choice shall produce no effect except from

the time it has been communicated.155
When Choice Takes Effect. — The rule stated in the above
article is applicable whether the right of choice is exercised by the
debtor, or by the creditor, or by a third person. No special form is
required for the communication or notification. Hence, any form may
be employed provided t h a t the other party is properly notified of the
selection. Nevertheless, considering the fact t h a t the choice shall
produce no effect except from the time the other party is notified
of the selection and the fact t h a t the proof of such notification is
incumbent upon him who made the selection, it is always much
better to make the notification either in a notarized document or in
any other authentic writing. 1 5 6
Can the creditor to whom the selection had been duly
communicated impugn such selection? In other words, before the
choice or selection shall be binding upon the creditor, is it necessary
t h a t he must give his consent thereto? In a certain case, decided by
the Supreme Court, where the alternative obligations of the obligor
consisted of paying the insured value of the house or rebuilding
it, and such obligor notified the obligee t h a t it shall rebuild the
house, the court declared t ha t the “object of the notice is to give
the creditor or obligee opportunity to express his consent, or to
154
155
156
169
impugn the election made by the debtor and only after said notice
shall the election take legal effect when consented to by the creditor,
or if impugned by the latter, when declared proper by a competent
court.’’157 It is, however, submitted t h a t this doctrine is not sound.
Consent or concurrence of the creditor to the choice or selection
made by the debtor is not necessary before the choice or selection
can produce effect. To hold otherwise would destroy the very nature
of the right to select and the alternative character of the obligation
for t ha t matter. Thus, according to Dean Capistrano: “The law does
not require the creditor’s concurrence to the choice; if it did, it would
have destroyed the very nat ure of alternative obligations, which
empowers the debtor to perform completely one of them.’’158
Idem; Effect upon obligation. — Once the choice is made
by the debtor (or by the creditor or by a third person as the case
may be), the obligation ceases to be alternative from the moment
the selection has been communicated to the other party. From
t h a t moment, both debtor and creditor are bound by the selection.
In other words, the debtor can only comply with his obligation
by performing the prestation which has been selected, while the
creditor can only demand compliance in accordance there with. “An
election once made is binding on the person who makes it, and he
will not therefore be permitted to renounce his choice and take an
alternative which was a t first opened to him.”159
Art. 1202. The debtor shall lose the right of choice when
among the prestations whereby he is alternatively bound,
only one is practicable.160
When Only One Prestation Is Practicable. — According
to the above article, when among several prestations whereby the
debtor is alternatively bound, only one prestation can be performed
because all of the others are impracticable, the debtor loses his right of
choice altogether. In other words, the obligation loses its alternative
character; it becomes a simple obligation. The provision of the above
article, however, must be distinguished from the provision of the
157
Ong Guan Can vs. Century Insurance Co., 46 Phil. 592.
158
3 Capistrano, Civil Code, 1950 Ed., p. 131. To the same effect — 4 Tolentino
Civil Code, 1956 Ed., p. 196.
159
Reyes vs. Martinez, 55 Phil. 492.
160
170
second paragraph of Art. 1200. Under the first, there is only one
prestation which can be performed; under the second, there are still
two or more which can be performed. Under the first, the obligation
is converted into a simple one because the debtor loses his right of
election; under the second, the obligation is still alternative because
the debtor can still exercise his right of election.
Art. 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.161
When Choice Is Rendered Impossible. — The above article

does not have any counterpart in the Spanish Civil Code. The rule,
however, is logical. Since the debtor’s right of choice is rendered
ineffective through the creditor’s fault, his only possible recourse
will be to bring a n action to rescind the contract with damages.
Art. 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.162
Art. 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:
(1) If one of the things is lost through a fortuitous
event, he shall perform the obligation by delivering that
which the
161
New provision.
162
171
creditor should choose from among the remainder, or that

which remains if one only subsists;
(2)If the loss of one of the things occurs through the
fault of the debtor, the creditor may claim any of those
subsisting, or the price of that which, through the fault of
the former, has disappeared, with a right to damages;
(3)If all the things are lost through the fault of the
debtor, the choice by the creditor shall fall upon the price of
any one of them, also with indemnity for damages.
The same rules shall be applied to obligations to do or
not to do in case one, some or all of the prestations should
become impossible.163
Effect of Loss of Objects of Obligation. — It is evident

t h a t Art. 1204 is applicable only to a case where the right of choice
belongs to the debtor, while Art. 1205 is applicable only to a case
where the right belongs to the creditor. In other words, the first
article is the general rule, while the second is the exception.
What is the effect upon the obligation if one or some or all of
the things or prestations which are alternatively the object of the
obligation have been lost or cannot be complied with? The answer
to this question must depend upon two factors or circumstances
— first, whether the right of choice belongs to the debtor or
to the creditor, and second, whether the loss or impossibility was
due to a fortuitous event or to the fault of the debtor.
Idem; If right of choice belongs to the debtor. — If the
right of choice belongs to the debtor and the loss or impossibility is
due to a fortuitous event, then the provisions of Arts. 1174, 1262 and
1266 of the Code are applicable. The debtor cannot be held liable
for damages. Consequently, if one of the things is lost or one of the
prestations cannot be performed by reason of a fortuitous event,
the debtor must still comply with the obligation by delivering or
performing t h a t which he shall choose from among the remainder; if
all of the things, except one, are lost, or all of the prestations, except
one, cannot be performed by reason of a fortuitous event, the debtor
must still comply with his obligation by delivering or performing
163
172
t h a t which remains; and if all of the things are lost or all of the
prestations cannot be performed by reason of a fortuitous event, the
debtor is released from the obligation.
But if the loss or impossibility is due to the fault of the debtor,
then the provisions of Art. 1204 are applicable. Consequently, if all
of the things are lost or all of the prestations cannot be performed
due to the fault of the debtor, the creditor shall have a right to
indemnity for damages. Such indemnity shall be fixed taking as a
basis the value of the last thing to be lost or t h a t of the service which
last became impossible. However, if one, or more, but not all, of the
things are lost or one or some, but not all, of the prestations cannot
be performed due to the fault of the debtor, the creditor cannot hold
the debtor liable for damages. This is so because the debtor can still
comply with his obligation.
Idem; If right of choice belongs to creditor. — If the right
of choice belongs to the creditor and the loss or impossibility is due to
a fortuitous event, then the provisions of Arts. 1174, 1262 and 1266,
which are reiterated in No. 1 of the second paragraph of Art. 1205,
are applicable. The debtor cannot be held liable. Consequently, what
had been stated in the preceding section can also be applied here.
But if the loss or impossibility is due to the fault of the debtor,
then the provisions of Nos. 2 and 3 of the second paragraph of Art.
1205 are applicable. Consequently, if all of the things are lost or all
of the prestations cannot be performed due to the fault of the debtor,
the creditor may claim the price or value of any one of them with
indemnity for damages. However, if one or some, but not all, of the
things are lost, or one or some, but not all, of the prestations cannot
be performed due to the fault of the debtor, the creditor may claim
any of those subsisting without any liability on the part of the debtor
for damages or the price or value of that, which through the fault of
the former, was lost or could not be performed, with indemnity, for
damages.
Art. 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
173
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.164
Nature of Facultative Obligations. — According to the
above article, a facultative obligation is defined as a n obligation
wherein only one object or prestation has been agreed upon by the
parties to the obligation, but which may be complied with by the
delivery of another object or the performance of another prestation
in substitution. It is evident t h a t the characteristic feature of this
type of obligation is t h a t only one object or prestation is due, but if
the obligor fails to deliver such object or to perform such prestation,
he can still comply with his obligation by delivering another object
or performing another prestation in substitution. Thus, where the
debtor executed a promissory note promising to pay his indebtedness
to the creditor a t a specified date and in case of failure to do so, he
shall execute a deed of mortgage over a certain property belonging
to him in favor of the creditor, it was held t h a t the obligation is
facultative. 1 6 5 Consequently, the provisions of Art. 1206 of the Civil
Code may be applied.
Idem; Distinguished from alternative obligations. —
Facultative obligations may be distinguished from alternative obli-
gations in the following ways:
(1)As to objects due: In facultative obligations only one object is
due, while in alternative obligations several objects are due.
(2)As to compliance: Facultative obligations may be complied
with by the delivery of another object or by the performance of
another prestation in substitution of t h a t which is due, while
alternative obligations may be complied with by the delivery of one
of the objects or by the performance of one of the prestations which
are alternatively due.
(3)As to choice: In the first, the right of choice pertains only to
the debtor, while in the second, the right of choice may pertain
even to the creditor or to a third person.
(4)As to the effect of fortuitous loss: In the first, the loss or
impossibility of the object or prestation which is due without any
164
New provision.
165
Quizana vs. Redugerio, 50 Off. Gaz. 2444.
174
fault of the debtor is sufficient to extinguish the obligation, while in

the second, the loss or impossibility of all of the objects or prestations
which are due without any fault of the debtor is necessary to
extinguish the obligation.
(5) As to effect of culpable loss: In the first, the culpable loss
of the object which the debtor may deliver in substitution before the
substitution is effected does not give rise to any liability on the part
of such debtor; in the second, the culpable loss of any of the objects
which are alternatively due before the choice is made may give rise
to a liability on the part of the debtor.
Idem; When substitution takes effect. — Although Art.
1206 is silent with respect to the time or moment when the
substitution will take effect, it is clear t h a t the provision of
Art. 1201 can be applied by analogy. Of course, there is no
question t h a t the only one who is empowered to mak e the
substitution is the debtor. In order t h a t the creditor will be
bound by the substitution, however, it is necessary t h a t he m u s t
communicate such fact to the said creditor. Once the latter has
been notified of the substitution, then the obligation ceases to be
facultative; it is finally converted into a simple obligation to
deliver the thing or to perform the prestation which has been
substituted.
Idem; Effect of loss of substitute. — Before the substitution
is made by the obligor, the loss or deterioration of the thing intended
as a substitute, through the negligence of the said obligor, does
not render him liable. 1 6 6 Hence, there seems to be a n implication
t h a t if the loss or deterioration is through the bad faith or fraud of
the obligor, then he is liable. As a matt er of fact, Dean Capistrano
says: “Whether the debtor is liable in case he acts with bad faith,
the Code Commission thought it better to leave to the courts
to decide. However, it may be pointed out that, as a mat ter of
principle, there should always be liability for bad faith.” 1 6 7 It must,
however, be observed t h a t if the debtor can be held liable for the
loss or deterioration of the thing intended as a substitute, will this
not destroy the facultative nat ure of this type of obligation? It is,
therefore, submitted th a t whatever may be the cause of the loss
or deterioration of the thing intended as a substitute, such loss or
deterioration shall not render the debtor liable.
166
167
3 Capistrano, Civil Code, 1950, Ed., p. 135.
175
Once the substitution has been made, however, the debtor shall
be liable for the loss or deterioration of the substitute on account of
his delay, negligence or fraud. 1 6 8 This rule is logical because once
the substitution is made, the obligation is converted into a simple
one with the substituted thing or prestation as the object of the
obligation.
Section 4. — Joint and Solidary Obligations
Concept. — When there is a concurrence of two or more

creditors or of two or more debtors in one and the same obligation,
the obligation may be either joint (obligación mancomunada) or
solidary (obligación solidaria). A joint obligation may be defined as
a n obligation where there is a concurrence of several creditors, or
of several debtors, or of several creditors and debtors, by virtue of
which each of the creditors has a right to demand, and each of the
debtors is bound to render, compliance with his proportionate par t of
the prestation which constitutes the object of the obligation. In other
words, each of the creditors is entitled to demand the payment of
only a proportionate par t of the credit, while each of the debtors is
liable for the payment of only a proportionate part of the debt. A
solidary obligation, on the other hand, may be defined as a n
obligation where there is a concurrence of several creditors, or of
several debtors, or of several creditors and several debtors, by
virtue of which each of the creditors has a right to demand, and
each of the debtors is bound to render, entire compliance with the
prestation which constitutes the object of the obligation. In other
words, each of the creditors is entitled to demand the payment of
the entire credit, while each of the debtors is liable for the payment
of the entire debt. 1 6 9
Idem; Comparative jurisprudence. — In the case of
Jaucian vs. Querol,170 the Supreme Court had occasion to discuss the
comparative jurisprudence on the subject. According to the Court:
“In Spanish law the comprehensive and generic term

by which to indicate multiplicity of obligations arising from
plurality of debtors or creditors, is mancomunidad, which term
includes (1) mancomunidad simple or mancomunidad properly
168
169
Art. 1207, Civil Code; 3 Castan, 7th Ed., pp. 65-66.
170
38 Phil. 707.
176
Joint and Solidary Obligations
such and (2) mancomunidad solidaria. In other words, the

Spanish system recognizes two species of multiple obligation,
namely, the apportionable joint obligation and the solidary joint
obligation. The solidary obligation is, therefore, merely a form of
joint obligation.
“The idea of the benefit of division as a feature of simple
joint obligation appears to be a peculiar creation of Spanish
jurisprudence. No such idea prevailed in the Roman law, and it
is not recognized either in the French or in the Italian system.
“The conception is a badge of honor to Spanish legislation,
honorably shared with the Spanish-American, since French and
Italian codes do not recognize the distinction or difference just
expounded between the two sorts of multiple obligation. (Giorgi,
Theory of Obligation, Span. Ed., Vol. 1, p. 77).
“Considered with reference to comparative jurisprudence,
liability in solidum appears to be the normal characteristic
of the multiple obligation, while the benefit of division in the
Spanish system is an illustration of the abnormal, evidently
resulting from the operation of a positive rule created by the
lawgiver. This exceptional feature of the simple joint obligation
in Spanish law dates from a n early period; and the rule in
question is expressed with simplicity and precision in a passage
transcribed into the Novisima Recopilación follows:
“If two persons bind themselves by contract, simply and
not otherwise, to do or accomplish something, it is thereby to be
understood t hat each is bound for one-half, unless it is specified
in the contract t hat each is bound in solidum, or it is agreed
among themselves th at they shall be bound in some other
manner, and this notwithstanding any customary law to the
contrary. x x x’ (Law X, Title I, Book X, Novisima Recopilación,
copied from law promulgated at Madrid in 1488 by Henry IV).
“The foregoing exposition of the conflict between the
juridical conception of liability incident to the multiple
obligation, as embodied respectively in the common law system
and the Spanish Civil Code, prepares us for a few words of
comment upon the problem of translating the terms which
we have been considering from English into Spanish or from
Spanish to English.
“The Spanish expression to be chosen as the equivalent
of the English word “joint” or “jointly’’ must, of course, depend
upon the idea to be conveyed; and it must be remembered
th at the matter to be translated may be a n enunciation either
177
of a common law conception or of a civil law idea. In Sharruf

vs. Tayabas Land Co. and Ginainati (37 Phil. Rep. 655), a
judge of one of the Courts of First Instance in these Islands
rendered judgment in English declaring the defendants to be
‘jointly’ liable. It was held th at he meant ‘jointly’ in the sense
of ‘mancomunadamente’ because the obligation upon which the
judgment was based was apportionable under Article 1138 (now
Art. 1208) of the Civil Code. This mode of translation does not,
however, hold where the word to be translated has reference to
a multiple common law obligation, as in Article 698 of the Code
of Civil Procedure. Here it is necessary to render the word ‘joint’
by the Spanish word ‘solidaria.’
“In translating the Spanish word ‘mancomunada’ into
English a similar difficulty is presented. In the Philippine
Islands at least we must probably continue to tolerate the
use of the English word ‘joint’ as a n approximate equivalent,
ambiguous as it may be to a reader indoctrinated with the ideas
of the common law. The Latin phrase pro rata is a makeshift
the use of which is not to be commended. The Spanish word
‘solidaria’ is properly rendered in English by the word ‘solidary,’
though it is not inaccurate here to use the compound expression
‘joint and several.’ The use of the Latin phrase ‘in solidum’ is also
permissible. We close these observations with the suggestion
th at a person writing in English may at times find it conducive
to precision to use the expanded expression ‘apportionable joint
obligation’ and ‘solidary joint obligation’ as conveying the full
juridical sense of ‘obligación mancomunada’ and ‘obligacion
solidaria,’ respectively.’’
Art. 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.171
Nature of Collective Obligations in General. — According
to the above article, when there is a concurrence of several creditors
or of several debtors or of several creditors and debtors in one and
the same obligation, there is a presumption t h a t the obligation is
joint
171
178
and not solidary. Consequently, where the obligation is silent with

respect to the n at ure or character of the right of the creditors or of
the liability of the debtors, each of the creditors is entitled to
demand only for the payment of his proportionate share of the
credit, while each of the debtors can be compelled to pay only his
proportionate share of the debt. 1 7 2 Thus, if A, B and C had executed
a promissory note binding themselves to pay a n indebtedness of
P9,000 to X, Y, and Z, since the note is silent with respect to the
character of the right of the creditors as well as the liability of the
debtors, the obligation is, therefore, presumed to be joint.173 Upon
maturity of the note the only right of each creditor would be to
demand for the payment of his proportionate share of the credit,
which in this particular case is presumed to be P3,000.174 Each
debtor, on the other hand, can be compelled to pay only for his
proportionate share of the debt. Therefore, if X, for instance, will
proceed against A for payment, the only amount which he can
collect from the latter would be P1,000. Consequently, if he wants
to collect his entire proportionate share of P3,000, he must
proceed not only against A, but also against B and C.
Idem; Exceptions. — There are, however, three exceptional
cases or instances where collective obligations are solidary and not
joint. They are: first, when the obligation expressly states t h a t there
is solidarity; second, when the law requires solidarity; and third,
when the nature of the obligation requires solidarity. 1 7 5 In all of
these cases, each creditor is entitled to demand for the payment
of the entire credit, while each debtor can be compelled to pay for
the entire debt. Thus, if A, B, and C are solidarily bound to pay an
indebtedness of P9,000 to X, Y, and Z, anyone of the creditors can
proceed against one, or some, or all of the debtors for the payment
of the entire credit. 1 7 6
Before the first exception can be applied, the solidary character
of the obligation must be made in express terms. 1 7 7 It is not, how-
172
Pimentel vs. Gutierrez, 14 Phil. 49; White vs. Enriquez, 15 Phil. 113; Agoncillo
vs. Javier, 38 Phil. 424; Ramos vs. Gibbon, 67 Phil. 371; Inciong, Jr. vs. Court of Ap-
peals, Ju n e 26, 1996, 257 SCRA 580.
173
Art. 1297, Civil
Gonzales vs. La Previsora Filipina, 74 Phil. 165.
Code.
177
179
ever, necessary t h a t the agreement shall employ precisely the word

“solidary” in order t h a t the obligation will be so; it is enough that
the agreement will say, for example, t h a t each one of them can be
obligated for the aggregate value of the obligation. 1 7 8 Thus, where
the debtors agreed to pay the obligation “jointly and severally,” 1 7 9
or “individually and collectively”180 everyone of them can be held re-
sponsible for the payment of the entire obligation. Another example
is where the promissory note expressly states t h a t the three signato-
ries therein are “jointly and severally liable.’’ Any one, some or all of
them may be proceeded against for the entire obligation. The choice
is left to the solidary creditor to determine against whom he will
enforce collection. (Inciong, Jr. vs. Court of Appeals, June 26, 1996,
257 SCRA 580.)
Examples of the second exception are those provided for in
Arts. 927, 1824, 1911, 1915, 2146, 2157, and 2194 of the Civil Code.
Another example would be that provided for in Art. 110 of the
Revised Penal Code regarding the liability of principals,
accomplices, and accessories of a felony.
Examples of the third exception are obligations arising from
criminal offenses and torts. The responsibility of two or more
persons guilty of a criminal offense or liable for a tort is solidary.
This is so because of the very natur e of the obligation itself. It must
be noted, however, t ha t under Art. 110 of the Revised Penal Code, it
is expressly stated t h a t the responsibility of principals, accomplices,
and accessories, each within their respective class, is solidary, and
under Art. 2194 of the Civil Code, it is also expressly stated that
the responsibility of two or more persons liable for a quasi-delict is
solidary. Apparently, the obligations comprehended by the exception
on which we are commenting are also included within the scope of
the second exception. There are, however, some torts which cannot
be classified as quasi-delicts because the element of negligence
does not enter as a n essential requisite, such as interferences with
h u m a n relations, nuisances, infringements of copyrights, patent or
trademark, unfair competition and several others. Responsibility of
joint tortfeasors in such cases is solidary because the nat ure of the
Ysmael & Co. vs. Salinas and Delgado, 73 Phil. 601.

178
179
Parot vs. Gemora, 7 Phil. 24.
180
Oriental Commercial Co. vs. La Fuente, CA, 38 Off. Gaz. 947.
180
obligation requires it. Thus, in a certain case, the Supreme Court

declared:
“It may be stated as a general rule t h at joint tortfeasors

are all the persons who command, instigate, promote, encourage,
advise, countenance, cooperate in, aid or abet the commission of
a tort, or who approve of it after it is done for their benefit. They
are each liable as principals to the same extent and in the same
manner as if they had performed the wrongful act themselves.
Joint tortfeasors are jointly and severally liable for the tort
which they commit. The person injured may sue all of them or
any number less th an all. Each is liable for the whole damage. It
is no defense for one sued alone, th at the others who participated
in the wrongful act are not joined with him as defendants; nor
is it any excuse for him th at his participation in the tort was
insignificant as compared with th at of the others.’’181
Art. 1208. If from the law, or the nature of 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 equal 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.182
Joint Divisible Obligations. — The most fundamental effect
of joint divisible obligations is th a t each creditor can demand only
for the payment of his proportionate share of the credit, while each
debtor can be held liable only for the payment of his proportionate
share of the debt. 1 8 3 As a corollary to this rule, the credit or debt
shall be presumed, in the absence of any law or stipulation to the
contrary, to be divided into as many shares as there are creditors
and debtors, the credits or debts being considered distinct from
one another, subject to the Rules of Court governing multiplicity of
suits. 1 8 4 From these rules which are expressly declared by the Code, it
necessarily follows t h a t a joint creditor cannot act in representation
181
Worcester vs. Ocampo, 22 Phil. 42. To the same effect: Verzosa vs. Lim, 45
Phil. 416; Torebillas vs. Soques, CA, 46 Off. Gaz. 5618; Padilla vs. Hipomia, CA, G.R.
No. 4272-R, Feb. 17, 1951.
182
183
184
181
of the others; neither can a joint debtor be compelled to answer for

the liability of the others. Consequently, if there is a breach of the
obligation by reason of the act of one of the debtors, the damages
due to its breach must be borne by him alone.185 Similarly, if there
is any defense which is purely personal to one of the debtors, he
alone can avail himself of such defense.186 Thus, it h as been held
t h a t payment or acknowledgment by one of the joint debtors will
not stop the running of the period of prescription as to the others. 1 8 7
This doctrine is in conformity with the opinion of Manresa to the
effect t h a t one of the necessary consequences of the rule stated in
wh at is now Art. 1208 of the Civil Code is t h a t “the interruption of
prescription by the claim of a creditor addressed to a single debtor
or by a n acknowledgment made by one of the debtors in favor of one
or more of the creditors is not to be understood as prejudicial to or in
favor of the other debtors or creditors.’’188
Problem No. 1. — A, B, and C executed a promissory note

binding themselves to pay P9,000 to X, Y, and Z. The note is now
due and demandable.
(a)Can the creditors proceed against A alone for
payment of the entire obligation? Why?
(b)Can X alone proceed against A, B and C for payment of
the entire obligation? Why?
(c)Suppose th at X proceeds against A alone for
payment, how much can he collect? Why?
(d)Suppose t hat C is insolvent, can A and B be held
liable for his share in the obligations? Why?
(e)Suppose th at the obligation was about to prescribe, but
X wrote a letter to A demanding for payment of the entire
debt, will this have the effect of interrupting the running of the
period of prescription? Why?
Answer — (a) The creditors cannot proceed against A alone
for the payment of the entire obligation. Since the promissory
note is silent with respect to the right of the creditors as well as
the liability of the debtors, the obligation is, therefore, presumed
185
Moller’s Ltd. vs. Sarile, 97 Phil. 985.
186
187
Agoncillo vs. Javier, 38 Phil. 424.
188
8 M anresa 182, cited in Agoncillo vs. Javier, 38 Phil. 424.
182
to be joint (Art. 1207, CC). Consequently, the only right of such

creditors if they proceed against A alone for payment would be
to collect from him P3,000, which is his proportionate share in
the obligation. (Ibid.) Once the amount is collected, it will then
be divided equally among X, Y and Z. This is so because, under
the law, in the absence of any legal provision or stipulation of
the parties to the contrary, the credit or debt shall be presumed
to be divided into as many equal shares as there are creditors
or debtors, the creditors or debts being considered distinct from
one another (Art. 1208, CC).
(b)X alone cannot proceed against A, B and C for the
payment of the entire obligation for the same reason stated in
the previous paragraph. The most th at he will be able to collect
from the three debtors will be his proportionate share in the
obligation which is P3,000 (Arts. 1207, 1208, CC). As far as the
debtors are concerned, because of the principle t ha t in joint
obligations the credit or debt shall be presumed to be divided
into as many equal shares as there are creditors or debtors, the
credits or debts being considered distinct from one another (Art.
1208, CC), the liability of each will be only with respect to his
share in the P9,000. Consequently, X can collect only P1,000
from A, P1,000 from B, and P1,000 from C.
(c)If X proceeds against A alone for payment, the most
th at he will be able to collect will be only P1,000. The reason has
already been stated in the previous paragraph.
(d)If C is insolvent, his co-debtors cannot be held liable for
his share in the obligations. This necessarily follows from the
principle th at in joint obligation, the credit or debt shall be
presumed to be divided into as many equal shares as there
are creditors or debtors, the credits or debts being considered
distinct from one another (Art. 1208, CC).
(e)The demand made by X upon A, for the purpose of
interrupting the running of the period of prescription, shall
prejudice the latter only, but not the other debtors. Consequently,
if after ten years, X, Y and Z should bring a n action against A,
B and C to collect the debt, the defense of prescription would be
absolute insofar as B and C are concerned, but partial insofar as
A is concerned. In other words, A can still be compelled to pay
P1,000 to X. The reason for this is the fact t h at the principle of
mutual agency is not applicable in joint obligations. (Agoncillo
vs. Javier, 38 Phil. 424.)
Problem No. 2. — X, Y and Z owe A and B P12,000 in a
joint obligation. How many obligations exist in this case, who
183
are the parties in each obligation and for how much? Why?
(1971 Bar Problem)
Answer — There are six obligations in the above case. The
parties and the amount of each obligation are:
(1) X as debtor for P2,000 in favor of A as creditor;
(2) X as debtor for P2,000 in favor of B as creditor;
(3) Y as debtor for P2,000 in favor of A as creditor;
(4) Y as debtor for P2,000 in favor of B as creditor;
(5) Z as debtor for P2,000 in favor of A as creditor;
(6) Z as debtor for P2,000 in favor of B as creditor.
The above answers are clearly deducible from Art. 1208
of the Civil Code which declares t hat if the obligation is joint,
the credit or debt shall be presumed to be divided into as many
equal shares as there are creditors or debtors, the credits or
debts being considered as distinct from one another, subject
to the Rules of Court governing the multiplicity of suits. Take
the credit of P12,000 for instance. Since there are two creditors
there will also be two credits of P6,000 for each creditor. In the
case of the debt of P12,000, since there are three debtors there
will also be three debts of P4,000 against each debtor. Now, as
far as A, the first creditor, is concerned, if he wants to collect his
credit of P6,000, he must proceed against all the debtors. Thus
he will be able to collect P2,000 from X, P2,000 from Y, another
P2,000 from Z. The same is true in the case of B, the second
creditor.
Art. 1209. If the division is impossible, the right of the

creditors may be prejudiced only by their collective acts, and
the debt can be enforced only by proceeding against all the
debtors. If one of the latter should be insolvent, the others
shall not be liable for his share.189
Joint Indivisible Obligations. — A joint indivisible
obligation is in a sense somewhat midway between the joint and
the solidary obligation, although it still retains the two fundamental
characteristics of the former — first, t h a t no creditor can act in
representation of the others, and second, t ha t no debtor can be
189
184
compelled to answer for the liability of the others. However, unlike

joint divisible and solidary obligations, in this type of obligation,
which is joint with respect to the parties and indivisible with respect
to the fulfillment of the obligation, the following characteristics are
also present:
(1)If there are two or more debtors, the fulfillment of or
compliance with the obligation requires the concurrence of all of the
debtors, although each for his own share. 1 9 0 Consequently, according
to the Code, the obligation can be enforced only by proceeding against
all of the debtors. 1 9 1 Thus, if A, B, and C obligated themselves to
deliver jointly a certain horse to X, since the obligation is both joint
and indivisible, X can compel its fulfillment only by proceeding
against A, B and C.
(2)If there are two or more creditors, the concurrence or
collective act of all the creditors, although each for his own share,
is also necessary for the enforcement of the obligation. This is so
because the obligation is joint, and therefore, a creditor cannot act in
representation of the others, and it is also indivisible, and therefore,
not susceptible of partial fulfillment. It must be noted, however,
that, unlike the case of the debtors, the Code is silent with respect
to this point, although Art. 1209 states t h a t the creditors may be
prejudiced only by their collective acts.
Idem; Effect of breach. — Since in a joint indivisible obli-
gation, compliance can only be enforced by proceeding against all
of the debtors, it necessarily follows t h a t if one of the joint debtors
fails to comply with his undertaking, the obligation can no longer
be fulfilled or performed. Consequently, it is converted into one of
indemnity for damages. However, the debtors who may have been
ready to fulfill or perform what was incumbent upon them 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 obliga-
tion consists.192
Idem; Effect of insolvency of a debtor. — If one of the joint
debtors should be insolvent, the others shall not be liable for his
190
Manresa, 5th Ed., Bk. 1, pp. 422, 466.
191
192
185
share. 1 9 3 This rule is, of course, logical because to hold otherwise

would destroy the joint character of the obligation.
The different effects of a joint indivisible obligation with
respect to the debtors may be illustrated by this example: A, B, and
C, partners in business, bind themselves jointly to deliver a certain
race horse, worth P300,000, to X a t the end of January, 1980. X
can compel the performance of the obligation only by proceeding
against all of the obligors or debtors. 1 9 4 However, if any one of the
debtors, let us say, A, cannot or refuses to comply with his share in
the undertaking, the obligation is converted into one of indemnity
for damages. 1 9 5 A shall be liable to X for his corresponding share of
the price of the horse plus damages, while B and C shall be liable
only for their corresponding shares of the price without damages. 1 9 6
If B is insolvent, the others shall not be liable for the payment of his
share. 1 9 7 The right of X as against B will, therefore, be the same as
the right of a creditor against a n insolvent debtor.
Idem; Interruption of period of prescription. — If there
are two or more creditors or debtors, will the claim of a creditor
addressed to a single debtor or the acknowledgment made by one of
the debtors in favor of one or more of the creditors be sufficient to
interrupt the period of prescription? According to one view, since Art.
1209 merely provides that the right of the creditors may be prejudiced
only by their collective acts, it can, therefore, be inferred t h a t should
the act of a joint creditor be per se beneficial to the others, as for
instance the interruption of the period of prescription, the act of one
would be sufficient. 1 9 8 According to another view, the act of a joint
creditor which would ordinarily interrupt the period of prescription
would not be valid because the indivisible character of the obligation
requires collective action of the creditors to be effective. If a written
demand is made by one creditor only, the debtor upon whom the
demand is made cannot pay to him alone; payment must be made to
all. Hence, the act of one alone is ineffective.199 It is submitted that
the latter view is more logical.
193
194
Ibid.
195
196
Ibid.
197
198
199
4 Tolentino, Civil Code, 1956, pp. 213-214, citing De Buen and others.
186
Art. 1210. The indivisibility of an obligation does not

necessarily give rise to solidarity. Nor does solidarity of
itself imply indivisibility.200
Indivisibility and Solidarity. — The rule stated in the above

article is logical. Indivisibility and solidarity are not identical. They
may be distinguished from each other in the following ways:
(1)As to nature: Indivisibility refers to the prestation which
constitutes the object of the obligation, while solidarity refers to the
legal tie or vinculum, and consequently, to the subjects or parties of
the obligation.
(2)As to requisites: Plurality of subjects is not required in
indivisibility, while it is indispensable in solidarity.
(3)As to effect of breach: In indivisible obligations, when the
obligation is converted into one of indemnity for damages because
of breach, indivisibility of the obligation is terminated; in solidary
obligations, when there is liability on the part of the debtors because
of breach, the solidarity among the debtors remains. 2 0 1
Art. 1211. Solidarity may exist although the creditors

and the debtors may not be bound in the same manner and
by the same periods and conditions.202
Kinds of Solidarity. — Solidarity may be active (among

creditors), passive (among debtors), or mixed (among creditors and
debtors).203 Solidarity of creditors (active solidarity) may be defined
as a tie or vinculum existing among several creditors of one and
the same obligation by virtue of which each of them, in relation
to his co-creditors, possesses the character of creditor only with
respect to his share in the obligation, but in relation to the common
debtor or debtors, represents all of the other creditors. Solidarity
of debtors (passive solidarity), on the other hand, may be defined
as a tie or vinculum existing among several debtors of one and the
same obligation by virtue of which each of them, in relation to his
co-debtors, possesses the character of debtor only with respect to his
200
New provision.
201
202
Art. 1140, Spanish Code.
203
4 Sanchez Roman 50; Giorgi, Teoria de las Obligaciones, Vol. 1, p. 89.
187
share in the obligation, but in relation to the common creditor or

creditors, represents all of the other debtors. 2 0 4
Idem; Effect of active solidarity in general. — The
most fundamental effect of active solidarity is the creation of a
relationship of mutual agency among the solidary creditors by
virtue of which each creditor is empowered to exercise against the
debtor or debtors not only the rights which correspond to him, but
also all the rights which correspond to the other creditors, with the
consequent obligation to render a n accounting of his acts to such
creditors. In the words of Manresa:
“The essence of solidarity among the creditors consists of

the power of each to claim and exercise the rights of all, with the
consequent obligation to pay to each what properly corresponds
to him upon the exercise of said rights. There is, therefore, equal
mutual representation from which none can be excluded without
destroying the solidary character of the obligation. Hence, the
essential feature of this obligation is th a t of mutual agency
among the active subjects of the obligation, who are empowered
to exercise not only their own rights, but also t ha t of the others,
against any debtor or debtors, with the consequent obligation to
render a n accounting of his acts to the other creditors.’’205
It is this relationship of mutual agency which is the basis of the

different rules stated in Arts. 1212 to 1215 of the Code.
Idem; Effect of passive solidarity in general. — In passive
solidarity, each solidary debtor, insofar as the creditor or creditors
are concerned, is the debtor of the entire amount; however, with
respect to his co-debtors, he is a debtor only to the extent of his share
in the obligation. 2 0 6 Hence, the most fundamental effect of solidarity
among the debtors is the liability of each debtor for the payment
of the entire obligation, with the consequent right to demand
reimbursement from the others for their corresponding shares once
payment has been made.
Idem; id. — Distinguished from suretyship. — Passive sol-
idarity must be distinguished from solidary guaranty (suretyship).
204
Giorgi, Teoria de las Obligaciones, Vol. 1, pp. 90, 115.
205
206
188
According to the second paragraph of Art. 2047 of the Code, a soli-

dary guarantor or surety (fiador in solidum) is a person who binds
himself solidarily with the principal debtor. Hence, it is evident that
a solidary debtor and a surety are similar in the sense t h a t they are
both solidarily liable to the creditor for the payment of the entire
obligation. Strictly speaking, however, they may be distinguished
from each other as follows:
(1)A solidary debtor, unlike a surety, is liable not only for
the payment of the debt of another, but also for the payment of a
debt which is properly his own;
(2)If a solidary debtor pays the entire amount of the
obligation, he has a right to demand reimbursement from his co-
debtors of the shares which correspond to them in the obligation,
whereas if a surety pays the entire amount of the obligation, he has
a right to demand reimbursement from the principal debtor of the
entire amount t h a t he has paid; and
(3)The rights of a solidary debtor are more limited tha n those of
a surety. Thus, in passive solidarity a n extension of time granted by
the creditor to one of the solidary debtors for the payment of the
obligation without the knowledge or consent of the other solidary
debtors would not have the effect of releasing the latter from their
obligation, 2 0 7 but in suretyship such a n extension granted to the
principal debtor would release the surety from the obligation. 2 0 8
While a guarantor may bind himself solidarily with the principal
debtor, the liability of a guarantor is different from t ha t of a solidary
debtor. Thus, Tolentino explains guarantor is different from t h a t of
a solidary debtor. Thus, Tolentino explains: “A guarantor who binds
himself in solidum with the principal debtor under the provisions
of the second paragraph does not become a solidary co-debtor to
all intents and purposes. There is a difference between a solidary
co-debtor and a fiador in solidum (surety). The latter, outside of
the liability he assumes to pay the debt before the property of the
principal debtor has been exhausted, retains all the other rights,
actions and benefits which pertain to him by reason of the fiansa;
while a solidary co-debtor has no other rights th an those bestowed
207
Inchausti & Co. vs. Yulo, 34 Phil. 978.
208
Villa vs. Garcia Bosque, 49 Phil. 126; Stevenson vs. Climaco, CA 36
Off. Gaz.
1571.
189
upon him in Section 4, Chapter 3, Title I, Book IV of the Civil Code.’’

(Inciong, Jr. vs. Court of Appeals, Ju n e 26, 1996, 257 SCRA 580).
Idem; Effect of varied conditions or periods. — The
vinculum or bond which binds the creditors and the debtors in
solidary obligations may be either uniform or varied, depending
upon whether they are bound in the same m anner and by the same
conditions or periods or not. 2 0 9 Consequently, the relationship of
solidarity is not destroyed by the fact t hat the obligation of one
debtor is conditional, the obligation of another is with a term or
period, and the obligation of a third is pure. Neither is the
character of solidarity destroyed if the debtors are bound by
different conditions or by different periods. A creditor in such cases,
can still commence a n action against anyone of the debtors for
compliance with the entire obligation minus the portion or share
which corresponds to the debtor affected by the condition or
period. 2 1 0 Thus, if A, B, and C borrowed P60,000 from X binding
themselves jointly and severally to pay the entire obligation, but
in the promissory note executed by them there is a stipulation
t h a t in the case of A, the obligation shall become due and
demandable on Ju n e 15, 1972; in the case of B, it shall become due
and demandable on Ju n e 15, 1974; and in the case of C, it shall
become due and demandable on Ju n e 15, 1976, and subsequently,
immediately, after Ju n e 15, 1972, X brought an action for collection
of the entire obligation against A alone because of the latter’s
failure to pay despite repeated demands, will the action prosper?
Undoubtedly, the obligation here is solidary. This is clear from the
provision of Art. 1211 of the Civil Code. However, in solidary
obligations of this type, the right of the creditor is limited to the
recovery of the share owed by the debtor whose obligation has
already matured leaving in suspense his right to recover the shares
corresponding to the other debtors whose obligations have not yet
matured. This restriction does not destroy the solidary character
of the obligation, because, ultimately, he can still compel one and
the same debtor, if t ha t is his wish, to pay the entire obligation.
Therefore, in the in stant case, X can collect only P20,000 from A,
which is the latter’s share in the obligation. He shall have to wait for
Ju ne 15, 1974, when B’s obligation shall have matured, and for June
15, 1976, when C’s obligation shall have also matured. On Ju n e 15,
209
4 Sanchez Roman 50.
210
Inchausti & Co. vs. Yulo, 34 Phil. 978.
190
1974, he can collect P20,000 from either A or B. On J u n e 15, 1976,

he can again collect another P20,000 from either A or B or C.
Inchausti & Co., vs. Yulo

34 Phil. 978
On August 12, 1909, six brothers and sisters, defendant

among them, executed a n instrument admitting their solidary
indebtedness to the plaintiff for P253,446.42, a t 10% interest
per annum, payable in five annual installments, the first
installment to be paid on J u n e 13, 1910. Because of default in
the payment of the first installment, plaintiff, in accordance
with the acceleration clause expressly agreed upon, brought this
action on March 27, 1911, against Gregorio Yulo for the payment
of the entire indebtedness plus interests. Subsequently, on May
12, 1911, three of the debtors, Francisco, Manuel and Carmen,
entered into an agreement with plaintiff, evidenced by a notarial
instrument, by virtue of which the amount of the indebtedness
was reduced to P225,000, at 6% interest per annum, payable
in eight annual installments, the first installment to be paid
on J u n e 30,1912. Some of the questions now raised are the
following: (1) Can the plaintiff sue Gregorio Yulo alone,
considering th at there are other debtors? (2) What is the effect
of the partial remission of the debt made by the creditor in favor
of three of the debtors? (3) What is the effect of the extension of
time for payment granted by the creditor to three of the debtors?
The Supreme Court, speaking through Chief Justice Arellano,
held:
“With respect to the question as to whether the plaintiff
can sue the defendant alone, it cannot be doubted that, the
debtors, having obliged themselves in solidum, the creditor can
bring its action in toto against any one of them, inasmuch as
this was surely its purpose in demanding t ha t the obligation
contracted in its favor should be solidary, and even though the
creditor may have stipulated with some of the solidary debtors
diverse installments and conditions, as in this case, Inchausti
& Co. did with its debtors Manuel, Francisco and Carmen Yulo
through the instrument of May 12, 1911, this does not lead to
the conclusion t hat the solidarity stipulated in the instrument of
August 12, 1909, is broken, as we already know the law provides
th at ‘solidarity may exist even though the debtors are not bound
in the same manner and for the same periods and under the
same conditions.’’ (Art. 1140, Civil Code — now Art. 1211, New
Civil Code.)
191
“With respect to the question involving the effect of the

partial remission, the obligation being solidary, the remission
of any p art of the debt made by a creditor in favor of one or
more of the solidary debtors necessarily benefits the others,
and therefore, there can be no doubt that, in accordance with
the provision of Article 1143 (now Art. 1215) of the Civil Code,
the defendant has the right to enjoy the benefits of the partial
remission of the debt granted by the creditor.
“Wherefore, we hold t hat although the contract of May 12,
1911, has not novated th at of August 12, 1909, it has affected that
contract and the outcome of the suit brought against Gregorio
Yulo alone for the sum of P253,445.42; and in consequence
thereof, the amount stated in the contract of August 12, 1909,
cannot be recovered but only t hat stated in the contract of May
12, 1911, by virtue of the remission granted to the three of the
solidary debtors in this instrument, in conformity with what is
provided in Article 1143 (now Art. 1215), Civil Code, cited by the
creditor himself.
“With respect to the question involving the effect of the
extension of time for payment granted to the other solidary
debtors, Gregorio Yulo cannot allege as a defense to the action
th at it is premature. When the suit was brought on March 27,
1911, the first installment of the obligation ha d already matured
on Ju n e 30, 1910, and with the maturity of this installment,
the first not having been paid, the whole debt had matured,
according to the express agreement of the parties. Neither could
he invoke a like exception for the shares of solidary co-debtors
Pedro and Concepcion Yulo, they being in identical condition as
he. But as regards Francisco, Manuel and Carmen Yulo, none
of the installment payable under their obligation, contracted
later, h ad as yet matured. The first payment, as already stated,
was to mature on J u n e 30, 1912. This exception or personal
defense of Francisco, Manuel and Carmen Yulo ‘as to t ha t part
of the debt for which they were responsible’ can be set up by
Gregorio Yulo as a partial defense to the action. The part of
the debt for which these three are responsible is three-sixths
of P225,000, or P112,500, so t hat Gregorio Yulo may claim
that, even acknowledging th at the debt for which he is liable
is P225,000, nevertheless not all of it can now be demanded of
him, for th at of it which pertains to his co-debtors is not yet due,
a state of affairs which not only prevents any action against the
persons who were granted the term which has not yet matured,
but also against the other solidary debtors who being ordered to
pay could not now sue for a contribution, and for this reason the
action will be only as to P112,500.
192
It has been said in the brief of the appellee t h at the

prematurity of the action is one of the defenses derived
from the nature of the obligation, according to the opinion of
the commentator of the Civil Code, Mucius Scaevola, and
consequently, the defendant Gregorio Yulo may make use of it in
accordance with Article 1146 (now Art. 1222) of the Civil Code.
It may be so and yet, taken in th at light, the effect would not
be different from t hat already stated in this decision; Gregorio
Yulo could not be freed from making any payment whatever but
only from the payment of the p art of the debt which corresponds
to his co-debtors Francisco, Manuel and Carmen. The same
author, considering the case of the opposing contention of two
solidary debtors as to one of whom the obligation is pure and
unconditional and as to the other it is conditional and is not
yet demandable, and comparing the disadvantages which must
flow from holding th at the obligation is demandable with those
which must follow if the contrary view is adopted, favors this
solution of the problem.
“ ‘There is a middle ground (he says), from which we can

safely set out, to wit, th at the creditor may of course demand
the payment of his credit against the debtor not favored by any
condition or extension of time.’ And further on, he decides the
question as to whether the whole debt may be recovered or only
th at part unconditionally owing or which h as already matured,
saying ‘Without failing to proceed with juridical rigor, but
without failing into extravagances or monstrosities, we believe
th at the solution of the difficulty is perfectly possible. How? By
limiting the right of the creditor to the recovery of the amount
owed by the debtor bound unconditionally or as to whom the
obligation has matured, and leaving in suspense the right to
demand the payment of the remainder until the expiration
of the term or the fulfillment of the condition. But what then
is the effect of solidarity? How can this restriction of right be
reconciled with the duty imposed upon each one of the debtors to
answer for the whole obligation? Simply this, by recognizing in
the creditor the power, upon the performance of the condition or
the expiration of the term, of claiming from any one or all of the
debtors th at part of the obligation affected by those conditions.
(Scaevola, Civil Code, 19, 800 and 801)
“It h as been said also by the trial judge in his decision that
if a judgment be entered against Gregorio Yulo for the whole
debt of P253,445.42 he cannot recover from Francisco, Manuel
and Carmen Yulo th at part of the amount which is owed by
them because they are obliged to pay only P225,000 and this
193
in eight installments none of which was due. For this reason he

was of the opinion t hat he (Gregorio Yulo) cannot be obliged to
pay his p art of the debt before the contract of May 12, 1911, may
be enforced, and consequently, he decided the case in favor of
the defendant, without prejudice to the plaintiff proceeding in
due time against him for his proportional pa rt of the joint debt.
“But in the first place, taking into consideration the
conformity of the plaintiff and the provision of Article 1143 (now
Art. 1215) of the Civil Code it is no longer possible to sentence the
defendant to pay the P253,445.42 of the instrument of August
12, 1909, but if anything, the P225,000 of the instrument of May
12, 1911. In the second place, neither is it possible to curtail the
defendant’s right of recovery from the signers of the instrument
of May 12, 1911, for he was justly exonerated from the payment
of th at part of the debt corresponding to them by reason of there
having been upheld in his favor the exception of a n unmatured
installment which pertains to them. In the third place, it does
not seem just. Mucius Scaevola considers it ‘absurd,’ that, there
being a debtor who is unconditionally obliged as to whom the
debt h as matured, the creditor should be forced to await the
realization of the condition (or the expiration of the term). Hence,
the contract of May 12, 1911 has affected the action and the suit,
to the extent t h at Gregorio Yulo has been able to make in his
favor the defense of remission of part of the debt, t hanks to the
provision of Article 1143 (now Art. 1222), because it is a defense
derived from the n ature of the obligation, so t ha t although the
said defendant was not a party to the contract in question,
yet because of the principle of solidarity he was benefited by
it. The defendant Gregorio Yulo cannot be ordered to pay the
P253,445.42 claimed from him in the suit here, because he has
been benefited by the remission made by the plaintiff to three of
his co-debtors, many times named above.
“Consequently, the debt is reduced P225,000. But, as
it cannot be enforced against the defendant except as to the
three-sixths part which is what he can recover from his joint co-
debtors Francisco, Manuel, and Carmen, a t present judgment
can be rendered only as to the P112,500. We, therefore, sentence
the defendant Gregorio Yulo to pay the plaintiff Inchausti &
Co. P112,500, with the interest stipulated in the instrument of
May 12,1911, from March 15, 1911, and the legal interest on
this interest due, from the time th at it was claimed judicially in
accordance with Article 1109 (now Art. 2212) of the Civil Code,
without any special finding as to cost. The judgment appealed
from is reversed. So ordered.”
194
Art. 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.211
Effect of Beneficial and Prejudicial Acts. — As a conse-
quence of the relationship of mutual agency existing among the soli-
dary creditors, each one of them may do whatever may be useful or
beneficial to the others, but not anything which may be prejudicial
to the latter. 2 1 2 Hence, each solidary creditor may demand the pay-
ment or performance of the entire obligation from one, some or all of
the debtors. 2 1 3 Such a demand will have the effect of benefiting not
only the solidary creditor who made it, but also the other solidary
creditors. Consequently, if the entire obligation is paid, the latter
will have the right to demand from the creditor who received the
payment the shares corresponding to them in the obligation. 2 1 4 As
far as prejudicial acts are concerned, we must distinguish between
the effect of such acts upon the relationship of the solidary creditors
with the debtor or debtors, and the effect upon the entirely different
relationship of the solidary creditors among themselves. As far as
the debtor or debtors are concerned, a prejudicial act performed by a
solidary creditor shall be valid and binding because of the principle
of mutual representation which exists among the creditors; howev-
er, as far as the solidary creditors are concerned, the creditor who
performed the act shall incur the obligation of indemnifying the oth-
ers for damages. 2 1 5 There is, therefore, no incompatibility between
the rule regarding prejudicial acts stated in Art. 1212 and the rule
regarding novation, compensation, confusion or remission stated in
Art. 1215. The first refers to the effect of prejudicial acts upon the
relationship of the creditors among themselves; the second refers
to the effect upon the entirely different relationship of the creditors
with the debtor or debtors. It is clear t h a t the Code sanctions the ef-
ficacy of prejudicial acts such as novation, compensation, confusion
or remission as far as the debtor or debtors are concerned, but not
as far as the other solidary creditors are concerned. 2 1 6 Consequently,
according to Art. 1215, the novation, compensation, confusion or re-
211
212
213
rts. 1214, 1216, Civil Code.
214
215
216
195
mission of the debt shall result in the extinguishment of the obliga-

tion, but the solidary creditor responsible for the act shall be liable
to the others for the share in the obligation corresponding to them.
Art. 1213. A solidary creditor cannot assign his rights

without the consent of the others.217
Effect of Assignment of Rights. — The rule or precept stated
in the above article is based on the opinion of Manresa and other
Spanish commentators, t h a t since active solidarity is essentially a
mutual agency, and therefore, is predicated upon mutual confidence
which implies t h a t the personal qualifications of each of the solidary
creditors had been taken into consideration when the obligation was
constituted, it is only proper t h a t a solidary creditor cannot assign
his rights without the consent of the others.
What is the effect if a solidary creditor assigns his rights
without the consent of the other solidary creditors? The answer to
this question shall have to be qualified. If the assignment is made
to anyone of the other solidary creditors, it is clear t ha t there is no
violation of the precept stated in Art. 1213, because in such case
there can be no invasion of the personal or confidential relationship
existing among the solidary creditors. However, if the assignment
is made to a third person, there would be a clear violation of the
precept, in which case the other solidary creditors, as well as the
debtor or debtors, are not bound to recognize the validity or the
efficacy of the assignment. This is, of course, without prejudice to
the liability of the creditor-assignor to the other solidary creditors
for damages which may have been incurred by them as a result of
the prohibited assignment.
Art. 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.218
Effect of Demand by a Creditor. — Any solidary creditor
may demand the payment or performance of the obligation from one,
some or all of the debtors. This is, of course, a logical consequence
217
New provision.
218
196
of the rule stated in Art. 1212 t h a t each creditor may do what is

beneficial to the others. Such a demand may be either judicial or
extrajudicial. In such case, payment shall be made only to the
creditor who made the demand and to no other. However, in the
absence of any judicial or extrajudicial demand, payment may be
made by the debtor to anyone of the solidary creditors. 2 1 9
In case of mixed solidarity, a judicial or extrajudicial demand
would prohibit the debtor upon whom the demand is made from
making a payment to any creditor other tha n to the one who made
the demand. This prohibition, however, does not extend to the other
debtors upon whom no demand has been made and so each of such
debtors can still validly tender payment to a creditor other th an to
the creditor who made the demand. 2 2 0
Art. 1215. Novation, compensation, confusion or remis-

sion of the debt, made by any of the solidary creditors or
with any of the solidary debtors, shall extinguish the obliga-
tion, 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.221
Effect of Novation. — Novation is the change or substitution
of a n obligation by another, resulting in its extinguishment or
modification, either by changing its object or principal condition, or
by substituting another in place of the debtor, or by subrogating a
third person in the rights of the creditor. 2 2 2 The peculiar feature of
this mode of extinguishing obligations is t h a t while it extinguishes
the obligation, it creates a new one in lieu of the old. Hence, the
liability of the solidary creditor who effected the novation to the
other solidary creditors shall depend upon the character of the
new obligation which is created. If the novation of the obligation
is effected by changing its object or principal condition, the new
obligation which is created may be either prejudicial or beneficial
219
220
221
222
197
to the other solidary creditors depending upon the circumstances

of each particular case. If it is prejudicial, the solidary creditor
who effected the novation shall reimburse the others for damages
incurred by them; if it is beneficial and the creditor who effected the
novation is able to secure performance of the new obligation, such
creditor shall be liable to the others for the share which corresponds
to them, not only in the obligation, but also in the benefits. If the
novation is effected by substituting another person in place of the
debtor, the solidary creditor who effected the novation is liable for
the acts of the new debtor in case there is a deficiency in performance
or in case damages are incurred by the other solidary creditors as a
result of the substitution. If the novation is effected by subrogating
a third person in the rights of the solidary creditor responsible for
the novation, the obligation of the debtor or creditors is not in reality
extinguished, because in this type of novation the relation between
the other creditors not substituted and the debtor or debtors is still
maintained. However, if the novation is effected by subrogating a
third person in the rights of all the solidary creditors, the creditor
responsible for such novation is liable to the other creditors for the
share which corresponds to them in the obligation. 2 23
As a general rule, extension of time for the payment of the ob-
ligation given by the creditor to a solidary debtor does not consti-
tute a novation with respect to the other solidary debtors, because
in order t h a t a n obligation may be extinguished by another which
substitutes it, it is necessary t h a t it should be so expressly declared
or t h a t the old and the new obligation are incompatible with each
other on every point. However, if the creditor proceeds against the
solidary debtor or debtors to whom no extension was given for pay-
ment of the whole obligation, such debtor or debtors can set up the
partial defense of extension of time as regards t h a t par t of the debt
for which the debtor or debtors to whom the extension was given are
responsible. 2 2 4 In suretyship, however, the rule is t h a t a n extension
of time granted to the principal debtor by the creditor without the
consent of the surety extinguishes the latter’s liability; 2 2 5 but where
a surety is liable for different payments, such as installments or
223
Ibid., pp. 444-445.
224
Art. 1222, Civil Code; Inchausti & Co. vs. Yulo, 34 Phil. 978.
225
Art. 2079, Civil Code; Asiatic Petroleum Co. vs. Hizon, 45 Phil. 532;
BankNational
vs. Veraguth, 50 Phil. 253.
198
rents, or upon a series of promissory notes, a n extension of time as to

one or more will not affect the liability of the surety for the others. 2 2 6
Effect of Compensation and Confusion. — Compensation
is a figurative operation of weighing two obligations simultaneously
in order to extinguish them to the extent t h a t the amount of one
is covered by the amount of the other. 2 2 7 Confusion, on the other
hand, refers to the merger of the qualities of creditor and debtor
in one and the same person with respect to one and the same
obligation. 2 2 8 If the confusion or compensation is partial, there may
be some doubt as to the part of the obligation to which the confusion
or compensation shall be applied. In such case, the question is
resolved by applying the rules established in this Code regarding
application of payment. This is, of course, without prejudice to the
right of the other creditors who have not caused the confusion or
compensation to be reimbursed to the extent t h a t their rights are
diminished or affected. If the confusion or compensation is total, the
obligation is extinguished altogether and what is left is the ensuing
liability for reimbursement within each group, the creditor causing
the confusion or compensation being obliged to reimburse the other
creditors, and the debtors benefited by the extinguishment of the
obligation being obliged to reimburse the debtor who made the
confusion or compensation possible.229
Effect of Remission. — Remission is a n act of pure liberality
by virtue of which the creditor, without having received any
compensation or equivalent, renounces his right to enforce the
obligation, thereby extinguishing the same either in its entirety or
in the par t or aspect thereof to which the remission refers. 2 3 0 The
remission or condonation referred to in Art. 1215 may be total or
partial, effected by one, some, but not all, of the solidary creditors
in favor of one, some or all of the debtors. Whether total or partial,
the obligation is extinguished in its entirety or in t h a t part or aspect
thereof to which the remission refers, giving rise to a liability on
the p ar t of the creditor or creditors responsible for the remission to
reimburse the others for the share in the obligation corresponding to
226
Villa vs. Garcia Bosque, 49 Phil. 126.
227
228
4 Sanchez Roman 421.
229
230
Ibid., p. 673.
199
them. However, as among the creditors responsible for the

remission, such liability does not arise. 2 3 1
As far as the solidary debtors are concerned, the effects of
remission may be summarized as follows:
(1)If the remission covers the entire obligation, then the
obligation is totally extinguished and the entire juridical relation
among the debtors is terminated altogether. This is true whether the
remission is for the benefit of all of the debtors or of only one of them.
As a m atter of fact, the Code in Art. 1220 expressly declares t h at the
remission of the whole obligation, obtained by one of the solidary
debtors, does not entitle him to reimbursement from his co-debtors.
This rule is based on the character of remission as a n act of pure
liberality. In reality, the remission of a debt is a donation. Hence,
if the whole obligation is condoned through the efforts of a solidary
debtor or for his benefit, he is not entitled to any reimbursement
from his co-debtors.232
(2)If the remission is for the benefit of one of the debtors
and it covers his entire share in the obligation, he is completely
released from the creditor or creditors, but he is still bound to his
co-debtors. Consequently, if one of the latter subsequently pays the
balance of the obligation which is not condoned and he proceeds
against the others for reimbursement of their respective shares in
the obligation, but one of them is insolvent, the debtor for whose
benefit the remission had been effected, shall still have to share in
the portion which corresponds to the insolvent.
(3)If the remission is for the benefit of one of the debtors and it
covers only a part of his share in the obligation, his character as a
solidary debtor is not affected; it continues both with respect to the
creditor or creditors and with respect to the other debtors.
Whether the remission covers the entire share of a solidary
debtor in the obligation or only a part thereof, if the creditor or
creditors proceed against any one of the other solidary debtors for
the payment of the entire obligation, such debtor can always avail
himself of the defense of partial remission. 2 3 3
231
Ibid., pp. 440-443.
232
Ibid.
233
Art. 1222, Civil Code; Inchausti & Co. vs. Yulo, 34 Phil. 978.
200
It must be noted, however, t h a t the above rules cannot be

applied in case the debt had already been totally paid by anyone of
the solidary debtors before the remission was effected.234 Otherwise,
there would always be the possibility t h a t the creditor might
fraudulently condone the share of a solidary debtor whom he desires
to favor even after the debt had already been totally paid by another
solidary debtor. 2 3 5
Effect of Payment to a Creditor. — If one of the solidary
creditors is able to collect the entire amount of the debt from one
or some or all of the solidary debtors, the obligation is totally
extinguished, although there arises a consequent obligation on
his part to render a n account to his co-creditors. Under the law,
he can be held liable to the others for the share in the obligation
corresponding to them. 2 3 6
Art. 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.237
Effect of Demand upon a Debtor. — Since any one of the
solidary debtors can be held liable for the payment of the entire
obligation, it is but logical t h a t the creditor may proceed against
any one or some or all of them simultaneously. 2 3 8 Furthermore, the
demand made against one of them shall not be a n obstacle to those
which may subsequently be directed against the others so long as
the debt has not been fully collected.239 Thus, where the guarantor
binds himself solidarily with the principal debtor to pay the latter’s
debt, he cannot and should not complain t h a t the creditor should
thereafter proceed against him to collect his credit. This is so
because the creditor may proceed against any one of the solidary
debtors or against all of them simultaneously, the fact t h a t action
has been brought or t h a t payment has been enforced against one of
234
235
236
237
238
239
Ibid.
201
them not being a bar thereto so long as there remains a balance to

collect.240 And it cannot be contended t h a t the failure of the creditor
to include the solidary guarantor or surety as a defendant in the
first suit implies a waiver of his right of action against such surety,
since under the law the bringing of a n action against the principal
debtor to enforce the payment of the obligation is not inconsistent
with, and does not preclude, the bringing of another to compel the
surety to fulfill his obligation under the surety agreement. 2 4 1
A creditor’s right to proceed against the surety exists indepen-
dently of his right to proceed against the principal. Under Article
1216 of the Civil Code, the creditor may proceed against any one of
the solidary debtors or some or all of them simultaneously. The rule,
therefore, is th a t if the obligation is joint and several, the creditor
has the right to proceed even against the surety alone. Since, gener-
ally, it is not necessary for a creditor to proceed against a principal
in order to hold the surety liable, where, by the terms of the con-
tract, the obligation of the surety is the same as t h a t of the principal,
then as soon as the principal is in default, the surety is likewise in
default, and may be sued immediately and before any proceedings
are had against the principal. Perforce, in accordance with the rule
that, in the absence of stat ute or agreement otherwise, a surety is
primarily liable, and with the rule t h a t his proper remedy is to pay
the debt and pursue the principal for reimbursement, the surety
cannot a t law, unless permitted by stat ute and in the absence of
any agreement limiting the application of the security, require the
creditor or obligee, before proceeding against the surety, to resort to
and exhaust his remedies against the principal, particularly where
both principal and surety and equally bound. (Palmares vs. Court of
Appeals, March 31, 1998, 288 SCRA 426.)
The Supreme Court further stated in the aforementioned case
of Palmares vs. Court of Appeals t h a t “in this regard, we need only
to reiterate the rule t h a t a surety is bound equally and absolutely
with the principal, and as such, is deemed a n original promissor
and debtor from the beginning. This is because in suretyship, there
is but one contract, and the surety is bound by the same agreement
which binds the principal. In essence, the contract of a surety starts
with the agreement.
240
La Yebana vs. Valenzuela, 67 Phil. 482.
241
Phil. Nat. Bank vs. Confesor, CA, 37 Off. Gaz. 3295.
202
“A surety is not even entitled as a m atte r of right to be given

notice of the principal’s default. Even if it were otherwise, demand
on the sureties is not necessary before bringing suit against them
since the commencement of the suit is a sufficient demand. On this
point, it may be worth mentioning t h a t a surety is not even entitled,
as a m att er of right, to be given notice of the principal’s default.
Inasmuch as the creditor owes no duty of active diligence to take
care of the interest of the surety, his mere failure to voluntarily give
information to the surety of the default of the principal cannot have
the effect of discharging the surety. The surety is bound to take
notice of the principal’s default and to perform the obligation. He
cannot complain t h a t the creditor has not notified him in the absence
of a special agreement to t h a t effect in the contract of suretyship.’’
“A surety is liable as much as his principal is liable and
absolutely liable as soon as default is made without any demand
upon the principal whatsoever or any notice of default. The alleged
failure of respondent corporation to prove the fact of demand on the
principal debtors, by not attaching copies thereof to its pleadings,
is likewise immaterial. In the absence of a statutory or contractual
requirement, it is not necessary t h a t payment or performance of
his obligation be first demanded of the principal, especially where
demand would have been useless; nor is it a requisite, before
proceeding against the sureties, t ha t the principal be called on to
account. The underlying principle therefore is t h a t a suretyship
is a direct contract to pay the debt of another. A surety is liable
as much as his principal is liable, and absolutely liable as soon as
default is made, without any demand upon the principal whatsoever
or any notice of default. As a n original promisor and debtor from
the beginning, he is held ordinarily to know every default of his
principal. (Palmares vs. Court of Appeals, supra.)
As a general rule, the death of either the creditor or the debtor
does not extinguish the obligation. Obligations are transmissible to
the heirs, except when the transmission is prevented by the law,
the stipulation of the parties or the nature of the obligation. Only
obligations t h a t are personal or are identified with the persons
themselves are extinguished by death. Sec. 5 of Rule 86 of the Rules
of Court expressly allows the prosecution of money claims arising
from a contract against the estate of a deceased debtor. Evidently,
those claim are not extinguished. What is extinguished is only the
203
obligee’s action or suit filed before the court, which is not then acting
as a probate court.
As provided in the case of Stronghold Insurance Company
Inc vs. Republic-Asahi Glass Corporation, whatever monetary
liabilities or obligations the deceased Jose Santos (the proprietor
of JDS Construction which executed a performance bond jointly
and severally with petitioner-surety) had under his contracts
with respondent Republic-Asahi were not intransmissible by their
nature, by stipulation or by provision of law. Hence,death did not
result in the extinguishment of those obligations or liabilities, which
merely passed on to the estate of Santos. Death is not a defense that
he or his estate can set up to wipe out the obligations under the
performance bond. Consequently, the petitioner as surety cannot use
his death to escape its monetary obligation under its performance
bond. As a surety, petitioner is solidarily liable with Santos in
accordance with Art. 2017, in relation to Art. 1216 of the New Civil
Code. The surety’s obligation is not a n original and direct one for the
performance of his own act, but merely accessory or collateral to the
obligation contracted by the principal. Nevertheless, although the
contract of a surety is in essence secondary only to a valid principal
obligation, his liability to the creditor or promisee of the principal is
said to be direct, primary and absolute; In other words, he is directly
and equally bound with the principal.
The death of the principal debtor will not work to convert,
decrease or nullify the substantive right of the solidary creditor.
Despite the death of the principal debtor, respondent may still
sue petitioner alone, in accordance with the solidary nature of the
latter’s liability under the performance bond. Under the law and
jurisprudence, respondent may sue, separately or together, the
principal debtor and the petitioner , in view of the solidary nature
of their liability (Stronghold Insurance Company Inc. vs. Republic-
Asahi Glass Corporation, supra).
Art. 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
204
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.242
Art. 1218. Payment by a solidary debtor shall not entitle
him to reimbursement from his co-debtors if such payment is
made after the obligation has prescribed or become illegal.243
Effect of Payment by a Debtor. — Where payment is made
by one of the solidary debtors, the effect is either the total or partial
extinguishment of the obligation depending upon whether the entire
amount of the debt is paid or only a par t thereof.
Once payment is made by one of the solidary debtors of the
entire obligation, there arises immediately a consequent right of
such debtor to claim from his co-debtors the share which corresponds
to them, with interest for the payment already made. 2 4 4 This right,
however, is not available to a debtor who makes the payment after
the obligation has prescribed or has become illegal.245
As a rule, the interest shall be computed from the time payment
was made. However, if payment was made before the debt became
due, no interest during the intervening period may be demanded. 2 4 6
In other words, the interest shall be computed not from the time
payment was made, but from the time the debt became due. Thus, if
A, B, and C became indebted jointly and severally to X for P30,000
and it was agreed t h a t such debt shall be paid on December 1, 1966,
but instead payment was made by A on Ju n e 1, 1965, he can demand
from B and C only the share which corresponds to each in the
obligation, as well as the interest thereon from December 1, 1966.
What would be the effect if one of the solidary debtors cannot,
because of his insolvency, reimburse his share to the debtor paying
the obligation? According to the third paragraph of Art. 1217, such
242
243
New provision.
244
245
246
205
share shall be borne by all his co-debtors, in proportion to the debt

of each.
Idem; Nature of right of debtor. — It must be observed that,
under the law, before the payment is actually made, the right of
the solidary debtor to demand reimbursement from his co-debtors is
merely contingent and conditional. Once payment has already been
made, the right becomes real and existing. The old obligation in
favor of the creditor is extinguished, but a new obligation is created
in favor of the solidary debtor who made the payment. There is,
therefore, no real case of subrogation. 2 4 7
Bank of the P.I. vs. McCoy

52 Phil. 831
This action was originally instituted by plaintiff bank

against McCoy and six other solidary debtors for the payment
of an indebtedness of P16,000. When the case was ready for
hearing, McCoy entered into a compromise with plaintiff and
paid P12,000 in satisfaction of the debt. The question now is
— can McCoy be substituted as plaintiff against her
former co- defendants for the purpose of compelling t hem to
reimburse to her their proportionate shares in the obligation?
Held: “By paying off the claim which was originally the
subject of litigation, the executrix was subrogated to the rights
of the original plaintiff, and if the situation was one involving
a joint and several liability on the part of all of the original
defendants, the executrix, upon paying off the claim, necessarily
acquired the right to prosecute the action for contribution against
her co-defendants. But it is said t hat the amendment by which
the executrix was permitted to substitute the original plaintiff
had the effect of changing the cause of action entirely, since the
original action was founded upon a debt supposedly owing to the
bank from the seven defendants, whereas after the i nst ant debt
was paid, the only right of action vested in the executrix was the
right to obtain contribution. It must be remembered, however,
th at if the original action had proceeded to its end against all of
the defendants, the court, in giving judgment, would have taken
account of the obligation of each to contribute his proportionate
share to the payment of the judgment, and what has been finally
done, as the case shaped itself here, is to give effect to the same
247
Wilson vs. Berkenkotter, 49 Off. Gaz. 1410.
206
obligation. It was in our opinion a proper case of substitution of

parties resulting from the subrogation of one of the defendants
to the right of the plaintiff.”248
Wilson vs. Berkenkotter

49 Off. Gaz. 1410
On Ju n e 30, 1938, Berkenkotter, Wilson and Gulick

executed a promissory note promising jointly and severally
to pay an indebtedness of P90,000 to the Chartered Bank of
India, Australia and China plus interest. Payment was made
by Berkenkotter in November, 1944, with Japanese military
notes. After liberation, Berkenkotter demanded from his co-
debtors reimbursement of their shares in the obligation. Wilson
tendered payment of P625.51 in accordance with the Ballantyne
Schedule, which Berkenkotter refused to accept. As a result,
Wilson deposited the amount in the Court of First Instance of
Manila and finally brought this action to compel Berkenkotter to
accept the said amount. The question now is — is the Ballantyne
Schedule applicable?
Held: “In several cases involving the application of the
Ballantyne Schedule, this Court has held t h a t said schedule
is applicable to obligations contracted during the Japanese
occupation where said obligations are made payable on demand
or during said Japanese occupation but not after the war or at
a specified date speculating on the continuation or cessation of
the war at the time of payment. If the obligation on the part
of Wilson to pay Berkenkotter the amount paid by the latter
to wipe out their debt to the Bank was created during the
occupation, then the Ballantyne Schedule is applicable, but if
said obligation was created before the war, particularly on the
date when plaintiff and defendant signed the promissory note
in favor of the Bank then the Ballantyne Schedule may not be
applied.
“Counsel for the appellant contends t h at said obligation
was created in 1938 because by signing the promissory note,
Wilson impliedly undertook to pay anyone of his co-debtors who
might pay off the whole debt. He also claims t h at by paying the
248
This doctrine seems to be in direct conflict with the doctrine enunciated in
the case of Wilson vs. Berkenkotter t h a t in a case of this sort there is no real case
of subrogation. It is submitted, however, t ha t when the Court held t ha t “the
executrix was subrogated to the rights of the original plaintiff,’’ it was only referring,
rogation
not to sub-in its technical sense, but to substitution of parties in its procedural sense.
207
entire loan in 1944 to the Bank, appellant became a subrogee of

said Bank and the entire credit was transmitted to him with all
the rights inherent therein against the debtor or against third
persons. (Art. 1212 — now Art. 1303, Civil Code.)
“We regret to disagree. When appellant paid the entire
loan plus interests in November, 1944, the whole obligation was
extinguished. The solidary co-debtors were no longer under any
obligation to the Bank but a new obligation was created in favor
of the appellant to enforce his claim against the appellee. That
is why the appellant to enforce his claim against the appellee
has based his claim not on the obligation created in 1938 in
favor of the Bank by virtue of the promissory note signed by the
co-debtors, but on his having paid the entire loan. The present
is not a real case of subrogation as contended by appellant
because as Manresa says, in a case like the present the original
obligation is extinguished and a new one is created. In other
words, appellant does not, as claimed by his counsel, step into
the shoes of the Bank. He cannot enforce the original obligation
created in 1938. The Bank could collect the whole amount of the
loan from any one of the solidary co-debtors, and in fact did from
one of them. This, the appellant may not do just because he paid
the entire loan.
“In conclusion, we find and hold t h at the obligation in
favor of the appellant to pay to him the share of the appellee in
the original loan was created during the Japanese occupation,
particularly in November 1944, and so comes under the ruling of
this Court regarding the application of the Ballantyne Schedule.
Finding no reversible error in the decision appealed from the
same is hereby affirmed. No costs.’’
Art. 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.249
Art. 1220. The remission of the whole obligation,
obtained by one of the solidary debtors, does not entitle him
to reimbursement from his co-debtors.250
249
250
New provision.
208
Art. 1221. If the thing has been lost or if the prestation

has become impossible without the fault of the solidary
debtors, the obligation shall be extinguished.
If there was fault on the part of any one of them, all shall
be responsible to the creditor, for the price and the payment
of damages and interest, without prejudice to their action
against the guilty or negligent debtor.
If through a fortuitous event, the thing is lost or the per-
formance has become impossible after one of the solidary
debtors has incurred in delay through the judicial or extra-
judicial demand upon him by the creditor, the provisions of
the preceding paragraph shall apply.251
Effect of Loss or Impossibility of Performance. — The

rules stated in the above articles merely reiterate the rules stated
in Arts. 1174, 1262, and 1266 of the Code. They may be restated as
follows:
(1)If the loss of the thing or the impossibility of complying
with the prestation which constitutes the object of the obligation
is not due to the fault of the solidary debtors, the obligation is
extinguished.
(2)If the loss or impossibility is due to the fault of one of
the solidary debtors, the obligation is converted into a n obligation of
indemnity for damages, but the solidary character of the obligation
remains. The creditor can still proceed against one, or some,
or all of the debtors for the payment of the price, plus damages,
without prejudice to the subsequent right of action of the debtor or
debtors who paid to proceed against the guilty or negligent debtor
for reimbursement. This rule may be illustrated by the following
example: A, B, and C bound themselves solidarily to deliver thirty
cavans of rice, valued a t P3,000 to X a t a specified date. The rice had
already been segregated a t the time of the perfection of the contract.
All of the thirty cavans, however were lost through the fault of C.
What are the rights and obligations of the parties? Anyone of the
debtors can, of course, be held liable for the payment of the price
or value of the rice, plus damages. Hence, if X decides to proceed
against A alone, undoubtedly, the latter can be held responsible not
251
209
only for the price or value of the thirty cavans of rice, but even for
damages. However, once A h as settled his obligation to X, he can
then proceed against the guilty debtor, C, for reimbursement of the
entire amount which he has paid to X, plus interest.
(3) If the loss or impossibility is due to a fortuitous event
after one of the debtors had already incurred in delay, again the
obligation is converted into a n obligation of indemnity for damages,
but the solidary character of the obligation remains. Anyone, or
some, or all of the debtors can be held responsible for the price, plus
damages but without prejudice to the right of action of the debtor or
debtors who paid to proceed against the debtor responsible for the
delay.
Art. 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.252
Defenses Available to a Solidary Debtor. — The creditor
or creditors may proceed against any of the solidary debtors or
all of them simultaneously for the payment of the obligation, but
whether only one or all of the solidary debtors are sued jointly, any
solidary debtor may interpose against the claim of the creditor or
creditors any of the following defenses: first, defenses derived from
the very nat ure of the obligation; second, defenses personal to him or
pertaining to his own share; third, defenses personal to the others,
but only as regards t h a t part of the debt for which the latter are
responsible. 2 5 3
Examples of the first are payment or performance, res judicata,
prescription, those which invalidate the contract such as mistake,
violence, intimidation, undue influence, fraud, and others of a
similar nature. 2 5 4 Examples of the second are minority, insanity and
other defenses which are purely personal to the debtor. The third,
252
253
Art. 1222, Civil Code; Narvaez vs. De Leon, CA, 47 Off. Gaz. 160.
254
Chinese Chamber of Commerce vs. P u a Te Ching, 16 Phil. 405.
210
on the other hand, is merely a partial defense. Thus, if a mother and

her two minor children had signed a promissory note promising to
pay a certain indebtedness jointly and severally, and subsequently,
the creditor proceeds against the mother for the payment of the
entire obligation, undoubtedly, the latter can interpose the defense
of minority of her co-signers, but such defense will benefit her
only with regard to t h a t part of the debt for which the minors are
responsible. 2 5 5 Similarly, if the creditor has granted to some of the
solidary debtors a n extension of time for payment by virtue of a new
contract entered into with such debtors, the debtor against whom the
action for payment of the entire obligation is brought can interpose
the defense of extension of time for payment, but only with regard to
t h a t part of the debt for which the debtors benefited by the extension
are responsible. 2 5 6
Problem — A, B and C borrowed P12,000 from X on June

1, 1966. They executed a promissory note binding themselves
jointly and severally to pay the obligation on Ju n e 1, 1968. For
failure to pay, X brought a n action against A for payment of
the entire obligation plus interests. A interposed the following
defenses: (1) t hat B was only a minor a t the time of the
celebration of the contract and t hat such fact was known to X;
and (2) th at X h ad granted an extension of two years to C within
which to pay.
(1) Can A avail himself of these defenses?
(2)Granting th at A can avail himself of these defenses,
what would be the effect upon his liability, assuming t ha t he can
establish both defenses by competent evidence? Reasons.
Answer — (a) A can avail himself of these defenses. Under
Art. 1222 of the Civil Code, there are three kinds of defenses
which are available to a solidary debtor if the creditor proceeds
against him alone for payment of the entire obligation. They
are: first, defenses derived from the n ature of the obligation;
second, defenses personal to him or pertaining to his share; and
third, defenses personal to the others, but only as regards that
part of the debt for which the latter are responsible. It is evident
t hat both defenses interposed by A fall within the purview of the
third.
255
Braganza vs. Villa Abrille, 105 Phil. 456.
256
Inchausti & Co. vs. Yulo, 34 Phil. 978; Narvaez vs. De Leon, CA,
160. 47 Off. Gaz.
211
(b) Since A can avail himself of both defenses, and since

such defenses are not absolute but merely partial in character,
undoubtedly, X can collect from A the following: (a) P4,000
corresponding to the share of A in the obligation; and (b) an
amount equivalent to the extent t hat B h ad been benefitted by
his share in the obligation, applying the rule enunciated in Art.
1399 regarding the effect if the defect of a contract consists in
the incapacity of one of the contracting parties. As far as the
share corresponding to C is concerned, X must wait for the
expiration of the two years extension which he ha d given to C
before he can collect such share from A.
Section 5. — Divisible and Indivisible

Obligations
Concept. — Obligations may be divisible or indivisible.

Divisible obligations are those which have as their object a prestation
which is susceptible of partial performance without the essence of
the obligation being changed. Indivisible obligations, on the other
hand, are those which have as their object a prestation which is not
susceptible of partial performance, because, otherwise, the essence
of the obligation will be changed. 2 5 7
Relation to Divisibility or Indivisibility of Things. —
The divisibility of a n obligation must not be confused with the
divisibility of the thing or prestation which constitutes the object
of the obligation. The former refers to the performance of the
prestation which constitutes the object of the obligation; the second
refers to the prestation itself. This does not mean, however, t h a t the
divisibility or indivisibility of the object can have no effect upon the
divisibility or indivisibility of the obligation itself. On the contrary,
the divisibility or indivisibility of the object is a very important factor,
probably the most important, in determining whether the prestation
which constitutes the object of the obligation is susceptible of partial
performance or not. 2 5 8
When is a thing or object divisible or indivisible? According
to Spanish commentators, a thing is indivisible when, if separated
into parts, its essence is changed or its value is decreased dispropor-
tionately. On the other hand, a thing is divisible when, if separated
257
258
212
DIFFERENT KINDS OF OBLIGATIONS Arts 1223-1224
Divisible and Indivisible Obligations
into parts, its essence is not changed or its value is not decreased
disproportionately, because each of the parts into which it is divided
are homogenous and analogous to each other as well as to the thing
itself. Hence, it is a n essential condition, in order t h a t a thing shall
be considered divisible, t h a t it must be possible to reconstruct the
thing itself into its condition prior to the division by uniting the dif-
ferent parts into which it had been divided. There are three kinds of
division. They are quantitative, qualitative and ideal or intellectual.
The division is quantitative when the thing can be materially di-
vided into parts and such parts are homogenous to each other, such
as when the parts are actually separated from each other as in the
case of movables, or when the limits of the parts are fixed by metes
and bounds as in the case of immovables. The division is qualita-
tive when the thing can be materially divided, but the parts are not
exactly homogenous, such as in the partition of a n inheritance. The
division is ideal or intellectual when the thing can only be separated
into ideal or undivided parts, not material parts, as in the case of
co-ownership.259
Art. 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.260
Art. 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.261
Effect of Divisible or Indivisible Obligations. — Where

there is only one creditor and only one debtor, the divisibility or
indivisibility of the obligation is of little significance as implied
by Art. 1223. As a general rule, the creditor cannot be compelled
partially to receive the prestation in which the obligation consists;
259
260
261
213
neither may the debtor be required to make partial payments. 2 6 2

There are, however, three exceptions to this rule. These are: first,
when the obligation expressly stipulates the contrary, second, when
the different prestations constituting the objects of the obligation
are subject to different terms and conditions; and third, when the
obligation is in p ar t liquidated and in part unliquidated. 2 6 3
Where there is a plurality of debtors and creditors, the effect of
the divisible or indivisible character of the obligation shall depend
upon whether the obligation is joint or solidary. If it is solidary, the
provisions of Art. 1211 to Art. 1222 are applicable; if it is joint and at
the same time divisible, the provision of Art. 1208 is applicable; and
if it is joint and a t the same time indivisible, the provisions of Arts.
1209 and 1224 are applicable.
Idem; Breach of joint indivisible obligations. — In
joint indivisible obligations, such as the delivery of a horse or an
automobile, the obligation can be enforced only by proceeding against
all of the debtors. 2 6 4 If anyone of the debtors should fail or refuse
to comply with the obligation, it is converted into one of indemnity
for damages. 2 6 5 However, the debtors who may have been ready to
comply with what is incumbent upon them 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.
The debtor who failed or refused to comply with his obligation shall
bear the burden of paying all of the damages suffered by the creditor
or creditors as a result of the nonfulfillment of the obligation. If the
other debtors also suffered damages as a result of the transformation
of the obligation into one of indemnity, they may also recover such
damages from the debtor who was a t fault. 2 6 6
Art. 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.
262
263
Ibid., 8 Manresa, 5th Ed., Bk. 1, pp. 363-365.
264
See Art. 1209, Civil Code.
265
266
8 Manresa, 5th Ed., Bk. 1, p. 469; 3 Castan, 7th Ed., p. 92.
214
DIFFERENT KINDS OF OBLIGATIONS Art 1225
Divisible and Indivisible Obligations
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.267
Determination of Divisibility or Indivisibility. — If the

prestation which constitutes the object of the obligation is
susceptible of partial compliance, the obligation is divisible; if it is
not susceptible of partial compliance, the obligation is indivisible.
Consequently, the true test of divisibility is whether the obligation is
susceptible of partial compliance or not. This is clear from the
provision of the first paragraph of Art. 1225. In the words of
Sanchez Roman, the pivotal fact is the possibility or impossibility
of partial prestation. 2 6 8 This susceptibility of partial compliance
should be understood, not in the sense of the possibility or
impossibility of the delivery of a thing or of the performance of an
act in separate parts, bu t in the sense of the possibility of
realizing the end or purpose which the obligation seeks to attain.
Hence, the purpose of the obligation is the controlling
circumstance. This applies not only to obligations to give, but also
to obligations to do or not to do.2 6 9
Idem; In obligations to give. — It is in obligations to give
t h a t the divisible or indivisible nature of the thing which consti-
tutes the object of the obligation is the most important factor to be
considered in determining whether the obligation is susceptible of
partial compliance or not. This is clear from the provisions of the
first and third paragraphs of Art. 1225.
If the obligation is to give something which is definite or
which by its very nat ure is indivisible, it is evident t h a t it is not
susceptible of partial compliance. Hence, it shall be deemed to be
267
268
4 Sanchez Roman 95.
269
Ibid.
215
indivisible. 2 7 0 This rule is absolute in character. While it is true

t h a t the divisibility or indivisibility of the thing which constitutes
the object of the obligation is not the ultimate test which we must
apply in order to determine whether the obligation is divisible or
indivisible, nevertheless, it is also true t h a t when such object is by
its very nature indivisible, as in the case of a chair or a horse, the
obligation is necessarily indivisible.
However, if the obligation is to give something which by its
nature is divisible, the general rule is t h a t the obligation is also
divisible since it is evidently susceptible of partial compliance. Thus,
it has been held t h a t a n obligation to give or to do several things
a t several times is divisible. This rule is not absolute in character,
because by express provision of the Code “even though the object
may be physically divisible, the obligation is considered indivisible
if it is so provided by the law or it is so intended by the parties.” 2 7 1
With respect to the second exception, the intention of the parties
t h a t the obligation is indivisible in character may be either express
or implied. In the latter case, it may be inferred or presumed
either: (1) from the fact that, although the object of the obligation
can be separated into parts, yet each par t constitutes a necessary
complement of the other parts; or (2) from the very purpose of the
obligation itself which requires the delivery of all the parts. 2 7 2
Idem; In obligations to do. — In obligations to do, if the
obligation is to perform some prestation or service which by its very
nature is not susceptible of partial performance, it shall be deemed
indivisible. 2 7 3 This rule is absolute in character. If the obligation
is to perform some prestation or service which by its very nature
is susceptible of partial performance, the general rule is t h a t it is
divisible. Certain qualifications, however, must be made.
In the first place, in order to determine whether a n obligation
to do is divisible or indivisible, the object or purpose of the obliga-
tion must always be considered. This is evident from the provision
of the second paragraph of Art. 1225. According to this provision —
the obligation shall be considered divisible when it has for its object:
(1) the execution of a certain number of days of work; or
(2) the
270
271
273
Art. 1225,
272 par. 1, Civil
8 Manresa, Code.Bk. 1, pp. 472-473.
5th Ed.,
216
Obligations with a Penal Clause
accomplishment of work by metrical units; or (3) the accomplishment

of analogous things which by their nat ure are susceptible of partial
performance.
In the second place, although it is true t h a t if the obligation has
for its object a prestation or service which is susceptible of partial
performance it is, as a rule, divisible, yet it may still be indivisible
if so provided by law or intended by the parties. 2 7 4 This intention of
the parties may either be express or implied. Thus, where a certain
contractor obligates himself to construct several apartment buildings
within a certain compound, there is no doubt t h a t the prestation is
susceptible of partial performance. However, if it is the express or
presumed intention of the parties to the contract t h a t the obligation
is indivisible, all of the apartment buildings must be constructed in
order t h a t the obligation can be considered as performed.
Idem; In obligations not to do. — With respect to obligations
not to do, whether it is divisible or indivisible shall depend upon the
character of the prestation in each particular case.275 Therefore, the
determination of the character of the obligation will depend upon
the sound discretion of the court.
Section 6. — Obligations with a Penal Clause
Concept. — An obligation with a penal clause may be defined

as one to which a n accessory undertaking is attached for the purpose
of insuring its performance by virtue of which the obligor is bound
to pay a stipulated indemnity or perform a stipulated prestation
in case of breach. From this definition it is clear t h a t the penal
clause or penalty is a n accessory obligation attached to the principal
obligation by virtue of which the obligor is bound to pay a stipulated
indemnity or to perform a stipulated prestation in case of breach of
the obligation. 2 7 6
Purpose of Penalty. — The penal clause or penalty has a
three-fold purpose. They are:
(1)Función coercitiva o de garantia — to insure the perfor-
mance of the obligation;
274
275
276
3 Castan, 7th Ed., p. 97; 8 Manresa, 5th Ed., Bk. 1, pp. 477-478.
217
(2)Función liquidatoria — to liquidate the amount of

damages to be awarded to the injured party in case of breach of the
principal obligation; and
(3)Función estrictamente penal — in certain exceptional
cases, to punish the obligor in case of breach of the principal obliga-
tion.277
It is evident t h a t the second is compensatory, while the third
is punitive in character; the first, on the other hand, is the general
purpose regardless of whether the penalty is compensatory or
punitive.
Kinds of Penalty. — Penalties may be classified as
follows:
(4)As to origin — Legal or conventional. It is legal when it is
constituted by law; it is conventional when it is constituted by
agreement of the parties.
(5)As to purpose — Compensatory or punitive. It is compen-
satory when it is established for the purpose of indemnifying the
damages suffered by the obligee or creditor in case of breach of the
obligation; it is punitive when it is established for the purpose of
punishing the obligor or debtor in case of breach of the obligation.
(6)As to effect — Subsidiary or joint. It is subsidiary when
only the penalty may be demanded in case of breach of the obligation;
it is joint when the injured party may demand the enforcement of
both the penalty and the principal obligation.
Art. 1226. In obligations with a penal clause, the penalty

shall substitute the indemnity for damages and the payment
of interests in case of noncompliance, if there is no stipulation
to the contrary. Nevertheless, damages shall be paid if the
obligor refuses to pay the penalty or is guilty of fraud in the
fulfillment of the obligation.
The penalty may be enforced only when it is demandable
in accordance with the provisions of this Code.278
277
3 Castan, 7th Ed., pp. 100-101.
278
218
Effect of Penalty, General Rule. — As previously stated,

the penal clause may be considered either as reparation or substi-
tute for damages or as a punishment in case of breach of the obliga-
tion. Considered as a reparation or compensation, the question of
damages is resolved once and for all, since the stipulated indemnity
or prestation represents a legitimate estimate made by the contract-
ing parties of the damages caused by the nonfulfillment or breach of
the obligation. Consequently, proof of actual damages is not neces-
sary in order t h a t the stipulated penalty may be demanded. Con-
sidered strictly as a punishment, the question of damages is not yet
resolved. Consequently, the right to damages, besides the penalty,
still subsists. Therefore, if the injured party desires to recover the
damages actually suffered by him in addition to the penalty, he
must prove such damages. 2 7 9
As a general rule, the penalty is fixed by the contracting parties
as a compensation or substitute for damages in case of breach of the
obligation. This is evident from the provision of the first paragraph of
Art. 1226. It is, therefore, clear t h a t the penalty in its compensatory
aspect is the general rule, while the penalty in its strictly penal
aspect is the exception. Thus, if the parties to a contract of sale
payable in several installments agree t h a t should the vendee fail
to pay the amount corresponding to each installment in due time,
the vendor may rescind the contract and a t the same time keep the
amount already paid, it is clear t h a t such a n agreement has for its
purpose not only to insure the performance of the obligation, but
also to measure beforehand the damages which would result from
noncompliance. At any rat e the penal clause does away with the
duty to prove the existence and measure of the damages caused by
the breach. 2 8 0
Manila Racing Club vs. Manila Jockey Club

69 Phil. 55
The records show th at the parties entered into a contract

of sale of a parcel of land for P1,200,000, payable in five
installments. It was agreed th at should the vendee fail to pay
279
280
Manila Racing Club vs. Manila Jockey Club, 69 Phil. 55. For other cases il-
lustrating the general rule — see Palacios vs. Mun. of Cavite, 12 Phil. 140;
Navarro vs. Mallari, 45 Phil. 242; Araneta vs. Paterno, 49 Off. Gaz. 45.
219
the amount corresponding to each installment in due time, the

vendor may rescind the contract and keep the amount paid. The
vendee was able to pay only the first two installments amounting
to P100,000. As a result, the vendor rescinded the contract. This
action now is brought by the vendee against the vendor for the
purpose of recovering the forfeited amount on the ground that
the agreement is contrary to law, morals and public order.
Held: “The clause of the contract referring to the forfeiture
of the P100,000 already paid, should the purchaser fall to pay
the subsequent installments, is valid. It is in the na ture of a
penal clause which may be legally established by the parties
(Articles 1152 and 1255 — now Arts. 1226 and 1306, Civil Code.)
In its double purpose of insuring compliance with the contract
and of otherwise measuring beforehand the damages which
result from noncompliance, it is not contrary to law, morals or
public order because it was voluntarily and knowingly agreed
upon by the parties. Viewing concretely the t rue effects thereof
in the present case, the amount forfeited constitutes only
eight per cent of the stipulated price, which is not excessive if
considered as the profit which would have been obtained had
the contract been complied with. There is, moreover, evidence
th at the defendants, because of this contract, ha d to reject
other propositions to buy the same property. At any rate, the
penal clause does away with the duty to prove the existence and
measure of the damages caused by the breach.
Caridad Estate vs. Santero

71 Phil. 114
This action is brought by the vendor against the vendee

for the recovery of the property sold because of the failure to pay
the stipulated installments in due time. In the contract of sale,
it was agreed th at should the vendee fail to pay the installments
in due time, the vendor shall have the right to rescind the
contract and at the same time keep any and all sums already
paid. It is now contended by the vendee th at such a stipulation
constitutes a pactum commissorium, which is prohibited by
what is now Art. 2088 of the New Civil Code.
Held: “Taking up the argument th at the stipulation has
resulted in pactum commissorium, we are of the opinion t h at the
objection is without legal basis. Historically and in point of strict
law, pactum commissorium, referred to in Articles 1859 and 1884
(now Arts. 2088 and 2137) of the Civil Code, presupposes the
existence of mortgage or pledge or t h at of antichresis. (Alcantara
220
vs. Alinea, 8 Phil. 111.) Upon this account, it becomes hardly

conceivable, although the argument has been employed here
rat her extravagantly, th at the idea of pactum commissorium
should occur in the present contract of sale, considering that, it
is admitted, th at the person to whom the property is forfeited is
the real and equitable owner of the same because the title would
not pass until payment of the last installment. At most, the
provision in point, as the parties themselves have indicated in
the contract, is a penal clause which carries the express waiver
of the vendee to any and all sums he had paid when the vendor,
upon his inability to comply with his duty, seeks to recover
possession of the property, as conclusive recognition of the right
of the vendor to said sums, and avoids unnecessary litigation
designated to enforce fulfillment of the terms and conditions
agreed upon. Said provisions are not unjust or inequitable and
does not, as appellant contends, make the vendor unduly rich at
his cost and expense.’’
Idem; Exceptions. — There are three exceptions to the

rule t h a t the penalty shall substitute the indemnity for damages
and the payment of interests in case of noncompliance with the
principal obligation. They are: first, when there is a stipulation to
the contrary, second, when the obligor is sued for refusal to pay the
agreed penalty; and third, when the obligor is guilty of fraud. 2 8 1 In
all of these cases, it is evident t h a t the purpose of the penalty is to
punish the obligor. Consequently, the obligee can recover from him
not only the penalty, but also the damages or interests resulting
from the breach of the principal obligation. 2 8 2
Bachrach Motor Co. vs. Espiritu

52 Phil. 346
These two cases were tried together. The first case

involves an action brought by the plaintiff corporation for the
recovery of P10,477.82 from the defendant which is the unpaid
balance of the purchase price of a two-ton White truck which
the latter had bought from the former. In addition, the said
plaintiff corporation also asks for 12 per cent of the said amount
281
282
Bachrach Motor Co. vs. Espiritu, 52 Phil. 346; Government vs. Lim, 61 Phil.
737; L uneta Motor Co. vs. Moral 73 Phil. 80; Cabarroguis vs. Vicente, 107 Phil. 340;
De Venecia vs. del Rosario, 18 SCRA 792.
221
as stipulated interest and 25 per cent thereon as stipulated

penalty. The second case involves a second action brought by
the plaintiff corporation for the recovery of P4,208.28 from the
same defendant which is the unpaid balance of the purchase
price of a one-ton truck of the same make as the first which
the latter had bought from the former. In addition, the said
plaintiff corporation also asks for 12 per cent of the said amount
as stipulated interest and 25 per cent thereon as penalty. The
basis of the action in each case is a contract of sale wherein the
parties agreed t hat 12 per cent interest would be paid upon the
unpaid portion of the price at the execution of the contracts, and
in case of nonpayment of the total debt upon its maturity, 25 per
cent thereon, as penalty. The lower court which tried the cases
together rendered judgments in plaintiff’s favor in accordance
with the contracts. From these judgments, defendant appealed
to the Supreme Court. He contends t hat the 25 per cent penalty
upon the debt, in addition to the interest of 12 per cent per
annum, would make the contract usurious.
Held: “Such a contention is not well founded. Article
1152 (now Art. 1226) of the Civil Code permits the agreement
upon a penalty apart from the interest. Should there be such
an agreement, the penalty, as was held in the case of Lopez vs.
Hernaez (32 Phil. 631), does not include the interest and as such
the two are different and distinct things which may be demanded
separately. According to this, it is not to be added to the interest
for the determination of whether the interest exceeds the rate
fixed by the law, since said rate was only fixed for the interest.
But considering th at the obligation was partly performed, and
making use of the power given to the court by Article 1154 (now
Art. 1229) of the Civil Code, this penalty is reduced to 10 per
cent of the unpaid debt.’’
Cabarroguis and Cabarroguis vs. Vicente

107 Phil. 340
Telesforo B. Vicente, owner and operator of the jeepney
on which plaintiff, Antonia A. Cabarroguis, was a passenger
entered into a compromise agreement with plaintiff obligating
himself to pay to her the sum of P2,500 as damages for the
physical injuries sustained by her when the said jeepney
on which plaintiff was a passenger hit another vehicle. An
additional amount of P200 was provided as liquidated damages
in the agreement in case defendant fails to complete payment
within 60 days. A balance of P1,000 of the amount was left
unpaid and as defendant failed, and, notwithstanding repeated
222
demands, refused to comply with his obligation, plaintiff,

assisted by her husband, brought suit in the Municipal Court
which rendered, after hearing, a judgment in plaintiffs favor.
On appeal the Court of First Instance sentenced defendant to
pay to plaintiff the amount of P1,200 with interest a t legal rate
from the date of the filing of the complaint until full payment.
Hence, this appeal. Is the decision correct?
Held: In obligations with a penal clause, the penalty
shall substitute the indemnity for damages and the payment
of interest, except when the contrary is stipulated; or when the
obligor refuses to pay the penalty; or when the obligor is guilty
of fraud in the fulfillment of the obligation. (Art. 1226, Civil
Code.) Applying the law it is evident th a t no interest can be
awarded on the principal obligation, the penalty of P200 agreed
upon having taken the place of the payment of such interest and
the indemnity for damages, the case not falling under any of the
exceptions.
The case, however, takes a different aspect with respect
to the penalty attached to the principal obligation. It has been
held th at in obligations for the payment of a sum of money
when a penalty is stipulated for default, both the principal
obligation and the penalty can be demanded by the creditor.
(Government vs. Lim, et al., 61 Phil. 737; Luneta Motor Co.
vs. Moral, 73 Phil. 80.) Defendant having refused to pay when
demand was made by plaintiff, the latter clearly is entitled to
interest on the amount of the penalty. Art. 2210 of the new Civil
Code also provides th at in the discretion of the court, interest
may be allowed upon damages awarded for breach of contract.
This interest is recoverable from the time of delay, i.e., from the
date of demand, either judicial or extrajudicial. There being no
showing as to when demand for payment was made, plaintiff
must be considered to have made such only from the filing of the
complaint.
Decision modified in the sense th at interest shall be al-

lowed only on the amount of the penalty.
Idem; Enforceability of penalty. — According to the second

paragraph of Art. 1226, the penalty may be enforced only when it
is demandable in accordance with the provisions of the Civil Code.
Consequently, upon the breach or nonfulfillment of the principal
obligation by the obligor or debtor, the penalty stipulated becomes
demandable, provided t h a t it is not contrary to law, morals, good
223
customs, public order or public policy.283 However, where both of

the contracting parties are unable to comply with their respective
obligations, although the breach is not willful or culpable, such as
when it is due to a fortuitous event, since the law must work both
ways, the penal clause cannot, as a consequence, be invoked by
anyone of them to the prejudice of the other. 2 8 4
Art. 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.285
Limitation upon Right of Debtor. — The debtor cannot

exempt himself from the performance of the principal obligation by
paying the stipulated penalty. There is, however, a n exception to
this rule and t h a t is when the right has been expressly reserved for
him. 2 8 6
Limitation upon Right of Creditor. — On the other
hand, the creditor cannot demand the fulfillment of the principal
obligation and the satisfaction of the stipulated penalty a t the same
time, unless this right has been clearly granted to him. 2 8 7
If the principal obligation is not complied with, the creditor
can choose between demanding the fulfillment of the obligation and
demanding the satisfaction of the penalty. He cannot, however,
demand both at the same time. If he chooses to demand the fulfillment
of the obligation, and the performance thereof should become
283
Yu Tek & Co. vs. Gonzales, 29 Phil. 384; Ibarra vs. Aveyro, 37 Phil. 273;
Bachrach vs. Golingco, 39 Phil. 138; Manila Racing Club vs. Manila Jockey Club,
69 Phil. 55.
284
Reyes vs. Formoso, CA, 46 Off. Gaz. 5621.
285
286
287
Ibid.
224
impossible without his fault, he may still demand the satisfaction

of the penalty. 2 8 8 If there was fault on the part of the debtor, he
may demand not only the satisfaction of the penalty, but also the
payment of damages. 2 8 9 If he chooses to demand the satisfaction
of the penalty, he cannot afterwards demand the fulfillment of the
obligation.
It will be observed t h a t under the first sentence of the article,
in order t h a t the debtor can exempt himself from the performance
of the obligation by paying the penalty, the right must be expressly
reserved for him. Under the second sentence, however, in order that
the creditor can demand the fulfillment of the obligation and the
satisfaction of the penalty a t the same time, the right must be clearly
granted to him. From this, it can be inferred t h a t a tacit or implied
grant is admissible under the second.
Art. 1228. Proof of actual damages suffered by the cred-

itor is not necessary in order that the penalty may be de-
manded.290
Proof of Actual Damages. — The above provision is appli-
cable only to the general rule stated in Art. 1226 and not to the
exceptions. Consequently, if the penalty is fixed by the contracting
parties for the purpose of compensating or substituting the indem-
nity for damages and the payment of interests, proof of actual dam-
ages suffered by the obligee or creditor is not necessary in order that
the penalty may be demanded. Hence, in this sense, the penalty is
exactly identical with what is known as “liquidated damages’’ under
Art. 2226 of the Civil Code. However, if there is stipulation to the
contrary, or if the obligor or debtor is sued for refusal to pay the
agreed penalty, or if the obligor or debtor is guilty of fraud, then
the obligee or creditor can demand not only the satisfaction of the
agreed penalty, but even damages. In such case, in order to be able
to recover such damages in addition to the penalty, he must prove
the amount of damages which he had actually suffered.
288
Ibid.
289
Art. 1226, 2nd sentence, Civil Code.
290
New provision.
225
Lambert vs. Fox

26 Phil. 558
Plaintiff and defendant, majority stockholders of a

certain corporation, entered into a contract by virtue of which
it was agreed th at should either party dispose of his holdings
in the company to anybody within one year from the time of
the signing of the contract, he shall pay P1,000 as liquidated
damages. For breach of the agreement, plaintiff commenced this
action in order to collect P1,000 from the defendant. The latter
now contends t hat since plaintiff is unable to prove damages
suffered by him, he cannot be compelled to pay.
Held: “In this jurisdiction, there is no difference between
a penalty and liquidated damages, as far as legal results are
concerned. Whatever difference exists between them as a matter
of language, they are treated the same legally. In either case
the party to whom payment is to be made is entitled to recover
the su m stipulated without the necessity of proving damages.
Indeed one of the primary purposes in fixing a penalty or in
liquidating damages, is to avoid such necessity.’’291
Art. 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.292
When Penalty May Be Reduced. — Under Art. 1229, the

court may equitably reduce the stipulated penalty in the following
instances: first, if the principal obligation has been partly complied
with; second, if the principal obligation h as been irregularly complied
with; and third, if the penalty is iniquitous or unconscionable even if
there has been no performance.
The first contemplates a case in which some, but not all, of
the prestations are complied with by the debtor, while the second
contemplates a case in which all of the prestations are complied
with, but not in accordance with the tenor of the agreement. Hence,
291
To the same effect: Palacios vs. Mun. of Cavite, 12 Phil. 140; Manila Racing
Club vs. Manila Jockey Club, 69 Phil. 55. See Arts. 2226, et seq., for “liquidated dam-
ages.’’
292
226
the first refers to the quantity or quality of the performance, while

the second refers to the form.293 Thus, the Supreme Court, in the
case of Jison vs. CA (164 SCRA 346), it held t h a t in obligations with
a penal clause, the judge shall equitably reduce the penalty when
the principal obligation has been partly or irregularly complied with
by the debtor. (Art. 1229; Hodges v. Javellana, G.R. No. L-17247,
April 28, 1962, 4 SCRA 1228.) In this connection, the Court said:
“It follows that, in any case wherein there has been a partial or
irregular compliance with the provisions in a contract for special
indemnification in the event of failure to comply with its terms,
courts will rigidly apply the doctrine of strict construction and
against the enforcement in its entirety of the indemnification,
where it is clear from the terms of the contract t h a t the amount or
character of the indemnity is fixed without regard to the probable
damages which might be anticipated as a result of a breach of the
terms of the contract or, in other words, when the indemnity
provided for is essentially a mere penalty having for its principal
object the enforcement of compliance with the contract . . .
(Laureano vs. Kilayco, 32 Phil. 194 [1915].) This principle was
reiterated in Makati Development Corp. vs. Empire Insurance Co.
(G.R. No. L-21780, Ju n e 30, 1967, 20 SCRA 557) where the Court
affirmed the judgment of the Court of First Instance reducing the
subdivision lot buyer’s liability from the stipulated P12,000.00 to
P1,500.00 after finding t h a t he had partially performed his
obligation to complete a t least fifty percent (50%) of his house
within two (2) years from March 31, 1961, fifty percent (50%) of the
house having been completed by the end of April 1961. The third, on
the other hand, contemplates a case in which the only question
raised is whether the amount of the stipulated penalty is reasonable
or unconscionable. Hence, the obligor may ask for the reduction of
the penalty, even if there h as been no performance of the principal
obligation. It must be noted t h a t this ground was not found in the
former Code. However, it has always been recognized by the
Supreme Court as a separate ground for the reduction of the
stipulated penalty by the courts. Thus, it has been held that
while the parties are free to stipulate a particular amount which
the debtor must pay by way of attorney’s fees and costs in case of
non-fulfillment of the obligation, it is within the sound discretion of
293
8 Manresa, 5th Ed., Bk. 1, p. 491; see Laureano vs. Kilayco, 32 Phil. 850; Chua
729.
Gui Seng vs. Gen. Sales Supply Co., 91 Phil. 153; Ramos vs. Salcedo, CA, 48 Off. Gaz.
227
the court to determine whether the amount should be reduced or not

depending upon whether it is excessive or reasonable. 2 9 4 As a matter
of fact, it has been held t h a t the amount stipulated may be reduced
even if it is not contrary to law, morals, good customs, public order,
or public policy,295 provided it is unreasonable or unconscionable.
Question — Can the Court delete the penalty clause?

Answer — Yes. The stipulated penalty can be deleted in
cases such as when there has been substantial performance in
good faith by the obligor (Art. 1234, NCC.), when the penalty
clause itself suffers from fatal infirmity, or when exceptional
circumstances so exists as to warr an t it. (Garcia vs. CA, 167
SCRA 815; Palmares vs. CA, 288 SCRA 423; Ibarra vs. Aveyro,
37 Phil. 278; Ligutan vs. CA, et al., G.R. No. 138677, Feb. 12,
2002.)
Umali vs.
Miclat 105 Phil.
1007
The records show th at defendant Umali, president and

general manager of Maharlika Pictures, Inc., had executed a
contract by which he agreed to pay a certain amount to plaintiff
Miclat for services rendered by the latter. In the contract, it
is expressly stipulated th at if defendant should fail to pay the
amount after the lapse of 30 days, he shall pay a subcharge of
10% for every 30 days of default until the amount has been fully
paid. Because of failure of the defendant to pay the amount
within the period stipulated, plaintiff brought this action to
recover the amount, plus the penalty and damages. After
trial, the lower court rendered judgment ordering defendant
to pay the amount, plus 10% subcharge for every 30 days of
default, and 6% interest per annum from the date of the filing
of the complaint as damages. Defendant now claims t ha t the
subcharge of 10% for every 30 days of default is unconscionable
because it is tantamount to imposing an interest of 10% a month
and, therefore, should be reduced, and t h a t the award of 6%
interest per annum by way of damages is contrary to law, since
according to Art. 1226 of the Civil Code, the penalty shall be a
substitute for damages or interests.
294
Manila Trading Co. vs. Tamarao Plantation Co., 47 Phil. 513;
Bachrach vs. Golingco, 39 Phil. 138.
295
Tan Tua Sia vs.
Yu Biao, 56 Phil. 707; Turne r vs. Casabar, 65 Phil. 490.
228
Held: “There is merit in the contention t h at the surcharge

is unconscionable. While this subcharge partakes of the nature
of a penal clause which the parties may stipulate under the
law, however, one cannot deny t hat the same is unconscionable.
Making use of the discretion th at the law grants this Court on
the matter (Art. 1229, Civil Code), a subcharge of 20% per annum
would be reasonable. On the other hand the contention t h at the
portion of the decision which orders the payment of 6% interest is
contrary to law on the ground th at defendant is already ordered
to pay the penalty agreed upon is untenable. Under Art. 1226 of
the new Civil Code, the penalty takes the place of interest only
if there is no stipulation to the contrary, and even t hen damages
may still be collected if the obligor refuses to pay the penalty. In
this case not only is there a n express stipulation to pay damages
in addition to the penalty, but defendant has failed to pay his
obligation as well as the penalty. The imposition of the interest
is, therefore, justified.”
Art. 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.296
Nullity of Obligation or Penalty; Effect. — If the principal

obligation is void, it necessarily follows t h a t the penal clause shall
also be void.297 This rule is, of course, logical considering the fact
t h a t the penalty is merely a n accessory obligation. However, if the
penal clause is void, the validity of the principal obligation is not
affected,298 since the efficacy of such obligation is not dependent
upon the efficacy of the penal clause.
296
297
298
Ibid.
229
OBLIGATIONS
CHAPTER 4
EXTINGUISHMENT OF OBLIGATIONS
General Provisions
Art. 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.
Other causes of extinguishment of obligations, such as
annulment, rescission, fulfillment of a resolutory condition
and prescription, are governed elsewhere in this Code. 1
Modes of Extinguishing Obligations. — There are ten

modes of extinguishing obligations enumerated in the above article.
This enumeration, however, is not complete. There are others, such
as: (1) renunciation or waiver by the obligee or creditor; (2) compro-
mise; (3) expiration of the resolutory term or period; (4) death of
one of the contracting parties in purely personal obligations; (5) the
will of one of the contracting parties in certain contracts; or (6) the
agreement of both contracting parties or what is sometimes known
as mutual assent or dissent. 2
1
2
8 Manresa, 5th Ed., Bk. 1, pp. 501-503; 3 Castan, 7th Ed., pp. 235-236.
230
EXTINGUISHMENT OF OBLIGATIONS Arts. 232-1235
Payment or Performance
Section 1. — Payment or Performance
Art. 1232. Payment means not only the delivery of mon-

ey but also the performance, in any other manner, of an obli-
gation. 3
Concept of Payment or Performance. — Historically, the

term payment has three different acceptations. In its broadest sense,
it consists in the fulfillment of the obligation either voluntarily
or involuntarily, including its extinguishment by any means or
mode whatsoever; in its limited sense, it consists in the normal
and voluntary fulfillment of the obligation by the realization of the
purposes for which it was constituted; in its more limited sense, it
consists in the fulfillment of the obligation by the delivery of a sum
of money. The Civil Code has adopted the second. Hence, payment,
4
as it is understood in the Civil Code, means not only the delivery

of money but also the performance, in any other manner, of an
obligation. 5
Art. 1233. A debt shall not be understood to have been

paid unless the thing or service in which the obligation
consists has been completely delivered or rendered, as the
case may be. 6
Art. 1234. If the obligation has been substantially per-

formed in good faith, the obligor may recover as though
there had been a strict and complete fulfillment, less dam-
ages suffered by the obligee. 7
Art. 1235. When the obligee accepts the performance,

knowing its incompleteness or irregularity, and without
expressing any protest or objection, the obligation is deemed
fully complied with. 8
When Obligation Is Understood Paid or Performed. — As

a consequence of the rule stated in Art. 1233, a n obligation to give
3
New provision.
4
5
6
7
New provision.
8
New provision.
231
shall be understood to have been paid when the debtor or obligor

has completely delivered the thing which he had obligated himself
to deliver; a n obligation to do shall be understood to have been
performed when the obligor has completely rendered the service
which he had obligated himself to render; a n obligation not to do
shall be understood to have been complied with when the obligor has
completely refrained from doing t h a t which he had obligated himself
not to do.
The above rule, however, is not absolute in character. It is
subject to the following exceptions:
(1)When the obligation has been substantially performed in
good faith. In this case, the obligor may recover as though there has
9
been a strict and complete fulfillment, less damages suffered by the

obligee. The fairness of this rule is evident. In case of substantial
10
performance, the obligee is benefited. So the obligor should be allowed

to recover as if there has been a strict and complete fulfillment, less
damages suffered by the obligee. This last condition affords a just
compensation for the relative breach committed by the obligor. 11
(2)When the obligee accepts the performance, knowing its

incompleteness or irregularity, and without expressing any protest
or objection. This rule is based on the principle of estoppel.
12
There is another instance when a n obligation is considered by

some to have been paid and t h a t is when the obligation to give, to do
or not to do is converted into a n obligation to indemnify the obligee
or creditor because of breach or nonfulfillment and the indemnity is
finally paid in full. Strictly speaking, however, this case falls under
13
the general rule stated in Art. 1233.
Art. 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 stipulation to the
contrary.
9
10
Ibid.
11
12
Art. 1235, Civil Code; Joe’s Radio & Electrical Supply vs. Alto Electronics
Corp., 104 Phil. 333.
13
3 Capistrano, Civil Code, 1950 Ed., p. 167.
232
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. 14
Art. 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. 15
Art. 1238. Payment made by a third person who does

not intend to be reimbursed by the debtor is deemed to be a
donation, which requires the debtor’s consent. But the pay-
ment is in any case valid as to the creditor who has accepted
it.
16
Persons Who May Pay Obligation. — The following may

pay or perform the obligation: first, the debtor himself or his legal
representative; and second, any third person. The effect in both
cases when the payment is effected in accordance with the requisites
prescribed by law is the extinguishment of the obligation.
Idem; Payment by a third person. — It is evident from the
provisions of Arts. 1236 to 1238 of the Code t h a t a third person,
whether he has a n interest in the obligation or not, and whether the
payment was made with the knowledge and consent of the debtor or
not, may pay the obligation. Out of this act expressly recognized by
the law, there are several juridical effects which necessarily follow.
These effects are given in Arts. 1236 to 1237 of the Code.
These rules, however, cannot be applied to the case of a
third person who pays the redemption price in sales with right of
repurchase (pacto de retro). This is so because the vendor a retro is
not a debtor within the meaning of the law. 17
14
15
16
New provision.
17
15 Gonzaga vs. Garcia, 27 Phil. 7.
233
Gonzaga vs. Garcia

27 Phil. 7
According to the records of this case, Francisco sold a
parcel of land to Martin with right of repurchase. Subsequently,
by virtue of a court judgment rendered against Francisco, the
right of repurchase was purchased by Del Rosario, the judgment
creditor, a t an execution sale. Francisco, as judgment debtor,
was unable to redeem the right thu s sold. Meanwhile, he paid
the redemption price to the vendee a retro, Martin, without
the knowledge of Del Rosario. Later, Del Rosario sold the right
to the plaintiff Gonzaga. One of the questions t ha t ha d to be
decided in this case is whether the provision of what is now Art.
1236 of the New Civil Code is applicable or not. The Supreme
Court held:
“Del Rosario was not a debtor. He was under no obligation
to repurchase the land from Martin. He had a right to do so but
whether he exercised this right or not depended upon his own
volition. Article 1158 (now Art. 1236) is not for these reasons
applicable.’’
Idem; id. — Right of creditor. — Under Art. 1158 of the

Spanish Civil Code, the rule was t h a t any person whether he has
a n interest in the fulfillment of the obligation or not could compel
the creditor to accept payment. This rule has been changed in the
New Civil Code. The creditor is not bound as a general rule to accept
payment or performance by a third person. The Code Commission
gives the following reasons for the change.
“Under the present law (Art. 1158, Civil Code of Spain)

the creditor cannot refuse payment by a third person, but the
Commission believes th at the creditor should have a right to
insist on the liability of the debtor. Moreover, the creditor should
not be compelled to accept payment from a third person whom
he may dislike or distrust. The creditor may not, for personal
reasons, desire to have any business dealings with a third
person; or the creditor may not have confidence in the honesty
of the third person who might deliver a defective thing or pay
with a check which may not be honored.’’18
18
234
There are, however, two exceptions to the rule t h a t the creditor is

not bound to accept payment or performance by a third person. They
are:
(1)When it is made by a third person who has a n interest in
the fulfillment of the obligation, such as a joint debtor, guarantor
19
or surety. Thus, where payment is made by a joint debtor in excess

of what he should pay for the benefit of his co-debtor, such payment
cannot be considered as a payment unduly made under Art. 2154
of the Civil Code, but as one made by a person interested in the
fulfillment of the obligation in accordance with the provision of Art.
1236 of the said Code. 20
(2)When there is a stipulation to the contrary. In this case,

21
the creditor is deemed to have waived his right to refuse to deal with
strangers to the obligation.
Idem; id. — Rights of third person. — If a third person
pays the obligation with the knowledge and consent of the debtor,
there are two rights which are available to him. In the first place, he
can recover from the debtor the entire amount which he h as paid; 22
and in the second place, he is subrogated to all of the rights of the

creditor. However, if the payment is made without the knowledge
23
or against the will of the debtor, there is only one right which is
available to him; he can recover only insofar as the payment has
been beneficial to the said debtor. 24
Idem; id.; id. — Right of reimbursement. — Whether the

payment is effected with the knowledge and consent of the debtor
or without his knowledge or even against his will, the third person
who made the payment is entitled to reimbursement. The extent or
amount of recovery, however, is different in either case.
If the payment was effected with the knowledge and consent
of the debtor, the third person can recover from the latter the entire
amount which he has paid. Thus, if D is indebted to C for P10,000,
25
19
20
Monte de Piedad vs. Rodrigo, 63 Phil. 312.
21
22
23
24
25
Ibid.
235
and subsequently, when the debt became due and demandable, P,

a third person, paid the entire amount with the knowledge and
consent of D, P can now demand from D the reimbursement of the
entire amount of P10,000. 26
If the payment was effected without the knowledge or even

against the will of the debtor, the third person can recover only
insofar as the payment has been beneficial to the latter. It is,27
therefore, evident t h a t the extent of recovery in this case is much

more limited t ha n when payment is made with the knowledge and
consent of the debtor. The rule is both just and logical. When the
third person pays the debt or obligation without the knowledge
or against the will of the debtor, there is no reason why he can
obligate the debtor to pay more th an the amount which the said
debtor would have been legally compelled to pay to the creditor.
Hence, if the debt or obligation has been previously extinguished
totally by any of the modes of extinguishment of obligations, such as
payment, remission, compensation or prescription, the third person
who pays without the knowledge or consent of the debtor would not
be able to recover anything from the latter; if the debt or obligation
has been previously extinguished partially, the third person would
be able to recover only t ha t part of the amount which he has paid
which would correspond to the part of the obligation which has not
been extinguished, because it would be only to t h a t extent t h a t the
payment has been beneficial to the debtor. In both cases, the remedy
of the third person would be to proceed, not against the debtor who
has not been benefited by the payment, but against the creditor who
was unduly paid applying the principle t h a t no person can unjustly
enrich himself a t the expense of another. 28
It must be noted t h a t from the viewpoint of the debtor, the

provision of the law th a t the third person or payor “can recover only
insofar as the payment has been beneficial to the debtor,” when made
against his express will, is a defense which may be availed of by the
debtor only and not by the creditor, for it affects solely the rights of
the former. At any rate, in order t ha t the rights of the payor may be
subject to said limitation, the debtor must oppose the payment before
or a t the time the same was made, and not subsequent thereto. 29
26
See De Guzman vs. Santos, 68 Phil. 371.
27
28
29
RFC vs. Court of Appeals, 50 Off. Gaz. 2467.
236
Idem; id.; id. — Right of subrogation. — If the payment

was effected with the knowledge and consent of the debtor, the third
person who made the payment shall be subrogated to all of the rights
which the creditor could have exercised, not only against the debtor,
but even against third persons. The right is expressly recognized in
Art. 1302 of the Code; it can also be deduced from the provision of
Art. 1237. If the payment, however, was effected without the knowl-
edge or against the will of the debtor, the third person who made the
payment cannot compel the creditor to subrogate him in his rights,
such as those arising from a mortgage, guaranty, or penalty. 30
It must be noted t ha t the right of subrogation is not the same

as the right of reimbursement, although it includes the latter.
Subrogation is a right available to the third person or payor,
whereby he is entitled, not only to demand reimbursement from
the debtor, but also to exercise all of the rights which the creditor
could have exercised against the debtor and against third persons,
such as those arising from a mortgage, a guaranty, or a penalty.
Reimbursement, on the other hand, is merely a simple personal
action available to the third person or payor against the debtor to
recover from the latter what he has paid insofar as the payment
has been beneficial to the said debtor.
Problem No. 1 — In 1972, D executed a promissory note

promising to pay to C P10,000 within a period of four years.
The payment of the debt was guaranteed by G. In 1976, P, a
third person, paid the entire amount of the indebtedness with
the knowledge and consent of D. What are the respective rights
and obligations of the parties?
Answer — P shall be subrogated to all of the rights of C,
not only against D, but also against G. This is so, because the
law expressly states th at if a third person pays the obligation
with the express or tacit approval of the debtor, he shall be
legally subrogated to all of the rights of the creditor, not only
against the debtor, but even against third persons, be they
guarantors or possessors of mortgages. 3 1 Consequently, P can
demand reimbursement from D of the P10,000 which he had
30
31
Arts. 1302, No. 2, 1303, 1304, Civil Code.
237
paid to C.32 If D cannot pay because of insolvency, he can still

proceed against G for the recovery of the amount. 3 3
Problem No. 2 — If in the above problem, C had condoned
one-half of the obligation in 1975, and subsequently, in 1976,
P, unaware of the partial remission of the indebtedness, paid,
without the knowledge and consent of D, the entire amount of
P10,000 to C, who accepted it, what would be the effect of such
payment upon the rights and obligations of the parties?
Answer — With respect to D, the only right which P has
against him is to recover P5,000, because, it is only to t h at extent
t hat he had been benefited by the payment. 3 4 With respect to
G, if D cannot pay the P5,000 because of insolvency, P can no
longer proceed against him, because the payment was made
without the knowledge and consent of D, and consequently, he
cannot be subrogated to the rights of C against G.35 With respect
to C, however, undoubtedly, P can still proceed against him for
the recovery of P5,000, applying the principle t h at no person can
unjustly enrich himself at the expense of another. 3 6
Idem; id. — Gratuitous payments. — If the payment is

made by a third person who does not intend to be reimbursed by
the debtor, the presumption arises t h a t such payment is a donation.
Therefore, the debtor’s consent is necessary, as in the case of the
37
donee in ordinary donations. Once the debtor’s consent is secured,

38
then the rules on ordinary donations will apply. If such consent,

however, is not secured, the rules stated in Arts. 1236 and 1237 will
still apply. As far as the creditor who has accepted the payment is
concerned, the debtor’s consent is immaterial; the payment is valid
in any case. 39
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 valid, without prejudice
32
33
Arts. 1302, No. 2, 1303, Civil Code.
34
35
36
37
38
39
238
to the provisions of Article 1427 under the Title on “Natural

Obligations.’’ 40
Capacity To Make Payment. — It is, of course, essential that

the person who pays the obligation should have the necessary legal
capacity to effect such payment. This is especially true in obligations
to give. In such case, it is essential for the validity of the payment
t h a t the payor should have the free disposal of the thing due and the
capacity to alienate it. The absence of one or the other will affect the
validity of the payment.
Consequently, if the payment was effected by a person who
does not have the free disposal of the thing due and/or the capacity
to alienate it, as in the case of a minor or a n insane person, such
payment is not valid. In other words, even if the creditor has already
41
accepted it, it may still be annulled by a proper action in court a t the

instance of the payor or his legal representative, unless it falls
within the purview of the exception expressly provided for in Art.
1427 of the Code. However, from the viewpoint of the obligation
itself, a certain qualification must be made. If a n incapacitated
person offers to pay the obligation and the creditor refuses to accept
the payment because he is aware of the payor’s incapacity, the
obligation still subsists. Such creditor cannot be compelled to
accept the payment; as a result, consignation of the thing due is not
possible.
Art. 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. 42
To Whom Payment Must Be Made. — Payment shall be

made, as a general rule, to (1) the person in whose favor the obligation
has been constituted, or (2) his successor in interest, or (3) any
person authorized to receive it. Under the old Code, the second was
not included in the enumeration; in spite of the omission, however,
the first, according to Manresa, includes not only the person who
was the creditor a t the time of the constitution of the obligation, but
also the person who is the creditor a t the time of payment. This is
40
41
42
239
so, because, although the obligation was not constituted in favor of

the latter, in the last analysis, it was constituted for his benefit. 43
In order to resolve all doubts with respect to this point, the Code
Commission h as added the second (successor-in-interest) to the
original provision of the Spanish Civil Code. The third, on the other
hand, refers to any person expressly or impliedly authorized by the
creditor himself or by law. 44
Idem; Persons authorized to receive payment. — As

stated in the preceding section, the person authorized to receive the
payment refers not only to a person authorized by the creditor, but
also to a person authorized by law to do so. Thus, payment made
to a guardian, or to the executor or administrator of the estate of
a deceased person, or to the assignee or liquidator of a partnership
or corporation is payment made to a person authorized by law to
receive it and, consequently, is valid. 45
The above interpretation of the phrase “any person authorized

to receive payment is best illustrated by those cases decided by our
courts after liberation involving the validity of payments made to
the Bank of Taiwan during the war. It must be remembered that
during the occupation, enemy properties (properties belonging
to nationals of countries a t war with Japan) were sequestered by
order of the Commander-in-Chief of the Japanese Imperial Forces
in the Philippines in accordance with the theory t h a t a belligerent
occupant h as the power to take by sequestration not only public
property but also private property of the enemy in a n occupied
territory. These properties were given to the Enemy Property
Custodian for liquidation with the Bank of Taiwan as depository.
The question then is — if the debtor had incurred a n indebtedness
from a certain enemy bank before the war and payment was made to
the Bank of Taiwan as liquidator of the said bank a t any time during
the Japanese occupation, is the payment valid? This question was
answered in the affirmative by the Supreme Court for the first time
in the leading case of Haw Pia vs. China Banking Corporation. In 46
said case, the Court held:
43
8 Manresa, 5th Ed., Bk 1, p. 536; Tuazon and San Pedro vs. Zamora & Sons,
2 Phil. 305.
44
Haw Pia vs. China Banking Corp., 80 Phil. 604.
45
46
80 Phil. 604.
240
“It having been shown x x x t hat the Japanese Military

Forces had power to sequestrate and impound the assets or
funds of the China Banking Corporation, and for t h at purpose
to liquidate it by collecting the debts due to said bank from its
debtors, and paying its creditors, and therefore to appoint the
Bank of Taiwan as liquidator with the consequent authority to
make the collection, it follows evidently t h at the payments by
the debtors to the Bank of Taiwan of their debts to the China
Banking Corporation have extinguished their obligation to
the latter. Said payments were made to a person, the Bank of
Taiwan, authorized to receive them in the name of the bank
credit or under Article 1162 (now Art. 1240) of the Civil Code,
because it is evident t hat the words ‘a person authorized to
receive it,’ as used therein, means not only a person authorized
by the same creditor but also a person authorized by law to do
so.’’47
Idem; id. — Payment to unauthorized persons. — If

the payment is made to a person other t han those enumerated in
Art. 1240, it shall not be valid. Thus, where a n electric plant was
sold and delivered by the plaintiff to the defendant and the latter
subsequently paid the purchase price, without the knowledge of the
former, to a certain person who represented himself as the plaintiff’s
agent, it was held t h a t the defendant had no right to assume that
such person was authorized to receive the money; consequently, said
defendant made the payment a t his own risk and can still be held
liable for the purchase price. This conclusion is strengthened by the
48
fact t h a t in agency, a n assumption of authority to act as agent for

another of itself challenges inquiry. Similarly, where the decedent
49
during his lifetime h ad assigned the right to collect a certain credit to

his children by a prior marriage, and subsequently, the debtor, with
knowledge of the assignment, paid the debt to the decedent’s second
wife, it was held t h a t such payment is void on the ground t h a t it was
made to a person not authorized to receive the payment. The same 50
conclusion can also be applied to the act of the vendee in depositing

the balance of the purchase price a t the Philippine National Bank in
47
To the same effect: Everett Steamship Corp. vs. Bank of P.I., 47 Off. Gaz. 165;
Hodges vs. Gay, 48 Off. Gaz. 136; Winship vs. Phil. Trust Co., 90 Phil. 744; Bay Boul-
evard vs. Sycip, 92 Phil. 508.
48
Keleer Electric Co. vs. Rodriguez, 44 Phil. 19.
49
Ormachea vs. Triliana, 13 Phil. 194.
50
Crisol vs. Claveron, CA, 3 Off. Gaz. 3734.
241
the name of the vendor when he could not locate the latter because
of the conditions then existing in January, 1945, when the payment
became due. Although the payment is not valid because it is not
51
made to a person authorized to receive it in accordance with the

provision of Art. 1240 of the Code, nevertheless it is clear t h a t the
vendee had acted in good faith; he cannot, therefore, be said to
have incurred in delay; consequently, the vendor cannot ask for the
rescission of the contract. 52
Idem; id. — Exceptions. — There are, however, two excep-

tions to the rule t h a t payment made to a person other t ha n those
enumerated in Art. 1240 is not valid. They are: first, payment made
to a third person, provided t h a t it has redounded to the benefit of the
creditor, and second, payment made to the possessor of the credit,
53
provided t h a t it was made in good faith. 54
Art. 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. 55
Payment to Incapacitated Persons. — According to the

above article, if payment is made to a person who is incapacitated
51
Arcache vs. Lizares & Co., 91 Phil. 348.
52
Ibid.
53
54
55
242
EXTINGUISHMENT OF OBLIGATIONS Art. 1241
to administer his property, the payment is considered valid: (1) if

he h as kept the amount or thing paid or delivered, or (2) insofar
as the payment has been beneficial to him. It is evident t h a t if the
incapacitated person h as kept or preserved the amount or thing
paid or delivered, the act is beneficial to him; hence, the first case is
actually included in the second.
When the law says t h a t the payment, in order to be valid, must
have been beneficial to the incapacitated person, it does not literally
mean th a t the amount or thing paid or delivered should have been
invested by such incapacitated person or used for expenses. The
payment is beneficial to him when t h a t which has been paid or
delivered is applied or spent for some rational, necessary or useful
purpose for his benefit. Otherwise, the payment is not valid, and as
a consequence, the debtor may be made to pay again either a t the
instance of the incapacitated person upon recovering or acquiring
capacity or a t the instance of the legal representative of such person
during such incapacity. 56
It must be noted t h a t the rule is applicable only to obligations

to give.
Payment to Third Persons. — If the payment is made to
a third person, the rule is t h a t it shall be valid insofar as it has
redounded to the benefit of the creditor. This rule constitutes an
57
exception to the general rule stated in Art. 1240. As in the case of

the preceding rule, it is applicable only to obligations to give.
It must be observed, however, t h a t in order t h a t the payment
shall be valid, it is essential t h a t it should have redounded to the
benefit of the creditor. Consequently, the rule cannot be invoked
without conclusive proof of the benefit to the creditor, especially
when there is not the slightest evidence t h a t the third person to
whom payment was made had any claim to the creditor’s right. It 58
cannot, therefore, be presumed except in the three cases specified

in the second paragraph of Art. 1241. Thus, even granting t h a t the
payment to a third person was made through mistake and in good
faith, the debtor can still be held liable. If it becomes impossible
for such debtor to recover what was unduly paid, any loss resulting
56
57
58
Panganiban vs. Cuevas, 7 Phil. 477.
243
therefrom shall be borne by him unless there is a stipulation to

the contrary, or unless the creditor himself was responsible for the
wrongful payment. 59
Art. 1242. Payment made in good faith to any person in

possession of the credit shall release the debtor. 60
Payment to Possessors of Credit. — It must be noted that

the possession referred to in the above article is the possession of
the credit, not the possession of the document evidencing it. Thus,
the article may be applied to the payment made to the original
creditor by a debtor who is not aware of the fact t h a t the credit has
already been assigned to another person. It may also be applied
to the payment made to a n assignee, although the assignment is
afterwards rescinded or annulled. It must always, of course, be
indispensable t h a t the payment should have been made in good
faith. If this requisite is present, then the payment shall release the
debtor. In such case, the remedy of the creditor would be to proceed
against the possessor of the credit to whom payment was improperly
made. 61
It must be noted t h a t the rule stated in the article under

discussion is another exception to the general rule stated in Art.
1240 and t h a t it is applicable only to obligations to give.
Art. 1243. Payment made to the creditor by the debtor

after the latter has been judicially ordered to retain the debt
shall not be valid. 62
Payment After Judicial Order of Retention. — According

to the above article, if the debtor pays the creditor after he has
been judicially ordered to retain the debt, such payment shall not
be valid. Consequently, after the debtor has received the notice of
attachment or garnishment, payment can no longer be made to the
creditor whose credit has been attached to satisfy a judgment in
favor of another person. Such payment must be made to the proper
59
Ibid.
60
61
62
244
officer of the court issuing the writ of attachment or garnishment in

conformity with the provisions of the Rules of Court. 63
Art. 1244. The debtor of a thing cannot compel the

creditor to receive a different one, although the latter may
be of the same value as, or more valuable than 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. 64
Art. 1245. Dation in payment, wherein property is

alienated to the creditor in satisfaction of a debt in money,
shall be governed by the law of sales. 65
Art. 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 obliga-
tion and other circumstances shall be taken into consider-
ation. 66
What Must Be Paid. — The two rules stated in Art. 1244

are logical consequences of the n at ure of specific or determinate
obligations.
According to the first paragraph, if the obligation is to give
and the object is a thing which is specific or determinate, the debtor
cannot fulfill his obligation by delivering a thing which is different
from t h a t which is due. This is so although the thing which is
delivered may be of the same value or even more valuable th an that
which is due. According to the second paragraph, if the obligation
is to do or not to do and the object is a n act or forbearance which is
specific or determinate, the obligor cannot fulfill his obligation by
substituting another act or forbearance. In both cases, the creditor
or obligee cannot be compelled to accept the delivery of the thing or
63
Sec. 8, Rule 57, New Rules of Court.
64
65
New provision.
66
245
the substitution of the act or forbearance. However, if he accepts the

delivery or substitution, such acceptance shall give to the delivery
or substitution the same effect as a fulfillment or performance of the
obligation.
Idem; Effect of dation in payment. — However, if the
creditor and the debtor enter into a n agreement by virtue of which
a certain property is alienated by the debtor to the creditor as the
equivalent of the performance of the obligation, the law on sales
shall then govern. It is, therefore, evident t h a t dación en pago or
67
dation in payment constitutes a n exception to the rule stated in Art.

1244.
Dation in payment (dación en pago) is defined as the transmis-
sion of the ownership of a thing by the debtor to the creditor as an
accepted equivalent of the performance of the obligation. According
68
to the modern doctrine, in dacion en pago there is in reality a n objec-

tive novation of the previous obligation effected by a change of the
object thereof. Our Civil Code, however, has adopted the traditional
concept of dación en pago as a special form of payment which is
most analogous to a contract of sales following the opinion of the Su-
preme Court of Spain (Sentencias, Jan. 9, 1916 and Aug. 10, 1918)
and also of Spanish commentators. Hence, once there is a n agree-
ment between the debtor and the creditor with regard to the thing
which must be delivered by the former to the latter as the equivalent
of the performance of the obligation, the law on sales shall govern,
with the credit as the price of the thing. Thus, if D executed a prom-
69
issory note in 1966 promising to pay to C P5,000 within four years

from the execution of the note, and in 1969 when the obligation be-
came demandable the two entered into a n agreement by virtue of
which D shall deliver his automobile to C as the equivalent of the
performance of the obligation, the effect is the transformation of the
previous contract into a contract of sale with the automobile as the
object and the loan of P5,000 as the purchase price.
Idem; Effect if object is generic. — The rule stated in Art.
1246 is based on equity and justice. If there is no precise declaration
in the obligation with regard to the quality and circumstances of the
67
68
69
Ibid., pp. 610-611.
246
indeterminate thing which constitutes its object, the creditor cannot

demand a thing of the best quality; neither can the debtor deliver a
thing of the worst quality. The obligation can only be fulfilled by the
delivery of a thing which is neither of superior nor inferior quality.
Hence, it becomes actually a question of relative appreciation; if
there is disagreement between the parties, the law steps in and
declares whether the obligation has been complied with or not,
depending upon the purpose of such obligation and other
circumstances. 70
Art. 1247. Unless it is otherwise stipulated, the extraju-

dicial expenses required by the payment shall be for the ac-
count of the debtor. With regard to judicial costs, the Rules
of Court shall govern. 71
Expenses of Payment. — To the rules specified in the above

article we must add the supplementary rule stated in the fourth
paragraph of Art. 1251 t h a t if the debtor changes his domicile in
bad faith or after he has incurred in delay, the additional expenses
shall be borne by him.
Art. 1248. Unless there is an express stipulation to that

effect, the creditor cannot be compelled partially to receive
the prestations in which the obligation consists. Neither may
the debtor be required to make partial payments.
However, when the debt is in part liquidated and in
part unliquidated, the creditor may demand and the debtor
may effect the payment of the former without waiting for the
liquidation of the latter. 72
Character of Payment. — According to Castan, in order that

the prestation which constitutes the object of the obligation may be
considered as paid or performed, three conditions or characteristics
must, as a general rule, concur. They are: identity, completeness
and indivisibility. The first refers to the rule t h a t only the prestation
agreed upon and no other must be complied with; the second refers 73
to the rule t h a t the thing or service in which the obligation consists
70
Ibid., pp. 552-553.
71
73
Arts. 721244, 1245, 1246, 1249, Civil Code.
247
must be completely delivered or rendered; and the third refers to

74
the rule t h a t the payment or performance must be indivisible. 75
It must be noted, however, t h a t Art. 1248 is applicable only

to a n obligation where there is only one debtor and one creditor;
it is not applicable to one where there is plurality of debtors and
creditors. The latter is governed by different rules which we have
already taken up in a previous chapter. Neither is it applicable to
76
one where the different prestations are subject to different terms

and conditions. Hence, even when there is only one debtor and only
one creditor, the rule stated in the article is only in the natur e of
a general rule. There are three exceptions. They are: first, when
the obligation expressly stipulates the contrary; second, when the
different prestations which constitute the objects of the obligation
are subject to different terms and conditions; and third, when the
obligation is in p ar t liquidated and in part unliquidated.77
Art. 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 abeyance. 78
Rule in Monetary Obligations. — According to the first

paragraph of Art. 1249, in monetary obligations, payment shall be
made in the currency stipulated. If it is not possible to pay in the
currency stipulated, then the payment shall be made in legal tender
of the Philippines. Although the article does not expressly say so, it
is evident t h a t if there is no stipulation regarding the currency in
74
Arts. 1233, 1234, 1235, Civil Code.
75
76
Arts. 1207, et seq., Civil Code.
77
78
248
which the payment shall be made, the payment shall still be made
in legal tender of the Philippines.
Thus, the Supreme Court in the case of Zagala vs. Jimenez, it
held t h a t “a judgment awarding a n amount in U.S. dollar may be
paid with its equivalent amount in local currency in the conversion
rate prevailing a t the time of payment. If the parties cannot agree
on the same, the trial court should determine such conversion rate.
Needless to say, the judgment debtor may simply satisfy said award
by paying in full the amount in U.S. dollars. Therefore, when the
petitioners, in this case, filed their motion to fix the peso value
of the judgment in dollars, they only intended to exercise a right
granted to them by the present jurisprudence — t h a t the trial court
shall determine or fix the conversion r ate prevailing a t the time of
payment.’’
Idem; Effect of Rep. Act Nos. 529 and 4100. — However, in
order to assure the stability of the Philippine currency the Congress
passed a law entitled “An Act To Assure the Uniform Value of
Philippine Coins and Currency” (Rep. Act No. 529) which took effect
on J u n e 16, 1949. Under this Act, the rule in the Civil Code that
payment of debts in money shall be made in the currency stipulated
was completely abrogated. Thus, Sec. 1 of this Act provides:
“Every provision contained in, or made with respect to,

any obligation which provision purports to give the obligee the
right to require payment in gold or in a particular kind of coin
or currency other th an Philippine currency or in a n amount of
money of the Philippines measured thereby, be as it is hereby
declared against public policy, and null, void and of no effect.
x x x Every obligation heretofore or hereafter incurred x x x
shall be discharged upon payment in any coin or currency which
at the time of payment is legal tender for public and private
debts: Provided, That, if the obligation was incurred prior to
the enactment of this Act and required payment in a particular
coin or currency, it shall be discharged in Philippine currency
measured at the prevailing rates of exchange a t the time the
obligation was incurred except in case of a loan made in a foreign
currency stipulated to be payable in the same currency in which
case the ra te of exchange prevailing at the time of the stipulated
date of payment shall prevail.’’79
79
See Eastboard Navigation Co. vs. Ysmael Co., 102 Phil. 1; Arrieta
vs. Nat.
and Corn Rice10 SCRA 79.
Corp.,
249
Later on, in order to encourage foreign investments and to

cope with the requirements of international trade and banking
transactions, Rep. Act No. 4100 was enacted amending the above Act.
This law took effect on Ju n e 19, 1964. According to this Act, the law
prohibiting stipulations in domestic monetary obligations purporting
to give to the obligee the right to require payment in currency other
th an Philippine currency does not apply to: (a) transactions where
the funds involved are the proceeds of loans and investments made
directly or indirectly, through bona fide intermediaries or agents,
by foreign governments, their agencies and instrumen-talities, and
international financial and banking institutions so long as the funds
are identifiable, as having emanated from the sources enumerated
above; (b) transactions affecting high-priority economic projects
for agricultural, industrial and power development as may be
determined by the National Economic Council which are financed by
or through foreign funds; (c) foreign exchange transactions entered
into between banks or between banks and individuals or juridical
persons; and (d) import-export and international banking, financial
investment and industrial transactions. 80
Problem — “S,” an American resident of Manila, about

to leave on a vacation, sold his car to “B” for US$2,000.00,
the payment to be made ten days after delivery to ‘’X,’’ a third
party depositary agreed upon, who shall deliver the car to “B’’
upon receipt of “X” of the purchase price. It was stipulated that
ownership is retained by “S’’ until delivery of the car to “X.” Five
days after delivery of the car to “X,” it was destroyed in a fire
which gutted the house of “X,” without the fault of either “X” or
“B.’’
Question No. 1 — Is buyer “B’’ still legally obligated to pay
the purchase price? Explain. (1981 Bar Problem)
Answer — Yes, buyer “B” is still legally obligated to pay
the purchase price. It must be observed t h at “S” had already
delivered the car to “X,” the third party depositary or bailee.
It was agreed th at ownership is retained by “S” until delivery
to “X.” Therefore, in effect, there was already a transfer of the
right of ownership over the car to “B.” Consequently, “B’’ shall
assume the fortuitous loss of the car. As a m at t er of fact, even
if it was agreed t hat “S’’ shall retain the ownership of the car
80
Sec. 1, Rep. Act No. 4100.
250
until the purchase price has been paid by “B,” the end result
will still be the same. Since, evidently, the purpose is to secure
performance by the buyer of his obligation to pay the purchase
price, by express mandate of the law, the fortuitous loss of the
car shall be assumed by “B.’’
Code.)
Question No. 2 — May seller “S’’ demand payment in U.S.
dollar? Why? (1981 Bar Problem)
Answer — The seller “S’’ cannot demand payment in U.S.
dollars. According to the law, an agreement t h at payment shall
be made in currency other th an Philippine currency is void
because it is contrary to public policy. T hat does not mean,
however, th at “S” cannot demand payment from “B.” He can
demand payment, but not in American dollars. Otherwise,
there would be unjust enrichment at the expense of another.
Payment, therefore, should be made in Philippine currency.
(Note: The above answer is based on R.A. No. 529
and on
Ponce vs. Court of Appeals, 90 SCRA 533.)
Idem; Meaning of legal tender. — Legal tender, within the

meaning of Art. 1249 of the Code, refers to such currency which may
be used for the payment of all debts, whether public or private. 81
Under our law, the legal tender of the Philippines would be all notes
and coins issued by the Central Bank. 82
Idem; Payments with Japanese military notes. — One of

the problems which confronted our courts after liberation was the
determination of the validity of payments made during the Japanese
occupation of pre-war debts which were then due in depreciated
Japanese military notes. Considering t h a t some of these payments
were made during the last months of the occupation when these
notes h ad depreciated so much in value, a just solution based on the
laws then in force was called for.
Evidently, if the pre-war obligation contains a stipulation to
the effect t h a t payment shall be made in a certain currency, such
as American or English currency, the rule is t h a t the payment, in
order to be valid, must be made in the currency stipulated; hence,
82
Ibid. 81Sec. 54, Rep. Act No. 265; Sec. 1, Rep. Act No. 529.
251
if payment was made in Japanese military notes and the creditor

refused to accept it, it would not be valid even if it was followed by
consignation. 83
However, if the pre-war obligation contains a stipulation to the

effect t h a t payment shall be made in the currency which is legal
tender in the Philippines a t the time when payment is to be made
or if such obligation is silent with respect to the currency in which
the payment shall be made, payment in Japanese military notes is
valid and effective. In the words of the Supreme Court: “A payment
made by a debtor during the enemy occupation of a pre-war debt or
obligation with Japanese notes and accepted by the creditor, is valid
and extinguishes the former’s obligation.’’ 84
The doctrine is applicable irrespective of the attitude of the

creditor. Thus, it has been held th at a payment made by a debtor
85
and accepted by the creditor during the enemy occupation “in

compliance with the orders of the military authorities to reopen
banks and accept the military notes as legal tender in payment of
debts, issued in the exercise of their authority as military
occupants, cannot be considered as made under a collective and
general duress, because a n act done pursuant to the laws or orders
of competent authorities can never be regarded as executed
involuntarily, or under duress, or illegitimate constraint, or
compulsion t h a t invalidates the act.” 86
The validity of such payments is, of course, based on the fact

t h a t such military notes were legal tender in the Philippines a t the
time such payments were made. As a m atter of fact, Japanese
87
military notes were the only money in circulation in the Philippines

during the latter part of the occupation; they were not only intended
to be the legal tender in the Philippines, they were intended to be
circulated exclusively therein. In this sense, it is evident t h a t they
were the Philippine currency or money during such period. Indeed, 88
83
Legarda vs. Carrascoso, 81 Phil. 450.
Hillado vs. De la Costa, 46 Off. Gaz. 5472. To the same effect: Haw Pia vs.
84
China Banking Corp., 80 Phil. 604; Del Rosario vs. Sandico, 47 Off. Gaz. 2866; Sori-
ano vs. Abalos, 47 Off. Gaz. 2894.
85
Hernaez vs. McGrath, 48 Off. Gaz. 2868.
86
Phil. Trust Co. vs. Araneta, 46 Off. Gaz. 4254; L arraga vs. Bañez, 47 Off.
Gaz.
696; Compania General de Tabacos vs. Araneta, 96 Phil. 971.
87
Haw Pia vs. China Banking Corp., 80 Phil. 604.
88
Valdeabella vs. Marquez, 48 Off.
252Gaz. 719.
judicial notice must be taken of the fact t h a t in 1943, they had as

much purchasing power, if not more, th an the victory notes of 1945
— a t least as regards local foodstuffs and products. 89
Idem; Payments with emergency notes. — What had been

stated regarding payments with Japanese military notes can also
be applied to a certain extent to payments made with emergency
notes which were issued either by the Commonwealth government
during the invasion or by recognized guerrilla governments during
the occupation. This is so because undoubtedly these emergency
notes must be considered as legal tender but only in those places
which were under the control of either the Commonwealth or of the
guerrilla government issuing the notes. Consequently, where the
90
defendant borrowed P3,130 in emergency notes from the plaintiff

in 1942, he cannot now contend t h a t the sum of money delivered
to him consisted of valueless notes which were not legal tender.
These emergency notes which the officers of the Commonwealth
were authorized by President Quezon to issue before he left the
Philippines were then valid and legal tender. 91
Idem; Payments with negotiable paper. — Since

negotiable papers or mercantile documents, such as promissory
notes payable to order or bills of exchange, are not legal tender, it is
logical t h a t the delivery of such papers or documents by the debtor
to the creditor shall not produce the effect of payment.
Consequently, if the debtor tenders a check to the creditor as
payment of an obligation, the latter has a perfectly valid right to
refuse it, even if the check may be good. In such case, the tender
shall not produce the effect of payment. This is true even if the
92
refusal of the creditor is followed by consignation whether the

check is an ordinary check or a manager’s check. 93
89
Aurreocoecha vs. Kabankalan Sugar Co., 81 Phil. 476.
90
Rep. Act Nos. 22 and 368, applied in Donasco vs. Serra, CA, G.R. No. 7046-R,
Sept. 30, 1953.
91
Phil. National Bank vs. Teves, 100 Phil. 491.
92
Belisario vs. Natividad, 60 Phil. 156; Phil. National Bank vs. Relativo, 92
Phil.
203.
93
Villanueva vs. Santos, 67 Phil. 648; Cuaycong vs. Ruiz, 47 Off. Gaz. 6125; CFI
of Tarlac vs. Court of Appeals, 91 Phil. 912; Hidalgo vs. Heirs of Tuason, 104 Phil.
336.
253
Hidalgo vs. Heirs of Tuazon, Inc.

104 Phil. 336
On August 31, 1943, plaintiffs obtained a loan of P100,000

from the defendant and to guarantee the payment of said
loan, plaintiffs constituted a mortgage on four parcels of land
belonging to them. It was agreed t hat the debtors may pay their
indebtedness at any time before the expiration of the term of
the contract subject, however, to the following conditions: (1)
if payment is made before the termination of the hostilities
between America and Japan, the indebtedness should be paid
with an increase of 100%; and (2) if payment is made thereafter,
30 day-notice in advance should be given to
defendant corporation. On Dec. 6, 1944, plaintiff Eduardo B.
Hidalgo sent a check to defendant for the sum of P101,673.50,
representing payment of his share in the obligation, but
the same was rejected by defendant for the reason t h at such
mode of payment was contrary to their agreement. On Dec.
29, 1944, plaintiff Felipe R. Hidalgo sent another check for the
same amount to the defendant. The check was received by
Nicasio A. Tuason. From this date no further action was taken,
and when liberation came, plaintiffs brought this action in the
Court of First Instance of Manila praying t ha t the defendant
be ordered to execute a document releasing them from their
obligation and cancelling the mortgage executed by them. The
defendant answered that notwithstanding the express
provisions of the mortgage, said loan shall not be paid except
in genuine Philippine currency after the war. After trial, the
court rendered judgment in favor of the plaintiffs. Hence, the
defendant appealed. The question now is whether the obligation
has already been paid or not. The Supreme Court held:
“With regard to the draft tendered by plaintiff Eduardo
Hidalgo to defendant which was rejected by the latter, the same
did not ripen into payment because of such rejection. The remedy
of Hidalgo was to make a consignation thereof as required by
law and give notice thereof to defendant. Such was not done
and so the tender of payment became ineffective. With regard to
the draft which plaintiff Felipe Hidalgo tendered to defendant,
it is true th at the same was accepted by Nicasio Tuason, but
such tender cannot also have the effect of payment for under the
law payment made in check or draft has the effect of payment
only when actually cashed. There is no showing t h a t the draft
has been cashed. Nor is there a showing t h a t it was impaired
through the fault of defendant. Therefore, plaintiffs are still
indebted to defendant and unless they pay the same they cannot
254
ask for the cancellation of their mortgage. Considering however

th at the indebtedness may be wholly or partially discharged
even before the termination of hostilities between America and
Japan, plaintiffs can only be made to pay the same subject to
conversion under the Ballantyne scale of values pursuant to a
long line of decisions of this court.”
Attention, however, must be called to the effect of Section 63 of

the Central Bank Act. This is very well illustrated in the following
case:
New Pacific Timber & Supply Co. vs. Seneris

101 SCRA 686
A petition for certiorari with preliminary injunction to

annul and/or modify the order of the Court of First Instance
of Zamboanga City (Branch II) dated August 28, 1975 denying
petitioner’s Ex-Parte Motion for Issuance of Certificate of
Satisfaction of Judgment.
Herein petitioner is the defendant in a complaint for
collection of a sum of money filed by the private respondent.
On July 19, 1974, a compromise judgment was rendered by the
respondent Judge in accordance with an amicable settlement
entered into by the parties the terms and conditions of which,
are as follows:
“(1) That defendant will pay to the plaintiff the amount
of Fifty Four Thousand Five Hundred Pesos (P54,500.00) a t 6%
interest per ann u m to be reckoned from August 25, 1972;
“(2) That defendant will pay to the plaintiff the amount
of Six Thousand Pesos (P6,000.00) as attorney’s fees for which
P5,000.00 had been acknowledged received by the plaintiff
under Consolidated Bank and Trust Corporation Check No.
16-135022 amounting to P5,000.00 leaving a balance of One
Thousand Pesos (P1,000.00);
“(3) That the entire amount of P54,500.00 plus interest,
plus the balance of P1,000.00 for attorney’s fees will be paid by
defendant to the plaintiff within five months from today, July
19, 1974; and
“(4) Failure on the part of the defendant to comply with
any of the above conditions, a writ of execution may be issued by
this Court for the satisfaction of the obligation.”
255
For failure of the petitioner to comply with his judgment

obligation, the respondent Judge, upon motion of the private
respondent, issued an order for the issuance of a writ of
execution on December 21, 1974. Accordingly, writ of execution
was issued for the amount of P63,130.00 pursuant to which, the
Ex-Officio Sheriff levied upon the following personal properties
of the petitioner, to wit:
(1) Unit American Lathe 24”
(1) Unit American Lathe 18” Cracker Wheeler
(1) Unit Rockford Shaper 24’’
and set the auction sale thereof on Ja n ua ry 15, 1975.
However, prior to Jan uary 15, 1975, petitioner deposited with the
Clerk of Court, Court of First Instance, Zamboanga City, in his
capacity as Ex-Officio Sheriff of Zamboanga City, the sum of
P63,130.00 for the payment of the judgment obligation,
consisting of the following:
1. P50,000.00 in Cashier’s Check No. S-314361 dated
Jan u ar y 3, 1975 of the Equitable Banking Corporation; and
2. P13,130.00 in cash.
In a letter dated Jan uary 14, 1975, to the Ex-Officio
Sheriff, private respondent through counsel, refused to accept
the check as well as the cash deposit. In the same letter, private
respondent requested the scheduled auction sale on January
15, 1975 to proceed if the petitioner cannot produce the cash.
However, the scheduled auction sale at 10:00 a.m. on January
15, 1975 was postponed to 3:00 o‘clock p.m. of the same day
due to further attempts to settle the case. Again, the scheduled
auction sale th at afternoon did not push through because of a
last ditch attempt to convince the private respondent to accept
the check. The auction sale was then postponed to the following
day, Jan ua ry 16, 1975 at 10:00 o’clock a.m. At about 9:15 a.m.
on Jan uary 16, 1975, a certain Mr. Tañedo representing the
petitioner appeared in the office of the Ex-Officio Sheriff and the
latter reminded Mr. Tañedo th at the auction sale would proceed
at 10:00 o’clock. At 10:00 a.m., Mr. Tañedo and Mr. Librado,
both representing the petitioner requested the Ex-Officio Sheriff
to give them fifteen minutes within which to contact their lawyer
which request was granted. After Mr. Tañedo and Mr. Librado
failed to return, counsel for private respondent insisted t h at the
sale must proceed and the Ex-Officio Sheriff proceeded with the
auction sale. In the course of the proceedings, Deputy Sheriff
Castro sold the levied properties item by item to the private
256
respondent as the highest bidder in the amount of P50,000.00.

As a result thereof, the Ex-Officio Sheriff declared a deficiency
of P13,130.00. Thereafter, on Jan uary 16, 1975, the Ex-Officio
Sheriff issued a “Sheriff’s Certificate of Sale” in favor of the
private respondent, Ricardo Tong, married to Pascuala Tong for
the total amount of P50,000.00 only. Subsequently, on January
17, 1975, petitioner filed an ex-parte motion for issuance of
certificate of satisfaction of judgment. This motion was denied
by the respondent Judge in his order dated August 28, 1975.
In view thereof, petitioner now questions said order by way of
the present petition alleging in the main t h at said respondent
Judge capriciously and whimsically abused his discretion in not
granting the motion for issuance of certificate of satisfaction of
judgment for the following reasons: (1) th at there was already
a full satisfaction of the judgment before the auction sale was
conducted with the deposit made to the Ex-Officio Sheriff in
the amount of P63,000.00 consisting of P50,000.00 in Cashier’s
Check and P13,130.00 in cash; and (2) th a t the auction sale was
invalid for lack of proper notice to the petitioner and its counsel
when the Ex-Officio Sheriff postponed the sale from January
15, 1975 to Janu ary 16, 1975 contrary to Section 24, Rule 39
of the Rules of Court. On November 10, 1975, the Court issued
a temporary restraining order enjoining the respondent Ex-
Officio Sheriff from delivering the personal properties subject
of the petition to Ricardo A. Tong in view of the issuance of the
“Sheriffs Certificate of Sale.”
We find the petition to be impressed with merit.
The main issue to be resolved in this instance is as
to whether or not the private respondent can validly refuse
acceptance of the payment of the judgment obligation made by
the petitioner consisting of P50,000.00 in Cashier’s Check and
P13,130.00 in cash which it deposited with the Ex-Officio Sheriff
before the date of the scheduled auction sale. In upholding
private respondent’s claim th at he h as the right to refuse
payment by means of a check, the respondent Judge cited the
following:
Section 63 of the Central Bank Act:
“Sec. 63. Legal Character. — Checks representing

deposit money do not have legal tender power and their
acceptance in payment of debts, both public and private,
is at the option of the creditor: Provided, however, T hat a
check which has been cleared and credited to the account
of the creditor shall be equivalent to a delivery to the
257
creditor in cash in an amount equal to the amount credited

to his account.”
Article 1249 of the New Civil Code:
“Art. 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 abeyance.’’
Likewise, the respondent Judge sustained the contention
of the private respondent t hat he h as the right to refuse payment
of the amount of P13,130.00 in cash because the said amount is
less t h an the judgment obligation, citing the following Article of
the New Civil Code:
“Art. 1248. Unless there is a n express stipulation to
th at effect, the creditor cannot be compelled partially to
receive the presentations in which the obligation consists.
Neither may the debtor be required to make partial
payment.
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.”
It is to be emphasized in this connection t h at the check
deposited by the petitioner in the amount of P50,000.00 is
not a n ordinary check but a Cashier’s Check of the Equitable
Banking Corporation, a bank of good standing and reputation.
As testified to by the Ex-Officio Sheriff with whom it has been
deposited, it is a certified crossed check. It is a well-known
and accepted practice in the business sector t ha t a Cashier’s
Check is deemed as cash. Moreover, since the said check had
been certified by the drawee bank by the certification, the funds
represented by the check are transferred from the credit of the
maker to th at of the payee or holder, and for all intents and
purposes, the latter becomes the depositor of the drawee bank,
with rights and duties of one in such situation. Where a check
is certified by the bank on which it is drawn, the certification
258
is equivalent to acceptance. Said certification “implies that

the check is drawn upon sufficient funds in the hands of the
drawee, t hat they have been set apart for its satisfaction, and
th at they shall be so applied whenever the check is presented
for payment. It is an understanding th at the check is good then,
and shall continue to be good, and this agreement is as binding
on the bank as its notes in circulation, a certificate of deposit
payable to the order of the depositor, or any other obligation it
can assume. The object of certifying a check, as regards both
parties, is to enable the holder to use it as money.’’ When the
holder procures the check to be certified, “the check operates as
an assignment of a part of the funds to the creditors.” Hence, the
exception to the rule enunciated under Section 63 of the Central
Bank Act to the effect “that a check which has been cleared
and credited to the account of the creditor shall be equivalent
to a delivery to the creditor in cash in a n amount equal to
the amount credited to his account” shall apply in this case.
Considering th at the whole amount deposited by the petitioner
consisting of Cashier’s Check of P50,000.00 and P13,130.00 in
cash covers the judgment obligation of P63,000.00 as mentioned
in the writ of execution, then, We see no valid reason for the
private respondent to have refused acceptance of the payment
of the obligation in his favor. The auction sale, therefore, was
uncalled for. Furthermore, it appears th at on Ja nu a ry 17, 1975,
the Cashier’s Check was even withdrawn by the petitioner and
replaced with cash in the corresponding amount of P50,000.00 on
Jan u ar y 27, 1975 pursuant to an agreement entered into by the
parties at the instance of the respondent Judge. However, the
private respondent still refused to receive the same. Obviously,
the private respondent is more interested in the levied properties
th an in the mere satisfaction of the judgment obligation. Thus,
petitioner’s motion for the issuance of a certificate of satisfaction
of judgment is clearly meritorious and the respondent Judge
gravely abused his discretion in not granting the same under
the circumstances.
In view of the conclusion reached in this instance, We find

no more need to discuss the ground relied in the petition.
It is also contended by the private respondent that
appeal and not a special civil action for certiorari is the proper
remedy in this case, and th at since the period to appeal from
the decision of the respondent Judge has already expired, then,
the present petition has been filed out of time. The contention is
untenable. The decision of the respondent Judge in Civil Case
No. 250 (166) has long become final and executory and so, the
259
same is not being questioned herein. The subject of the petition

at bar as having been issued in grave abuse of discretion is the
order dated August 28, 1975 of the respondent Judge which
was merely issued in execution of the said decision. Thus, even
granting th at appeal is open to the petitioner, the same is not
a n adequate and speedy remedy for the respondent Judge had
already issued a writ of execution.
WHEREFORE, in view of all the foregoing, judgment is
hereby rendered:
1.Declaring as null and void the order of the respondent
Judge dated August 28, 1975;
2.Declaring as null and void the auction sale conducted on
Jan uary 16, 1975 and the certificate of sale issued pursuant
thereto;
3.Ordering the private respondent to accept the
sum of P63,130.00 under deposit as payment of the judgment
obligation in his favor;
4.Ordering the respondent Judge and respondent Ex-
Officio Sheriff to release the levied properties to the herein
petitioner.
The temporary restraining order issued is hereby made
permanent.
Costs against the private
respondent. SO ORDERED.
Idem; id. — Exceptions. — It must be noted, however, that

under the law there are two cases when the delivery produces the
effect of a valid payment. They are:
(1) When the document has been cashed. This case is
applicable to a negotiable paper or document executed by either a
third person or the debtor himself and delivered by said debtor to the
creditor. Thus, where the debtor deposited a manager’s check with
94
the Clerk of Court in payment of a certain indebtedness pursuant

to a court order, and the latter indorsed the check to the Provincial
Treasurer, who deposited it with the Philippine National Bank and
the Bank honored the check and placed the amount thereof to the
94
Compania General vs. Molina, 5 Phil. 142.
260
credit of the Provincial Treasurer, it was held t h a t the effect of these

facts, in contemplation of law, was the same as if the aforementioned
amount had been deposited in cash with the Clerk of Court, for said
sum thereby became available to him in cash. 95
(2) When it had been impaired through the fault of the

creditor. This is applicable only to a paper or document executed
by a third person and delivered by the debtor to the creditor. 96
Thus, where a bill of exchange was delivered to the plaintiff by

the defendant, and subsequently, upon maturity it was dishonored
by the drawee because the signature thereto was a forgery, the
negligence of the plaintiff in not protesting the nonpayment resulted
in the impairment of the value of the bill of exchange because of the
loss of the right to proceed against other parties who might be held
liable; consequently, the defendant can no longer be held liable. 97
Art. 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. 98
Effect of Extraordinary Inflation or Deflation. — Accord-

ing to Dean Capistrano, the above article was formulated by the
Code Commission in view of the lessons learned in the last war,
when inflation of currency in the Philippines was such t h a t the price
of a cavan of rice rose to P12,000. The Commission felt t h a t in the
event of another war resulting in extraordinary inflation, the juridi-
cal relations of creditor and debtor should be equitably adjusted. 99
Consequently, the basis of payment, according to the Code, would

be the value of the currency a t the time of the establishment of the
obligation. 100
Extraordinary inflation or deflation may be said to be that

which is unusual or beyond the common fluctuation in the value
95
Golez vs. Camara, 101 Phil. 363.
96
Compania General vs. Molina, 5 Phil. 142.
97
Quiros vs. Tan Guinlay, 5 Phil. 675.
98
New provision.
99
3 Capistrano, Civil Code, 1950 Ed., p. 189; Report of the Code Commission,
pp. 132-133.
100
261
of the currency, which the parties could not have reasonably

foreseen or which was manifestly beyond their contemplation at
the time when the obligation was established. (4 Tolentino 284.) By
extraordinary inflation or deflation of the currency is understood
to be any uncommon decrease or increase in the purchasing power
of the currency which could not have been reasonably foreseen. (3
Capistrano 189.)
Analyzing the above definitions, it is clear t h a t in order that
there will be a n extraordinary inflation or deflation of the currency
within the meaning of Art. 1250 of the Code, it is essential t h a t the
following requisites must be present: (1) there must be a decrease or
increase in the purchasing power of the currency which is unusual
or beyond the common fluctuation in the value of said currency;
and (2) such decrease or increase could not have been reasonably
foreseen or was manifestly beyond the contemplation of the parties
a t the time of the establishment of the obligation.
The following is a good example: In 1955, A leased a house and
lot to B a t a monthly rental of P500 for a period of 25 years. An
option to buy the property was given to B for the same period
with the rentals already paid constituting a part of the purchase
price which the parties fixed at a n amount equivalent to the
aggregate rentals for 25 years. May A now demand for a n
adjustment of the rent and the purchase price on the ground t h a t
there is a n extraordinary inflation supervening? It is submitted
t h a t he may. We believe t h a t both of the requisites mentioned
above are present in the instant case. We can very well take notice of
the fact t h a t the purchasing power of the Philippine peso now is
much less t han its purchasing power in 1955. As a m att er of fact, in
1955, the official r ate of exchange between the Philippine peso and
the American dollar was still two to one (2:1), while today, it is
twenty point five to one (20.5:1). Certainly, this development could
not have been foreseen by the contracting parties in 1955.
It would have been different had the above contract been
perfected in, let us say, 1965. The decline in the purchasing power
of the Philippine peso in such case cannot be considered very great
or extraordinary. In 1965, the official rat e of exchange between the
peso and the dollar was already four to one (4:1), although the black
market quotation was about five point seventy-five is to one (5.75:1).
Today, the rat e of exchange is twenty point five to one (20.5:1).
262
Besides, the tendency of the gradual decline of the purchasing power

of the peso was not only foreseeable but even evident in 1965. Even
then, economists were speaking of the possibility of devaluation. A,
in the example given, would not have any basis for demanding for an
adjustment of the rent and the purchase price.
It must be noted t h a t the rule enunciated in Art. 1250 is
applicable only to contractual obligations; consequently, it can not
be applied to obligations arising from torts. Thus, in Velasco vs.
Manila Electric Co. (42 SCRA 556), the Supreme Court held that
the employment of the words “extraordinary inflation or deflation of
the currency stipulated” clearly shows t h a t the legal rule envisages
contractual obligations where a specific currency is selected by the
parties as the medium of payment.
Furthermore, note t ha t the law does not say t h a t the value of
the currency a t the time of the establishment of the obligation shall
be the amount to be paid; it merely says th a t it shall be the basis
of payment. Hence, the courts will be given some latitude in fixing
the amount to be paid by the debtor to the creditor with the value
of the currency a t the time when the obligation was established or
constituted as basis, unless of course there is a n agreement to the
contrary.
Idem; War-time obligations. — Because of the lack of
statutory provisions under the old law which would regulate the
basis of payment in case of extraordinary inflation or deflation of
the currency, one of the most vexing problems which confronted our
courts after the liberation of the Philippines was the question of
payment of obligations incurred during the Japanese occupation. It
was not a question of validity of payment because the obligation was
not yet paid, nor a question of the currency in which the payment
was to be made because the law was quite definite with respect to
t h a t point. It is evident t h a t if the war-time obligation contained a
stipulation to the effect t h a t payment shall be made in a definite
currency other t han Philippine currency or Japanese military notes,
the payment shall have to be made in the currency stipulated in
accordance with the provisions of the first paragraph of Art. 1170
of the old Civil Code (now Art. 1249 of the new) which was the law
then in force. It is also evident t h a t if the war-time obligation did
not contain any stipulation with regard to the currency in which
payment shall be made, or if it did, it was to the effect t h a t payment
263
shall be made in either Philippine currency or Japanese military

notes, payment shall have to be made in currency which is legal
tender in the Philippines in accordance again with the provision of
the first paragraph of Art. 1170 of the old Code (now Art. 1249 of
the new). The question was with respect to the amount t h a t had to
be paid by the obligor or debtor considering the fact t h a t Japanese
military notes were no longer legal tender after the liberation of
the Philippines, and consequently, the obligation had to be paid
in “genuine” or ordinary Philippine currency. Shall the amount be
computed in accordance with the rate of one Philippine peso for each
peso due in Japanese military notes or shall the amount be adjusted
in accordance with the Ballantyne Scale of Values?
Idem; id. — The Ballantyne Schedule. — The Ballantyne
Scale of Values was submitted by Dr. D.L. Ballantyne to the
President of the Philippines in his capacity as economic adviser of
the Commonwealth Government. It contained a recommendation
for the adoption of measures which were greatly needed to solve
the problem created by transactions made during the Japanese
occupation and to hasten the economic recovery of the country. The
Supreme Court, the Court of Appeals, and the different Courts of
First Instance in the country have repeatedly applied its provisions
in numerous cases. It is, therefore, a n official document whose
publication constituted a leading event of general interest and
whose provisions are widely known and have played a n important
part in the contemporary political history of the country, of which
courts of justice could take judicial cognizance. 101
The report of Dr. Ballantyne which contains the Scale of Values

is as follows:
“Our own preliminary studies of this question which have

taken into account the cost of living index for the occupation
period, real estate values, black market quotations for the
Commonwealth peso and income payments expressed in
Japanese currency, indicate t hat a generally equitable scale of
values for the Commonwealth peso in terms of the Japanese
peso, is as follows:
101
Estrada vs. Noble, CA, 49 Off. Gaz. 139.
264
1941 1944
December P1.00 January P4.00
1942 P1.00 February 5.00
1943 March 6.00
January 1.05 April 9.00
February 1.10 May 12.00
March 1.15 June 15.00
April 1.20 July 20.00
May 1.25 August 25.00
June 1.30 September 30.00
July 1.40 October 40.00
August 1.50 November 60.00
September 1.60 December 90.00
October 1.70 1945
November 1.80 January 120.00
December 2.50 February None
Submitted by D.C. BALLANTYNE

Special Bank Adviser to the President.’’
It must, however, be noted t h a t except when sheer necessity

demands it, because of the absence of other evidence, there is every
reason for not applying the Ballantyne schedule. The said schedule
assumes t h a t there was only one rate of equivalence throughout
the islands, when it is a well-known fact t h a t the conversion rate
changed from place to place. Thus, in cities where supply was scarce,
the purchasing power of the military notes was lower t ha n in the
rural areas where food was more easily obtainable. Such schedule,
therefore, must yield to proof of actual transactions. 102
Idem; id.; id. — Application. — From a n analysis of court

decisions it is evident t h a t in order t h a t the Ballantyne Scale
of Values shall be applicable, it is essential t h a t the following
requisites must concur; first, the obligation should have been
contracted during the Japanese occupation; second, it could have
been paid during the Japanese occupation; and third, it could have
102
Barcelon vs. Arambulo, CA, 48 Off. Gaz. 3976.
265
been paid with Japanese military notes. Consequently, where the

103
debtor borrowed, let us say, P90,000 in Japanese military notes in

December, 1944, from the creditor and executed a promissory note
promising to pay the amount “within a period of one year therefrom,”
the Ballantyne Schedule is applicable; hence, he can be compelled
to pay only P1,000 in accordance with the Ballantyne Conversion
Table. But where the debtor executed a promissory note promising
104
to pay the amount “one year after Oct. 5, 1944,” or “within 30 days
after the expiration of one year from Jun e 24,1944,” or “four years
after date,” or within “five years from Jan. 1, 1946,” or within “one
year from Aug. 7, 1944,” the Ballantyne Schedule is not applicable;
hence, the debtor can be compelled to pay in Philippine currency,
peso for peso. 105
Fernandez, et al. vs. Nat. Insurance Co. of the Phil.

105 Phil. 59
J u a n Fernandez’ life was insured by the defendant

company for P10,000 on July 15, 1944, with his mother and
sisters as beneficiaries. He died on Nov. 2, 1944. In 1952, the
beneficiaries claimed the value of the policy. Proof of death was
approved by the company on July 9, 1954. The question now is
— when did the obligation of the company to pay the
proceeds of the value of the policy accrue — did it accrue upon
the death of the insured or upon receipt and approval of proof of
death of the insured? The Supreme Court held:
“In life insurance contracts, the policy matures either
upon expiration of the term set forth therein, in which case,
its proceeds are immediately payable to the insured himself,
or upon his death occurring at any time prior to the expiration
of the term, in which case, its proceeds are payable to the
beneficiaries, within 60 days after filing of proof of death.
103
See Jimenez vs. Bucoy, 103 Phil. 40; Valero vs. Sycip, 103 Phil. 1150; Fernan-
dez, et al. vs. Nat. Ins. Co. of the Phil., 105 Phil. 59.
104
Ang L am vs. Peregrina, 92 Phil. 506. To the same effect: Hilado vs. De la
Costa, 46 Off. Gaz. 5472; Soriano vs. Abalos, 47 Off. Gaz. 168; De Asis vs. Agdamag,
90 Phil. 249; Samson vs. Andal, 94 Phil. 402; Aguilar vs. Miranda, 113 Phil. 515;
Server vs. Car, 18 SCRA 728.
105
Roño vs. Gomez, 46 Off. Gaz. 339; Gomez vs. Tabia, 47 Off. Gaz. 339; Garcia
vs. De los Santos, 49 Off. Gaz. 4830; Yay vs. Boltron, 100 Phil. 47; Stemberg vs. Solo-
mon, 102 Phil. 995; Dizon vs. Arrastia, 113 Phil. 476; Quiogue vs. Bautista, Generosa
vs. Court of Appeals, 12 SCRA 619; Server vs. Car, 18 SCRA 728.
266
(Sec. 91-A, Insurance Law.) Here, the policy matured upon the
death of the insured in 1944, and the obligation of the insurer
to pay arose as of th at date. The sixty-day period fixed by law
within which to pay is merely procedural in nature. It is the
happening of the suspensive condition of death t h at matures
a life insurance policy and not the filing of the proof of death.
Since the insured died during the Japanese occupation, the
proceeds of his policy should, therefore, be adjusted accordingly,
for ‘the rule is already settled th at where the debtor could have
paid his obligation at any time during the Japanese occupation,
payment after liberation must be adjusted in accordance with
the Ballantyne Schedule.’ ’’
Art. 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 expenses shall be
borne by him.
These provisions are without prejudice to venue under
the Rules of Court. 106
Place of Payment. — If there is no express designation or

stipulation in the obligation with respect to the place where
payment shall be made, the following rules are applicable:
(1)If the obligation is to deliver a determinate thing, the
payment shall be made a t the place where the thing might be a t the
time the obligation was constituted. 107
(2)In any other case, the payment shall be made a t the

domicile of the debtor. This rule is intended to govern unilateral
obligations. Reciprocal obligations are governed by special rules. As
106
107
267
a corollary, if the debtor changes his domicile in bad faith or after he

has incurred in delay, it is logical t h a t additional expenses shall be
borne by him. 108
Subsection 1. — Application of Payment
Art. 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. 109
Concept. — Application of payment may be defined as the

110
designation of the debt to which the payment must be applied when

the debtor has several obligations of the same kind in favor of the
same creditor. 111
Requisites. — In order t h a t there will be a n application of

payment, it is essential t h a t the following requisites must concur:
first, there must be only one debtor and only one creditor; second,
there must be two or more debts of the same kind; third, all of the
debts must be due; and fourth, the amount paid by the debtor must
not be sufficient to cover the total amount of all the debts.
Idem; First requisite. — The requirement t h a t there must be
only one debtor does not militate against the possibility of extending
the rules on application of payment to solidary obligations, because
108
Ibid.
109
11 0
Under the Civil Code, there are actually four special forms of payment. They
are: (1) application of payment (Arts. 1252-1254); (2) dation in payment (Art. 1245);
(3) payment by cession (Art. 1255); and (4) tender of payment and consignation
(Arts. 1256-1261). Strictly speaking, however, application of payment, by its very
nature, is not a special form of payment.
111
268
Application of Payment
the solidary debtor who paid may have obligations other tha n the
solidary obligation in favor of the creditor to whom payment is
made. Neither does the requirement t h a t there must be only one
creditor militate against extending the rules on application of
payment to a case in which a person is indebted a t the same time in
separate and demandable sums to a partnership and to the
managing partner of the partnership. As a m atter of fact, Art. 1792
provides:
“If a partner authorized to manage collects a demandable

sum, which was owed to him in his own name, from a person who
owed the partnership another sum also demandable, the sum
thus collected shall be applied to the two credits in proportion to
their amounts, even though he may have given a receipt for his
own credit only; but should he have given it for the account of
the partnership credit the amount shall be fully applied to the
latter.
“The provisions of this article are understood to be without
prejudice to the right granted to the debtor by Article 1252, but
only if the personal credit of the partner should be more onerous
to him.”
It is, therefore, apparent t ha t the rule stated in the second

paragraph of the above article constitutes a n exception to the rule
t h a t in applications of payment it is essential t h a t there must be only
one creditor, since it is a well-known principle t h a t a partnership
has a juridical personality which is separate and distinct from that
of each of the partners.
Idem; Second requisite. — In applications of payment it is
not only essential t h a t there must be only one debtor and only one
creditor, but t h a t the debtor must have two or more debts in favor
of the same creditor. Hence, the rules on application of payment
cannot apply to a guarantor or surety whose liability is extended
or confined only to a particular obligation. Therefore, when such
guarantor or surety is made to pay in default of or solidarily with
the principal debtor, whatever payments may be made cannot be
applied to those obligations for which he is not responsible either
subsidiarily or solidarily. 11 2
112
Socony Vacuum Corp. vs. Miraflores, 67 Phil. 304.
269
It is also essential t h a t each of the debt must be of identical or

homogenous specie. Thus, if the debtor has several monetary
obligations in favor of one and the same creditor and he pays a
certain sum to the latter which is not sufficient to satisfy the
aggregate sum of all the obligations, the rules on application of
payment can be applied, but where some of the obligations consist
in the payment of money and the rest in the delivery of things other
th an money, such rules can no longer be applied. There is,
however, a case in which even if some of the obligations are not of
identical specie a t the time of their constitution, yet application of
payment is possible if, a t the time the designation or application is
made, such obligations had already been converted into
obligations to indemnify with damages by reason of breach or
nonfulfillment. 11 3
Idem; Third requisite. — As a general rule, application of

payment is possible only when all of the debts are due. There are
two exceptions to this rule. They are: (1) when 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. 11 4
The second exception must always be understood in relation to

the provision of Art. 1196. Thus, if from the tenor of the obligation
which is not yet due or from other circumstances, it should appear
t h a t the term or period is for the benefit of the debtor (or the creditor
in a proper case) and there are other obligations of the said debtor in
favor of the same creditor which are already due, the payment made
may be applied by the said debtor to the obligation which is not yet
due. The exception is logical because if the term or period is for his
benefit, if he so desires, he may renounce the benefit of such term or
period by performing his obligation in advance.
Idem; Fourth requisite. — The requirement t h a t the amount
paid by the debtor must not be sufficient to cover the total amount
of all the debts is indispensable, because, otherwise, there would be
no necessity of designating the debt or debts to which the payment
shall be applied.
Right of Debtor To Make Application. — It is apparent
from the provisions of the first paragraph of Art. 1252 t h a t the right
to designate the debt to which the payment shall be applied belongs
114
Art. 1252,
113 par. 1, Civil
8 Manresa, Code.Bk. 1, pp. 598-599.
5th Ed.,
270
primarily to the debtor. It must be noted, however, t h a t the right is

available to him only a t the time when payment is made. If he does
not exercise such right, the same is extinguished and the application
would then be governed by the provisions of Art. 1254, unless the
creditor, in the meantime, makes the application by giving to the
debtor, who accepts it, a receipt in which application of the payment
is made. 11 5
Idem; Exception. — If the debtor does not avail himself

of the right to designate the debt to which the payment shall be
applied, and subsequently, he accepts from the creditor a receipt
in which a n application of payment is made, the former cannot
complain of the same, unless there is a cause for invalidating the
contract. Application of payment by the debtor is, therefore, the
11 6
general rule, while application of payment by the creditor is the

exception. However, to say t h a t the application is made by the
creditor is not exactly accurate, because what such creditor merely
does is to propose the application by giving to the debtor a receipt
in which the application of payment is made subject to the express
or tacit approval of the said debtor. Consequently, the debtor may
either accept or reject the application. Once the receipt is accepted,
the application of payment made in such receipt can no longer
be impugned, unless there is a cause, such as mistake, force,
117
intimidation, undue influence or fraud, which will invalidate the

application. It is clear t h a t the word “contract” used in the law can
only refer to the act whereby the debtor accepts the receipt in which
the application is made from the creditor, and not to the contract
from which the obligation to which the payment is applied arises.
Idem; Time when right is exercised. — From wh at had
been stated, it is clear t h a t as far as the debtor is concerned, the
right to make a n application of payment must be exercised a t the
time payment is made. If he fails to exercise the right, the initiative
11 8
is taken away from him and such application may then be made by
the creditor who may exercise the right even after the delivery of
the receipt acknowledging payment, provided, of course, t h a t such
115
116
11 7
Garcia vs. Enriguez, 71 Phil. 423.
118
Bachrach vs. Golingco, 39 Phil. 912; Powell vs. Phil. National Bank, 54 Phil.
34.
271
application is approved by the debtor. In the words of Manresa,

“the clear basis of this difference is t h a t while the debtor decides for
himself, the creditor only proposes to the debtor who may or may not
agree.’’
119
Art. 1253. If the debt produces interests, payment of the

principal shall not be deemed to have been made until the
interests have been covered. 120
Limitation upon Right To Apply Payment. — There has

been some doubt as to whether the rule stated in the above article
is suppletory or obligatory to the debtor. Manresa believes t h a t the
better view seems to be in favor of the latter because it is more in
consonance with justice. Consequently, the creditor may impugn
any application of payment which is contrary to the above rule. 121
Our Supreme Court, however, sustains the contrary view. Thus, in

two recent cases, the Court held t h a t the above provision applies
only in the absence of a verbal or written agreement to the contrary;
in other words, it is merely directory, and not mandatory. 122
Art. 1254. When the payment cannot be applied in

accordance with the preceding rules, or if application cannot
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. 123
Legal Application of Payment. — It must be noted in the

first place t h a t the rules stated in Art. 1254 are applicable only
when payment cannot be applied in accordance with the rules
previously stated, or if the application cannot be inferred from other
circumstances. Thus, according to Dean Capistrano, if payment of
119
120
121
122
Baltazar vs. Lingayen Gulf Elec. Power Co.; Rose vs. Lingayen Elec. Power
Co., Baltazar vs. Acena, 14 SCRA 522; Magdalena Estate, Inc. vs. Rodriguez, 18
SCRA 967.
123
272
one of the debts has been demanded or if different places for payment
have been designated in the contract and payment has been made in
one of those places, it is evident t h a t a n application can be deduced
or inferred, in which case, the article is not applicable. 124
Idem; When debts are not of same burden. — When the

debts due are not of the same burden, the rule is t h a t the debt
which is most onerous to the debtor shall be deemed to have been
satisfied. From judicial decisions and works of commentators, the
125
following rules may, therefore, be stated:

(1)Where there are various debts which are due and they
were incurred a t different dates, the oldest are more onerous to the
debtor t han the more recent ones. 126
(2)Where one debt bears interest and the other does not,
even if the latter was incurred a t a n earlier date, the first is more
onerous to the debtor. As between two debts which bear interest,
127
the debt with a higher rate of interest is more onerous to the debtor.
(3)Where one debt is secured and the other is not, the first is
more onerous to the debtor. However, “where in a bond the debtor
128
and surety have bound themselves solidarily, but limiting the

liability of the surety to a lesser amount tha n t h a t due the principal
debtor, any such payment as the latter may have made on account
of such obligation must be applied first to the unsecured portion of
the debt, for, as regards the principal debtor, the obligation is more
onerous as to the amount not secured.’’ 129
(4)Where the debtor is bound as principal in one obligation

and as guarantor or surety in another, the former is more onerous to
him.
(5)When the debtor is bound as a solidary debtor in one
obligation and as the sole debtor in another, the former is more
onerous to him.
124
3 Capistrano, Civil Code, 1950 Ed., p. 193.
125
126
Philippine National Bank vs. Veraguth, 50 Phil. 353.
127
Menzi & Co. vs. Quing Chuan, 69 Phil. 46.
128
Sanz vs. Lavin, 6 Phil. 299; Traders Insurance & Surety Co. vs. Dy Eng Giok,
104 Phil. 806.
129
Hongkong & Shanghai Bank vs. Aldanese, 48 Phil. 390.
273
(6)Within a solidary obligation, the share which corresponds to

a solidary debtor would be most onerous to him.
(7)Where one obligation is for indemnity and the other is by
way of penalty, the former is more onerous to the debtor.
(8)Where one debt is liquidated and the other is not, the
former is more onerous to the debtor. 130
Problem — The debtor owes his creditor several debts, all

of them due, to wit: (1) an unsecured debt; (2) a debt secured
with a mortgage of the debtor’s property; (3) a debt bearing
interest; (4) a debt in which the debtor is solidarily liable with
another.
Partial payment was made by the debtor. Assuming that
the debtor had not specified the debts to which the payment
should be applied and, on the other hand, the creditor had not
specified in the receipt he issued the application of payment,
state the order in which the payment should be applied and your
reasons therefore. (1982 Bar Problem)
Answer — In this case, according to the Civil Code, the
debt, which is most onerous to the debtor, among those due,
shall be deemed satisfied.
Analyzing the four debts stated in the problem, the most
onerous is No. 4, the second most onerous is No. 2, the third most
onerous is No. 3, and the least onerous is No. 1. Consequently,
the payment should be applied in th at order.
Code, and on decided cases and commentaries of recognized
commentators.)
Idem; When debts are of same burden. — If the debts

which are due are of the same nature and burden, the rule is
t h a t the payment shall be applied to all of them pro rata or
proportionately. It is evident t h a t this rule can also be applied to
131
a case in which it is fairly impossible to determine which of the

debts which are due is the most onerous or burdensome to the debtor
by applying any of the rules stated in the first paragraph of the
article.
130
8 Manresa, 5th Ed., Bk. 1, pp. 602-604; 4 Tolentino, Civil Code, 1956
Art. 1254; par. 2, Civil Code.
131
Ed., pp.
293-294.
274
Payment by Cession
Subsection 2. — Payment by Cession
Art. 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. 132
Concept. — Cession or assignment may be defined as a special

form of payment whereby the debtor abandons all of his property for
the benefit of his creditors in order t h a t from the proceeds thereof
the latter may obtain payment of their credits. 133
Requisites. — In order t h a t the debtor can avail of this form

of payment, it is essential t h a t the following requisites must concur:
first, plurality of debts; second, partial or relative insolvency of
the debtor; and third, acceptance of the cession by the creditors. 134
In case the creditors do not accept the cession or assignment, a

similar result may be obtained by proceeding in accordance with the
Insolvency Law. 135
Kinds. — Payment by cession may be either contractual

or judicial. The cession referred to in Art. 1255 of the Code is
contractual, while the cession which is regulated by the Insolvency
Law, and which may be voluntary or involuntary, is judicial.
Distinguished from Dation in Payment. — Payment by
cession must not be confused with dation in payment (dación en
pago). The two may be distinguished from each other as follows:
(1)As to number of parties: While in dacion en pago there
may be only one creditor, in payment by cession plurality of creditors
is essential.
(2)As to financial condition of parties: While in dación en
pago the debtor is not necessarily in a state of financial difficulty,
132
133
134
Ibid., pp. 605-606.
135
Act No. 1956, a s amended.
275
in payment by cession the debtor is in a state of partial or relative

insolvency.
(3)As to object: While in dación en pago what is delivered by
the debtor is merely a thing to be considered as the equivalent of the
performance of the obligation, in payment by cession what is ceded
by the debtor is the universality of all of his property.
(4)As to effect: While in dación en pago the payment
extinguishes the obligation to the extent of the value of the thing
delivered either as agreed upon or as may be proved, unless the
silence of the parties signifies t h a t they consider the delivery of
the thing as the equivalent of the performance of the obligation, in
payment by cession the effect is merely to release the debtor for
the net proceeds of the things ceded or assigned, unless there is a
contrary intention. 136
Effect. — It is apparent from the provision of Art. 1255, that, in

the absence of a contrary stipulation, the assignment or abandonment
by the debtor of all his property to the creditors shall only release
him from responsibility for the net proceeds of the property
assigned. Consequently, the extinguishment of his obligations will
only be partial. It must also be noted t h a t the assignment does not
transfer the ownership of the things or objects to the creditors. What
is transmitted to the latter is only the possession of such things or
objects including their administration so t h a t they can proceed with
the sale and from the proceeds thereof their respective credits are
then paid. 137
Subsection 3. — Tender of Payment

and Consignation
Art. 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:
136
8 Manresa, 5th Ed., Bk. 1, pp. 611-612; 3 Castan, 7th Ed., p. 257.
137
276
Tender of Payment and Consignation
(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 claims the same right to
collect;
(5) When the title of the obligation has been lost. 138
Art. 1257. In order that the consignation of the thing

due may release the obligor, it must first be announced to
the persons interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made
strictly in consonance with the provisions which regulate
payment. 139
Art. 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. 140
Concept. — Tender of payment consists in the manifestation

made by the debtor to the creditor of his decision to comply
immediately with his obligation. Consignation, on the other hand,
refers to the deposit of the object of the obligation in a competent
court in accordance with the rules prescribed by law after refusal or
inability of the creditor to accept the tender of payment. 141
Distinctions. — Tender of payment and consignation may be

distinguished from each other as follows:
(1)Tender of payment is the antecedent of consignation; in
other words, while the first is the preparatory act, the second is
138
139
140
141
277
the principal act which will produce the effects of payment of the
obligation. Thus, according to the Supreme Court:
142
“Tender of payment, even if valid, does not by itself

produce legal payment, unless it is completed by consignation.
“Tender of payment alone Is not a mode of extinguishing
obligations. Tender of payment in the Civil Code is treated as
subtitle in the section on Payment as a mode of extinguishing
obligations. But the subtitle is ‘Tender of Payment and
Consignation.’ And Article 1176 (now Art. 1258) provides that
after a valid tender of payment ‘the debtor shall be released
from responsibility by the consignation of the thing due.’ As
a complement Article 1180 (now Art. 1260) says ‘after the
consignation h as been duly made, the debtor may petition the
judge to order the cancellation of the obligation.’ All of which
patently indicate th at consignation must follow, supplement or
complete the tender of payment if discharge of the obligation is
to be obtained.
“ ‘Ofrecimiento de pago y consignación. — Consiste el

primero en una declaracion de voluntad dirigida al acreedor,
por la que el deudor manifiesta su firme decisión de cumplir
immediatamente la obligación; y la segunda en el depósito que
en forma legal hace el deudor de la cosa objecto de la obligación,
cuando el acreedor no quiere y no puede recibirla. Solo la
consignación es forma de pago. La oferta unicamente nos interesa
aqui en cuanto es un acto preparatorio de la consignatión.’
(Castan, Derecho Civil, Vol. 2, 521.)’’143
(2) Tender of payment is by its very nature extrajudicial in

character, while consignation is judicial. 144
General Requisites of Consignation. — According to

Manresa, we must distinguish between the general requisites of
a valid consignation, or those relative to payment, and the special
requisites, or those arising from the very nat ure of consignation. 145
The first refers to those requisites which we have already taken up

in connection with payment in general (Arts. 1232-1251), such as the
142
143
Phil. National Bank vs. Relativo, 92 Phil. 203.
144
145
Ibid., pp. 628-630.
278
person who pays, the person to whom payment is made, the object
of the obligation which must be paid or performed, and the time
when payment or performance becomes demandable; the second, on
the other hand, refers to the five requirements which are prescribed
by Art. 1256 to Art. 1258 of the Civil Code. Since consignation is a
special form of payment, it is but logical, in order t h a t it will produce
all the effects of payment, t h a t it must conform not only with all
of the special requirements prescribed by law, but also with all of
the requisites of a valid payment. Hence, according to the second
paragraph of Art. 1258: “The consignation shall be ineffectual if
it is not made in consonance with the provisions which regulate
payment.” Thus, where the amount remitted to the Clerk of Court
is in the form of a cashier’s check, the consignation must be deemed
invalid, since the law requires t h a t in order t ha t consignation shall
produce the effect of a valid payment, it must conform to the rules
regulating payment, and one such rule is t h a t payment should be
made in legal tender. 146
Special Requisites of Consignation. — In order that

consignation shall produce the effects of payment, it is essential that
certain special requirements prescribed by law must be complied
with. The debtor must show:
(1) That there is a debt due;
(2)That the consignation has been made either because the
creditor to whom tender of payment was made refused to accept the
payment without just cause, or because any of the causes stated by
law for effective consignation without previous tender of payment
exists; 147
(3)That previous notice of the consignation had been given to

the persons interested in the fulfillment of the obligation; 148
(4)That the thing or amount due had been placed a t the

disposal of judicial authority; 149
146
Villanueva vs. Santos, 67 Phil. 648; Arambulo vs. Court of Appeals, 97 Phil.
965.
147
148
149
279
(5) That after the consignation h ad been made, the persons

interested in the fulfillment of the obligation h ad been notified
thereof. 150
Idem; First requisite. — Before consignation can produce

the effect of payment, it is essential t h a t there must be a debt which
is due. Thus, where the plaintiff and defendant entered into a
151
contract whereby the latter was given the right to cancel the contract
upon payment of a certain sum, and subsequently, the latter tried
to avail himself of such right by making a formal tender of the
amount, it was held t h a t it was not necessary for him to deposit the
amount with the Clerk of Court, since there is no debt which is due.
Consequently, the tender made by the defendant in good faith was
sufficient to cancel the contract. 152
Idem; Second requisite. — In order t h a t the consignation

will be effective, the general rule is t h a t there must have been a
tender of payment made by the debtor to the creditor. It is, however,
required: (1) t h a t the tender of payment must have been made prior
to the consignation; (2) t h a t it must have been unconditional; and (3)
t h a t the creditor must have refused to accept the payment without
just cause. The first requirement is self-explanatory; the second
153
and third, however, require some explanation. It is a rule that

the tender of payment, in order to constitute a valid tender, must
be unconditional in character. Thus, where the debtor tendered
a check for P5,000 to the creditor as payment of a debt of P600,
but the payee of said check was a third person who accompanied
him, it was held t h at the tender did not constitute a valid tender of
payment because it was conditional in the sense that, in offering the
check, the defendant-debtor practically told the plaintiff-creditor —
“Here is P600, but you must pay the remainder of P4,400 to the
payee.” Similarly, where the debtor tendered a check for P3,250 to
154
the creditor as payment of a debt conditioned upon the signing by

the latter of a motion to dismiss a complaint for legal separation, it
was also held t h a t such tender of payment is not valid. However, 155
150
151
Ponce de Leon vs. Syjuco, 90 Phil. 311.
152
Asturias Suga r Central vs. Pure Cane Molasses Co., 60 Phil. 255.
153
154
Phil. National Bank vs. Relativo, 92 Phil. 203.
155
Sy vs. Eufemio, 104 Phil. 1056.
280
where the check is sent to the debtor on condition t h a t it is in full

satisfaction of a disputed claim of indebtedness and the creditor
retains the same and converts it into money, he is presumed to
have assented to the condition and to have accepted the compromise
offer, and a mere expression of dissatisfaction by the creditor with
the proposal cannot qualify the effects of actual use of the check. 156
With respect to the third requirement, Manresa is of the opinion

t h a t when the consignation is made, 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 a
just cause. The reason is t h a t 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. 157
Sy vs. Eufemio
104 Phil. 1056 (unrep.)
The records show th at defendant and plaintiff, husband

and wife, had entered into a compromise agreement by virtue of
which the former undertook to pay to the latter P10,000 in cash
and P25,000 by installments within ten years, and the latter on
her p art promised to move for the dismissal of a civil case for
support and a criminal case for bigamy which she had instituted
against the former. It was also agreed th at both parties shall
waive whatever right of action, civil and criminal, they might
have against each other. This compromise agreement was
approved by the lower court. In spite of this agreement, plaintiff
subsequently brought an action for legal separation against the
defendant. In the course of the proceedings, defendant tendered
payment of P3,250 to the plaintiff. The latter refused to accept the
tender. The former then deposited the amount in the court, filing
a manifestation averring th at because of plaintiff’s unjustifiable
refusal to accept the tender of payment which was made in
compliance with the compromise agreement, he is depositing
the amount pursuant to Arts. 1256 and 1258 of the Civil Code.
Plaintiff filed a reply, contending th at she refused to accept
the tender because, in the first place, what was tendered was a
check, and in the second place, the tender was conditioned upon
the dismissal of the complaint for legal separation. In answer,
defendant alleged th at for the past four years plaintiff had been
156
Araneta vs. Uy Tek, CA, 40 Off. Gaz. 28.
157
281
receiving similar payments in check without any objection;

hence, she is now in estoppel. Consequently, the question to be
resolved in this appeal is whether or not the tender of payment
is valid for purposes of consignation. The Supreme Court held:
“A check intended to pay a debt, if refused by the creditor,
is not a valid tender of payment. The fact t ha t in previous years
payment in check by the debtor was accepted by the creditor does
not place the latter in estoppel to prevent him from requiring
the former to pay his obligation in cash. And as the tender of
the check by the debtor was conditioned upon the signing by the
creditor of a motion to dismiss the complaint for legal separation,
the tender of the check for payment of the debt was not, as it
should be, unconditional. Consequently, its consignation in
court does not render it legal, valid and effective. Whether
the appellee under the terms of the compromise agreement is
bound to file such motion, and whether the waiver of whatever
action the parties might have against each other is lawful and
enforceable, are questions to be determined in the case for legal
separation and for th at reason they cannot be taken up in this
appeal because the trial court has not passed upon them.”
Idem; id. — Exceptions. — There are five exceptions to the

rule t h a t in order t h a t the consignation shall produce the effects
of payment, it is essential t h a t there must be a previous tender of
payment. They are: (1) when the creditor is absent or unknown, or
158
does not appear a t the place of payment; (2) when he is incapacitated

to receive the payment a t the time it is due; (3) when, without just
cause, he refuses to give a receipt; (4) when two or more persons
claim the right to collect; and (5) when the title of the obligation has
been lost. 159
Idem; id. — Effect of valid tender of payment. — When a

valid tender of payment is made, the obligation is not extinguished,
unless it is completed by consignation. However, it has the effect of
exempting the debtor from payment of interest and/or damages. 160
The suspension of the running of interest is governed by principles

which regard reality r at her th an technicality, substance r at her than
158
For application of these exceptions — see Panganiban vs. Cuevas, 7 Phil. 477;
Banahaw vs. Dejarme, 55 Phil. 338; Salvante vs. Ubi Cruz, 88 Phil. 236.
159
160
Phil. Nat. Bank vs. Relativo, 92 Phil. 203.
282
form. Good faith of the debtor should in simple justice excuse him
from paying interest after the offer was rejected. 161
Idem; Third requisite. — It is also essential in order t ha t the

consignation shall be effective t h a t previous notice thereof had been
given to the persons interested in the fulfillment of the obligation. 162
This requirement is separate and distinct from tender of payment

which precedes it. Tender of payment is a friendly and private act
manifested only to the creditor which by itself does not suggest
consignation which follows in case of unjust refusal of the creditor to
accept the payment; previous notice, on the other hand, is a formal
act manifested not only to the creditor, but also to other persons
interested in the fulfillment of the obligation directly announcing
the consignation which will be made as a result of the unjust refusal
of the creditor to accept the payment. Although separate and distinct
from each other, the procedure, as far as the debtor is concerned,
can be simplified by combining the two in a single act, which would
include principally the tender of payment and subsidiarily the
notice of consignation, unless the creditor accepts the payment. 163
Even in this case it is necessary t h a t notice shall be made to the

other parties interested in the fulfillment of the obligation, such as
a surety or guarantor or a solidary co-debtor.
Idem; Fourth requisite. — It is, of course, essential that
the thing or amount due must be placed a t the disposal of judicial
authority. 164
This requirement is complied with if the debtor
deposits the thing or amount, which the creditor had refused or
had been unable to accept, with the Clerk of Court. Normally, this
requirement is accompanied by the filing of the complaint itself
which is sometimes denominated as a n action for consignation, but
which is in reality a n action for specific performance of the obligation
or a n action for cancellation of the obligation.
Idem; Fifth requisite. — After the consignation had been
made, the persons interested in the fulfillment of the obligation must
be notified thereof. This notification is separate and distinct from
165
161
Araneta vs. Tuason de Paterno, 49 Off. Gaz. 45. But see Llamas vs. Abaya, 60
Phil. 502.
162
Art. 1256, par. 1, Civil Code; Bellis vs. Imperial, 52 Phil. 530.
163
164
165
283
the notification which is made prior to the consignation. As declared

by the Supreme Court in the case of Cabanos vs. Calo, “there should 166
be notice to the creditor prior and after consignation as required by

the Civil Code. The reason for this is obvious, namely, to enable
the creditor to withdraw the goods or money deposited. Indeed, it
would be unjust to make him suffer the risk for any deterioration,
depreciation or loss of such goods or money by reason of lack of
knowledge of the consignation.” Of course, if the consignation was
accompanied by the corresponding complaint for specific performance
or for cancellation of the obligation, automatically, the requirement
is complied with, provided t h a t the other parties interested in the
fulfillment of the obligation are furnished copies thereof.
It must be observed, however, t h a t there is nothing in the
Civil Code or in the Rules of Court which would prohibit compliance
with all of the requisites of a valid and effective consignation before
the filing of the complaint for consignation. Consequently, upon
compliance with all of the requisites, either of two possible situations
may arise. There is the possibility t h a t the creditor may finally
accept the thing or amount deposited. In such case, the question
of payment is settled altogether. There is also the possibility that
he refuses to accept the thing or amount deposited or t h a t he is not
interested or t h a t he is not known or t h a t he is absent. In such case,
a litigation will arise. The debtor will then be compelled to bring an
action against the creditor for the extinguishment or cancellation of
the obligation on the ground of a valid and effective consignation. 167
Ponce de Leon vs. Syjuco, Inc.

90 Phil. 311
Plaintiff contracted two loans from the defendant in

1941 during the Japanese occupation amounting to P216,000
in Japanese military notes. These loans are evidenced by two
promissory notes wherein plaintiff promised to pay “within one
year from May 5, 1948” in the legal tender of the Philippines.
On November 5, 1944, he offered to the defendant the principal
including interests up to the dates of maturity of the two
notes. The defendant refused to accept the tender of payment.
Subsequently, plaintiff deposited the money with the clerk of
166
G.R. No. L-10927, Oct. 30, 1958.
167
3 Castan, 7th Ed., pp. 253-254; 8 Manresa, 5th Ed., Bk. 1, pp. 635-636.
284
court. After liberation, he brought this action to compel the

defendant to accept the amount deposited. The issue, therefore,
is — is the consignation valid? The Supreme Court held:
“In order t hat consignation may be effective, the debtor
must first comply with certain requirements prescribed by
law. The debtor must show: (1) th at there was a debt due; (2)
th at the consignation of the obligation has been made because
the creditor to whom tender of payment was made refused
to accept it, or because he was absent or incapacitated, or
because several persons claimed to be entitled to receive
the amount due (Art. 1176 — now Art. 1256, Civil Code); (3)
th at previous notice of the consignation had been given to the
person interested in the performance of the obligation (Art.
1177 — now Art. 1257, Civil Code); (4) th at the amount due was
placed at the disposal of the court (Art. 1178 — now Art. 1258,
Civil Code); (5) th at after the consignation had been made the
person interested was notified thereof (Art. 1178 — now Art.
1258, Civil Code). In the instant case, while it is admitted that
a debt existed, th at the consignation was made because of the
refusal of the creditor to accept it, and t h a t the filing of the
complaint to compel its acceptance on the p art of the creditor
can be considered sufficient notice of the consignation to the
creditor, nevertheless; it appears th at at least two of the above
requirements have not been complied with. Thus, it appears
th at plaintiff, before making the consignation with the clerk
of court, failed to give previous notice thereof to the person
interested in the performance of the obligation. It also appears
th at the obligation was not yet due and demandable when the
money was consigned, because, as already stated, by the very
express provisions of the document evidencing the same, the
obligation was to be paid within one year after May 5, 1948,
and the consignation was made before this period matured. The
failure of these two requirements is enough ground to render
the consignation ineffective. And it cannot be contended that
plaintiff is justified in accelerating the payment of the obligation
because he was willing to pay the interest due up to the date of
its maturity because, under the law, in a monetary obligation
contracted with a period, the presumption is t ha t the same is
deemed constituted in favor of both the creditor and the debtor
unless from its tenor or from other circumstances it appears
th at the period has been established for the benefit of either one
of them (Art. 1127 — now Art. 1196, Civil Code). Here no such
exception or circumstance exists.’’168
168
See also Limkako vs. Teodoro, 74 Phil. 313.
285
Subject Matter of Consignation. — Although Art. 1258

seems to give the impression t h a t only movables may be the subject
ma tter of consignation, Spanish commentators advance the opinion
t h a t not only movables, but even immovables may be the subject
ma tter thereof. They believe t h a t consignation of immovable
property should be allowed because it would be unjust to charge
the debtor indefinitely with the task of preserving the immovable
property which constitutes the object of the obligation. 169
Art. 1259. The expenses of consignation, when properly

made, shall be charged against the creditor. 170
Expenses of Consignation. — Before the creditor can be

charged with the expenses of consignation, it is essential t h a t such
consignation must have been properly made. From what had al-
ready been stated, consignation is considered properly made in the
following cases: first, when the creditor accepts the thing or amount
deposited as payment of the obligation without contesting the ef-
ficacy or validity of the consignation; and second when the creditor
contests the efficacy or validity of the consignation and the court
finally decides t h a t it has been properly made or cancels the obliga-
tion a t the instance of the debtor in accordance with the provision of
the first paragraph of Art. 1260.
Art. 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 obligation to remain in force. 171
Art. 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
169
3 Castan, 7th Ed., p. 252; see Arts. 538, 2005, et seq., Civil Code.
170
171
286
Loss of the Thing Due
thing. The co-debtors, guarantors and sureties shall be

released. 172
Effects of Consignation. — The effects of consignation may

be summarized as follows:
(1)If the creditor accepts the thing or amount deposited
without contesting the validity or efficacy of the consignation, it is
logical t h a t the obligation is cancelled or extinguished.
(2)If the creditor contests the validity or efficacy of the
consignation, the result is a litigation. The same is true if the
creditor is not interested or is not known or is absent. The result
is also a litigation. If during the trial on the merits of the case, the
plaintiff- debtor is able to establish t h a t all of the requisities of a
valid and effective consignation had been complied with, the
obligation is extinguished or cancelled.
Idem; Effect of withdrawal. — We must distinguish
between the effect of a withdrawal by the debtor of the object or
amount deposited when made before the creditor h as accepted the
consignation or before a judicial declaration t h a t the consignation
has been properly made, and a withdrawal made with the consent
173
of the creditor. In the first, the obligation remains in force; in the

174 175
second, the creditor loses every preference which he may have over
the thing. Solidary co-debtors, guarantors and sureties, however,
shall be released. 176
Section 2. — Loss of the Thing Due
Concept. — In its strict sense, “loss of the thing due” means

t h a t the thing which constitutes the object of the obligation perishes,
or goes out of the commerce of man, or disappears in such a way that
its existence is unknown or it cannot be recovered. In its broad177
sense, it means impossibility of compliance with the obligation
172
173
174
175
176
177
287
through any cause. In other words, it is synonymous with what

178
other codes term “impossibility of performance.’’ This is the sense

179
in which it is understood in this section of the Civil Code.
Art. 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. 180
Effect of Loss in Determinate Obligations To Give. —

According to the first paragraph of the above article, a n obligation
to give a determinate thing will be extinguished if the thing should
be lost or destroyed without the fault of the debtor and before he has
incurred in delay. It is evident from this rule t h a t before the loss of
181
the thing due will result in the extinguishment of the obligation, it

is necessary t ha t the following requisites must concur:
(1) The thing which is lost must be determinate. 182
(2)The thing is lost without any fault of the debtor. If the

thing is lost through the fault of the debtor, the obligation is not
extinguished; it is simply converted into a n obligation to indemnify
the creditor for damages. 183
(3)The thing is lost before the debtor has incurred in delay. If

the thing is lost after the debtor has already incurred in delay,
178
179
Ibid. For extended discussion — see 8 Manresa, 5th Ed., Bk. 1, pp. 650-652.
180
181
For illustrative cases — see Crame vs. Gonzaga, 10 Phil. 646; Insular Govern-
ment vs. Bingham, 13 Phil. 558; Bishop of Jaro vs. De la Peña, 26 Phil. 144; Lizares
vs. Hernaez, 40 Phil. 98; Obejera vs. Iga Sy, CA, 43 Off. Gaz. 121; Cruz vs. Valero, 89
Phil. 260; Bachrach Motor Co. vs. Lee Tay and Lee Chay, 90 Phil. 540; Ramcar vs.
Dizon, CA, 51 Off. Gaz. 3507.
182
See Lawyers Coop. Pub. Co. vs. Tabora, 13 SCRA 762; Rep. of the
Phil. vs.
Grijaldo,
183
Art. 1170,15 Civil
SCRACode.
681.
288
the rule is t h a t such debtor can still be held liable for indemnity for
damages. 184
Idem; Effect of fortuitous event. — The rule declared in

the first paragraph of Art. 1262 must always be read in relation
to the rule declared in Art. 1174 regarding the effect of the failure
of the debtor to comply with his obligation through a fortuitous
event. If the thing which constitutes the object of the obligation is
lost or destroyed through a fortuitous event, the debtor cannot be
held responsible. In other words, the obligation is extinguished.
185 186
Thus, where some of the goods deposited in the defendant’s

warehouse were looted and the rest was taken by the Japanese
forces during the war, there would be no legal way of holding the
defendant responsible, because it is evident t h a t the loss was due to
a fortuitous event. Similarly, where the launch or casco which the
187
defendant was supposed to deliver to the plaintiff was lost due to a

defect of the casco which could not have been foreseen, he cannot
be held liable. But where the defendant purchased a truck from
188
the plaintiff before the outbreak of the last war, payable in monthly
installments, and was commandeered by the USAFFE during the
war, the defendant’s obligation is not extinguished, because in the
first place, the truck became the property of the defendant when
it was delivered to him, and consequently, he must bear the loss;
in the second place, he could have filed a war damage claim with
the United States government and he would have been paid. His
negligent omission cannot, therefore, be imputed to the plaintiff who
was no longer the owner of the vehicle. 189
Idem; id. — Exceptions. — There are, however, certain

exceptions to the rule t h a t the debtor cannot be held liable if the
thing which constitutes the object of the obligation is lost or destroyed
through a fortuitous event. They are:
(1)When by law, the debtor is liable even for fortuitous
events; 190
184
Arts. 1170, 1165, par. 3, Civil Code.
185
186
187
Cruz vs. Valero, 89 Phil. 260.
188
Ramcar vs. Dizon, CA, 51 Off. Gaz. 3507.
189
Bachrach Motor Co. vs. Lee Tay and Lee Chay, 90 Phil. 540.
190
Arts. 1174, 1262, par. 2, Civil Code.
289
(2)When by stipulation of the parties, the debtor is liable

even for fortuitous events; 191
(3) When the nat ure of the obligation requires the

of risk; 192
assumption
(4) When the loss of the thing is due partly to the fault of the
debtor; 193
(5) When the loss of the thing occurs after the debtor has
incurred in delay; 194
(6)When the debtor promised to deliver the same thing to

two or more persons who do not have the same interest; 195
(7)When the obligation to deliver arises from a criminal

offense; and 196
(8) When the obligation is generic. 197
Art. 1263. In an obligation to deliver a generic thing,

the loss or destruction of anything of the same kind does not
extinguish the obligation. 198
Effect of Loss in Generic Obligations To Give. — If the

obligation is generic in the sense t h a t the object thereof is designated
merely by its class or genus without any particular designation or
physical segregation from all others of the same class, the loss or
destruction of anything of the same kind even without the debtor’s
fault and before he has incurred in delay will not have the effect
of extinguishing the obligation. This rule which is stated in Art.
199
1263 is based upon the principle t h a t the genus of a thing can

never perish (genus nunquam peruit). Consequently, the debtor
can still be compelled to deliver a thing which must be neither of
Ibid.
191
192
193
Ibid. See Tan Chiong Sian vs. Inchauti & Co., 22 Phil. 152; Limpangco vs.
Yangco Steamship Co., 34 Phil. 597.
194
Arts. 1262, par. 1, 1165, par. 3, Civil Code.
195
196
197
198
New provision.
199
Art 1263; see discussion under Arts. 1163, et seq., Civil Code.
290
superior nor inferior quality. Thus, where the obligation consists

200
in the payment of money or in the delivery of any other generic

201
or indeterminate thing such as several cavans of rice or several 202
piculs of sugar or several tons of copra, the failure of the debtor

203 204
to make the payment or to effect the delivery even by reason of a

fortuitous event shall not relieve him of his liability.
There is, however, a sort of exception to the rule in the case
of a generic obligation whose object is a particular class or group
with specific or determinate qualities, such as the cattle or horses
of a certain ranch or the sugar in a certain warehouse. Thus, if A
obligated himself to deliver before the end of 1979 fifty heads of cattle
to B with the understanding t h a t such fifty heads of cattle shall be
taken from a certain ranch and all of the cattle in t h a t ranch are
wiped out by a n epidemic, the obligation is extinguished. In reality,
such obligation is determinate in character. 205
Art. 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. 206
Effect of Partial Loss. — The rule stated in the above article

is self-explanatory. Whether or not the partial loss or destruction
of the thing is of such importance t h a t it would be tantamount to a
complete loss or destruction, shall depend upon the sound discretion
of the court.
Art. 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. 207
200
201
Reyes vs. Caltex, 47 Off. Gaz 1193; Phil. Long Distance Co. vs. Jeturian, 97
Phil. 781.
202
203
Yu Tek Co. vs. Gonzalez, 29 Phil. 384; Lacson vs. Diaz, 47 Off. Gaz. 337.
204
Bunje Corp. vs. Elena Camenforte & Co., 48 Off. Gaz. 3377.
205
206
New provision.
207
291
Rule If Thing Is in Debtor’s Possession. — According

to the above article, if the thing which constitutes the object of a
determinate obligation is lost in the possession of the debtor, there
arises a disputable presumption t h a t the loss was due to his fault.
In such case, the obligation is not extinguished; in other words,
the debtor is still liable to the creditor for damages. Therefore, the
burden of proof of absence of fault corresponds to the debtor. This
must be without prejudice to the rule stated in the third paragraph
of Art. 1165 to the effect t h a t if the obligor delays, or h as promised
to deliver the same thing to two or more persons who do not have
the same interest, he shall be responsible for any fortuitous event
until he has effected the delivery. Hence, in such cases, even if the
debtor or obligor can prove t h a t the loss or destruction of the thing
in his possession was not through his fault or t h a t it was through a
fortuitous event, he shall still be liable to the creditor or obligee for
damages.
The presumption, however, does not apply in case of earthquake,
flood, storm or other natura l calamity. This qualification was added
by the Code Commission to the original rule stated in Art. 1183 of
the Spanish Civil Code, because “in case of a nat ural calamity, lack
of fault is more likely.’’
Art. 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. 208
Effect of Impossibility of Performance in Obligations To

Do. — The above article is applicable only to obligations to do, as
distinguished from Art. 1262, which is applicable only to obligations
to give. However, in order t h a t the impossibility of compliance
with the obligation shall result in its extinguishment, practically
the same requisites prescribed by Art. 1262 are also prescribed in
this article. Consequently, the prestation constituting the object of
the obligation must have become legally or physically impossible
of compliance without the fault of the obligor and before he has
incurred in delay, otherwise, the obligation shall be converted into
one of indemnity for damages. In addition, the impossibility must
have occurred after the constitution of the obligation; otherwise, if
208
292
it was present before the obligation was constituted, there would be

a n obligation which would be ineffective from its inception.
The article distinguishes between two causes of impossibility
of the prestation by considering the source of such impossibility. It
may arise from the law, although physically it may be possible of
performance, or it may arise from a fact which renders performance
impossible, although no law is violated. In both cases, the obligor is
released from his obligation. 209
The first (legal impossibility) may be direct, when the law

prohibits the performance or execution of the work agreed upon, as
where it is immoral or dangerous; or it may be indirect, as where 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. The second (physical impossibility),
on the other hand, arises principally from the death of the obligor,
when the act to be performed requires his personal qualifications, or
from the death of the obligee, when the act can be of possible benefit
only to him. In one and the other case, both the obligation and
the right, respectively, are intransmissible, and consequently, are
extinguished by the mere fact of death. Aside from these absolute
forms of extinction, physical impossibility may also arise from mere
accident, or from the acts of the debtor himself in which there is no
fault, or from the acts of third persons affecting the debtor’s capacity
to execute the work agreed upon. 210
Idem; Effect. — When the prestation which constitutes the

object of the obligation becomes legally or physically impossible
without the fault of the obligor, according to Art. 1266, such obligor
is released from the obligation. Thus, where a contract is entered
into between the creditor and the principal debtor without the
knowledge and consent of the surety which made it impossible for
such surety to comply with his promise, it is clear t h a t under Art.
1266 the surety can no longer be held liable, considering the fact that
the compliance with the obligation has become impossible without
any fault on his part. Similarly, where the obligor was unable
2 11
209
210
Ibid., pp. 661-663.
211
House vs. De la Costa, 63 Phil. 74.
293
to comply with his obligation to reconstruct certain apartments

including a movie house because of the refusal of the City Engineer
to issue the necessary building permit due to the plan of the Urban
Planning Commission to widen the street adjoining the lots where
such buildings were to be constructed, he cannot be held liable for
breach considering the fact t h a t it was legally impossible for him to
comply with the obligation. The same is true where compliance
212
with the prestation which constitutes the object of the obligation will
prove dangerous to life or property. The application of this rule is
213
even more evident in those obligations where the prestation had to

be performed during the Japanese occupation because of the certain
conditions of peace and order then prevailing in the country. 214
Labayen vs. Talisay-Silay Milling Co.

52 Phil. 440
Plaintiff and defendant entered into a contract whereby it

was agreed among other things t hat the latter shall extend its
railroad from its sugar central to a certain hacienda. Defendant,
however, failed to comply with the obligation because the
extension of the railroad would be very costly and dangerous to
life and property by reason of the contour of the land through
which the said railroad would be constructed. The question
now is — is there a breach of contract which would render the
defendant liable for damages? The Supreme Court held:
“It is elemental t hat the law requires the parties to do
what they have agreed to do. If a party charges himself with an
obligation possible to be performed, he must abide by it unless
performance is rendered impossible by the act of God, the law,
or the party. A showing of mere inconvenience, unexpected
impediments, or increased expenses is not enough. Equity
cannot relieve from bad bargains simply because they are such.
So one must answer in damages where the impossibility is only
so in fact.
“The foregoing are familiar principles found in the
American and English law of contracts. The civil law on the
212
Tabora vs. Lazatin, G.R. No. L-5245, May 29, 1953. To the same effect: Thea-
tres Supply Corp. vs. Malolos, CA, 48 Off. Gaz. 1803.
213
Labayen vs. Talisay-Silay Milling Co., 52 Phil. 440.
214
Castro vs. Longa, 89 Phil. 581. To the same effect: Santos vs. Sec. of
ture, Agricul-
48 Off. Gaz. 3368.
294
subject of obligations is not essentially different. Article 1272

(now Art. 1348) of the Civil Code provides: ‘impossible things or
services cannot be the subject matter of contracts.’ And Article
1184 (now Art. 1266) of the same Code provides: “The debtor
shall also be relieved from obligations which consist in the
performance of an act if fulfillment of the undertaking becomes
legally or physically impossible.’’
“May one obligate himself to do something which, when
accomplished, will prove to be dangerous to life and property?
We doubt it. Take the contract in question as a n example. It
was a general contract of the form used by the central and
various proprietors of sugarcane field. It was intended to be
limited in particular application to haciendas not impeded by
physical impossibility. The contract was qualified by a n implied
condition which, if given practical effect, results in absolving the
central from its promise. Not to sanction a n exception to the
general rule would ru n counter to public policy and the law by
forcing the performance of a contract undesirable and harmful.’’
(8 Manresa’s Codigo Civil Español, p. 355.)
Idem; Effect in obligations not to do. — The Code only

speaks of legal and physical impossibility with respect to obligations
to do because it is very seldom t h a t impossibility of performance
may arise in obligations not to do. There may, however, be rare or
exceptional cases in which legal or physical impossibility will occur
as when the obligor is compelled to do t h a t which he had obligated
himself to refrain from performing. In such cases, his obligation is
extinguished applying the same principle invoked in Art. 1266. 215
Art. 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. 216
Effect of Relative Impossibility. — The general rule is that

impossibility of performance of a n obligation to do shall release the
obligor. However, when the service has become so difficult as to be
manifestly beyond the contemplation of the parties, the court should
be authorized to release the obligor in whole or in part. The intention
of the parties should govern and if it appears t h a t the service turns
215
216
New provision.
295
out to be so difficult as to have been beyond their contemplation,

it would be doing violence to t h a t intention to hold the obligor still
responsible. 217
Art. 1267 contemplates of “service’’ which has become so dif-

ficult. Taking into consideration the rationale for this provision,
the word “service’’ should be understood as referring to the “perfor-
mance’’ of the obligation.
“Furthermore, a bare reading of this article reveals t h a t it is
not a requirement thereunder t ha t the contract be for future service
with future unusual change. According to Sen. Arturo M. Tolentino,
Art. 1267 states in our law the doctrine of unforeseen events. This is
said to be based on the discredited theory of “rebus sic stantibus’’ in
public international law. Under this theory, the parties stipulate in
the light of certain prevailing conditions, and once these conditions
cease to exist, the contract also ceases to exist. Considering practical
needs and the demands of equity and good faith, the disappearance
of the basis of the contract gives rise to a right to relief in favor of the
party prejudiced.’’ (Naga Telephone Co., et al. vs. Court of Appeals, et
al., Feb. 24, 1994, 48 SCAD 539.)
Art. 1268. When the debt of a thing certain and determi-

nate 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. 218
Rule If Obligation Arises from Criminal Offense. — The

rule stated in Art. 1268 is applicable not only to the case where
there is a n obligation of restitution of a certain and determinate
thing on the par t of the person criminally liable as provided for in
the Penal Code, but also to the case where such obligation arises
by virtue of reparation or indemnification. In all of these cases,
there is no question t h a t the debt proceeds from a criminal offense.
217
Report of the Code Commission, p. 133. It seems t ha t the doctrine enunciated
by the Supreme Court in the cases of Labayen vs. Talisay-Silay Milling Co., 52 Phil.
440, and Castro vs. Longa, 89 Phil. 581 (supra), can be justified by a n application
of the principle now enunciated in this article.
218
296
Furthermore, the rule is applicable not only to the persons who are
principally liable, but also to those who are subsidiarily liable. In all
of these cases, if the thing is lost, the debtor shall not be exempted
from the payment of the price of the thing, whatever may be the
cause for the loss. The only case where he is relieved of the severity
of the precept is when he had offered the thing to the obligee and the
latter had refused to accept it without justification.
219
The offer referred to in this article should not be confused with

consignation inasmuch as the latter refers only to the payment of
the obligation, while the former refers to the extinguishment of the
obligation through loss by a fortuitous event. In consignation, the
offer is but a step to the payment; in this article, it is essential that
the creditor should refuse to accept the thing without justification
in order th a t the debtor may be released from liability in case of loss
through a fortuitous event. 220
When the offer is made by the debtor and the creditor refuses to
accept it without justification, he may choose either of two courses:
(1) he may make a consignation of the thing and thereby
completely relieve himself of further liability, or (2) he may keep
the thing in his possession, in which case, the obligation shall still
subsist but with this difference — t h a t if the thing is lost through
a fortuitous event, Arts. 1262 and 1265, and not Art. 1268, shall
govern. It must, of course, be noted t h a t this Article (1268) can
have no application to those cases where a n offer is not possible,
since such offer by the debtor is a n essential requisite.221
Art. 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 the third persons
by reason of the loss. 222
Effect of Extinguishment of Obligation. — According to

the above article, if the obligation is extinguished by the loss of the
thing, all of the rights of action which the debtor may have against
third persons by reason of the loss are transmitted by operation of
219
220
Ibid.
221
Ibid.
222
297
law to the creditor. Such transmission is made from the moment of

the extinguishment of the obligation. The application of the precept
is illustrated in a case where the object which is due is insured
and by reason of some cause is lost or destroyed. In such case,
the creditor can collect the indemnity from the insurer. It is also
illustrated by a case where the object is expropriated. In such case,
the creditor can collect the compensation which is due by reason of
the expropriation. 223
Section 3. — Condonation or Remission of the Debt
Concept. — Remission is a n act of liberality by virtue of which

the obligee, without receiving any price or equivalent, renounces the
enforcement of the obligation, as a result of which it is extinguished
in its entirety or in t h a t part or aspect of the same to which the
remission refers. In the terse language of Sanchez Roman, it is the
224
gratuitous abandonment by the creditor of his right. 225
Requisites. — In order th a t there will be a remission or

condonation which will result in the total or partial extinguishment
of the obligation, it is essential t h a t the following requisites must
concur: first, it must be gratuitous; second, it must be accepted by
the obligor; and third, the obligation must be demandable.
Kinds. — Remission or condonation may be classified as
follows:
(1)As to form, remission may be express or implied. It is
express when it is made in accordance with the formalities prescribed
by law for donations; it is implied when, although it is not made in
accordance with the formalities prescribed by law for donations, it
can be deduced from the acts of the obligee or creditor.226
(2)As to extent, remission may be total or partial. It is total

when the entire obligation is extinguished; it is partial when it
refers only to the principal or to the accessory obligation or to an
aspect thereof which affects the debtor as for instance solidarity.
223
224
225
226
298
Condonation or Remission of the Debt
(3) As to constitution, remission may be inter vivos or mortis

causa. The first refers to t h a t which is constituted by agreement of
the obligee and the obligor in which case it partakes of the nature
of a donation inter vivos; the second, on the other hand, refers to
227
t h a t which is constituted by last will and testament in which case it

partakes of the nature of a donation mortis causa. 228
Art. 1270. Condonation or remission is essentially gratu-

itous, and requires the acceptance by the obligor. It may be
made expressly or impliedly.
One and the other kinds shall be subject to the rules
which govern inofficious donations. Express condonation
shall, furthermore, comply with the forms of donations. 229
Gratuitous Character of Remission. — The most essential

characteristic of remission is t h a t it is gratuitous. Consequently,
230
before it can be said t h a t a n obligation has been condoned by the

creditor, it is essential t h a t it must be a n act of pure liberality of
the creditor for the benefit of the debtor; in other words, the creditor
should not have received any price or equivalent from the debtor as
a result of his act in renouncing the enforcement of the obligation.
Necessity of Acceptance by Debtor. — Because in reality
the remission or condonation of a n obligation is by its very natu re a
donation, the Code requires t ha t it must be accepted by the debtor. 231
This requisite is expressly declared in the first paragraph of Art.

1270; it can also be clearly inferred from the provision of the second
paragraph of the said article which states t h a t it shall be subject to
the rules which govern inofficious donations. 232
The question arises as to whether remission is a unilateral or

a bilateral act. Planiol and Valverde believe t ha t it is by its very
nature a bilateral act, and this is rightly so, because our Code
requires its acceptance by the debtor, and besides, this view is in
conformity with the rule which subjects express remission to the
227
See Arts. 734, 745, 746, Civil Code.
228
See Arts. 935, 936, 937, Civil Code.
229
2
30
Ibid.
232 2
31
Ibid.
299
forms of donations. Thus, where a proffer was made by the plaintiff

233
to the defendant t h a t in the event the latter loses a pending case

with his wife and, after the adjudication of the conjugal property,
what is left will not be sufficient for his livelihood, he (the plaintiff)
will be pleased to write off as a bad debt the balance of a certain
indebtedness, and the proffer was accepted, it is clear t h a t such
proffer constitutes a binding obligation. 234
Applicability of Rules on Donations. — It is not only with

regard to the necessity of acceptance by the debtor t ha t the rules on
ordinary donations are applicable. There are other rules which are
235
equally applicable, such as those governing the forms of donations

if the remission is express, those governing the extent or amount
236
of the donation, and those governing the revocation of donations.

237 238
This is not only deducible from the very nat ure of remission as an
act of pure liberality, it is also expressly declared by the second
paragraph of Art. 1270.
Idem; Extent of remission. — Whether express or implied,
the extent of the remission or condonation shall be governed by the
rules regarding inofficious donations. Hence, the following rules
239
are applicable:
“Art. 750, C.C. The donation may comprehend all the

present property of the donor, or part thereof, provided he
reserves, in full ownership or in usufruct, sufficient means for
the support of himself, and of all relatives who, a t the time of the
acceptance of the donation, are by law entitled to be supported
by the donor. Without such reservation, the donation shall be
reduced on petition of any person affected.”
“Art. 751, C.C. Donations cannot comprehend future
property.
“By future property is understood anything which the
donor cannot dispose of at the time of the donation.’’
233
Ibid., pp. 265-266.
234
Dalupan vs. Harden, 90 Phil. 417.
235
236
237
238
239
300
“Art. 752, C.C. The provision of Article 750 notwithstanding,

no person may give or receive, by way of donation, more t h an he
may give or receive by will.
“The donation shall be inofficious in all t h a t it may exceed
this limitation.”
“Art. 771, C.C. Donations which in accordance with the
provisions of Article 752, are inofficious, bearing in mind the
estimated net value of the donor’s property at the time of his
death, shall be reduced with regard to the excess, but this
reduction shall not prevent the donations from taking effect
during the life of the donor, nor shall it bar the donee from
appropriating the fruits.
“For the reduction of donations the provisions of this
Chapter and of Articles 911 and 912 of this Code shall govern.’’
Consequently, if the estate of the creditor consists of credits,

and there is a remission or condonation of all of such credits, it is
evident t h a t there would be a violation of the rule stated in Art. 750
of the Code, in which case the remedy provided for in the said article
would be available. If the remission comprehends future debts, it
is also evident t h a t it shall be void, not only because it lacks the
requisite of demandability, but also because it is contrary to the
precept contained in Art. 751 t h a t donations cannot comprehend
future property. And finally, if the remission is inofficious in
accordance with the general precept contained in Art. 752, the
remedy provided for in Art. 771 by virtue of which the compulsory
heirs of the creditor-donor can proceed against the debtor-donee for
the reduction or even suppression of the remission, would also be
available. 240
Idem; Form of express remission. — According to the

second paragraph of Art. 1270, express remission or condonation
must comply with the forms of donations. This rule is, of course,
logical considering the fact t h a t the remission or condonation of a
debt is in reality a donation. Hence, the following provisions are
applicable:
“Art. 748, C.C. The donation of a movable may be made

orally or in writing.’’
240
301
“An oral donation requires the simultaneous delivery of

the thing or of the document representing the right donated.’’
“If the value of the personal property donated exceeds five
thousand pesos, the donation and the acceptance shall be made
in writing. Otherwise, the donation shall be void.”
“Art. 749, C.C. In order th at the donation of a n immovable
may be valid, it must be made in a public document, specifying
therein the property donated and the value of the charges which
the donee must satisfy.’’
“The acceptance may be made in the same deed of donation
or in a separate public document, but it shall not take effect
unless it is done during the lifetime of the donor.’’
“If the acceptance is made in a separate instrument, the
donor shall be notified thereof in a n authentic form, and this
step shall be noted in both instruments.”
Consequently, if the obligation to give which is expressly

condoned involves personal property, the provision of Art. 748 shall
apply with the qualification t h a t the delivery of personal property,
if the remission is verbal, shall not be required since there is no
transfer of property but merely a remission or condonation of an
obligation to give personal property. On the contrary, in acts of
liberality of this sort the debtor is relieved from making a
conveyance of the property. It must also be noted t h a t with
241
respect to express remission of a n obligation to give personal

property, acceptance by the debtor maybe implied or tacit,
provided t h a t the value of the debt which is condoned is not more
th an five thousand pesos.
If the obligation to give which is expressly condoned involves
immovable property, the provision of Art. 749 shall apply.
In obligations to do or not to do, the form of the express
remission must be in accordance with the less solemn formalities
established in Art. 748 with, of course, the necessary qualification
regarding delivery. 242
It must also be noted t h a t the fact t h a t the obligation which is

condoned appears in a public document does not necessarily mean
241
Ibid.
242
Ibid.
302
t h a t the remission must also be embodied in a document of the same

character. 243
Idem; Form of implied remission. — It will be observed

t h a t the Code is silent with respect to the form of implied remission.
Nevertheless, there is no question t h a t it may be deduced from any
act or acts of the creditor which clearly show the intent to condone
the obligation. As in the case of express remission, there must be
acceptance by the obligor or debtor. Such acceptance may be express
or implied in any case. Examples of implied remission are those
244
regulated by Arts. 1271 to 1274 of the Code.

There is, however, a n interesting question t h a t arises in
connection with implied remission. Let us assume t h a t the remission
is expressly made, but because it fails to comply with the forms
prescribed by Art. 748 or Art. 749, it cannot properly take effect as
a n express remission. Can it be enforced as a tacit remission? The
question must be resolved in the negative. Otherwise, the purpose of
the last sentence of Art. 1270 would be defeated. Hence, a n express
remission which is formally defective cannot affect the obligee or
creditor, unless new or other acts from which remission may be
deduced should confirm the purpose expressed in the former. 245
Art. 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. 246
Art. 1272. Whenever the private document in which

the debt appears is found in the possession of the debtor, it
243
Ibid.
244
Ibid.
245
Ibid. As a ma tter of fact because of the provision of the last sentence of Art.
1270, we believe th a t the only possible cases implied would be those contemplated
in Arts. 1271, 1272 and 1274 of the Civil Code.
246
303
shall be presumed that the creditor delivered it voluntarily,

unless the contrary is proved. 247
Effect of Delivery of Evidence of Credit to Debtor. — Art.

1271 enunciates the rule t h a t if the creditor voluntarily delivers
the private document evidencing the credit to the debtor, there is
a presumption t h a t he renounces his right of action against the
latter for the collection of the said credit, From a n examination of
the provision, it is clear t h a t the following requisites must concur
in order t h a t the presumption will arise: first, t h a t the document
evidencing the credit must have been delivered by the creditor to the
debtor; second, t h a t the document must be a private document; and
third, t h a t the delivery must be voluntary. The second requisite is,
of course, logical because if the document is public the presumption
does not arise considering the fact t h a t the public character of the
document would always protect the interest of the creditor. With 248
regard to the third requisite, it must be observed that, according to

Art. 1272, whenever the private document evidencing the credit is
found in the possession of the debtor, there arises a presumption
t h a t the creditor delivered it to him voluntarily, unless the contrary
is proved. Thus, where the promissory note evidencing the credit
is already in the possession of the debtor, there arises a disputable
presumption to the effect t h a t the creditor must have delivered
it voluntarily to him; consequently, in the absence of proof to
the contrary, a n implied or tacit renunciation of the debt may be
presumed. 249
Subsequently, however, the heirs of the creditor may try to

impugn or nullify the renunciation or condonation by establishing
t h a t it is inofficious in conformity with the remedy which is available
to them under Art. 771 of the Code. In such case, according to the
second paragraph of Art. 1271, the debtor or his heirs may uphold
it by proving t ha t the delivery of the private document was made
because the debt had already been paid. This is, of course, ridiculous,
because under this rule, we would witness the absurd spectacle of
a debtor or his heirs trying to uphold a presumption of remission,
247
248
249
Veloso vs. Masa, 10 Phil. 279; Lopez vs. Tambunting, 33 Phil. 236.
304
when it is claimed t h a t such remission is inofficious, by proving that

the debt had already been paid when as a mat ter of fact it is not. 250
Art. 1273. The renunciation of the principal debt shall

extinguish the accessory obligations; but the waiver of the
latter shall leave the former in force. 251
Art. 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. 252
Effect of Remission in General. — The effect of remission

is to extinguish the obligation in its entirety or in the part or aspect
thereof to which the remission refers.
If the obligation is joint, the remission can only affect the share
of the creditor who makes the remission and the corresponding
share of the debtor in whose favor the remission is made, since the
peculiar feature of this type of obligation is the division of the credit
or of the debt into as many equal shares as there are creditors or
debtors, the credits or debts being considered distinct from one
another. If the obligation is solidary, the provisions of Arts. 1215,
253
1219 and 1220 of the Code shall govern.

Idem; Effect upon accessory obligations. — Under Art.
1273, if the remission refers to the principal obligation, all the
accessory obligations are extinguished, since the latter depend upon
the former for their existence or efficacy. However, if the remission
refers to the accessory obligations, the principal obligation continues
to subsist.
Idem; id. — Rule in pledge. — According to Art. 1274, it is
presumed t h a t the accessory obligation of pledge h as been remitted
when the thing pledged, after its delivery to the creditor, is found
250
3 Castan, 7th Ed., p. 268. Under Sec. 5(h) and (k), Rule 131 of the New Rules
of Court, the rule is th a t if the private document evidencing the credit is in the pos-
session of the debtor, there arises a disputable presumption to the effect t h a t the debt
ha s already been paid.
251
252
253
305
in the possession of the debtor or of a third person who owns the

thing. Like the presumptions established in Arts. 1271 and 1272,
254
the presumption established in this article, according to the opinion

of a majority of commentators, Manresa among them, is disputable. 255
The principal obligation for which the pledge is a security is, of

course, not affected. Thus, if A pledged his watch to B as security
256
for a n indebtedness of P100, and subsequently, the watch is found

in his possession, there arises a presumption of remission of the
accessory obligation of pledge. The debt of P100, however, is not
affected. B may disprove the remission by proving t h a t he gave the
watch temporarily to the debtor to be repaired or t h a t A was able to
take possession thereof without his consent or authority.
Section 4. — Confusion or Merger of Rights
Art. 1275. The obligation is extinguished from the time

the characters of creditor and debtor are merged in the same
person. 257
Concept of Confusion. — With the provision of Art. 1275 as

basis, confusion maybe defined as the merger of the characters of
creditor and debtor in one and the same person by virtue of which
the obligation is extinguished. The classic definition, however, is
t h a t of Sanchez Roman. According to the eminent commentator,
confusion may be defined as the meeting in one and the same person
of the qualities of creditor and debtor with respect to one and the
same obligation. 258
By its very nature, confusion or merger of rights will neces-

sarily result in the extinguishment of the obligation because of the
impossibility of enforcing it since it would certainly be absurd for
a person to enforce a claim against himself. Besides, the purpose
or end for which the obligation is constituted is realized when the
qualities of creditor and debtor are merged in one and the same per-
son.259
254
255
Manresa, 5th Ed., Bk. 1, p. 697. Sanchez Roman, however, maintains th a t it
is conclusive (Vol. 4, p. 462).
256
257
258
259
306
Confusion or Merger of Rights
Requisites. — In order t h a t there will be a confusion of

rights which will result in the extinguishment of the obligation,
it is essential t h a t the following requisites must concur: (1) that
the merger of the characters of creditor and debtor must be in the
same person; (2) t h a t it must take place in the person of either the
260
principal creditor or the principal debtor; and (3) t h a t it must be

261
complete and definite. The requisite t h a t the merger of rights of

262
creditor and debtor must be complete and definite does not mean
t h a t the extinguishment of the obligation should be complete or
total in character; it merely means t h a t whether the merger refers
to the entire obligation or only a part thereof, it must be of such a
character t h a t there will be a complete and definite meeting of all of
the qualities of creditor and debtor in the obligation or in the par t or
aspect thereof which is affected by the merger. 263
Kinds. — Confusion or merger of rights may be classified as

follows:
(1) As to cause or constitutions: Inter vivos or mortis
causa
— inter vivos, when it is constituted by agreement of the
parties,
mortis causa, when it is constituted by succession.
(2) As to extent or effect: Total or partial — total, if it results
in the extinguishment of the entire obligation, partial if it results
in the extinguishment of only a part of the obligation. There are
two cases where the extinguishment is merely partial — first, when
the confusion or merger refers only to a part of the obligation; and
second, when the obligation is joint. 264
Art. 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. 265
260
261
262
Testate Estate of Mota vs. Serra, 40 Phil. 464.
263
For illustrative cases of partial confusion or merger — see Sochayseng vs.
Trujillo, 31 Phil. 153; Yek Ton Lin Fire & Marine Insurance Co. vs. Yusingco, 46
Phil. 473.
264
265
307
Effect upon Accessory Obligations. — Under Art. 1276 in

relation to Art. 1275, if the confusion or merger of rights will take
place in the person of either the principal creditor or the principal
debtor, the effect is the extinguishment, not only of the principal
obligation, but even of the accessory obligation. This is, of course,
logical because of the principle t h a t the accessory obligation cannot
exist without the principal obligation. Consequently, guarantors
266
shall be benefited by the confusion of rights. If, on the other hand,

267
the confusion or merger will take place in the person of a subsidiary

creditor or a subsidiary debtor, such as a guarantor, it is evident
t h a t there is no extinguishment of the principal obligation; there 268
will be only a substitution of creditor or debtor. If there are several

guarantors and the characters of creditor and guarantor are merged
in the person of any of the guarantors, such guarantor-creditor can
demand the performance of the obligation from the debtor, and in
case of default, even from his former co-guarantors. If the characters
of debtor and guarantor are merged, the creditor can demand the
performance of the obligation directly from the guarantor. 269
Art. 1277. Confusion does not extinguish a joint obliga-

tion except as regards the share corresponding to the credi-
tor or debtor in whom the two characters concur. 270
Effect upon Collective Obligations. — The rule stated in

the above article necessarily follows from the nature and character
of a joint obligation. Under Art. 1208 of the Code, which we have
already taken up in a previous chapter, the credit or debt shall
be presumed to be divided into as many equal shares as there
are creditors or debtors. This presumption of division is the most
essential characteristic of joint obligations. It is but logical t h a t the
confusion which takes place, let us say, in one of the debtors shall
only refer to the share which corresponds to him. Consequently,
there is merely a partial extinguishment of the debt. The creditor
can still proceed against the other debtors. 271
266
267
268
Ibid.
269
270
271
308
Compensation
With regard to solidary obligations, however, the provision

of Art. 1215 shall apply. In other words, the entire obligation is
extinguished, without prejudice to the rights and obligations of the
solidary creditors and solidary debtors among themselves.
Effect of Revocation of Confusion. — If the confusion
or merger is constituted by agreement, it is evident t h a t it may
be revoked by the presence of any of the causes for the rescission,
annulment, nullity or inexistence of contracts or by some special cause
such as redemption. If it is constituted by inheritance, it may be
revoked by the nullity of the will, or by the subsequent appearance
of a n heir with a better right, or by any other cause which will nullify
the merger. In all of these cases, the original obligation, as a general
rule, is recreated in the same form and under the same condition in
which it was found before the merger took place. Furthermore, the
period which has elapsed from the moment the merger took place
until its revocation cannot be computed in the determination of
the period of prescription, because during such period the creditor
could not possibly have made a demand for the fulfillment of the
obligation. 272
Section 5. — Compensation
Art. 1278. Compensation shall take place when two

persons, in their own right, are creditors and debtors of each
other. 273
Concept of Compensation. — According to Castan, compen-

sation may be defined as a mode of extinguishing in their concur-
rent amount those obligations of persons who in their own right are
creditors and debtors of each other. According to Manresa, it may
274
be defined as a figurative operation of weighing two obligations si-

multaneously in order to extinguish them to the extent in which the
amount of one is covered by the amount of the other. 275
Compensation is very similar to payment, both from the the-

oretical and the practical point of view. In both cases, the obliga-
272
Ibid., pp. 700-701.
273
274
275
309
tions are extinguished because their economic object or purpose is

realized. Compensation, however, presents a more convenient and
less expensive method of effecting the payments of two obligations.
Consequently, it deserves the nam e of simplified payment (pago
abreviado). 276
It has a double advantage over payment: first, facility of pay-

ment because it takes effect by operation of law; and second, guaran-
ty for the effectivity of the credit, because, otherwise, if the parties
will still have to comply with the formalities of ordinary payment,
one can easily be prejudiced by fraud or insolvency of the other. 277
Idem; Distinguished from payment. — Compensation may

be distinguished from payment as follows:
(1)The requisites prescribed by law for compensation are
different from those prescribed by law for payment.
(2)Compensation takes effect by operation of law, while
payment takes effect by act of the parties.
(3)Capacity to give and to acquire is not necessary in com-
pensation, but it is essential in payment.
(4)Compensation is, as a rule, partial, while payment is, as a
rule, complete and indivisible. 278
Idem; Distinguished from confusion. — Compensation

may be distinguished from confusion as follows:
(5)As to number of persons, in compensation there must be
two persons, who, in their own right, are creditors and debtors of
each other; in confusion there is only one person in whom is merged
the qualities of creditor and debtor.
(6)As to number of obligations, in compensation there must be
a t least two; in confusion there is only one. 279
276
Ibid., pp. 713-714.
277
278
2 Giorgi, Teoria de las Obligaciones, pp. 24-25.
279
Bocobo, Outlines of the Law on Obligations, p. 34.
310
Compensation
Idem; Distinguished from counterclaim. — Compensation

may be distinguished from set-off or counterclaim, as follows: 280
(1)Compensation requires t h a t the two debts must consist in

money, or if the things due are fungibles, they must be of the same
kind and quality, but in counterclaim, this is not necessary. 281
(2)Compensation, as a general rule, requires t h a t the debts

must be liquidated but counterclaim does not. 282
(3)Compensation need not be pleaded, while a counterclaim

must be pleaded to be effectual. 283
Kinds of Compensation. — As to cause, compensation may

be:
(4)Legal — when it takes effect by operation of law from the
moment all of the requisites are present. This is the fixed type which
is regulated by Arts. 1278 and 1279 of the Civil Code.
(5)Voluntary — when the parties who are mutually creditors
and debtors agree to compensate their respective obligations, even
though all of the requisites for compensation may not then be
present. Giorgi includes under this class the so-called facultative
compensation which is effected by a party who is entitled to oppose
the compensation because he would be prejudiced thereby. This
occurs, for instance, when the obligation of one is with a term, while
t h a t of the other is pure, and the former renounces the benefit of the
term, consequently making the compensation possible. 284
280
“A counterclaim is any claim for money or other relief which a defending party
may have against a n opposing party. A counterclaim need not diminish or defeat the
recovery sought by the opposing party, but many claim relief exceeding in amount
or different in kind from t ha t sought by the opposing party’s claim.’’ (Sec. 6, Rule 6,
New Rules of Court) “A counter-claim not set up shall be barred if it arises out of or is
necessarily connected with the transaction or occurrence th a t is the subject matte r of
the opposing party’s claim.’’ (Sec. 6, Rule 6, New Rules of Court) “A counter-claim not
set up shall be barred if it arises out of or is necessarily connected with the transac-
tion or occurrence th a t is the subject mat ter of the opposing party’s claim and does
not require for its adjudication the presence of third parties of whom the court can not
acquire jurisdiction.’’ (Sec. 4, Rule 9, New Rules of Court)
281
Art. 1179, No. 1, Civil Code; Sec. 6, Rule 6, New Rules of Court.
282
Art. 1179, No. 4, Civil Code; Yap Unki vs. C hua Japco, 14 Phil. 602.
283
Yap Unki vs. Chua Japco, 14 Phil. 602.
284
3 Castan, 7th Ed., pp. 272-273; Art. 1282, Civil Code.
311
(3) Judicial — when it takes effect by judicial decree. This

occurs, for instance, where one of the parties to a suit over a n obliga-
tion has a claim for damages against the other and the former sets
it off by proving his right to said damage and the amount thereof. 285
As to effect, compensation may be:

(1)Total — when the debts to be compensated are equal in
amount. 286
(2)Partial — when the debts to be compensated are not equal in

amount. 287
Art. 1279. In order that compensation may be proper, it

is necessary:
(3)That each one of the obligors be bound principally,
and that he be at the same time a principal creditor of the
other;
(4)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;
(5) That the two debts be due;
(6) That they be liquidated and demandable;
(7)That over neither of them there be any retention or
controversy, commenced by third persons and communicated
in due time to the debtor. 288
Requisites of Compensation. — The essential requisites of

compensation are:
(8)There must be two parties, who, in their own right, are
principal creditors and principal debtors of each other; 289
(9)Both debts must consist in money, or if the things due

are fungibles (consumables), they must be of the same kind and
quality; 290
285
286
287
Ibid.
288
Art. 1196, Spanish
Civil Code.
289
Arts. 1278, 1279, No.
1, Civil Code.
290
Art. 1279, No. 2, Civil 312
Code.
Art. 1279
Compensation
(3) Both debts must be due; 291
(4) Both debts must be liquidated and demandable; 292
(5)There must be no retention or controversy commenced by

third persons over either of the debts and communicated in due time
to the debtor; and
293
(6) The compensation must not be prohibited by law. 294
Idem; As to parties. — The first requisite in order t h a t legal

compensation shall take place is t h a t there must be two parties who,
in their own right, are principal creditors and principal debtors of
each other. In other words, it is necessary: (1) t h a t the parties be
mutually creditors and debtors in their own right; and (2) t h a t they
must be bound as principals.
By virtue of the provision of Art. 1278, it is necessary t h a t the
parties must be mutually creditors and debtors in their own right.
Consequently, there can be no compensation between the obligations
of a legal representative, guardian or administrator incurred in his
personal capacity and the obligations of third persons to the person
represented, ward or estate under administration, although such
obligations may have been incurred by such third persons with
the said representative, guardian or administrator acting in his
legal capacity. The same can be said with regard to the obligations
incurred by the partnership as a juridical person and the individual
credits of any one of the partners. Thus, where the members of a
295
certain society had secured a judgment against a co-member for a

certain amount, the latter cannot interpose the defense t h a t such
judgment must be compensated by her claim against the society,
because it is clear t h a t the first requisite for legal compensation to
take place is not present. 296
291
292
293
294
Arts. 1287, 1288, Civil Code; 3 Castan, 7th Ed., pp. 274-275.
295
296
Escano vs. Heirs of Escano, 28 Phil. 73.
313
Garcia vs. Lim Chiu Sing

59 Phil. 562
The defendant, who is indebted to the Mercantile Bank

of China for P9,105.17, contends in this action brought by the
Bank against him for payment of the debt t h at such debt must
be compensated by his shares of stock with the Bank. The
Supreme Court, however, held:
“According to the weight of authority, a share of

stock or the certificate thereof is not a n indebtedness
and, therefore, it is not a credit. Stockholders, as such,
are not creditors of the corporation. It is the prevailing
doctrine of American courts, repeatedly asserted in the
broadest terms, th at the capital stock of a corporation is a
trust fund to be used more particularly for the security of
creditors of the corporation, who presumably deal with it
on the credit of its capital stock. (4 Corpus Juris, p. 383,
Sec. 505.) Therefore, the defendant-appellant Lim Chiu
Sing, not being a creditor of the Mercantile Bank of China,
although the latter is a creditor of the former, there is no
sufficient ground to justify a compensation. (Art. 1195 —
now Art. 1278, Civil Code.)’’
Problem — “B’’ borrowed from “C’’ P1,000.00 payable in
one year. When “C’’ was in the province, “C’s’’ 17-year-old son
borrowed P500.00 from “B’’ for his school tuition. However, the
son spent it instead nightclubing. When the debt to “C’’ fell
due, “B’’ tendered only P500.00, claiming compensation on the
P500.00 borrowed by “C’s’’ son.
Question No. 1 — Is there legal compensation? Why? (1981
Bar Problem)
Answer — There is no legal compensation. Under the
Civil Code, in order th at there will be a valid and effective
compensation, it is essential th at there must be two parties, who
in their own right, are principal creditors and principal debtors
of each other. In the in stant case, “C’’ cannot be considered as a
party to the act of his 17-year-old son in borrowing P500.00 from
“B.’’ Consequently, he did not become a principal debtor of “B’’;
neither did “B’’ become a principal creditor of “C.’’ Therefore,
there can be no partial compensation of the P1,000.00 borrowed
by “B’’ from “C.’’
(Note: The above answer is based on Arts. 1278 and 1279,
No. 1, of the Civil Code and on decided cases.)
314
Compensation
Question No. 2 — Suppose the minor son actually used

the money for school tuition, would the answer be different?
Reasons. (1981 Bar Problem)
Answer — There would be no difference in my answer.
There will still be no legal compensation. The fact t h at “C’s’’ son
actually used the P500.00 for his school tuition did not make “C’’
a party to the contract between his son and “B.’’ Therefore, “C’’
is not the principal debtor of “B’’ with respect to said amount.
(Note: The above answer is based on Arts. 1278 and 1279,
1, Civil Code.)
Idem; id. — Bound as principals. — By virtue of the provi-

sion of Art. 1279, No. 1, it is also necessary t h a t the parties must be
bound as principals. In other words, the relation between the parties
must be t h a t of principal creditor and principal debtor. Consequent-
ly, compensation cannot take place when one party is a debtor in one
obligation and a creditor of the other party’s creditor in another ob-
ligation or a creditor in one obligation and a guarantor of the other
party’s debtor in another obligation. Notwithstanding this rule,
297
however, the guarantor may set up compensation as regards what

the creditor may owe the principal debtor. 298
When both parties are not only mutually creditors and debtors
in their own right, but are also principally bound as creditors and
debtors, compensation shall then take place, provided, of course, that
all of the other requisites are present. Thus, where the defendant
is indebted to the estate of the decedent for a certain amount
and the decedent, in turn, had, during his lifetime, contracted an
indebtedness from the defendant, the plaintiff-administrator of the
decedent’s estate cannot contend t h a t compensation in this case is
not proper considering the fact t h a t the decedent’s indebtedness is
chargeable against his estate. Similarly, where a corporation is
299
indebted to a stockholder for a certain amount and the stockholder,

on the other hand, is also indebted to the corporation for a certain
amount, it is evident t h a t in such case compensation is proper. The 300
same is also true where the estate of a deceased person has a claim
297
298
299
De la Peña vs. Hidalgo, 20 Phil. 323.
300
Brimo vs. Goldemberg, 69 Phil. 502.
315
against the government and such claim has already been recognized
by the enactment of a corresponding law appropriating funds for
t h a t purpose. Under the circumstances, since both the claim of the
intestate against the government and the claim of the government
for taxes against the estate of said intestate have already become
overdue and demandable as well as fully liquidated, compensation
has already taken place by operation of law in accordance with the
provisions of Arts. 1279 and 1290 of the Civil Code, and both debts
are therefore extinguished to the extent t h a t the amount of one is
covered by the amount of the other. 301
Gullas vs. Phil. National Bank

62 Phil. 519
It appears th at a United States treasury wa rra n t was

issued payable to Francisco Bacoa. This wa rra n t was cashed
by the Philippine National Bank with plaintiff as one of the
indorsers, and subsequently, it was dishonored by the Insular
Treasury. Defendant bank then applied the deposit of plaintiff
to the payment of the amount paid by the bank for the warrant.
The question is: can there be a compensation in this case? The
Supreme Court held:
“The general rule is adopted for this jurisdiction t h at a
bank has a right of set-off of the deposit in its hands for the
payment of any indebtedness to it on the p art of the depositor.
“As a general rule, a bank has a right of set-off of the
deposits in its hands for the payment of any indebtedness to
it on the p art of a depositor. In Louisiana, however, a civil law
jurisdiction, the rule is denied, and it is held t ha t a bank has no
right, without an order from or a special assent of the depositor
to retain out of his deposit an amount sufficient to meet his
indebtedness. The basis of the Louisiana doctrine is the theory
of confidential contracts arising from irregular deposits, e.g., the
deposit of money with a banker. With freedom of selection and
after full consideration, we have decided to adopt the general
rule in preference to the minority rule as more in harmony with
modern banking practice.’’
Idem; As to objects. — The second requisite in order that

legal compensation shall take place is t h a t both debts must consist
301
Domingo vs. Carlitos, 8 SCRA 443.
316
Compensation
in a sum of money, or if the things due are fungibles, they must

be of the same kind and also of the same quality if the latter has
been stated. It is evident t h a t this requisite contemplates only
obligations to give. The reason is t h a t compensation is as a general
rule not possible in obligations to do because of the differences in the
respective capacities of the obligors. 302
It must be observed t h a t the Code uses the word “consumable,”

although what is actually contemplated is the word “fungible.” This
is evident because of the fact t h a t “consumables” are those movables
which cannot be used in a manner appropriate to their nature
without being consumed, while “fungibles’’ are those which may be
exchanged or compensated by another of the same kind and quality.
Idem; As to maturity. — The third requisite is t h a t both
debts must be due. Consequently, n at ural obligations, conditional
obligations before the fulfillment of the event which constitutes the
condition, and obligations with a period before the expiration of the
period, cannot be compensated. 303
Idem; As to liquidation and demandability. — The fourth

requisite is t h a t the debts to be compensated must be liquidated
and demandable. Liquidated debts are those the amount of which
may be determined by a simple arithmetical operation. Hence, if 304
one of the debts or both of them are still unliquidated, there can be
no compensation. If both are partially liquidated compensation may
take place with respect to the parts which are liquidated, but not
with respect to those which are unliquidated, applying by analogy
the rule stated in Art. 1248, since compensation is merely a sort of
simplified payment. 305
Thus, the Supreme Court, in the case of Silahis Mktg. Corp. vs.
IAC (180 SCRA 217), held t h a t compensation is not proper where
the claim of the person asserting the set-off against the other is not
clear nor liquidated: compensation cannot extend to unliquidated,
disputed claim existing from breach of contract.
Reading No. 4 of Art. 1279 with No. 3, it is evident t h a t in order
t h a t the debts to be compensated may be considered demandable,
302
303
3 Castan, 7th Ed., p. 275; 8 Manresa, 5th Ed., Bk. 1, pp. 724-725.
304
305
Ibid., pp. 725-726.
317
it is necessary t h a t such debts must be due and, a t the same time,

liquidated. 306
Idem; As to claims of third persons. — The fifth requisite is

t h a t there must be no retention or controversy, commenced by third
persons and communicated in due time to the debtor, over either of
the debts. Retention consists in the application of the credit of one
of the parties to the satisfaction of the claims of a third person. It is
evident t ha t in such a case there can be no compensation. However,
if there is a n excess or balance remaining after the application
of the credit, compensation will still take place, but only to the
extent t h a t the credit is not affected by the retention. Controversy
refers to a case in which a third person claims to be the creditor.
In other words, the party interested in the compensation and the
third person each claims t h a t he is the real creditor. The effect of
such case is a provisional suspension of the compensation. If the
credit is adjudicated to the former, compensation takes place; if it is
adjudicated to the latter, compensation cannot take place. 307
Art. 1280. Notwithstanding the provisions of the preced-

ing article, the guarantor may set up compensation as re-
gards what the creditor may owe the principal debtor. 308
Right of Guarantor To Set Up Compensation. — The

above article constitutes a n exception to the rule stated in Art. 1279,
No. 1, in relation to Art. 1278. Under Arts. 1278 and 1279, No. 1, the
principal debtor can only set up compensation against the creditor
for what the latter owes him. He cannot set up what such creditor
owes the guarantor because then t h a t would violate the rule that
the parties must be principally bound. The guarantor, on the other
hand, in case the payment of the debt is demanded from him, may
set up compensation, not only for what such creditor owes him, but
also for what such creditor owes the principal debtor. This rule is
based on the fact t h a t the bond of the guarantor cannot be resorted
to so long as the debtor can pay although it may be in the abbrevi-
ated form of compensation and also on the fact t h a t if the principal
306
Luengco vs. Herrero, 17 Phil. 29; Compania General de Tobacos vs. French
and Unson, 39 Phil. 34.
307
308
318
Compensation
obligation is extinguished, the accessory obligation of the guarantor

is also extinguished since it is subordinated thereto. 309
Art. 1281. Compensation may be total or partial. When

the two debts are of the same amount, there is a total com-
pensation. 310
Art. 1282. The parties may agree upon the compensation

of debts which are not yet due. 311
Voluntary Compensation. — Actually, Art. 1282 is an

example of what is known as voluntary compensation. Thus, if the
obligation of A is pure, while the obligation of B is with a term or
period which has not yet expired, the general rule is t h a t there can
be no compensation because B’s obligation is not yet due. However,
the parties may nevertheless agree upon the compensation of the
two obligations.
Art. 1283. If one of the parties to a suit over an obligation

has a claim for damages against the other, the former may set
it off by proving his right to said damages and the amount
thereof. 312
Judicial Compensation. — In reality, what is set off against

the other party is a counterclaim. It will be remembered t h a t “a
counterclaim must be pleaded to be effectual; whereas, a compensa-
tion takes place by mere operation of law.’’ Hence, the counter-
313
claim defined by the Rules of Court is not the legal compensation

314
contemplated by the Code. This is so, because by its very n at ure a

set off or counterclaim can have no effect unless it is pleaded. In
addition, the claim is not liquidated; consequently, compensation
cannot take place. However, when the defendant who has a n unliq-
uidated claim for damages against the plaintiff sets it off by proving
his right to said damages and the amount thereof, it is converted
309
310
New provision.
311
New provision.
312
New provision.
313
Yap Unki vs.
Cha
314 Japco,
Sec. 6, Rule 6,14New Rules of Court.
Phil. 602.
319
into a liquidated claim by court decree, in which case compensa-

tion shall take effect from the moment the judgment liquidating the
claim h as become final.
Art. 1284. When one or both debts are rescissible or

voidable, they may be compensated against each other be-
fore they are judicially rescinded or avoided. 315
Rules in Case of Rescissible or Voidable Debts. — It

is evident t h a t the above rule is a n exception to the general rule
of demandability in order t h a t compensation shall take place.
This exception is justified by the fact t h a t rescissible or voidable
obligations are considered demandable while the vices with which
they are tainted are not yet judicially declared. Consequently, if the
action for rescission or annulment is not exercised, or is renounced,
or if the debt or debts are ratified the obligation or obligations are
susceptible of compensation. 316
Art. 1285. The debtor who has consented to the assign-

ment 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 assign-
or 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. 317
Effect of Assignment of Rights. — If a creditor assigns his

credit to a third person, what is the effect of such assignment upon
the debtor’s right to set up the defense of compensation in case the
315
New provision.
316
317
320
Compensation
assignee tries to enforce the credit against him? Before answering

this question, attention must be called to the fact t h a t a t the time
the assignment of rights is made by a creditor to a third person
compensation may have already taken place. Hence, a distinction
must always be made between the effects of the assignment
when compensation has already taken place and the effects when
compensation has not yet taken place.
Idem; When compensation has taken place. — Inasmuch
as compensation takes place ipso jure without any intervention
on the p ar t of the interested parties and, as a consequence, one or
the other obligation is extinguished, it follows t h a t the subsequent
assignment of rights by a creditor to a third person cannot in any
way affect the debtor with respect to the compensation which has
already taken place. The assignee, on the other hand, can only
demand indemnity for damages from the assignor on the ground
of fraud. The only exception to this rule is when the debtor had
consented to the assignment, in which case the assignee can still
demand for the payment of the credit. This exception is based on
318
the fact t h a t the law cannot protect a person who has acted
fraudulently in giving his consent. Besides, such consent is
deemed to be a waiver or a renunciation of the compensation t h a t
had already taken place. 319
Idem; When compensation has not taken place. — When

compensation has not yet taken place because of the absence of
any or some of those requisites which are necessary, such as when
the debts are not yet due or when they are not yet liquidated, and
the creditor assigns his right to a third person, the effects of such
assignment once all of the requisites for compensation are present
shall depend upon whether it was made with the consent, or with
the knowledge but without the consent, or without the knowledge of
the debtor.
Idem; id. — With consent of debtor. — If the creditor
assigned his right or credit to a third person with the consent of the
debtor, the latter cannot set up against the assignee the compensation
which would have pertained to him against the assignor. However,
if the debtor notified the assignor, a t the time he gave his consent,
t h a t he is reserving his right to the compensation, he can still set up
318
319
321
the defense of compensation against the assignee in case the latter

demands the payment of the assigned credit. 320
Idem; id. — With knowledge, but without consent, of

debtor. — Under the second paragraph of Art. 1285, if the creditor
notified the debtor of the assignment but the latter did not consent
thereto, and subsequently, the assignee demands the payment
of the assigned credit from the debtor, the latter may set up the
defense of compensation of debts prior to the assignment, but not of
subsequent ones. Evidently, the purpose of this rule is to prevent
321
fraud.
It is clear t h a t the assignment cannot take effect as far as the
debtor is concerned unless he is properly notified thereof. Hence, the
different rules may be restated as follows:
(1)If the notification preceded the assignment, the effects of
the assignment are produced from the time it is made and not
from the time the notification is given; consequently, the debtor can
set up the defense of compensation of debts contracted prior to the
assignment.
(2)If the notification and the assignment are made simul-
taneously, then there can be no question about the time when the
effects of the assignment are produced. In such case, the debtor can
set up the defense of compensation of debts contracted prior to the
assignment.
(3)If the notification is given after the assignment had
already been made, it is evident th a t the assignment must have been
effected without the knowledge and consent of the debtor, in which
case the provision of the last paragraph of Art. 1285 is applicable.
Idem; id. — Without knowledge of debtor. — If the as-
signment is made without the knowledge of the debtor, and subse-
quently, the assignee demands the payment of the credit which was
assigned, the debtor may set up the defense of compensation of all
credits which he may have against the assignor and which may have
become demandable, before he was notified of the assignment. In
322
other words, if the debtor is not aware of the assignment and the as-
320
321
322
322
Compensation
signor subsequently contracts new debts from him, such obligations

which become due and demandable before he was notified of the
assignment can be set off by way of compensation against the credit
which was assigned. In such case, the only remedy of the assignee is
a personal action for indemnification against the assignor. 323
Art. 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. 324
Art. 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. 325
Art. 1288. Neither shall there be compensation if one

of the debts consists in civil liability arising from a penal
offense. 326
Debts Which Cannot Be Compensated. — There are

five kinds of debts or obligations which are not susceptible of
legal compensation. They are: (1) debts arising from contracts of
depositum; (2) debts arising from contracts of commodatum; (3)
327 328
claims for support due by gratuitous title; (4) obligations arising

329
from criminal offenses; and (5) certain obligations in favor of the

330
government, such as taxes, fees, duties and others of a similar

nature. 331
With respect to the first, it will be observed t h a t the Code

uses the word “depositum” instead of the word “deposit.” Obviously,
323
324
325
326
New provision.
327
328
Ibid.
329
Ibid.
330
331
4 Tolentino, Civil Code 1956. Ed., p. 349.
323
the purpose is to prevent confusion with a bank deposit in which a

relationship of creditor and debtor is created between the depositor
and the bank. With respect to the third, although the rule is that
332
the right to receive support cannot be compensated with what the

recipient owes the obligor, yet this rule cannot be applied to support
in arrears. 333
Evidently, all of these prohibitions are based on justice. Some

of these obligations are based on trust and confidence; others on
self-preservation. Justice and humanity demand t h a t they must be
performed.
Art. 1289. If a person should have against him several

debts which are susceptible of compensation, the rules on
the application of payments shall apply to the order of the
compensation. 334
Art. 1290. When all the requisites mentioned in Article

1279 are present, compensation takes effect by operation of
law, and extinguishes both debts to the concurrent amount,
even though the creditors and debtors are not aware of the
compensation. 335
Effect of Compensation. — The most fundamental effect of

compensation is t h a t it extinguishes both debts to the extent that
the amount of one is covered by the amount of the other. If the 336
compensation is total because the amounts of both debts are equal,

it is evident t h a t both debts would be totally extinguished, since
the amount of one is entirely covered by the amount of the other;
however, if the compensation is partial because the amounts are
different, it is equally evident t h a t the extinguishment would be
total with respect to one and partial with respect to the other. 337
How about accessory obligations? Since the principal obligations

to which they are subordinated are extinguished, it follows t h a t such
accessory obligations are also extinguished. Such extinguishment
332
Gullas vs. Phil. Nat. Bank, 62 Phil. 519.
333
334
335
336
Art. 1290, Civil Code; Acuna vs. Dievas, 12 Phil. 250.
337
324
Novation
may be total or partial depending upon whether the compensation is

total or partial. 338
Idem; When compensation takes effect. — Since compen-

sation takes effect by operation of law, it is clear t h a t it will take
effect from the moment all of the essential requisites prescribed by
law are present, even though the creditor and debtor are not aware
thereof. Legal compensation operates even against the will of the
339
interested parties even without their consent. Since this compensa-

tion takes place ipso jure, its effects arise on the very day on which
all its requisites concur. When used as a defense, it retroacts to the
duty when its requisites are fulfilled. (BPI vs. CA, et al., 255 SCRA
571.) This rule, however, is applicable only to legal compensation.
Nevertheless, it is equally clear t h a t voluntary compensation will
take effect from the moment agreed upon by the parties, while ju-
dicial compensation will take effect from the moment t h a t the judg-
ment becomes final and executory. 340
Section 6. — Novation
Art. 1291. Obligations may be modified by:

(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3)Subrogating a third person in the rights of the
creditor. 341
Concept of Novation. — Novation is the substitution or

change of a n obligation by another, resulting in its extinguishment
or modification, either by changing its object or principal conditions,
or by substituting another in place of the debtor, or by subrogating
a third person in the rights of the creditor. It is one of the modes of
342
338
Ibid.
339
Art. 1290, Civil Code. Legal compensation operates even against the will of the
interested parties even without their consent. Since this compensation takes place
ipso jure, its effects arise on the very day on which all its requisites concur. When
used as a defense, it retroacts to the date when its requisites are fulfilled. (BPI vs.
CA, et al., 255 SCRA 571.)
340
See 4 Tolentino, Civil Code, 1956 Ed., p. 351.
341
342
325
extinguishing obligations through the creation of a new one effected

by the change or substitution of a n obligatory relation by another
with the intention of substantially extinguishing or modifying the
same. 343
The distinctive feature or characteristic of novation is t h a t al-

though it extinguishes the obligation, it also gives birth to another
obligation. It has, therefore, a two-fold purpose — t h a t of extinguish-
ing the old obligation, and t h a t of giving birth to a new obligation to
take the place of the old. However, unlike the others, as a mode of
344
extinguishment, it is relative in character, not absolute. 345
Requisites. — In every novation there are four essential

requisites: first, a previous valid obligation; second, agreement of
the parties to the new obligation; third, extinguishment of the old
obligation; and fourth, validity of the new obligation. 346
Novation, in its broad concept, may either be extinctive or

modificatory. It is extinctive when a n old obligation is terminated by
the creation of a new obligation t ha t takes the place of the former;
it is merely modificatory when the old obligation subsists to the
extent it remains compatible with the amendatory agreement. An
extinctive novation results either by changing the object or principal
conditions (objective or real), or by substituting the person of the
debtor or subrogating a third person in the rights of the creditor
(subjective or personal). Under this mode, novation would have
dual functions — one to extinguish a n existing obligation, the other
to substitute a new one in its place — requiring a conflux of four
essential requisites: (1) a previous valid objection; (2) a n agreement
of all parties concerned to a new contract; (3) the extinguishment of
the old obligation; and (4) the birth of a valid new obligation. (Quinto
vs. People, April 14, 1999, 305 SCRA 708.)
Problem — Suppose th at under the judgment obligation,

the liability of the judgment debtor is for the amount of P6,000,
but both judgment debtor and judgment creditor subsequently
entered into a contract reducing the liability of the former to
343
4 Sanchez Roman 242; quoted by Court of Appeals in Government vs. Bautis-
ta, CA, 37 Off. Gaz. 1880.
344
Tiu Siuco vs. Habana, 45 Phil. 707.
345
346
326
Novation
only P4,000, is there an implied novation which will have the

effect of extinguishing the judgment obligation and creating a
modified obligatory relation? Reasons.
Answer — There is no implied novation in this case. We
see no valid objection to the judgment debtor and the judgment
creditor in entering into an agreement regarding the monetary
obligation of the former under the judgment referred to. The
payment by the judgment debtor of the lesser amount of P4,000,
accepted by the creditor without any protest or objection and
acknowledged by the latter as in full satisfaction of the money
judgment, completely extinguished the judgment debt and
released the debtor from his pecuniary liability.
Novation results in two stipulations — one to extinguish
an existing obligation, the other to substitute a new one in its
place. Fundamentally, it is th at novation effects a substitution
or modification of an obligation by another or a n extinguishment
of one obligation by the creation of another. In the case at
hand, we fail to see what new or modified obligation arose out
of the payment by the judgment debtor of the reduced amount
of P4,000 to the creditor. Additionally, to sustain novation
necessitates th at the same be so declared in unequivocal terms
clearly and unmistakably shown by the express agreement of
the parties or by acts of equivalent import — or t ha t there is
complete and substantial incompatibility between the two
obligations. (Sandico vs. Piguing, 42 SCRA 322.)
Kinds. — Novation may be classified as follows:

(1) As to its essence, novation may be (a)
objective or real,
(b) subjective or personal, or (c) mixed. Objective or real novation
347
refers to the change either in the cause, object or principal conditions

of the obligations. Subjective or personal novation, on the other
348
hand, refers to the substitution of the person of the debtor or to the

subrogation of a third person in the rights of the creditor. When 349
there is a substitution of the person of the debtor, it is called passive;

when there is a subrogation in the rights of the creditor, it is called
active. Mixed novation refers to a combination of objective and
subjective novation. 350
347
348
350
349 3 Castan,
Art. 1291, 7th Ed.,
Nos. p. 284.
2 and 3, Civil Code.
327
(2)As to its form or constitution, novation may be express or

tacit, one and the other are recognized by the Code. When it is 351
declared in unequivocal terms t h a t the old obligation is extinguished

by a new one which substitutes the same, the novation is express;
when the old and the new obligations are incompatible with each
other on every point, the novation is tacit or implied. 352
(3)As to its extent or effect, novation may be total or partial

depending upon whether there is a n absolute extinguishment of the
old obligation or merely a modification. 353
Idem; Objective novation. — According to Castan, objective

or real novation, which is the novation referred to in No. 1 of Art.
1291, may be effected by: (1) changing the cause of the obligation; or
(2) changing the object of the obligation; or (3) changing the
principal or essential conditions of the obligation. 354
Idem; id. — Change of cause. — Although the Code does not

speak of a change in the cause of the obligation as one of the
methods whereby novation may be effected, it is evident t h a t such
a change or modification will result in the extinguishment of the
obligation. Manresa gives the example of a contract of sale or a
contract of lease in which the price has not yet been paid to the
vendor or lessor. If the parties to the contract subsequently enter
into a new agreement whereby the obligation to pay is converted
into a loan made to the vendee or lessee, the result is a real or
objective novation. Castan, on the other hand, gives the example of
355
a contract of loan converted into a contract of deposit. 356
Idem; id. — Change of object. — It is also evident t h a t when

there is a change or modification of the object of a previous obligation
there is a novation of such obligation. Thus, in those cases where a
certain amount is due to the obligee or creditor, any modification
in the amount due or any change whereby the obligation to pay
is converted into a n obligation to render a personal service would
constitute a novation. The same is true in case of dation in
payment. 357
351
Ibid., p. 285.
352
353
354
Ibid., pp. 289-920.
355
357
Ibid.,356p. 290.
328
Novation
Idem; id. — Change of principal conditions. — It is also

evident t h a t when there is a change or modification of the condi-
tions of a previous obligation there is also a novation. However, the
change or modification must refer to a principal, not incidental, con-
dition resulting in the alteration or modification of the essence of
the obligation. In other words, only those changes of a n essential,
not accidental, character can effect a novation of the previous or
original obligation. Consequently, where the debtor merely exe-
358
cutes another instrument reiterating or ratifying his obligation to

the creditor, without changing its object or principal conditions,
359
although there might be minor changes with regard to the form of

payment, 360
or with regard to additional facilities or benefits af-
361 362
forded to him, there is no novation of the obligation. Even granting

t h a t there were some changes and alterations made after the perfec-
tion of a contract, such as where both contracting parties agree that
certain additions shall be made to a building under construction,
such changes shall not result in the novation thereof, provided that
they are not so great t h a t it will be impossible to follow the original
contract; hence, the contractor cannot say t h a t the original contract
has been entirely abandoned in such a way t h a t he can now recover
from the other party on the basis of quantum meruit. This conclu- 363
sion gains added force where it is established t h a t the original con-

tract was used as the basis for the construction of the building, and
those alterations which were subsequently made were founded upon
the original contract with the understanding t h a t the owner shall
pay the reasonable value of all such alterations. Similarly, where
364
the change or alteration consists in providing for another method of

payment or for additional security, it is clear t h a t such change
365 366
or modification cannot constitute a novation of the previous obliga-

tion, considering the fact t h a t the change is not with regard to an
358
Ibid., p. 291.
359
Ramos vs. Gibbon, 67 Phil. 371; Padilla vs. Levy Hermanos, Inc., 69 Phil. 681;
Asiatic Petroleum Co. vs. Sim Poo, CA, 49 Off. Gaz. 44.
360
Ramos vs. Gibbon, 67 Phil. 371.
361
Asiatic Petroleum Co. vs. Sim Poo, CA, 40 Off. Gaz. 44; Yellow Ball Freight
Lines, Inc. vs. Western Export Co., CA, G.R. No. 10422-R, Sept. 3, 1954.
362
Padilla vs. Levy Hermanos, Inc., 69 Phil. 681.
363
364
Ibid.
365
Zapanta vs. De Rotaeche, 21 Phil. 154.
366
Bank of the P.I. vs. Herridge, 47 Phil. 57.
329
essential condition of the previous obligation and t h a t there can be

no incompatibility between the old and the new obligation.
Art. 1292. In order that an obligation may be extinguished

by another which substitutes the same, it is imperative that
it be so declared in unequivocal terms, or that the old and
the new obligations be on every point incompatible with
each other. 367
Form of Extinguishment. — One of the essential requisites

of novation is the extinguishment of the previous obligation by the
new one. What is the form of this extinguishment? The Code does
368
not provide for any specific form. However, under Art. 1292, it may
be either express or implied. It is express when there is a declaration
in unequivocal terms t h a t the old obligation is extinguished by the
new which substitutes it; it is tacit or implied when the old and
the new obligations are incompatible on every point. Novation 369
as one of the modes of extinguishing a n obligation, requires the

concurrrence of the following: (1) there is a previous valid obligation;
(2) the parties concerned agree to a new contract; (3) the old
contract is extinguished; and (4) there is a valid new contract. (Cruz
vs. Court of Appeals, July 27, 1998, 293 SCRA 239.)
The rule is settled t h a t novation by presumption has never
been favored. To be sustained it must be established t h a t the old
and new contracts are incompatible in all points, or t h a t the will
to novate appears by express agreement of the parties or in acts
of similar import; in other words, the animus novandi or the
370
intent to substitute a new obligation for the old one must be clearly
established before we can say t h a t there is a novation resulting in
the extinguishment of the old obligation and in the creation of a
new one. Novation is never presumed, and the animus novandi,
371
367
368
369
370
Dungo vs. Lopena, 116 Phil. 1305; Magdalena Estate, Inc. vs. Rodriguez, 18
SCRA 967.
371
Martinez vs. Cavives, 25 Phil. 581; Tiu Siuco vs. Habana, 45 Phil. 707; Young
vs. Villa, 49 Off. Gaz. 1818; Joe’s Radio & Electrical Supply vs. Alto Electronics Corp.,
104 Phil. 333.
330
Novation
whether totally or partially, must appear by express agreement of

the parties, or by their acts t h a t are too clear and unequivocal to be
mistaken. (Quinto vs. People, April 14, 1999, 305 SCRA 708.) In the
words of the Supreme Court:
“Novation of contracts cannot be presumed in any case

unless it is a necessary result of the express will of the parties,
or t hat the old and the new obligations are incompatible in all
points.
It is not proper to consider an obligation novated by
unimportant modifications which do not alter its essence and
when it is not extinguished by another which takes its place or
substitutes the person of the debtor.
Novation is a contract, the object of which is: either to
extinguish an existing obligation and to substitute a new one in
its place; or to discharge an old debtor and substitute a new one
for him; or to substitute a new creditor for a n old creditor with
regard to whom the debtor is discharged.
It is never presumed. The intention must clearly result
from the terms of the agreement or by a full discharge of the
original debt. Novation by the substitution of a new debtor can
take place without the consent of the debtor but the delegation
does not ooiperate a novation, unless the creditor has expressly
declared th at he intends to discharge with delegating debtor,
and the delegating debtor was not in open failure or insolvency
at the time. The mere indication by a debtor of a person who is
to pay in his place does not operate a novation. Delegatus debitor
est odiosus in lege.’’372
In People’s Bank and Trust Co. vs. Syvel’s, Inc. (164 SCRA
247), Syvel’s had a loan with People’s Bank and Trust Co. in the
amount of P900,000.00 secured by a chattel mortgage. Syvel’s
failed to pay the loan and People’s Bank and Trust Co. foreclosed
the chattel mortgage. Syvel’s opposed the foreclosure of the chattel
mortgage on the ground t h a t the obligation secured by the chattel
mortgage sought to be foreclosed was novated by the subsequent
execution of a real estate mortgage as additional collateral to the
obligation secured by said chattel mortgage. The Supreme Court
held: “Novation takes place when the object or principal condition of
372
Martinez vs. Cavives, 25 Phil. 581.
331
a n obligation is changed or altered. It is elementary th a t novation

is never presumed, it must be explicitly stated or there must be
manifest incompatibility between the old and the new obligation in
every aspect. In the case a t bar, there is nothing in the Real Estate
Mortgage which supports appellants’ submission. The contract
on its face does not show the existence of a n explicit novation
nor incompatibility on every point between the old and the new
agreements as the second contract evidently indicates t h a t the same
was executed as new additional security to the chattel mortgage
previously entered into by the parties.’’
In the case of Sps. Francisco and Ruby Reyes vs. BPI Family
Savings Bank, Inc., et al., G.R. Nos. 149840-41, March 31, 2006,
Petitioner spouses executed a Real Estate Mortgage on their
property in favor of respondent BPI FSB to secure a P15,000,000
loan of Transbuilders Resources & Development Corporation.
When the latter failed to pay within the stipulated period of one
year, the loan was restructured providing t h a t the loan shall be
paid in quarterly installments a t interest of 18% per annum.
Petitioners averred that they were not informed about the
restructuring of the loan. Hence, they wrote BPI FSB requesting
cancellation of their mortgage and the retur n of their title. They
claimed t h a t the new loan novated the loan agreement and t h a t
because the novation was without their consent, they were
allegedly released from their obligation under the mortgage.BPI
FSB refused to cancel the mortgage and instituted extrajudicial
foreclosure proceedings against the petitioners. The latter filed
the i nstant petition.
Question —Was there a novation of the mortgage loan

contract?
Answer — No. Well-settled is the rule t h at with respect to
obligations to pay a sum of money, the obligation is not novated
by an instrument t hat expressly recognizes the old, changes only
the terms of payment, adds other obligations not incompatible
with the old ones, or the new contract merely supplements the
old one.
BPI FSB and Transbuilders only extended the repayment
term of the loan from one year to 20 quarterly installments
at 18% per annum. There was absolutely no intention by the
by the REM
parties executedorbyabrogate
to supersede the petitioners
the oldinloan
favorcontract
of BPI FSB. In
secured
332
Novation
fact, the intention of the new agreement was precisely to revive

the old obligation after the original period expired and the loan
remained unpaid. In the absence of an express agreement,
novation takes place only when the old and the new obligations
are incompatible on every point.
Idem; Express novation. — In order t h a t a n obligation may

be expressly extinguished by another which substitutes the same, it
is imperative t h a t it be so declared in unequivocal terms. Express
novation can therefore take place only when the intention to effect a
novation clearly results from the terms of the agreement or is shown
by a full discharge of the original debt; in other words, it can only
take place when the contracting parties disclose t h a t the object in
making the new contract is to extinguish the old one; otherwise,
the old contract remains in force and the new one is added to it.
Consequently, the mere fact t h a t the debtor had signed a second
promissory note for the balance of his indebtedness, does not mean
the extinguishment of the first promissory note, wherein the terms
of payment were expressly stipulated. Those terms, therefore, shall
still govern the m anner of liquidation of the said balance. 373
Idem; Implied novation. — In order t h a t a n obligation

may be impliedly extinguished by another which substitutes the
same, it is imperative t h a t the old and the new obligations must be
incompatible with each other on every point.
The test of incompatibility between the old and the new obli-
gations is to determine whether or not both of them can stand to-
gether, each having its own independent existence. If they can stand
together, there is no incompatibility; consequently, there is no nova-
tion. If they cannot stand together, there is incompatibility; conse-
quently, there is a novation. 374
Thus, where the new contract is merely a reiteration or ac-

knowledgment or ratification of the old contract with slight modifi-
cations or alterations with respect to the cause or object or principal
conditions, it is clear t h a t the two contracts can stand together, and
consequently, there can be no incompatibility between them. There-
373
Phil. Nat. Bank vs. Granada, CA, 51 Off. Gaz. 62.
374
Borja vs. Mariano, 66 Phil. 93.
333
fore, there can be no novation. This is so even where the second

375
contract provides for another method of payment, or for additional

376
security, or for the postponement of the date of payment. As a

377 378
ma tter of fact, even where the creditor receives a guaranty or ac-

cepts payments from a third person who has agreed to assume the
obligation, so long as there is no agreement t h a t the first debtor
shall be released from responsibility, there is no novation, and the
creditor can still enforce the obligation against the original debtor.
This is so even where a surety bond is filed, for the simple reason
t h a t such bond is not a new and separate contract but is merely an
accessory of the original contract. In such a case, the third per-
379
son who has assumed the obligation merely becomes a co-debtor or

surety. If there is no agreement as to solidarity, the first and second
debtors are considered obligated jointly. In all of these cases, since
380
there is no clear case of incompatibility and since the change does

not refer to a n essential or principal condition of the previous con-
tract, there can be no novation.
Problem — ABC Trading Co., a domestic corporation

engaged in the sale of automobile spare parts, opened with “X’’
Bank a letter of credit up to the extent of $450,000.00 for a period
of one year. To secure payment thereof, it executed a chattel
mortgage over its stock-in-trade valued at P500,000.00. On May
15 and Ju n e 15, 1981, “Y,” president and general manager of
ABC Trading, drew against this letter of credit by means of
promissory notes in the total amount of P430,000.00, payable
within 30 days from the respective dates of the promissory notes
with interest of 10%. Upon maturity of said notes, ABC Trading
failed to pay, but was able to negotiate for a n extension of six
(6) months within which to pay said amount, in ret urn
for the additional security posted by Mr. “Y’’ consisting of a real
estate mortgage over his land in Manila. At the end of 6
months, ABC
375
Tiu Siuco vs. Habana, 45 Phil. 707; Ramos vs. Gibbon, 67 Phil. 371; Padilla vs.
Levy Hermanos, Inc., 69 Phil. 681; Pablo vs. Sapungan, 71 Phil. 145; Asiatic Petrole-
u m Co. vs. Sim Poo, CA, 40 Off. Gaz. 44; Yellow Ball, Inc. vs. Western Export Co., CA-
G.R. No. 10422-R, Sept. 3, 1954; Magdalena Estate, Inc. vs. Rodriguez, 18 SCRA
967.
376
Zapanta vs. De Rotaeche, 21 Phil. 154.
377
Bank of the P.I. vs. Herridge, 47 Phil. 57.
378
Ynchausti & Co. vs. Yulo, 34 Phil. 978; Pascual vs. Lacsamana, 100 Phil. 381;
La Tondeña, Inc. vs. Alto Surety & Ins. Co., 101 Phil. 879.
SCRA 967.3 7 9 Magdalena Estate, Inc. vs. Rodriguez, 18 SCRA 967.
380
Dungo vs. Lopena, 116 Phil. 1305; Magdalena Estate, Inc. vs.
Rodriguez, 18 334
Novation
Trading Co. failed to pay the amount due despite repeated

demands by “X’’ Bank. “Y’’ Bank filed an action for foreclosure
of the chattel mortgage executed by ABC. Trading ABC Trading
opposed said action contending th at the chattel mortgage has
been novated by the real estate mortgage executed by “X’’ Bank.
Is the contention of ABC Trading Co. tenable? Reasons.
Answer — The contention of ABC Trading Co. t h at the
chattel mortgage has been novated by the real estate mortgage
executed by Mr. “R” in favor of “X’’ Bank is untenable. Well-
settled is the rule th at in order th at there will be a novation there
must be complete incompatibility between the two obligations.
And the test of incompatibility is simple. The test is whether the
two obligations can stand together. If they can stand together,
then there is no incompatibility. If there is incompatibility, then
there is novation. Applying the test to the i nst ant case, it is clear
th at the two obligations can stand together. Therefore, there is
no novation.
(Note: The above answer is based on Arts. 1291[1], and
1292 of the Civil Code and on decided cases, such as Bank of P.I.
vs. Herridge, 47 Phil. 57; Ynchausti and Co. vs. Yulo, 34 Phil.
978; Pascual vs. Lacsamana, 100 Phil. 391; La Tondeña vs. Alto
Surety & Ins. Co., 101 Phil. 879.)
Problem — A obtained a favorable judgment against
B from the Court of First Instance of Manila for the sum of
P2,000. Subsequently, a writ of execution was issued and a jeep
belonging to the latter was seized by the sheriff. However, the
two (A and B) arrived at a n arrangement by virtue of which B
executed a chattel mortgage on the jeep stipulating, inter alia
th at B shall satisfy the judgment in two equal installments pay-
able at designated periods. B failed to pay the first installment,
and as a result, A obtained an alias writ of execution and levied
upon certain personal properties of B. The latter filed a n urgent
motion for suspension of the execution sale on the ground of pay-
ment of the judgment obligation. He maintains t h a t the execu-
tion of the deed of chattel mortgage has extinguished the judg-
ment debt because of implied novation. Is this correct? Reasons.
Answer — The contention of B t ha t the mortgage obliga-
tion has extinguished the judgment obligation because of im-
plied novation is not correct.
The defense of implied novation requires clear and
convincing proof of complete incompatibility between the two
obligations. The law requires no specific form for a n effective
novation by implication. The test is whether the two obligations
335
can stand together. If they cannot, incompatibility arises,

and the second obligation novates the first. If they can stand
together, no incompatibility results and novation does not take
place.
Applying this test, we see no substantial incompatibility
between the mortgage obligation and the judgment obligation
sufficient to justify a conclusion of implied novation. The
stipulation for the payment of the obligation under the terms of
the deed of chattel mortgage serves only to provide a n express
and specific method for its extinguishment — payment in two
equal installments. The chattel mortgage simply gave the
judgment debtor a method and more time to enable him to fully
satisfy the judgment indebtedness. (Millar vs. Court of Appeals,
38 SCRA 642.)
But where there is a clear case of incompatibility between the

two contracts in the sense t h a t they cannot stand together, such
as where there is a change, not only of the parties but also of the
amount due as well as of the date of maturity, it is clear t h a t there
is a novation. Consequently, only the second contract can be the
381
basis of a n action between the parties. Thus, where a third person

382
proposed to the creditor t ha t he is assuming the entire obligation of

the debtor, and such proposal was categorically accepted, it cannot
be argued later on t h a t there is no novation which will have the
effect of wiping out the old obligation on the ground t h a t since
novation cannot be presumed, consequently, the act of the creditor
in accepting the offer of the third person merely implies t h a t he
is accepting such third person as a n additional debtor. It must be
remembered t h a t novation of a contract may be effected not only by
expressly declaring t h a t the parties intended such a change, but also
where the new obligation is in all respect incompatible and cannot
stand side by side with the former one. Hence, the substitution of the
third person as debtor by virtue of his agreement with the creditor
essentially and entirely wiped out the original obligation. 383
In the case of obligations with a term or period, a distinction

must be made with regard to the effect of any subsequent change of
381
Macondray & Co. vs. Ruiz, 66 Phil. 562. To the same effect: Paterson vs. Aza-
da, 8 Phil. 432; F u a vs. Yap, 74 Phil. 287.
382
Borja vs. Mariano, 66 Phil. 393.
383
Phil. Nat. Bank vs. Mallari, 104 Phil. 437.
336
Novation
the term or period. If there is a n increase of the term or period, such

as when there is a postponement of the date of payment, or an 384
extension of the period of payment, there is certainly no novation

385
because in such cases there is no clear case of incompatibility

between the two obligations; neither is there a change in the
obligatory relation between the parties which will alter the
essence of the obligation. But if there is a reduction or decrease
386
of the duration of the term or period, there is certainly a novation,

not only because there is a clear case of incompatibility between the
two obligations, but there is also a change or alteration of the
principal condition of the old obligation. Thus, where the two
387
contracting parties entered into a second contract reducing the

duration of the term or period of a right of way from twenty to
seven years, “there can be no doubt t h a t the two contracts, in so far
as the duration of the right of way is concerned, are incompatible
with each other, for the second contract reduces the period agreed
upon in the first contract, and so both contracts cannot subsist a t
the same time. The term stipulated in the second contract cannot
be added to t h a t of the first, because the period would then be
twenty-seven years instead of twenty years.’’ 388
In the case of Cruz vs. Court of Appeals (July 27, 1998, 293
SCRA 239), the Court ruled t h a t the Memorandum of Agreement
falls short of producing a novation because it does not express a
clear intent to dissolve the old obligation as a consideration for the
emergence of the new one. Likewise, petitioner failed to show that
the two contracts were materially and substantially incompatible
with each other.
Further, in the case of Quinto vs. People (April 14, 1999, 305
SCRA 708), the Court stated t h a t “the extinguishment of the old
obligation by the new one is a necessary element of novation which
may be effected either expressly or impliedly. The term “expressly’’
means t h a t the contracting parties incontrovertibly disclose that
their object in executing the new contract is to extinguish the
old one. Upon the other hand, no specific form is required for an
384
Pascual vs. Lacsamana, 100 Phil. 381.
385
Ynchausti & Co. vs. Yulo, 34 Phil. 978; La Tondeña, Inc. vs. Alto Surety & Ins.
Co., 101 Phil. 879.
386
387
Ibid., pp. 291-292.
388
Kabankalan Sugar Co. vs. Pacheco, 55 Phil. 555.
337
implied novation, and all t h a t is prescribed by law would be an

incompatibility between the two contracts. While there is really
no hard and fast rule to determine what might constitute to be a
sufficient change t h a t can bring about novation, the touchstone for
contrariety, however, would be a n irreconcilable incompatibility
between the old and the new obligations.’’
Moreover, the Court significantly stated in the said case of
Quinto vs. People t h a t “there are two ways which could indicate,
in fine, the presence of novation and thereby produce the effect
of extinguishing a n obligation by another which substitutes the
same. The first is when novation has been explicitly stated and
declared in unequivocal terms. The second is when the old and
the new obligations are incompatible on every point. The test of
incompatibility is whether or not the two obligations can stand
together, each one having its independent existence. If they cannot,
they are incompatible and the latter obligation novates the first.
Corollarily, changes t h a t breed incompatibility must be essential
in nature and not merely accidental. The incompatibility must
take place in any of the essential elements of the obligation, such
as its object, cause or principal conditions thereof; otherwise, the
change would be merely modificatory in nat ure and insufficient to
extinguish the original obligation. The Court also ruled t h a t the
subsequent novation of contract does not affect the criminal liability
for estafa already committed, for it is a public offense which must be
prosecuted and punished by the state.’’
Art. 1293. Novation which consists in substituting a new

debtor in the place of the original one, may be made even
without the knowledge or against the will of the latter, but
not without the consent of the creditor. Payment of the new
debtor gives him the rights mentioned in Articles 1236 and
1237. 389
Novation By Substitution of Debtor. — This type of

subjective or personal novation consists in the substitution of a new
debtor in the place of the original debtor, which must be effected with
the consent of the creditor a t the instance of either the new debtor or
389
338
Novation
the old debtor. It has two forms — substitution by expromisión and

substitution by delegación. 390
If the substitution of debtors is effected with the consent

of the creditor a t the instance of the new debtor even without
the knowledge or against the will of the old debtor, it is called
expromisión. Consequently, the following requisites must concur:
first, the initiative for the substitution must e manate from the new
debtor; and second, consent of the creditor to the substitution. It
is, therefore, evident t h a t there are two kinds of substitution by
expromisión. They are: (1) substitution with the knowledge and
consent of the old debtor; and (2) substitution without the knowledge
or against the will of the old debtor.
If the substitution of debtors is effected with the consent of the
creditor a t the instance of the old debtor with the concurrence of the
new debtor, it is called delegación. In other words, delegación refers
to the substitution of debtors effected when the original debtor
offers and the creditor accepts a third person who consents to the
substitution. Consequently, the following requisites must concur:
391
first, the initiative for the substitution must em anate from the old
debtor; second, consent of the new debtor; and third, acceptance by
the creditor.
Manresa explains the concepts of expromisión and
delegación
as follows:
“The two forms of this novation, impliedly recognized by

article 1206 (now Art. 1295) which employs the word ‘delegante,’
as applied to the debt, are the expromisión and delegación.
Between these there is a marked difference of meaning and, as a
consequence, a logical difference of requisites and another clear
difference as to their effects, of which we shall speak later.
“In expromision, the initiative for the change does not
emanate from the debtor and may be made even without
his consent, since it consists in a third person assuming his
obligation.
“In delegacion, the debtor offers and the creditor accepts
a third person who consents to the substitution so t ha t the
intervention and the consent of these three persons are
necessary
391
390
8 Manresa, 5th Ed., Bk. 1, p. 777; 3 Castan, 7th Ed., p. 292.
339
and they are respectively known as delegante, delegatorio, and

delegado. It must be noted t hat the consent need not be given
simultaneously and t hat it may be given afterwards, as for
example, th at of the creditor delegatorio to the proposition of
the debtor by the delegado.
“Delegacion notably differs from the mere indication
made by the debtor th at a third person shall pay the debt; in
this case, there is no novation and the former is not acquitted
of his obligation and his relations with the third person are
regulated by the rules of agency. The French Code in Article
1276 expressly provides for this case, as well as the inverse one
where the debtor points out somebody else to answer for the
payment, declaring t hat there is no novation in either case. The
same sound criterion is impliedly accepted by our code.’’392
The case of Quinto vs. People, (April 14, 1999, 305 SCRA 709)
explain the concepts of expromisión and delegación as follows:
There are two forms of novation by substituting the person
of the debtor, depending on whose initiative it comes from, to
wit: expromisión and delegación. In the former, the initiative for
the change does not come from the debtor and may even be made
without his knowledge. Since a third person would substitute for the
original debtor and assume the obligation, his consent and t h a t of
the creditor would be required. In the latter, the debtor offers, and
the creditor accepts, a third person who consents to the substitution
and assumes the obligation, thereby releasing the original debtor
from the obligation; here, the intervention and the consent of all
parties thereto would perforce be necessary. In either of these two
modes of substitution, the consent of the creditor, such as can be
seen, is a n indispensable requirement.
Problem No. 1 — “A’’ owed “B’’ a certain sum of money. “C’’

wrote “B’’ a letter stating th at he would be the one to take care of
“A’s’’ debt as soon as “A’’ had made a shipment of logs to Japan.
“A’’ never made such shipment. “C’’ did not pay “B.’’ Is “C’’ liable
to “B’’? Explain. (1975 Bar Problem)
Answer — “C’’ is not liable to “B.’’ In the first place, in order
th at “C’’ may be held liable to “B,’’ there should have been a
392
8 Manresa, 5th Ed., Bk. 1, pp. 777-778, quoted in Testate
Serra,Estate
47 Phil. 464. vs.
of Mota
340
Novation
substitution of debtor through expromision within the meaning

of Art. 1291, No. 2, and Art. 1293 of the Civil Code resulting
in novation of the obligation. Here, there was none. “C’’ merely
wrote a letter to the creditor “B” stating th at he would take care
of “A’s” debt. The problem does not even say t h a t “B” gave his
assent or consent to “C’s’’ statement. In the second place, even
assuming th at there was a substitution of debtor, “C’s’’ liability
depends upon a suspensive condition, t hat he would take care of
“A’s’’ debt as soon as “A’’ had made a shipment of logs to Japan.
“A” never made such shipment. Therefore, “C’s’’ liability never
became effective. (Villanueva vs. Girged, 110 Phil. 478.)
Problem No. 2 — “A’’ borrowed from “B” the sum of
P3,000.00. Three days after, “A’’ in a letter authorized the
Philippine National Bank to pay his debt to “B” out of whatever
crop loan might be granted to him by said Bank. On the same
day, the Bank agreed but the Bank paid “B’’ only P2,000.00.
On the date of maturity, “B’’ sued the Bank and “A’’ for the
remaining P1,000.00. Is the Bank liable to “B’’? (1975 Bar
Problem.)
Answer — The Bank is not liable to “B’’ for the remaining
P1,000.00. Even assuming t hat “B’’ gave his consent to “A’s’’
proposal th at the Bank shall pay his indebtedness of P3,000.00,
in reality, there was no substitution of debtor by delegacion
within the meaning of Arts. 1291, No. 2, and 1293 of the Civil
Code resulting in a novation of the obligation. The Bank never
assumed payment of the obligation. There was merely an
authorization, which was accepted by the Bank, t h at the latter
shall pay “A’s’’ debt out of whatever crop loan would be granted
to him by the Bank. As it turned out, the Bank agreed to lend
“A’’ only P2,000.00, and said amount was paid directly to “B’’ in
accordance with the Bank’s promise. Beyond t ha t amount, the
Bank cannot be held liable. (Hodges vs. Rey, 1 1 1 Phil. 219.)
Idem; Necessity of creditor’s consent. — Whether the sub-

stitution is effected through expromision or delegacion the consent
of the creditor must always be secured. The reason for this re-
393
quirement is obvious. Substitution of one debtor for another may

delay or prevent the fulfillment or performance of the obligation by
the temporary inability or insolvency of the new debtor. 394

393
Rio Grande Oil Co. vs. CA, 39 Off. Gaz. 986; Santissimo Rosario de
394
Gemperle,
Molo CA,
vs. 39 Off. Gaz. 1410.
341
The law does not prescribe when such consent may be given;
neither does it require any specific form. Consequently, it may be
given simultaneously with the substitution or even afterwards.
And since consent may as well be expressed by deeds as by words,
it may be express or implied. Thus, where a stockholder in a
395
certain corporation sold his shares of stock to another subject to the

condition t h a t his indebtedness to the corporation shall be assumed
by the latter and the corporation was duly notified regarding the sale
including all of the terms and conditions thereof, the act of the Board
of Directors of the corporation in electing the vendee as president of
the corporation as well as member of the Board of Directors as a
substitute of the vendor clearly constitutes a n implied acceptance
of the substitution of debtors. There is, therefore, a novation by the
substitution of debtors, which is perfectly valid and lawful placing
the new debtor under obligation to pay the debt which he has
assumed. It must be observed, however, t h a t the mere act of the
396
creditor in accepting payments by a third party for the benefit of a

debtor whose accounts the third party has assumed, without further
facts, does not constitute a n implied acceptance of the substitution of
the debtor. Thus, where the mortgagor transferred the mortgaged
397
property to a third person subject to the condition t h a t the latter

shall assume the payment of the obligation, the mere fact t h a t the
creditor accepted payments from the transferee does not relieve the
mortgagor from his obligation to pay the unpaid balance of the debt,
since the substitution of debtors was made without the consent of
the creditor — a requirement which is indispensable in order to
effect a novation of the obligation. In such case, it is evident t h a t
398
Arts. 1236 and 1237 of the Civil Code, and not Art. 1293, shall
govern.
Idem; Effect of payment by new debtor. — With regard to
the relation between the original debtor and the new debtor, since
donation cannot be presumed in such case, justice demands t h a t the
original debtor shall reimburse to the new debtor whatever benefits
395
Asia Banking Corp. vs. Elser, 54 Phil. 994; Elmac, Inc. vs. Gustilo, CA, 37 Off.
Gaz. 189; Rio Grande Oil Co. vs. Coleman, CA, 39 Off. Gaz. 986.
396
Asia Banking Corp. vs. Elser, 54 Phil. 994.
397
Pacific Commercial Co. vs. Sotto, 34 Phil. 237; McCullough vs. Veloso, 46 Phil.
1; Gov’t. of the Philippine Islands vs. Bautista, CA, 37 Off. Gaz. 1880; Rio Grande Oil
Co. vs. Coleman, CA, 39 Off. Gaz. 986.
398
McCullough vs. Veloso, 46 Phil. 1.
342
Novation
he may have derived therefrom. If the substitution was effected by

expromisión, and the debtor pays the debt or obligation, since such
payment is a real benefit to the original debtor, the relationship
shall be regulated by the rules regarding payment of a debt by a
third person — the specific rules applicable thereto depending
upon whether the substitution was made without the knowledge or
against the will of the original debtor or with the knowledge and
consent of such debtor. On the other hand, if the substitution was
effected by delegación, since ordinarily there would be a special
agreement of all the parties in such case, the relationship among
such parties shall be regulated by such agreement; however, in the
absence of a n agreement, the relationship shall be regulated by
the rules regarding payment of a debt by a third person with the
debtor’s consent, since in delegación the original debtor himself is
the one who initiates the substitution. 399
Consequently, in expromision —
(1)If the substitution was effected with the knowledge and
consent of the original debtor, and subsequently payment is made by
the new debtor with or without the knowledge and consent of such
original debtor, the new debtor can demand reimbursement from
the original debtor of the entire amount which he h as paid, and, at
400
the same time, be subrogated in all of the rights of the creditor.

401
(2)If the substitution was effected without the knowledge

and consent of the original debtor, and subsequently, payment is
made by the new debtor again without the knowledge and consent of
the original debtor, the new debtor can demand reimbursement from
the original debtor only insofar as the payment has been beneficial
to such debtor, but he cannot be subrogated in the rights of the
402
creditor. However, if payment is made with the knowledge and

403
consent of the original debtor, although the substitution had been

effected without his knowledge and consent, the new debtor can
still demand reimbursement from the original debtor of the entire
399
Manresa, 5th Ed., Bk. 1, pp. 778-779.
400
401
Arts. 1300, 1302, 1303, Civil Code.
402
403
Ibid.
343
amount which he has paid, and, a t the same time, be subrogated

404
in all of the rights of the creditor. 405
In delegación — since the substitution was effected with the

consent of all the parties, the new debtor (delegado) can demand
reimbursement from the original debtor (delegante) of the entire
amount which he has paid as well as compel the creditor
406
(delegatorio) to subrogate him in all of his rights. 407
Art. 1294. If the substitution is without the knowledge

or against the will of the debtor, the new debtor’s insolvency
or nonfulfillment of the obligation shall not give rise to any
liability on the part of the original debtor. 408
Art. 1295. The insolvency of the new debtor, who has

been proposed by the original debtor and accepted by the
creditor, shall not revive the action of the latter against the
original obligor, except when said insolvency was already
existing and of public knowledge, or known to the debtor,
when he delegated his debt. 409
Effect of Nonpayment By New Debtor. — As a general

rule, novation by substitution of the person of the debtor whether by
expromisión or by delegación has the effect of releasing the original
debtor from his obligation to the creditor and, a t the same time, of
substituting the new debtor thereto. 410
A problem, however, arises if the new debtor becomes insolvent

or is unable to fulfill the obligation. What would be the effect upon
the relationship between the creditor and the original debtor? Is the
liability of the latter revived? This question is answered by Arts.
1294 and 1295 of the Code. It must be observed t h a t the first is
applicable only to expromisión, while the second is applicable only
to delegación.
404
405
Arts. 1300, 1302, 1303, Civil Code.
406
407
Arts. 1300, 1302, 1303, Civil Code.
408
New provision.
409
410
344
Novation
Idem; If substitution is by expromision. — Before the

promulgation of the New Civil Code, it was universally admitted,
following the weight of Spanish authority, t h a t if the substitution
was effected by expromisión, the new debtor’s insolvency or
nonfulfillment of the obligation can never result in the revival of the
original debtor’s liability to the creditor. This doctrine is, of course,
based on the fact t h a t in expromisión, the substitution can be made
without the knowledge of the original debtor or even against his
will. With the promulgation of the New Civil Code, however, this
411
doctrine has been modified. According to Art. 1294, a provision

which is not found in the old Code, if the substitution was effected
without the knowledge or against the will of the original debtor, the
new debtor’s insolvency or nonfulfillment of the obligation shall not
revive the original debtor’s liability to the creditor. From this it can
be inferred t h a t if the substitution was effected with the knowledge
and consent of the original debtor, the new debtor’s insolvency or
nonfulfillment of the obligation shall revive the original debtor’s
liability to the creditor.
Idem; If substitution is by delegacion. — On the other
hand, if the substitution was effected by delegación, according to
Art. 1295, the right of action of the creditor can no longer be revived
except in the following cases: first, when the insolvency of the new
debtor (delegado) was already existing and of public knowledge at
the time when the original debtor (delegante) delegated his debt;
and second, when such insolvency was already existing and known
to the original debtor (delegante) when he delegated his debt. It
is evident t h a t the purpose of these two exceptions is to prevent
the commission of fraud. With regard to the first exception, it is,
of course, necessary t h a t the condition t ha t the insolvency of the
delegado was of public knowledge should exist a t the time the
delegación was made, because if it were otherwise, the delegante
cannot then be held responsible since he himself was not
aware of it.412
Art. 1296. When the principal obligation is extinguished

in consequence of a novation, accessory obligations may
411
Ibid., pp. 779-780.
412
Ibid., p. 780.
345
subsist only insofar as they may benefit third persons who

did not give their consent. 413
Effect Upon Accessory Obligations. — The rule stated in

the above article is a necessary consequence of the principle that
a n accessory obligation is dependent upon the principal obligation
to which it is subordinated. According to Manresa, the precept
applies to objective novations as well as to those novations effected
by substituting the person of the debtor. It cannot, however, apply to
novations effected by subrogating a third person in the rights of the
creditor because the effects of such novations are regulated by Arts.
1303 and 1304 of the New Civil Code. 414
The exception refers to a case in which there is a stipulation

constituted in favor of a third person, which may be demanded
separately from the principal obligation, although subordinated to
the latter. A good example of this would be the stipulation pour
415
autrui referred to in the second paragraph of Art. 1311 of the New

416
Civil Code. 417
Art. 1297. If the new obligation is void, the original one

shall subsist, unless the parties intended that the former
relation should be extinguished in any event. 418
Art. 1298. The novation is void if the original obligation

was void, except when annulment may be claimed only by
the debtor, or when ratification validates acts which are
voidable. 419
Effect If New and/or Old Obligations Are Void. — Among

the essential requisites of novation, whether objective or subjective,
are the validity of the new obligation and the existence of a previous
valid obligation. The first is deducible from the provision of Art.
420
413
414
415
Ibid., p. 793.
416
New provision.
417
418
New Provision; Tiu Siuco vs. Habana, 45 Phil. 707.
419
420
346
Novation
1297, while the second is expressly stated by the provision of Art.

1298. These requisites are logical because the purpose of novation is
the substitution of the new obligation for the old. In order to effect
the novation, it is, therefore, essential t h a t both the old and the new
obligation must be valid. If the old obligation is void, then there
421
is nothing to novate. The new obligation, therefore, cannot produce

any effect. The same is true if the old obligation has already been
extinguished. On the other hand, if the new obligation is void, then
422
there is no new obligation which is supposed to be the substitute

for the old obligation. Consequently, such old obligation shall still
subsist, unless the parties intended t h a t the former relation should
be extinguished in any event. 423
Idem; Rule if old obligation is voidable. — With respect

to voidable obligations, the rule is different. According to Art. 1298,
when the annulment of the obligation may be claimed only by the
debtor, or when there is a ratification of the obligation, the rule
t h a t the novation is void is not applicable. This is logical because
a voidable obligation is binding until it is annulled by a competent
court, and therefore, susceptible of ratification. It must, however,
424
be observed t h a t if the debtor concurs in the novation, he impliedly

renounces his right to ask for annulment, and therefore, validates the
obligation. But this concurrence is not always indispensable because
it may be lacking such as in the case of expromisión. Therefore, if he
does not concur in the substitution of debtors, and the new debtor,
who has assumed the obligation, eventually pays such obligation,
he (the old debtor) can still avail himself of the right to invoke the
voidable character of the obligation against any claim of the second
debtor. The second debtor, on the other hand, if he was aware of
the vice or defect of the obligation a t the time when he assumed
its payment, cannot avail himself of the right to invoke its voidable
character against any claim of the creditor. 425
421
422
423
8 Manresa, 5th Ed., Bk. 1, p. 798. These so-called exceptions found in Art.
1298 of the Code are not really exceptions because they refer to voidable contracts
(Art. 1390), while the general rule refers to void contracts (Art. 1409).
424
New provision.
425
3 Castan, 7th Ed., p. 289, quoted in Gov’t. of the Phil. vs. Bautista, CA,
Gaz. 37
1880.Off.
347
Art. 1299. If the original obligation was subject to a sus-

pensive or resolutory condition, the new obligation shall be
under the same condition, unless it is otherwise stipulated. 426
Effect If Old Obligation Is Conditional. — According to the

above article, if the original obligation was subject to a suspensive
or a resolutory condition, the new obligation shall be subjected to
the same condition, unless it is otherwise stipulated. This rule is
based on the same principle enunciated in the previous article, since
the fulfillment of the event which constitutes the condition has the
effect of either rendering a n obligation effective or extinguishing it
depending upon whether the condition is suspensive or resolutory.
In other words, if the original obligation is conditional, the novation
must also be conditional, and its efficacy shall, therefore, depend
upon whether the condition which affects the first is complied with
or not. 427
According to Manresa, if the previous obligation is conditional,

the fulfillment or non-fulfillment of the condition affects the subse-
quent obligation. This is true whether the condition is suspensive
or resolutory in character. The reason is t h a t the subsequent ob-
ligation was contracted on the basis of the efficacy of the previous
obligation as its equivalent. In other words, if the previous obliga-
tion does not arise because of the non-fulfillment of the suspensive
condition, or if it ceases to be effective because of the fulfillment of
the resolutory condition, then the previous obligation is placed in
the same category as a void obligation or a n obligation which has
already been extinguished. Hence, if the suspensive condition is not
fulfilled, the novation is valid; otherwise, it is not. 428
Cases may, however, arise in which the new, as well as the

previous, obligation is subject to different conditions. If the
conditions affecting both obligations can stand together, and they are
all fulfilled, the effect is t h a t the new obligation becomes
demandable; if only the condition affecting the first obligation is
fulfilled, the previous obligation is revived, while the new
obligation loses its force; if only the condition affecting the second
obligation is fulfilled, the effect is t h a t there is no novation since
the requisite of a previous valid
426
427
Ibid., p. 798.
428
348
Novation
and effective obligation would be lacking. If the conditions affecting

both obligations are incompatible with each other, it is evident that
the effect of such incompatibility is the extinguishment of the first
obligation so t h a t only one obligation remains — the new obligation
whose demandability or effectivity shall depend upon the fulfillment
or non-fulfillment of the condition affecting it. 429
Art. 1300. Subrogation of a third person in the rights of

the creditor is either legal or conventional. The former is not
presumed, except in cases expressly mentioned in this Code;
the latter must be clearly established in order that it may
take effect. 430
Novation By Subrogation. — The second method whereby

personal novation may be effected is by subrogating a third person in
the rights of the creditor. There are two forms of this kind of
novation
— conventional subrogation and legal subrogation. 431
Conventional subrogation is t h a t which takes place by the

agreement of the original creditor, the third person substituting
the original creditor, and the debtor, while legal subrogation is t h a t
which takes place by operation of law.
Art. 1301. Conventional subrogation of a third person

requires the consent of the original parties and of the third
person. 432
Conventional Subrogation. — Conventional subrogation

must be clearly established in order t h a t it may take effect. This
433
necessarily follows from the fact t h a t in conventional subrogation it

is essential t h a t there must be a n agreement of all the parties with
respect to the subrogation. As a m atter of fact, according to Art. 1301,
which gives the requisites of conventional subrogation, the consent
of the original creditor, of the third person who is subrogated to the
rights of the original creditor, and of the debtor is required.
429
430
New provision.
431
432
See Art. 1624, et seq., Civil Code.
433
349
There is, however, a case in which the creditor may transmit

his rights to a third person even without the consent of the debtor,
but in this case, there would be no novation of the obligation by
conventional subrogation, but a n assignment of rights. 434
The two may be distinguished from each other in the following

ways:
(1)As to rules which govern: Conventional subrogation is
governed by Art. 1300 to Art. 1304 of the Civil Code, while assignment
of rights is governed by Art. 1624 to Art 1627 of the same Code.
(2)As to necessity of debtor’s consent: In conventional
subrogation the debtor’s consent is required, while in assignment of
rights it is not.
(3)As to effect upon obligation: Conventional subrogation
has the effect of extinguishing the obligation and giving rise to a
new one, while assignment of rights has the effect of transmitting
the rights of the creditor to another person without modifying or
extinguishing the obligation.
(4)As to effect upon vices: In conventional subrogation defects or
vices in the original obligation are cured, while in assignment of
rights they are not.
(5)As to time of effectivity: In conventional subrogation the
effect arises from the moment of novation or subrogation, while in
assignment of rights the effect, as far as the debtor is concerned,
arises from the moment of notification. 435
Art. 1302. It is presumed that there is legal subrogation:

(6)When a creditor pays another creditor who is pre-
ferred, even without the debtor’s knowledge;
(7)When a third person, not interested in the obliga-
tion, pays with the express or tacit approval of the debtor;
(8)When, even without the knowledge of the debtor, a
person interested in the fulfillment of the obligation pays,
434
435
350
Novation
without prejudice to the effects of confusion as to the latter’s

share. 436
Legal Subrogation. — Legal subrogation is t h a t which

takes place without agreement of the parties but by operation of
law because of certain acts. Instances of legal subrogation are those
provided in this Art. 1302 of the NCC (Eduardo G. Ricarze vs. CA, et
al., G.R. No.160451, Feb. 9, 2007).
As a general rule, legal subrogation is not presumed. There 437
are, however, three exceptions to this rule. These exceptions are

enumerated in this same Art. 1302.
The word “preferred’’ under the first exception should be un-
derstood in its broad sense and in connection with the rules on pref-
erence of credits. It will be observed t h a t in this type of legal sub-
438
rogation, the subrogation may be effected even without the debtor’s

knowledge. Thus, if A has a credit of P20,000 against D which is se-
cured by a real estate mortgage, while B has also a credit of P10,000
against D which is not secured, and subsequently, B pays A the en-
tire indebtedness of D without the knowledge and consent of the
latter, it is clear t h a t B shall then be subrogated in all of the rights
of A, not only against the debtor, but even against third persons. D,
however, can still avail himself as against B of all defenses available
to him against A, such as compensation, payments already made, or
even any vice or defect of the former obligation. 439
With respect to the second exception, it is evident t h a t the

provisions of Arts. 1236 and 1237 are applicable. Consequently,
when a person, not interested in the obligation, pays such obligation
with the express or tacit approval of the debtor, he is entitled not
only to demand reimbursement for what he has paid, but also to be
subrogated in all of the rights of the creditor. However, if he pays
440
without the knowledge or against the will of the debtor, although he

is entitled to demand reimbursement to the extent t h a t the latter
436
437
Ibid., pp. 805-806.
438
Arts. 1236, 1302, No. 2, Civil Code.
439
440
351
has been benefited by the payment, 441

he is not subrogated in the
rights of the creditor. 442
With respect to the third exception, it is also evident t h a t a

“person interested in the fulfillment of the obligation’’ can only
refer to a co-debtor, a guarantor, the owner of the thing which is
given as security, or one who has a real right over the thing which
is the object of the obligation. As in the case of the first exception,
the debtor retains all of the defenses available to him against the
former. It must be observed, however, t h a t if it is a solidary debtor
443
who pays, there can be no subrogation because then the obligation is

extinguished, although such solidary debt or who paid can demand
reimbursement from his co-debtors of the shares which correspond
to them in the obligation. In other words, the co-debtor who made
the payment does not step into the shoes of the creditor because he
cannot enforce against his co-debtors the payment of the original
obligation. 444
Art. 1303. Subrogation transfers to the person subrogated

the credit with all the rights thereto appertaining, either
against the debtor or against third persons, be they
guarantors or possessors of mortgages, subject to stipulation
in a conventional subrogation. 445
Art. 1304. A creditor, to whom partial payment has been

made, may exercise his right for the remainder, and he shall
be preferred to the person who has been subrogated in his
place in virtue of the partial payment of the same credit. 446
Effect of Total Subrogation. — It must be remembered

t h a t the effects of the other forms of novation are governed by the
provisions of Art. 1296. The effects of novation by subrogating a
third person in the rights of the creditor, on the other hand, are
governed by the provisions of Arts. 1303 and 1304.
441
442
Wilson vs. Berkenkotter, 49 Off. Gaz. 1401; 8 Manresa, 5th Ed., Bk. 1, p. 807.
443
444
445
8 Manresa, 5th Ed., Bk. 1, pp. 814-815. For illustrative case, see Somes vs.
Molina, 15 Phil. 133.
446
352
Novation
Subrogation transfers to the third person who is subrogated

the credit with all of the rights which the original creditor had
against the debtor or against third persons. Hence, unlike the
other forms of novation, accessory obligations are not extinguished
because in such obligations the person subrogated also acquires
all of the rights which the original creditor had against third
persons. The application of this rule is absolute with respect to legal
subrogations; however, with respect to conventional subrogations,
such accessory obligations may be increased or reduced depending
upon the agreement of the parties.
Effect of Partial Subrogation. — The effect of partial
subrogation is given in Art. 1304. Thus, if P, a third person, pays
two-thirds of the indebtedness of D to C, such payment shall result
in the partial subrogation of P in the rights of the creditor, C. C’s
rights with respect to the remainder are not affected by the
subrogation. In other words, both rights shall co-exist. In case of a
conflict between the two, however, the right of C shall be preferred.
353
CONTRACTS
TITLE II. — CONTRACTS
CHAPTER 1
GENERAL PROVISIONS
Art. 1305. A contract is a meeting of minds between

two persons whereby one binds himself, with respect to the
other, to give something or to render some service. 1
Concept of Contracts. — In its derivative sense, the word

“contract’’ (cum traho) simply means a n agreement or convention. It
must be noted, however, t h a t a contract is not exactly synonymous
with a convention. While the latter is broad enough to include
any kind of agreement which may create, modify or extinguish
patrimonial and even family relations, the former, on the other
hand, is limited exclusively to those agreements which produce
patrimonial obligations. It is, therefore, clear t h a t “convention” is
the genus, while “contract’’ is the specie. Hence, a contract may be
2
defined as a juridical convention manifested in legal form, by virtue

of which one or more persons bind themselves in favor of another or
others, or reciprocally, to the fulfillment of a prestation to give, to do
or not to do. This restricted concept of contracts is adopted in Art.
3
1254 of the Spanish Civil Code — a concept which we have retained

in Art. 1305 of our Code.
Idem; Distinguished from other terms. — Contracts must
not be confused with other juridical conventions such as marriage,
adoption and succession. There are some essential differences. In
the first place, the principal source of the rights and obligations
of the parties in contracts is their agreement, while in the other
juridical conventions, it is the law itself. In the second place, rights
1
2
3 Castan, 7th Ed., pp. 298-300.
3
354
and obligations arising from contracts are concrete, limited and

transitory, while those arising from the other juridical conventions
are more or less elastic, absolute and permanent. As a mat ter of
4
fact, as far as a n ordinary contract and a contract of marriage are

concerned, we can very well enumerate the following distinctions
between the two:
(1)In a n ordinary contract, the parties may be two or more
persons of the same or of different sexes, while in a marriage
contract, it is necessary t h a t the parties must be one m a n and one
woman.
(2)In the first, the nature, consequences and incidents of the
contract are governed primarily by the agreement of the parties,
while in the second, the nature, consequences and incidents of the
marriage are governed by law.
(3)In the first, once the contract is executed, the result is a
contract, while in the second, once the marriage is celebrated, the
result is a status.
(4)The first can be terminated or dissolved by the mere
agreement of the parties, while the second cannot.
(5)In the first, in case of breach, the usual remedy is for
the injured party to institute a n action against the other party for
damages, while in the second, in case of breach, the usual remedy is
for the injured party to institute a civil action against the other party
for legal separation or a criminal action for adultery or concubinage.
Neither must contracts be confused with perfected or imperfect
promises. A perfected promise merely tends to insure and pave the
way for the celebration of a future contract. An imperfect promise
(policitación), on the other hand, is a mere unaccepted offer. 5
Nor must contracts be confused with either pacts or stipulations.

A pact is a n incidental part of a contract which can be separated
from the principal agreement, while a stipulation is a n essential
and dispositive par t which cannot be separated from such principal
agreement. 6
4
5
Ibid., p. 277.
6
Ibid., pp. 277-278.
355
Art. 1305 CONTRACTS
The Basic Duties of Persons when entering into Con-

tracts. —All men are presumed to be sane and normal and subject
to be moved by substantially the same motives. When of age and
sane, they must take care of themselves. In their relations with oth-
ers in the business of life, wits, sense, intelligence, training, ability
and judgment meet and clash and contest, sometimes with gain and
advantage to all, sometimes to a few only, with loss and injury to oth-
ers. In these contests, men must depend upon themselves –– upon
their own abilities, talents, training, senses, acumen, judgment. The
fact t h a t one may be worsted by another, of itself, furnishes no cause
of complaint. One m a n cannot complain because another is more
able, or better trained, or has better sense or judgment t ha n he has;
and when the two meet on a fair field, the inferior cannot m u rm ur if
the battle goes against him. The law furnished no protection to the
inferior simply because he is inferior, any more t han it protects the
strong because he is strong. The law furnishes protection to both
alike –– to one no more or less tha n the other. It makes no distinc-
tion between the wise and the foolish, the great and the small, the
strong and the weak. The foolish may lose all they have to the wise
but t h a t does not mean t h a t the law will give it back to them again.
Courts cannot follow one every step of his life and extricate him
from bad bargains, protect him from unwise investments, relieve
him from one-sided contracts, or annul the effects of foolish acts.
Courts cannot constitute themselves guardians of persons who are
not legally competent. Courts operate not because one person has
been defeated or overcome by another, but because he has been de-
feated or overcome illegally. Men may do foolish things, make ri-
diculous contracts, use miserable judgment, and lose money by then
–– indeed, all they have in the world; but not for t h a t alone
can the law intervene and restore. There must be, in addition, a
violation of law, the commission of what the law knows as a n
actionable wrong, before the courts are authorized to lay hold of the
situation and remedy it. (Valles vs. Villa, 35 Phil. 769; Sps.
Pascual vs. Ramos, G.R. No. 144712, July 4, 2002.)
The duty of the Courts in interpreting Contracts. - It
is not the province of the court to alter a contract by construction
or to make a new contract for the parties. Its duty is confined to
the interpretation of the one which they have made for themselves
without regard to its wisdom or folly as the court cannot supply
material stipulations or read into the contract words which it does
not contain. (Cuizon vs. CA, 260 SCRA 645.)
356
Elements of Contracts. — The elements of a contract may be

classified as follows:
(1)Essential — The essential elements are those without
which there can be no contract. These elements, in turn are
subdivided into common (comunes), special (especiales) and
extraordinary or peculiar (especialisimos). The common elements
are those which are present in all contracts, such as consent of the
contracting parties; object certain which is the subject of the
contract; and cause of the obligation which is established.
The special elements are present only in certain contracts,
such as delivery in real contracts or form in solemn ones.
The extraordinary elements are those which are peculiar to a
specific contract, such as the price in a contract of sale.
7
(2)Natural — The nat ural elements are those which are

derived from the natu re of the contract and ordinarily accompany
the same. They are presumed by the law, although they can be
excluded by the contracting parties if they so desire. Thus, 8
warranty against eviction is implied in a contract of sale,

although the contracting parties may increase, diminish or even
suppress it. 9
(3)Accidental — The accidental elements are those which

exist only when the parties expressly provide for them for the
purpose of limiting or modifying the normal effects of the contract.
Examples of these are conditions, terms and modes. 10
Idem; Parties to a contract. — From the very definition of a

contract as enunciated in Art. 1305, it is evident t h a t the existence
of two parties is also another essential element which is common to
all contracts and must, therefore, be added to the requirements of
consent, object certain and cause. Consequently, a person cannot
enter into a contract with himself. There are, however, certain
cases where a juridical relation, known as a n auto-contract, may be
created wherein, apparently, there is only one party involved, but
in reality, said party merely acts in the nam e and for the account
of two distinct contracting parties. This may take place (1) when a
7
3 Castan, 7th Ed., pp. 322-324.
8
Ibid., p. 324.
9
10
357
Art. 1305 CONTRACTS
person, in his capacity as representative of another, contracts with

himself, or (2) when as a representative of two different persons,
he brings about a contract between his principals by contracting
with himself, unless there is a conflict of interests or when the law
expressly prohibits it in specific cases. 11
Characteristics of Contracts. — The four most fundamental

characteristics of contracts are: first, the obligatory force or character
of contracts (obligatoriedad del contrato); second, the autonomy of
contracts; third, the mutuality of contracts, or what amounts to the
same thing, the essential equality of the contracting parties; and
fourth, the relativity of contracts (relatividad del contrato).
The principle of the obligatory force of contracts is explicitly
recognized in Arts. 1159, 1308, 1315 and 1356 of the Civil Code.
It refers to the rule so fundamental in all contracts, t h a t once
the contract is perfected, it shall be of obligatory force upon both
of the contracting parties. Consequently, such contracting parties
are bound, not only to the fulfillment of wh at has been expressly
stipulated, but also to all of the consequences thereof. 12
The principle of the mutuality of contracts, on the other hand,

can be deduced, not only from the very nat ure of contracts, but also
from Art. 1308. This principle refers to the position of essential
equality t h a t is occupied by both contracting parties in relation to
the contract. The contract must be binding upon both of the parties.
Consequently, its validity or compliance cannot be left to the will of
one of them. 13
The principle of the autonomy of contracts is expressly declared

in Art. 1306. The contracting parties may establish such agreements
as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy. As a m att er of
fact, this principle is guaranteed by Sec. 1, Art. 3 of the Philippine
Constitution itself.
The principle of relativity of contracts is expressly declared in
the first paragraph of Art. 1311. Contracts take effect only between
11
Tolentino, 1956 Ed., Civil Code, pp. 376-378; but see No. 2 of Art. 1491, Civil
Code.
12
See Arts. 1159, 1308, 1315, 1356, Civil Code.
13
358
the parties, their assigns and heirs. Consequently, they cannot, as

a general rule, produce any effect upon third persons, in conformity
with the principle of res inter alios acta aliis negue nocet prodest. 14
Breach of Contract defined. — Breach of contract is defined

as the failure ,without legal reason, to comply with the terms of the
contract. It is also defined as the failure, without legal excuse, to
perform any promise which forms the whole or part of the contract
(Sps. Edgar and Dinah Omengan vs. Philippine National Bank. et.
al., G.R. No. 161319, Janu ar y 23, 2007).
Life of Contracts. — The life of a contract has three phases or
stages — generation, perfection and consummation. The first stage
comprehends the preliminary or preparation, conception or genera-
tion, which is the period of negotiation and bargaining, ending at
the moment of agreement of the parties; the second stage compre-
hends the perfection or birth of the contract, which is the moment
when the parties come to agree on the terms of the contract; and the
third stage comprehends the consummation or death, which is the
fulfillment or performance of the terms agreed upon in the contract.
(ABS-CBN Broadcasting Corporation vs. Court of Appeals, G.R. No.
128690, Jan uar y 21, 1999.) 15
Classification of Contracts. — Contracts may be classified

as follows:
(1) According to their relation to other contracts:
(a)Preparatory — or those which have for their object
the establishment of a condition in law which is necessary as
a preliminary step towards the celebration of another subse-
quent contract. Examples — partnership, agency.
(b)Principal — or those which can subsist independently
from other contracts and whose purpose can be fulfilled by
themselves. Examples — sale, lease.
(c)Accessory — or those which can exist only as a conse-
quence of, or in relation with, another prior contract. Examples
— pledge, mortgage.
14
15
Ibid., pp. 279-280.
359
Art. 1305 CONTRACTS
(2) According to their perfection:

(a)Consensual — or those which are perfected by the
mere agreement of the parties. Examples — sale, lease.
(b)Real — or those which require not only the consent of
the parties for their perfection, but also the delivery of the
object by one party to the other. Examples — commodatum,
deposit, pledge.
(3) According to their form:
(a)Common or informal — or those which require no
particular form. Example — loan.
(b)Special or formal — or those which require some
particular form. Examples — donations, chattel mortgage.
(4) According to their purpose:
(a) Transfer of ownership. Example — sale.
(b) Conveyance of use. Example — commodatum.
(c) Rendition of services. Example — agency.
(5) According to their subject matter:
(a) Things. Examples — sale, deposit, pledge.
(b)Services. Examples — agency, lease of services.
(6) According to the nature of the vinculum which they
produce:
(a)Unilateral — or those which give rise to a n obligation
for only one of the parties. Examples — commodatum,
gratuitous deposit.
(b)Bilateral — or those which give rise to reciprocal
obligations for both parties. Examples — sale, lease.
(7) According to their cause:
(a)Onerous — or those in which each of the parties
aspires to procure for himself a benefit through the giving of an
equivalent or compensation. Example — sale.
(b)Gratuitous — or those in which one of the parties
proposes to give to the other a benefit without any equivalent
or compensation. Example — commodatum.
360
GENERAL PROVISIONS
Art. 1306
(8) According to the risks involved:

(a)Commutative — or those where each of the parties
acquires a n equivalent of his prestation and such equivalent
is pecuniarily appreciable and already determined from the
moment of the celebration of the contract. Example — lease.
(b)Aleatory — or those where each of the parties h as to
his account the acquisition of a n equivalent of his prestation,
but such equivalent, although pecuniarily appreciable, is
not yet determined a t the moment of the celebration of the
contract, since it depends upon the happening of a n uncertain
event, thu s charging the parties with the risk of loss or gain.
Example — insurance.
(9) According to their nam es or norms regulating them:
(a)Nominate — or those which have their own
individuality and are regulated by special provisions of law.
Examples — sale, lease.
(b)Innominate — or those which lack individuality and
are not regulated by special provisions of law. 16
Art. 1306. The contracting parties may establish such

stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy. 17
Right To Contract. — Art. 1306 of the Civil Code enunciates

one of the most fundamental principles of the law on contracts — the
right of the contracting parties to establish any stipulation, clause,
term or condition as they may deem convenient. As a mat ter of fact,
this right is one of those guaranteed in the Constitution. Hence, 18
the freedom to contract is both a constitutional and a statutory

right; therefore, to uphold this right, courts should move with all
the necessary caution and prudence in holding contracts void. 19
16
4 Sanchez Roman 381-387; 3 Castan, 7th Ed., pp. 310-314.
17
18
Art. IV, Sec. 11, Constitution of the Philippines.
19
Gabriel vs. Monte de Piedad, 71 Phil. 497. To the same effect: Ferrazzini vs.
Gsell, 34 Phil. 697; People vs. Pomar, 46 Phil. 440.
361
Art. 1306 CONTRACTS
Idem; Limitations. — The right, however, is not absolute

in character. It is subject to several limitations. According to Art.
1306, the stipulation, clause, term or condition established by the
contracting parties must not be contrary to (1) law, (2) morals,
(3) good customs, (4) public order, or (5) public policy.
Under the Spanish Civil Code (Art. 1255), good customs and public
policy are not included, although Spanish jurisprudence has always
considered good customs as included within the sphere of morals,
and public policy as synonymous with public order. 20
Idem; id. — First limitation. — The most important of these

limitations is the first — t h a t the agreement of the contracting
parties must not be contrary to law. The laws referred to are: first,
those which are mandatory or prohibitive in character; second,
those which, without being mandatory or prohibitive, nevertheless,
are expressive of fundamental principles of justice, and, therefore,
cannot be overlooked by the contracting parties; and third, those
which impose essential requisites without which the contract cannot
exist. Thus, where the parties stipulated in their contract t h a t all
21
judicial and extrajudicial acts necessary under the terms thereof

should take place in a certain municipality, it is clear t h a t such
a stipulation is contrary to law since right to fix the jurisdiction
of courts can only be exercised by the legislative branch of the
government and not by private individuals. Similarly, where the
22
parties stipulated t h a t in case the debtor cannot pay his obligation

a t maturity, the creditor may appropriate for himself the thing
which is given as security, such stipulation is null and void since
it is contrary to the provision of Art. 2088 of the Civil Code, which
prohibits pactum commissorium. 23
Likewise, in the case of Bustamante vs. Rosel (November 29,

1999, 319 SCRA 413), the Court ruled t h a t where the respondents
20
Ferrazzini vs. Gsell, 34 Phil. 697; 8 Manresa, 5th Ed., Bk. 12, p. 288; 20 Scae-
vola 505.
21
22
Molina vs. De la Riva, 6 Phil. 12.
23
Puig vs. Sellner, 45 Phil. 286; Reyes vs. Nebrija, G.R. No. L-8720, March 21,
1956. To the same effect: Warner, Barnes & Co. vs. Jaucian, 13 Phil. 4; Aguilar vs.
Rubiato, 40 Phil. 570; Pamintu an vs. Tiglao, 53 Phil. 1; Hodges vs. Regalado, 69 Phil.
588. There are other pacts, besides pactum commissorium which are
prohibited by law, such as pactum leonina under Art. 1799 of the Civil Code and
pactum de
alienado non Art. 2130 of the same Code.
under
362
Rosel argue t h a t contracts have the force of law between the con-
tracting parties and must be complied with in good faith, there are,
however, certain exceptions to the rule, specifically Article 1306 of
the Civil Code, which provides: “Article 1306. The contracting par-
ties may establish such stipulations, clauses, terms and conditions
as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy.’’ A scrutiny of
the stipulation of the parties reveals a subtle intention of the credi-
tor to acquire the property given as security for the loan. This is em-
braced in the concept of pactum commissorium where the elements
are as follows: (1) there should be a property mortgaged by way of
security for the payment of the principal obligation, and (2) there
should be a stipulation for automatic appropriation by the creditor
of the thing mortgaged in case of non-payment of the principal ob-
ligation within the stipulated period.’’ Said concept of pactum com-
missorium is proscribed by law.
Idem; id. — Second limitation. — The second limitation is
the most difficult to ascertain, because in subjecting obligations to
moral precepts we m u s t be careful not to erase the distinction
between the moral and the juridical order. It is evident, however,
t h a t the morals referred to are those principles which are
incontrovertible and are universally admitted and which have
received social and practical recognition. Thus, where the
24
parties stipulated in their contract t h a t the defendant shall be

obliged to render services to the plaintiff as a domestic servant
without any remuneration whatsoever because of a certain loan
obtained by the former from the latter, it is evident t h a t such
agreement is void on the ground t h a t it is contrary to morals, unless
it be admitted t h a t slavery may be established in this country
through a covenant entered into between the interested parties. 25
Similarly, where the debtors executed a promissory note in favor of

the plaintiff for P465, promising to pay a penalty of P5.00 a day in
case of non-payment of the debt a t maturity, it is clear that such a
promise is immoral and, therefore, cannot be enforced. 26
Idem; id. — Third limitation. — The third limitation to the

right of the contracting parties to establish such stipulations, clauses,
terms, and conditions as they may deem convenient is good customs.
24
26
Ibarra25De
vs.los
Aveyro,
Reyes37vs.Phil. 273. 16 Phil. 499.
Alojado,
363
Art. 1306 CONTRACTS
The spheres of morals and good customs frequently overlap each

other but sometimes they do not. It must be admitted, however,
27
t h a t if a moral precept or custom is not recognized universally, but

is sanctioned by the practice of a certain community, then it shall be
included within the scope or sphere of good customs. 28
Idem; id. — Fourth limitation. — The fourth limitation to

the right of the contracting parties to establish such stipulations,
clauses, terms and conditions as they may deem convenient is public
order. As it is understood in the present Civil Code, it would seem
t h a t public order can only refer to the safety, as well as to the peace
and order, of the country or of any particular community. This can
be implied from the report of the Code Commission which states
t h a t “public order x x x is not as broad as public policy, as the latter
may refer not only to public safety but also to considerations which
are moved by the common good.” Under the Spanish Civil Code,
29
however, public order was considered synonymous with public

policy. 30
Idem; id. — Fifth limitation. — The fifth limitation to the

right of the contracting parties to establish such stipulations, clauses,
terms and conditions as they may deem convenient is public policy.
The expression “public policy” is quite elastic, and consequently, is
difficult to define. American and English courts, however, define it
as a principle of law which holds t h a t no person can lawfully do that
which has a tendency to be injurious to the public or against the
public good. It is the principle under which freedom of contract is
restricted by law for the public good. According to Justice Laurel:
31
“A contract is to be judged by its character, and courts

will look to the substance and not to the mere form of the
transaction. The freedom of contract is both a constitutional
and statutory right and to uphold this right, courts should move
with the necessary caution and prudence in holding contracts
void. (People vs. Pomar, 46 Phil. 440; Ferrazzini vs. Gsell, 34
Phil. 697.) At any rate, courts should not rashly extend the rule
27
28
29
30
Ferrazzini vs. Gsell, 34 Phil. 697; 8 Manresa, 5th Ed., Bk. 2, p. 288; 20 Scaevola
505.
31
Ferrazzini vs. Gsell, 34 Phil. 697.
364
which holds t hat a contract is void as against public policy. The

term ‘public policy’ is vague and uncertain in meaning, floating
and changeable in connotation. It may be said, however, that,
in general, a contract which is neither prohibited by law, nor
condemned by judicial decision, nor contrary to public morals,
contravenes no public policy. In the absence of express legislation
or constitutional prohibition, a court, in order to declare a
contract void as against public policy, must find t ha t the contract
as to the consideration or thing to be done, h as a tendency to
injure the public, is against the public good, or contravenes
some established interests of society, or is inconsistent with
sound policy and good morals, or tends clearly to undermine the
security of individual rights, whether of personal liability or of
private property.32
Thus, where the owner of stolen goods and the person respon-
sible for the theft entered into a n agreement by which the former
agreed to stifle the criminal prosecution of the latter for a pecuni-
ary consideration, it is clear t h a t such a n agreement is manifestly
contrary to public policy and the due administration of justice; con-
sequently, it is void. The same can also be said with regard to an
33
agreement where a carrier is exempted from any liability for loss or

damage caused by its own negligence, or where a n employee, after
34
the termination of his employment, shall neither engage or interest

himself in any business enterprise similar to or in competition with
t h a t operated by the employer, nor enter into the employment of
any enterprise in the Philippines, except by obtaining the written
permission of such employer, or where a n applicant for dollar al-
35
locations shall pay ten or fifteen or twenty per cent of the amount
to be approved by the Central Bank as fee for the services of the
“influence peddler” or “ten percenter” in securing the approval of the
foreign exchange application. 36
It must be observed t h a t in stipulations exempting a common

carrier from liability, three kinds of stipulations are ordinarily made
in a bill of lading. The first is one exempting the carrier from any and
32
Gabriel vs. Mateo, 71 Phil. 497.
33
Arroyo vs. Berwin, 36 Phil. 386; Velez vs. Ramas, 40 Phil. 787; Monterey vs.
Gomez, 104 Phil. 1059.
34
Heacock vs. Macondray & Co., 42 Phil. 205. See Arts. 1745, et seq., Civil Code.
35
Ferrazzini vs. Gsell, 34 Phil. 697.
36
Tee vs. Tacloban Electric and Ice Plant Co., 105 Phil. 168.
365
Art. 1306 CONTRACTS
all liability for loss or damage occasioned by its own negligence; the
second is one providing for a n unqualified limitation of such liability
to a n agreed valuation; and the third is one limiting the liability
of the carrier to a n agreed valuation unless the shipper declares a
higher value and pays a higher r ate of freight. According to Art. 1745
of the Civil Code, the first is contrary to public policy, and therefore,
void. As a rule, the second is also contrary to public policy, and
therefore, also void. However, according to Art. 1750 of the Civil
37
Code, if it can be shown to be reasonable under the circumstances,

and had been fairly and freely agreed upon, then it is perfectly valid
and binding. The third, on the other hand, is perfectly valid and
binding according to Art. 1749 of the Civil Code.
With regard to contracts which tend to restrain business trade,
the rule is now well established t h a t a contract in restraint of trade
is valid provided th a t there is a limitation upon either time or place.
A contract, however, which restrains a m a n from entering into a
business or trade without either a limitation as to time or place is
invalid. The public welfare, of course, must always be considered.
Hence, in addition to the requirement t h a t there must be a
limitation as to time or place, it is also required t h a t the
restraint must be reasonably necessary for the protection of the
contracting parties. 38
Ysmael & Co. vs. Barretto

51 Phil. 90
The records show th at the defendant received 164 cases of
silk from the plaintiff to be shipped to Surigao. It was stipulated
in the bill of lading th at the carrier shall not be liable for loss or
damage from any cause beyond an amount exceeding P300 for
any single package of the cargo, unless the value and contents
of the packages constituting the cargo are correctly declared in
the bill of lading at the time of shipment. Four cases of silk, each
of which is valued at P2,500, were, however, lost. This action
was commenced to recover their value from the defendant.
The defendant contends th at his liability shall extend only to
the amount agreed upon in the bill of lading. The question,
therefore, is whether or not the agreement is valid and binding
upon the plaintiff.
37
Heacock vs. Macondray & Co., 42 Phil. 205; Ysmael & Co. vs.
Barretto, 51 Phil.
90. See Arts. 1745 to 1754, Civil Code.
38
Del Castillo vs. Richmond, 45 Phil. 679. To the same effect: Ollendorf vs. Ab-
rahamson, 88 Phil. 585. 366
Held: “The agreement above quoted places a limit of P300

‘for any single package of silk.’ The evidence shows t h a t 164
‘cases’ were shipped, and th at the value of each case was very
near P2,500. In this stipulation, the limit of defendant’s liability
for each case of silk ‘for loss or damage from any cause or for any
reason’ would put it in the power of the defendant to have taken
the whole cargo of 164 cases of silk at a valuation of P300 for
each case or less t han one-eighth of its actual value. If this rule
of law should be sustained, no silk would be shipped from one
island to another in the Philippines. Such a limitation of value
is unconscionable and void as against public policy.
“By the weight of modern authority, a carrier cannot
limit its liability, for injury or loss of goods shipped, where such
injury or loss was caused by its own negligence. The rule rests
on consideration of public policy, as the contract of the carrier is
to carry and deliver the goods, and a contract t h at undertakes to
relieve the carrier from any liability for loss or damage accruing
or arising from its own negligence would in legal effect nullify
the contract.’’
Ferrazzini vs. Gsell

34 Phil. 697
In the contract entered into between plaintiff and
defendant the former agreed to pay P10,000 to the latter as
liquidated damages for each and every breach of a clause of the
contract which provides th at during the period of employment
and for a period of five years after the termination thereof for
any cause or reason whatsoever, the plaintiff should neither
engage or interest himself in any business enterprise similar
to or incompetition with those operated by the defendant, nor
enter into the employment of any enterprise in the Philippines
except after obtaining the written permission of the defendant.
The question now arises as to whether the stipulation above set
forth is valid and binding upon the plaintiff.
Held: “The contract under consideration is clearly one in
undue or unreasonable restraint of trade and therefore against
public policy. It is limited as to time and space but not as to
trade. It is not necessary for the protection of the defendant, as
this is provided for in another part of the clause. It would force
the plaintiff to leave the Philippine Islands in order to obtain a
livelihood in case the defendant declined to give him the written
permission to work elsewhere in this country.”
367
Art. 1306 CONTRACTS
Del Castillo vs. Richmond

45 Phil. 679
The records show t hat in the contract entered into

between plaintiff and defendant, the former agreed t h a t he shall
not open or own, nor have any interest directly or indirectly in
any other drugstore either in his own name or in the name of
another; nor have any connection with or be employed by any
other drugstore either as pharmacist or in any capacity in any
drugstore within a radius of four miles from the municipality of
Legaspi, province of Albay, so long as the defendant or his heirs
may own or have an interest in a drugstore in the said
municipality. The question th at is raised is whether or not such
an agreement is valid and binding upon the plaintiff.
Held: “The law concerning contracts which tend to
restrain business trade has gone through a long series of
changes from time to time within the changing conditions of
trade and commerce. With trifling exceptions, said changes
have been a continuous development of a general rule. The early
cases show plainly a disposition to avoid and annul all contracts
which prohibited or restrained any one from using a lawful
trade ‘at any time or at any place’ as being against the benefit
of the state. Later, however, the rule became well established
th at if the restraint was limited to ‘a certain time’ and within
‘a certain place’ such contracts were valid and not against the
benefit of the state. Later cases, and we think the rule is now
well established, have held t hat a contract in rest raint of trade
is valid provided there is a limitation upon either time or place.
A contract, however, which restrains a man from entering into a
business or trade without either a limitation as to time or place,
will be held invalid.
“The public welfare, of course, must always be considered,

and if it be not involved and the restraint upon one party is not
greater t han protection to the other requires, contracts like the
one we are discussing will be sustained. The general tendency,
we believe, of modern authority, is to make the test whether
the restraint is reasonably necessary for the protection of the
contracting parties. If the contract is reasonably necessary to
protect the interest of the parties, it will be upheld. In all cases
like the present, the question is whether, under the particular
circumstances of the case and the natu re of the particular
contract involved in it, the contract is reasonable. Of course, in
establishing whether the contract is reasonable or unreasonable,
the nature of the business must also be considered.
368
“Considering the nature of the business in which the

defendant is engaged, in relation with the limitation placed upon
the plaintiff both as to time and place, we are of the opinion, and
so decide, th at such limitation is legal and reasonable and not
contrary to public policy.”
Sy Suan vs.
Regala 105 Phil.
1024
Sy Suan, president and general manager of Price, Inc.,
executed in favor of plaintiff Regala a special power of attorney
authorizing the latter to prosecute a n application for a license
with the Import Control Office for the importation of industrial
starch for candy manufacture. It was agreed verbally t h at as
compensation for plaintiff’s service, he would be paid 10% of the
total value of the amount t h at would be approved by the Import
Control Office. As it turned out, plaintiff was able to prosecute the
approval of the application successfully. Subsequently, because
of the refusal of the defendant to pay the balance of the 10%
commission agreed upon, plaintiff brought this action against
him to recover the amount. The latter, however, contends that
the agreement is contrary to public policy, and therefore, void ab
initio. The former, on the other hand, maintains t h at there is no
evidence showing t hat the contract in question ha s violated any
public policy.
Held: “The contract is contrary to good customs, public
order and public policy. Judicial notice may be taken of the fact
th at this kind of contract sprouted as a result of the controls
imposed by the government on imports and dollars allocations,
despite the enunciated government policy t h a t applications for
imports and foreign exchange should be considered and acted
upon strictly on the basis of merit, without intervention of
intermediaries, which policy is revealed by Secs. 15 and 18 of
Rep. Act 650. If the granting of import licenses depends solely
upon the merits of each application, certainly the intervention
of intermediaries, such as herein respondent, would be
unwarranted and uncalled for, as such intervention would
serve no other purpose th an to influence, or possibly corrupt
the judgment of the public officials performing a n act or service
connected with the issuance of import licenses. Respondent,
however, claims th at there is no evidence showing t ha t the
contract in question has violated any public policy. But the
question whether a contract is against public policy depends
upon its purpose and tendency, and not upon the fact t h a t no
h a rm results from it. In other words, all agreements the purpose
369
Art. 1306 CONTRACTS
of which is to create a situation which tends to operate to the

detriment of the public interest are against public policy and,
therefore, void, whether the purpose of the agreement is or
is not effectuated. For a particular undertaking to be against
public policy actual injury need not be shown; it is enough if the
potentialities for h a rm are present.”
Cui vs. Arellano University

2 SCRA 205
Plaintiff took up law at the Arellano University. He left the

University and enrolled for the last semester of his fourth year
at the Abad Santos Law School. Subsequently, he passed the
bar examinations. During his stay at the Arellano University,
he was a constant recipient of scholarship grants. However, he
was made to sign a waiver of his right to transfer to another
school unless he refunds to the University the equivalent of
his scholarship grants. Since, in taking the bar examinations,
he had to secure his transcript of records from the University,
he was required to make the refund, which he did, but under
protest. Subsequently, he brought this action to recover the
amount which he h ad paid. Will the action prosper?
Held: The action will prosper. The waiver signed by
plaintiff is contrary to public policy and, therefore, null and
void. Scholarship grants as pointed out by the Director of the
Bureau of Private Schools in Memorandum No. 38, are awarded
in recognition of merit and not to attract and keep brilliant
students in school for their propaganda value. To look a t such
grants as a business scheme designed to increase the business
potential of an educational institution is not only inconsistent
with sound public policy but also good morals.
Compromise; Compromise Agreements; Effects — In the

case of Santos Ventura Hocorma Foundation, Inc. vs. Santos, G.R.
No. 123004, Nov. 4, 2004, the Court held that:
(a) Compromise is a contract whereby the parties, by making
reciprocal concessions, avoid a litigation or put a n end to one already
commenced. It is a n agreement between 2 or more persons, who, for
preventing or putting a n end to a law suit, adjust their difficulties
by mutual consent in the m anner which they agree on, and which
everyone of them prefers in the hope of gaining, balanced by the
danger of losing.
370
Under Art. 1306 of the New Civil Code, contracting parties

may establish such stipulations, clauses, terms and conditions as
they may deem convenient in a compromise agreement, provided
they are not contrary to law, morals, good customs, public order, or
public policy. Thus, a compromise agreement whereby the parties
make reciprocal concesions to resolve their differences to thereby
put a n end to litigation is binding on the contracting parties and
is expressly acknowledged as a juridical agreement between them.
(National Commercial Bank of Saudi Arabia vs. Court of Appeals,
G.R. No. 124267, January 17, 2005.)
(b)The general rule is t h a t a compromise has upon the par-
ties the effect and authority of res judicata, with respect to the mat-
ter definitely stated therein, or which by implication from its terms
should be deemed to have been included therein. This holds true
even if the agreement has not been judicially approved.
(c)Applying existing jurisprudence, the compromise agree-
ment as a consensual contract became binding between the parties
upon its execution and not upon its court approval. From the time
a compromise is validly entered into, it becomes the source of the
rights and obligations of the parties thereto. The purpose of the com-
promise is precisely to replace and terminate controverted claims.
However, in the case of National Commercial Bank of Saudi
Arabia vs. Court of Appeals, supra, the Court held t h a t to have the
force of res judicata, however, the compromise agreement must be
approved by final order of the court. To be valid, the compromise
agreement must be based on real claims and actually agreed upon
in good faith. In the case a t bar, each of the parties have manifested
their desire, by forging the Compromise Agreement, to abbreviate
the legal battle and settle the case amicably to both their satisfaction.
As the Agreement is not contrary to law, public order, public policy,
morals or good customs, is approved.
Art. 1307. Innominate contracts shall be regulated by the

stipulations of the parties, by the provisions of Titles I and
II of this Book, by the rules governing the most analogous
nominate contracts, and by the customs of the place. 39
39
New provision.
371
Art. 1307 CONTRACTS
Nominate Contracts. — As we have already seen, nominate

contracts are those which have their own distinctive individual-
ity and are regulated by special provisions of law. The nominate
contracts which are defined and regulated by the Civil Code are
sales (Arts. 1458-1637), barter or exchange (Arts. 1638-1641), lease
(Arts. 1642-1766), partnership (Arts. 1767-1867), agency (Arts.
1868-1932), loan (Arts. 1933-1961), deposit (Arts. 1962-2009), alea-
tory contracts, such as insurance, gambling and life annuity (Arts.
2010-2027), compromise and arbitration (Arts. 2028-2046), guar-
anty (Arts. 2047-2084), and pledge, mortgage and antichresis (Arts.
2085-2141).
Innominate Contracts. — Innominate contracts, on the
other hand, are those which lack individuality and are not regulated
by special provisions of law. Following the Roman law classification,
there are four kinds of innominate contracts. They are:
(a) Do ut des — I give t h a t you give.
(b) Do ut facias — I give t h at you do.
(c) Facio ut des — I do t h a t you give.
(d) Facio ut facias — I do t h a t you do. 40
What law governs innominate contracts? Resolving all

doubts under the old law, Art. 1307 of the Civil Code, which is a
new provision, states t h a t such contracts shall be regulated by the
stipulations of the parties, by the general provisions or principles of
obligations and contracts, by the rules governing the most analogous
nominate contracts, and by the customs of the place. This provision
is based on a doctrine enunciated in certain cases dealing with lease
of services decided under the old law — notably, the cases of Perez
vs. Pomar, 682, Arroyo vs. Azur, 76 Phil. 493, and Intestate Estate of
Reguera vs. Tandra, 46 Off. Gaz. 186. 41
8 Manresa, 5th Ed., Bk. 2, pp. 297-298; 3 Castan, 7th Ed., pp. 313-314.
40
For a more recent case stating the same doctrine — see Dizon vs. Gaborro, 83
41
SCRA 688.
372
Perez vs. Pomar

2 Phil. 682
The evidence shows th at the plaintiff rendered services to

the defendant as interpreter during a certain period. Although it
is proven t hat such services were accepted by the said defendant,
it does not appear t hat any express contract, written or verbal,
was ever entered into. The question now is whether there is a
binding contract which will justify a court of law in fixing a just
compensation for the plaintiff.
Held: “Whether the service was solicited or offered,
the fact remains th at Perez rendered to Pomar services as
interpreter. As it does not appear th at he did this gratuitously
the duty is imposed upon the defendant, he having accepted the
benefit of the services, to pay a just compensation, by virtue of
the innominate contract of facio ut des implicitly established.
“The obligations arising from this contract are reciprocal,
and, apart from the general provisions with respect to contracts
and obligations, the special provisions concerning contracts for
lease of service are applicable by analogy.
“In this special contract, as determined by Article 1544
(now Art. 1644) of the Civil Code, one of the parties undertakes
to render to the other services for a period certain. The tacit
agreement and consent of both parties with respect to the
services rendered by the plaintiff and the reciprocal benefits
accruing to each are the best evidence of the fact t h at there was
an implied contract sufficient to create a legal bond, from which
arose enforceable rights and obligations of a bilateral character.
“In contracts, the will of the contracting parties is law.
If it is a fact sufficiently proven th at the defendant Pomar, on
various occasions, consented to accept an interpreter’s services,
rendered in his behalf and not gratuitously, it is but just t h a t he
should pay a reasonable remuneration therefore, because it is a
well-known principle of law th at no one should be permitted to
enrich himself to the damage of another.”
Art. 1308. The contract must bind both contracting

parties; its validity or compliance cannot be left to the will
of one of them. 42
42
373
Arts. 1309-1310 CONTRACTS
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. 43
Art. 1310. The determination shall not be obligatory if it

is evidently inequitable. In such case, the courts shall decide
what is equitable under the circumstances. 44
Mutuality of Contracts. — One of the most fundamental

characteristics of contracts is the essential equality of the
contracting parties or what is sometimes called the mutuality of
contracts. This is deducible not only from the very nat ure of
contracts, but also from Art. 1308. From this principle, the law
expressly or impliedly recognizes the following consequences:
(1)The validity or fulfillment of a contract cannot be left to
the will of one of the contracting parties. This rule is expressly
declared by Art. 1308. It must be observed, however, t h a t what is
prohibited by the law from being delegated to one of the contracting
parties are: first, the power to determine whether or not the contract
shall be valid; and second, the power to determine whether or not
the contract shall be fulfilled.
(2)The validity or fulfillment may be left to the will of a third
person. This rule is now expressly recognized in Art. 1309 which
states t h a t the determination of the performance of a contract may
be left to the will of a third person whose decision shall not be binding
until it has been made known to each of the contracting parties.
It is, however, a n indispensable requisite t h a t the determination
made by the third person should not be evidently inequitable. If it
is evidently inequitable, it shall not have any obligatory effect upon
the contracting parties. 45
(3)The validity or fulfillment can be left to chance. This can be

deduced a sensu contrario from the text of Art. 1308. 46
Applying the prohibition stated in Art. 1308, if A and B, for

instance, will enter into a contract and it is expressly stipulated
43
New provision.
44
New provision.
45
Arts. 1309, 1310, Civil Code. See also Arts. 1182, 1720, and 1798, Civil Code,
for similar provisions.
46
374
GENERAL PROVISIONS Arts. 1309-1310
t h a t whether or not such contract shall be valid (or shall be fulfilled)

shall depend exclusively upon the will of B, it is clear t h a t such
a stipulation would be a direct violation of the prohibition stated
in the article; consequently, it is void. Thus, where it is expressly
stipulated in a contract of lease t ha t the defendants can continue
occupying the house which is the object of the contract indefinitely
so long as they should faithfully fulfill their obligation to pay the
rentals, it is clear t ha t the continuance and fulfillment of the
contract would then depend solely and exclusively upon their
uncontrolled choice between continuing paying the rentals or
not, completely depriving the owner of all say on the matter.
Consequently, such a stipulation cannot be set up by the
defendants as a defense in a n action for ejectment instituted by
the plaintiff. If this defense is allowed, so long as defendants
elected to continue the lease by continuing the payment of the
rentals, the owner would never be able to discontinue it; conversely,
although the owner should desire the lease to continue the
lessees could effectively thwart his purpose if they should prefer to
terminate the contract by the simple expedient of stopping payment
of the rentals. This, of course, is prohibited by Art. 1308 of the Civil
Code. 47
It must be noted, however, t h a t there are certain agreements

which will in effect render the mutuality of contracts illusory because
one of the contracting parties is placed in a position of superiority
with regard to the determination of the validity or fulfillment of the
contract over t h a t occupied by the other party, but which do not fall
within the purview of the prohibition stated in Art. 1308.
In the first place, we have those agreements where the obligor
promises to pay a certain amount which is not determined, but the
contract itself specifies the ma nner by which the amount may be
determined, such as by the exercise of the judgment and discretion of
the obligor. Undoubtedly, a promise of this character creates a legal
obligation binding upon the promisor, although in its actual results
it may not infrequently prove to be illusory. In the second place,
48
we have those agreements where the fulfillment of the contract is

left to the will of one of the contracting parties in the negative form
47
Encarnacion vs. Baldemar, 77 Phil. 470. See also General Enterprises, Inc. vs.
Lianga Bay Logging Co., 11 SCRA 733; Garcia vs. Rita Legarda, Inc., 21 SCRA 555.
48
Liebenow vs. Phil. Vegetable Oil Co., 39 Phil. 60.
375
of rescission. Thus, according to Manresa, considering the text of

49
Art. 1308, it is perfectly licit to leave the fulfillment of a contract

to the will of one of the contracting parties in the negative form of
rescission, a case which is frequent in certain contracts (especially
in contracts involving lease of service), because in such, case neither
is the prohibition in the article violated nor is there inequality
between the parties since they remain with the same faculties with
respect to fulfillment. 50
Liebenow vs. Phil. Vegetable Oil Co.

39 Phil. 60
This is an action to recover a su m of money to which the
plaintiff considered himself entitled by way of bonus in addition
to his salary while employed by the defendant. The basis of his
claim was a letter of the president of the defendant company
promising to pay him in addition to his salary “such further
amount as the Board of Directors may see fit to grant.” It was
established th at the plaintiff had in fact received P4,500 by
installments from the defendant after the termination of his
services. The defendant contends th at this amount is the bonus
which the Board of Directors h ad seen fit to grant, but the
plaintiff maintains th at it is merely an addition to his salary,
and since the bonus has not yet been paid, its amount must
therefore be fixed by the court because otherwise there would be
a violation of the prohibitions imposed in Arts. 1115 and 1256
(now Arts. 1182 and 1308) of the Civil Code. Holding t h at the
bonus had already been paid since the contract itself specifies
th at the amount thereof should depend upon the discretion of
the Board of Directors of the defendant company, the Supreme
Court, considering the nature and legal effect of the contract,
declared:
“We see no reason to doubt th at a promise of this character
creates a legal obligation binding upon the promisor, although
in its actual results it may not infrequently prove to be illusory.
Such a promise is not, in our opinion, nugatory under Article
1115 (now Art. 1182) of the Civil Code, as embodying a condition
dependent exclusively upon the will of the obligor. Nor can it be
held invalid under Article 1256 (now Art. 1308) of the same Code,
49
Taylor vs. Uy Tieng Piao, 43 Phil. 873; Melencio vs. Dy Liao Lay, 55 Phil. 99;
Phil. Banking Corp. vs. Lui She, 21 SCRA 52.
50
8 Manresa, 5th Ed., Bk. 2, p. 304. See Phil. Banking Corp. vs. Lui
SCRAShe, 52. 21
376
which declares th at the validity and performance of a contract

cannot be left to the will of one of the contracting parties. The
uncertainty of the amount to be paid by way of bonus is also no
obstacle to the validity of the contract (Article 1273 — now Art.
1349, Civil Code), since the contract itself specifies the manner
in which the amount payable is to be determined, namely, by
the exercise of the judgment and discretion of the employer.”
Taylor vs. Uy Tieng Piao

43 Phil. 873
The records show t hat plaintiff was employed by the

defendant as superintendent of an oil factory which the latter
contemplated establishing in Manila. Among the stipulations
inserted in the contract of employment was the following clause:
“It is understood and agreed th at should the machinery to be
installed in the said factory fail, for any reason, to arrive in the
City of Manila within a period of six months from date hereof,
this contract may be cancelled by the party of the second part
at its option, such cancellation, however, not to occur before
the expiration of such six months.” Because of the failure of
the machinery to arrive within the period stated, the defendant
cancelled the contract. Subsequently, the plaintiff filed this
action for breach of contract, relying on the provision of Art.
1256 (now Art. 1308),which says th at the validity and fulfillment
of a contract cannot be left to the will of one of the contracting
parties, and Art. 1119 (now Art. 1186), which says t h at a
condition shall be deemed fulfilled if the obligor intentionally
prevents its fulfillment.
Held: “Article 1256 (now Art. 1308) of the Civil Code in
our opinion creates no impediment to the insertion in a contract
for personal service of a resolutory condition permitting
the cancellation of the contract by one of the parties. Such a
stipulation, as can be readily seen, does not make either the
validity or the fulfillment of the contract dependent upon the will
of the party to whom is conceded the privilege of cancellation;
for where the contracting parties have agreed t h at such option
shall exist, the exercise of the option is as much in fulfillment of
the contract as any other act which may have been the subject of
agreement. Indeed, the cancellation of a contract in accordance
with conditions agreed upon beforehand is fulfillment.
“In this connection, we note that the commentator Manresa
has the following observation with respect to Article 1256 (now
Art. 1308) of the Civil Code. Says he: ‘It is entirely licit to leave
377
Art. 1311 CONTRACTS
fulfillment to the will of either of the parties in the negative form

of rescission, a case frequent in certain contracts (the letting of
service for hire, the supplying of electrical energy, etc.), for in
such supposed case neither is the article infringed, nor is there
any lack of equality between the persons contracting, since they
remain with the same faculties in respect to fulfillment.’
“Undoubtedly, one of the consequences of this stipulation
was t hat the employers were left in a position where they could
dominate the contingency, and the result was about the same
as if they had been given an unqualified option to dispense with
the services of the plaintiff at the end of six months. But this
circumstance does not make the stipulation illegal.
“The view already expressed with regard to the legality
and interpretation of the clause under consideration disposes
of in a great measure the argument of the appellant in so far
as the same is based on Article 1119 (now Art. 1186) of the
Civil Code. This provision supposes a case where the obligor
intentionally impedes the fulfillment of a condition which would
entitle the obligee to exact performance from the obligor; and
an assumption underlying the provision is t h at the obligor
prevents the obligee from performing some act which the obligee
is entitled to perform as a condition precedent to the exacting of
what is due to him. Such a n act must be considered unwarranted
and unlawful involving per se a breach of the implied terms of
the contract. The article can have no application to a n external
contingency which, like th at involved in this case, is lawfully
within the control of the obligor.’’
Art. 1311. Contracts take effect only between the parties,

their assigns and heirs, except in case where the rights and
obligations arising from the contract are not transmissible
by their nature, or by stipulation or by provision of law.
The heir is not liable beyond the value of the property he
received from the decedent.
If a contract should contain some stipulation in favor
of a third person, he may demand its fulfillment provided
he communicated his acceptance to the obligor before its
revocation. A mere incidental benefit or interest of a person
is not sufficient. The contracting parties must have clearly
and deliberately conferred a favor upon a third person. 51
51
378
Relativity of Contracts. — It is a general principle of the

civil law t h a t a contract can only bind the parties who had entered
into it or their successors who have assumed their personality or
their juridical position, and that, as a consequence, such contract
can neither favor nor prejudice a third person (in conformity with
the axiom res inter alios acta aliis neque nocet prodest). Our Code
has chosen this doctrine of the relative and personal character of
contracts as evidenced by the provision of the first paragraph of Art.
1311. 52
Idem; Persons bound by contract. — As a general rule,

contracts can take effect only between the parties, their assigns and
heirs. Thus, it has been held t h a t even though the contract may have
been executed ostensibly in the name of another person or entity,
it shall produce effect only insofar as the real contracting party
is concerned, provided, of course, t h a t such fact was known to the
other party. It has also been held t h a t a n assignment or transfer
53
by a contracting party has the effect of subrogating the assignee to

all of the rights and obligations of the assignor. To a certain extent
54
the same rule is also applicable to a transmission of property, rights

and obligations through either testate or intestate succession. Thus,
in the case of Mojica vs. Fernandez, the Supreme Court enunciated
55
the following doctrine:
“Article 27 of the Mortgage Law defines a ‘third person’

as anyone who has not taken part in the act or contract
recorded. Under the Civil Code, the heirs, by virtue of the right
of succession, are subrogated to all the rights and obligations
of the deceased and can not be regarded as third parties with
respect to a deceased. (Barios vs. Dolor, 2 Phil. 44.) The doctrine
was enunciated by the Supreme Court of Spain in its decision
of Jan uary 27, 1881, wherein it held t h at ‘both judicial and
extrajudicial acts, formally accepted by one who was a lawful
party thereto, are effective as to the heirs and successors of such
persons, who are not to be regarded as third persons for this
purpose.’
52
3 Castan, 7th Ed., p. 399; see also Salonga vs. Warner, Barnes & Co., 88 Phil.
125.
53
Tuazon & San Pedro vs. Zamora, 2 Phil. 305; Blossom & Co. vs. Manila Gas
Corp., 48 Phil. 848.
54
De la Riva vs. Escobar, 51 Phil. 243.
55
9 Phil. 403.
379
Art. 1311 CONTRACTS
“The principle on which these decisions rest is not affected

by the provisions of the new Code of Civil Procedure (now Rules
of Court), and, in accordance with th at principle, the heirs of a
deceased person cannot be held to be ‘third persons’ in relation
to any contract touching the real estate of their decedent which
comes into their hands by right of inheritance; they take the
property subject to all the obligations resting thereon in the
h an d of him from whom they derive their rights.’’56
It must be noted, however, that the monetary obligations that the

decedent might have incur during his lifetime cannot be transmitted
to his heirs through succession. In other words, the heirs cannot be
charged directly with the payment of such obligations. This is so,
because according to the Rules of Court, such obligations must be
liquidated in the testate or intestate proceeding for the settlement
of the estate of the decedent. As held in a long line of decisions, the
57
constant doctrine in this jurisdiction is t h a t it is the estate or the

mass of property left by the decedent, instead of the heirs directly,
t h a t becomes vested and charged with his rights and obligations
which survive after his death. For this purpose, it has been held
58
t h a t it is the estate, r at her th an the heir, which must be considered

as the continuation of the decedent’s personality. Consequently, the
estate, represented by the executor or administrator, is a juridical
person. This does not mean t h a t the heirs can no longer be bound
59
by contracts entered into by the decedent during his lifetime. There

are other obligations which are not monetary in character and
which will, therefore, constitute a part of the inheritance. Such 60
obligations are still chargeable against the heirs, but only to the
extent of the value of the property which they may have received
from the decedent. 61
Idem; id. — Exceptions. — The rule t ha t a n assignee or

a heir shall be bound by the terms of a contract is not, however,
absolute in character. According to the first paragraph of Art. 1311,
56
To the same effect: De Guzman vs. Salak, 91 Phil. 265; Galasinao vs. Austria,
97 Phil. 82.
57
58
Suiliong & Co. vs. Chio-Taysan, 12 Phil. 13; Limjoco vs. Intestate E state of
Pedro Fragante, 80 Phil. 776. See also Pavia vs. De la Rosa, 8 Phil. 70; Ledesma vs.
McLaughlin, 66 Phil. 547; Tranez vs. Vail, CA, 37 Off. Gaz. 1253.
59
Limjoco vs. Intestate Esta te of Pedro Fragante, 80 Phil. 776.
60
Mojica vs. Fernandez, 9 Phil. 403; De Guzman vs. Salak, 91 Phil. 265.
61
380
the rule is not applicable if the rights and obligations arising from
the contract are not transmissible:
(1)By their nature, as when the special or personal qualifi-
cation of the obligor constitutes one of the principal motives for the
establishment of the contract; or 62
(2)By stipulation of the parties, as when the contract ex-

pressly provides t h a t the obligor shall perform a n act by himself and
not through another; or
(3)By provision of law, as in the case of those arising from a
contract of partnership or of agency. 63
Idem; Effect of contract on third persons. — Since a con-

tract can take effect only between the contracting parties, as well
as their assigns and heirs, it follows, as a general rule, t h a t it can-
not produce any effect whatsoever as far as third persons are con-
cerned. Consequently, he who is not a party to a contract, or an
64
assignee thereunder, has no legal capacity to challenge its validity,

hence, even if it is admitted t h a t a contract is voidable, nevertheless,
its voidable character cannot be asserted by one who is not a party
to the transaction or his representative. Thus, according to the Su-
65
preme Court:
“From these legal provisions (now Arts. 1390 and 1397 in

relation to Art. 1311) it is deduced th at it is the interest had in a
given contract, t hat is the determining reason of the right which
lies in favor of the party obligated principally or subsidiarily
to enable him to bring an action for the nullity of the contract
in which he intervened, and, therefore, he who h as no right in
a contract is not entitled to prosecute an action for nullity, for,
according to the precedents established by the courts, the person
who is not a party to a contract, nor has any cause of action or
representation from those who intervened therein, is manifestly
without right of action and personality such as to enable him to
assail the validity of the contract.’’66
62
Art. 1726, Civil Code. For illustrative case, see Javier Security Special Watch-
ma n Agency vs. Shell-Craft & Button Corp., 117 Phil. 218.
63
Arts. 1830, No. 5, 1919, No. 3, Civil Code.
64
Wolfson vs. E state of Martinez vs. Ramos, 28 Phil. 589; Ayson vs. Court of Ap-
peals, 97 Phil. 965.
65
Wolfson vs. Estate of Martinez, 20 Phil. 340.
66
Ibañez vs. Hongkong and Shanghai Bank, 22 Phil. 572.
381
Art. 1311 CONTRACTS
There are, however, four exceptional instances under the

Civil Code where a contract may produce effect either directly or
indirectly on third persons. They are:
(1)Where the contract contains a stipulation in favor of a
third person; 67
(2)Where the third person comes into possession of the object of

a contract creating a real right; 68
(3)Where the contract is entered into in order to defraud a

third person; and69
(4)Where the third person induces a contracting party to

violate his contract. 70
Idem; Stipulations in favor of third persons. — The

general rule is t h a t a contract affects only the parties and the privies
thereto. But there are exceptions to this rule and the most evident
of them is t h a t which is declared in the second paragraph of Art.
1311. According to this exception, if a contract should contain some
71
stipulation in favor of a third person, he may demand its fulfillment

provided he communicated his acceptance to the obligor before its
revocation. Manresa says t h a t this exception corresponds almost
always to the juridical conception of a gift or donation, it being
necessary in such case to apply the rules relating to donations in
so far as the form of acceptance is concerned. This is true where
the stipulation is for the sole benefit of the third person. But where,
for instance, a transfer of property is coupled with the purchaser’s
promise to pay a debt owing from the seller to a third person, it can
scarcely be said t h a t the stipulation is in favor of a third person. 72
A beneficial stipulation, or what is generally known as a

stipulation pour autrui, may, therefore, be defined as a stipulation
in a contract, clearly and deliberately conferred by the contracting
parties as a favor upon a third person, who must have accepted
it before it could be revoked. In Florentino vs. Encarnacion (79
67
68
Art. 1312, Civil
Code.
71
Kauffman vs. Phil. National Bank, 42 Phil. 182; Bank of the P.I. vs. Concep-
UyPhil.
cion, 7253 Tam 806.
vs. Leonard, 30 Phil. 471.
382
SCRA 192), it was defined as a stipulation in favor of a third

person conferring a clear and deliberate favor upon him, and which
stipulation is merely a par t of a contract entered into by the parties,
neither of whom acted as agent of the third person, and such third
person may demand its fulfillment provided t h a t he communicates
his acceptance to the obligor before it could be revoked.
Idem; id. — Kinds. — Beneficial stipulations in favor of a
third person may be divided into the following: first, those where the
stipulation is intended for the sole benefit of the third person; and
second, those where a n obligation is due from the promisee to the
third person which the former seeks to discharge by means of such
stipulation. 73
Idem; id. — Requisites. — Before such stipulation can be en-

forced, however, it is essential: (1) t h a t there must be a stipulation
in favor of a third person; (2) the stipulation must be a part, not the
whole of the contract; (3) the contracting parties must have clearly
and deliberately conferred a favor upon a third person, not a mere
incidental benefit or interest; (4) the third person must have com-
municated his acceptance to the obligor before its revocation; and 74
(5) neither of the contracting parties bears the legal

representative or authorization of the third party. 75
The acceptance by the third person or beneficiary does not

have to be done in any particular form. It may be done expressly or
impliedly. (Florentino vs. Encarnacion, supra; see also Cristobal vs.
Gomez, 50 Phil. 810; 4 Tolentino Civil Code, p. 410.)
The following hypothetical problem is illustrative:
Problem — A and B entered into a contract of compromise.

In the contract, there is a stipulation wherein the parties ceded
a house and lot to X. Upon the signing of the contract, X entered
into the possession of the property. Ten years later, after
the death of both A and B, their heirs revoked the beneficial
stipulation. Subsequently, they brought a n action against X for
the recovery of the property. Will the action prosper?
Answer — The action will not prosper. The stipulation in
the instan t case is a stipulation pour autrui. All of the requisites
73
Ibid.
74
75
Young vs. CA, G.R. No. 79518, Jan. 13, 1989.
383
Art. 1311 CONTRACTS
of a valid and enforceable stipulation pour autrui are present.

It is a part, not the whole, of a contract; it is not conditioned or
compensated by any kind of obligation whatever, and neither
A nor B bears the legal representation or authorization of X.
Additionally, there was a n implied acceptance by X when
he entered into the possession of the property. T hat implied
acceptance is recognized by the law is now well-settled. Therefore,
the act of the heirs of A and B in revoking the stipulation is an
absolute nullity. Since the stipulation was accepted by X, it is
crystal clear th at there was a perfected agreement, with A and
B as stipulators or benefactors and X as beneficiary, although
still constituting a p art of the main contract. Consequently,
the cardinal rules of contracts, such as the obligatory force of
contracts and the mutuality of contracts based on the essential
equality of the parties are directly applicable to the beneficial
stipulation itself. It can no longer be revoked.
(Note: The above answer is based upon Florentino vs.
Encarnacion, supra, and other cases.)
Idem; id. — Test of beneficial stipulation. — The fairest

test whereby we can determine whether the interest of a third
person in a contract is a stipulation pour autrui or merely a n
incidental interest, is to rely upon the intention of the parties as
disclosed by their contract. If a third person claims a n enforceable
interest in the contract, t h a t question must be settled by
determining whether the contracting parties desired to tender him
such a n interest. Did they deliberately insert terms in their
agreement with the avowed purpose of conferring a favor upon
such third person? In resolving this question, of course, the
ordinary rules of construction and interpretation of writings
must be observed. 76
Kauffman vs. Phil. National Bank

42 Phil. 182
The defendant bank, for a valuable consideration paid by

the Philippine Fiber and Produce Co., agreed to cause a certain
sum of money to be paid to the plaintiff in New York City.
Subsequently, however, the bank cabled its representative in
New York to withhold payment of the amount to the plaintiff.
76
Uy Tam vs. Leonard, 30 Phil. 471. To the same effect: Kauffman vs. Phil. Nat.
Air Lines,
Bank, 90 Phil.
42 Phil. 182;836.
Bank of the P.I. vs. Concepcion, 53 Phil. 806; Mendoza vs. Phil.
384
Because of this development, plaintiff filed this action to recover

the amount. The question now is whether or not the lack of
privity with the contract on the part of the plaintiff is fatal to
the maintenance of this action.
Held: “The only express provision of law t h at has been
cited as bearing directly on this question is the second paragraph
of Article 1257 (now Art. 1311) of the Civil Code; and unless
the present action can be maintained under t ha t provision, the
plaintiff admittedly has no case.
“In the case of Uy Tam vs. Leonard (30 Phil. 471), Justice
Trent, speaking for the Court, sums up its conclusions in the
following words:
“So, we believe the fairest test in this jurisdiction
whereby to determine whether the interest of a third
person in a contract is a stipulation pour autrui or merely
an incidental interest, is to rely upon the intention of the
parties as disclosed by their contract.
“If a third person claims an enforcible interest in the
contract, t hat question must be settled by determining
whether the contracting parties desired to tender him
such an interest. Did they deliberately insert terms in
their agreement with the avowed purpose of conferring
a favor upon such third person? In resolving this
question, of course, the ordinary rules of construction and
interpretation of writings must be observed.’
“Further on in the same opinion he adds: ‘In
applying this test to a stipulation pour autrui, it matters
not whether the stipulation is in the nat ure of a gift or
whether there is an obligation owing from the promisee
to the third person. That no such obligation exists may
in some degree assist in determining whether the parties
intended to benefit a third person.’
“In the light of the conclusions t hus stated, the right
of the plaintiff to maintain the present action is clear
enough, for it is undeniable th at the bank’s promise to
cause a definite sum of money to be paid to the plaintiff
in New York City is a stipulation in his favor within
the meaning of the paragraph above quoted; and the
circumstances under which the promise was given disclose
a n evident intention on the part of the contracting parties
t hat the plaintiff should have th at money upon demand in
New York City. The recognition of this unqualified right
385
Art. 1311 CONTRACTS
in the plaintiff to receive the money implies in our opinion

the right in him to maintain an action to recover it; and
indeed if the provision in question were not applicable to
the facts now before us, it would be difficult to conceive of
a case under it.
“It will be noted th at under the paragraph cited
a third person seeking to enforce compliance with a
stipulation in his favor must signify his acceptance to the
bank by demanding payment; and although the Philippine
National Bank has already directed its New York agency
to withhold payment when this demand was made, the
right of the plaintiff cannot be considered to have been
prejudiced by th at fact. The ‘revoked,’ as there used, must
be understood to imply revocation by the mutual consent
of the contracting parties, or at least by direction of the
party purchasing the exchange.”
Coquia vs. Fieldmen’s Insurance Co.

26 SCRA 178
On Dec. 1, 1961, the Fieldmen’s Insurance Co. issued

in favor of the Manila Yellow Taxicab Co. a common carrier
accident insurance policy, covering the period from Dec. 1,
1961 to Dec. 1, 1962. It was stipulated in said policy t ha t “the
Company will indemnify the Insured in the event of accident
against all sums which the Insured will become legally liable
to pay for death or bodily injury to any fare-paying passenger
including the driver, conductor and/or inspector who is riding
in the motor vehicle insured at the time of accident or injury.”
On Feb. 10, 1962, as a result of a vehicular accident, Carlito
Coquia, driver of one of the vehicles covered by said policy, was
killed. Because of the failure of the Company and the Insured
to agree with respect to the amount to be paid to the heirs of
the driver, the Insured and the parents of Carlito, the Coquias,
finally brought this action against the Company to collect the
proceeds of the aforementioned policy. The latter now contends,
among others, th at the Coquias have no cause of action because
they have no contractual relation with the Company.
Held: “Although in general, only parties to a contract may
bring an action based thereon, this rule is subject to exceptions,
one of which is found in the second paragraph of Art. 1311 of
the Civil Code of the Philippines. This is but a restatement of
a well-known principle concerning contracts pour autrui, the
enforcement of which may be demanded by a third party for
whose benefit it was made, although not a party to the contract,
386
before the stipulation in his favor has been revoked by the

contracting parties. Does the policy in question belong to such
class of contracts pour autrui?
“The policy provides, inter alia, t hat the Company ‘will in-
demnify any authorized driver who is driving the motor vehicle’
of the Insured and, in the event of death of said driver, the Com-
pany shall, likewise, ‘indemnify his personal representatives.’
“Thus, the policy is typical of contracts pour autrui, this
character being made more manifest by the fact t h at the de-
ceased driver, paid fifty percent of the premiums, which were
deducted from his weekly commissions. Under these conditions,
the Coquias — who, admittedly are the sole heirs of the deceased
— have a direct cause of action against the Company, and,
since they could have maintained this action by themselves,
without the assistance of the Insured, it goes without saying
th at they could and did properly join the latter in filing the
complaint hereon.”
Constantino vs. Espiritu

39 SCRA 206
A, married to B, executed a fictitious deed of sale of a two-

storey house and four subdivision lots in favor of his mistress,
M, who at th at time was pregnant, with the understanding that
the latter shall hold the properties in t rust for their unborn
illegitimate child. After securing a new transfer certificate of title
in her name, M mortgaged the properties twice to a bank, and
subsequently, she tried to sell them. A then brought a n action
against her praying for the issuance of a writ of preliminary
injunction restraining her from further alienating or disposing
of the properties and for judgment ordering her to convey the
properties to their illegitimate child, X, who by t h at time was
already five years old. A motion to dismiss was filed on the
ground th at the illegitimate child, who is the beneficiary of the
alleged trust, is not included as a party-plaintiff, and t ha t the
action in question is unenforceable under the St at ut e of Frauds.
Subsequently, A amended his complaint so as to include X as
party-plaintiff. The lower court, however, dismissed the case.
A raised the case by direct appeal to the Supreme Court on the
following questions of law:
(a) Is there a valid cause of action in the in sta nt case?
(b) Is the action unenforceable under the St atu te of
Frauds?
387
Art. 1312 CONTRACTS
Held: (a) There is a valid cause of action in the instant

case. Upon the facts alleged in the complaint, the contract
between appellant and appellee was a contract pour autrui,
although couched in the form of an absolute deed of sale,
and th at appellant’s action was, in effect, one for specific
performance. That one of the parties to a contract is entitled
to bring an action for its enforcement or to prevent its breach
is too clear to need any extensive discussion. Upon the other
hand, th at the contract involved contained a stipulation pour
autrui amplifies this settled rule only in the sense t h a t the third
person for whose benefit the contract was entered into may
also demand its fulfillment provided he had communicated his
acceptance thereof to the obligor before the stipulation in his
favor is revoked.
It appearing th at the amended complaint submitted by
appellant to the lower court impleaded the beneficiary under
the contract as a party co-plaintiff, it seems clear t ha t the
three parties concerned therewith would, as a result, be before
the court and the latter’s adjudication would be complete and
binding upon them.
(b) On the other hand, the contention t h at the contract
in question is not enforceable by action by reason of provisions
of the Statu te of Frauds does not appear to be indubitable, it
being clear upon the facts alleged in the amended complaint
th at the contract between the parties had already been partially
performed by the execution of the deed of sale, the action
brought below being only for the enforcement of another phase
thereof, namely, the execution by appellee of a deed of
conveyance in favor of the beneficiary thereunder.
Art. 1312. In contracts creating real rights, third persons

who come into possession of the object of the contract are
bound thereby, subject to the provisions of the Mortgage
Law and the Land Registration laws. 77
Contracts Creating Real Rights. — A real right is a right

belonging to a person over a specific thing, without a passive subject
individually determined, against whom such right may be person-
ally enforced. Such a right, therefore, is enforceable against the
78
whole world. Consequently, a third person who might come into the
77
New provision.
78
388
possession of the object of a contract creating a real right will have

to be bound by such right, subject, of course, to the provisions of the
Mortgage Law and the Land Registration laws. Thus, if A mort-
79
gages his house and lot to the PNB in order to secure a n obligation
of P20,000, and such mortgage is registered in the Registry of Prop-
erty, the effect of such registration is to create a real right which
will be binding against the whole world. Hence, if the property is
80
subsequently sold to B, the contract of mortgage between A and the

PNB will be binding upon him. Similarly, if a third person comes
into possession by whatever title of a certain property which had
been leased by the previous owner to another person, and such lease
was recorded in the Registry of Property, such third person shall be
bound thereby. 81
Art. 1313. Creditors are protected in cases of contracts

intended to defraud them. 82
Contracts In Fraud of Creditors. — Although a third person

cannot ask for the annulment of a contract, nevertheless, if he is a
creditor of one of the contracting parties, and it can be established
t h a t the contract was entered into with the intention of defrauding
him, he may ask for its rescission. This is what is meant by the
Code when it says t h a t creditors are protected in cases of contracts
intended to defraud him. This rule must, therefore, be read always
83
in relation to the provisions of Arts. 1380, et seq., of the Civil Code,

as well as Art. 1177.
Art. 1314. Any third person who induces another to

violate his contract shall be liable for damages to the other
contracting party. 84
Interferences with Contractual Relations. — Art. 1314

enunciates the doctrine t h at any third person who induces anoth-
er to violate his contract shall be liable for damages to the other
79
80
81
82
New provision.
83
84
New provision.
389
contracting party. The theory of this doctrine is t h a t the right to

perform a contract and to reap the profits resulting from such per-
formance, and also the right to performance by the other party, are
property rights which entitle each party to protection, and to seek
compensation by a n action in tort for any interference therewith. 85
Idem; Requisites. — Before the third person who induces

another to violate his contract can be held liable for damages, it is
essential, however, t h a t the following requisites must concur: (1)
the existence of a valid contract; (2) knowledge on the par t of the
third person of the existence of the contract; and (3) interference
by the third person without legal justification or excuse. As far as
86
the third requisite is concerned, “malice, in some form, is generally

implied from the act of interference with contractual relations, and
is declared to be a n essential ingredient in such cases. The lack of
scientifically accurate terminology, however, has militated against
clearness upon this point, both in conception and discussion. Thus,
the word ‘malice’ which, in its technical legal sense, is the intentional
doing of a harmful act without legal justification or excuse, is
sometimes used in the sense of ill-will, or even as denoting a desire
to h ar m irrespective of the presence or absence of ill-will. The malice,
however, which makes one liable for procuring a breach of contract
is malice in its legal sense, and whether a wrongdoer’s motive in
interfering is to benefit himself or to gratify his spite by working
mischief to another is immaterial; malice in the sense of ill-will or
spite is not essential.” Thus, if a party enters into a contract to go
87
for another upon a journey to a remote and unhealthful climate, and

a third person, with a bona fide purpose of benefiting the one who is
under contract to go, dissuades him from the step, no action will lie.
But if the advice is not disinterested and the persuasion is used for
“the indirect purpose of benefiting the defendant a t the expense of
the plaintiff,” the intermeddler is liable if his advice is taken and the
contract broken. 88
Problem — “O,” a very popular movie star, was under

contract with “P’’ Movie Productions to st ar exclusively in the
latter’s films for two years. “O’’ was prohibited by the contract
85
30 Am. Jur., Sec. 19, pp. 71-72.
86
Ibid., Secs. 21-23, pp. 73-75.
87
Ibid., Sec. 23, pp. 75-76.
88
Daywalt vs. Agustinos Recoletos, 39 Phil. 587.
390
to star in any film produced by another producer. “X’’ Film Co.

induced “O’’ to break her contract with “P’’ Movie Productions
by giving her twice her salary. “P’’ Movie Productions sued “X’’
Film Co. for damages. “X’’ Film Co. contended t h at it had a right
to compete for the services of “O” and th at her contract with “P”
Movie Productions was in restraint of trade and a restriction on
her freedom of contract.
Whose contention would you sustain? (1980 Bar Problem)
Answer — The contention of “P’’ Movie Productions should
be sustained. According to the Civil Code, any third person
who induces another to violate his contract shall be liable for
damages to the other contracting party. In the law of torts, we
call this “interference with contractual relation.’’ However, in
order t hat it will be actionable, it is necessary t h at the following
requisites must concur: (a) the existence of a valid contract; (b)
knowledge on the part of the third person of the existence of
such contract; and (c) interference by the third person without
legal justification or excuse. All of these requisites are present
in the case at bar.
The contention of “X’’ Film Co. th at “O’s’’ contract with “P’’
Movie Productions was in restraint of trade and a restriction of
her freedom to contract, on the other hand, cannot be sustained.
Well-established is the rule th at in order to determine whether
or not an agreement of this nature constitutes an undue restraint
of trade, and therefore, is contrary to public policy, two tests are
always applied. They are first, is there a limitation as to time
or place? And second, is the prohibition or rest raint reasonably
necessary for the protection of the contracting parties? If the
answer to both of these questions is in the affirmative, then
the prohibition or restraint is not contrary to public policy. It
is crystal clear th at the agreement between “O’’ and “P” Movie
Productions passes both tests.
(Note: The first paragraph of the above answer is based

on Art. 1314 of the Civil Code and on Daywalt vs. Agustinos
Recoletos, 39 Phil. 587. The second paragraph, on the other
hand, is based on Art. 1306 of the Civil Code and on several
cases, the most notable of which is Del Castillo vs. Richmond,
46 Phil. 697.)
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
391
Art. 1316 CONTRACTS
all the consequences which, according to their nature, may

be in keeping with good faith, usage and law. 89
Art. 1316. Real contracts, such as deposit, pledge and

commodatum, are not perfected until the delivery of the
object of the obligation. 90
Perfection of Contracts. — The perfection of a contract

refers to t h a t moment in the life of a contract when there is finally
a concurrence of the wills of the contracting parties with respect to
the object and the cause of the contract. In the words of Manresa,
“it signifies the birth or appearance of the contract as a n obligatory
tie, resulting from the concurrence of the wills of the contracting
parties.’’ 91
As a general rule, the perfection of a contract is produced

by mere consent. There are, however, certain contracts, such as
92
deposit, pledge and commodatum, which cannot be perfected until

after the delivery of the object by one contracting party to the other. 93
It must be noted t h a t under Arts. 1315 and 1316 of the

Civil Code, from the point of view of how they may be perfected,
contracts are classified as either consensual or real. Does not this
classification omit the so-called formal contracts where the form
prescribed by law is essential for validity, such as those dictated by
Arts. 748, 749, 1771, 1773, 1874, 1956, 2134 and 2140 of the Civil
Code? It is submitted t h a t it does not. The contracts referred
to in the aforementioned articles are actually consensual contracts.
Take the accessory contract of chattel mortgage under Art. 2140
as an example. According to the Code, by a chattel mortgage,
personal property is recorded in the Chattel Mortgage Register as a
security for the performance of a n obligation. Suppose then t h a t A
bought a Colt Lancer from X Motor Co. paying a down payment
of P18,000 th us leaving a balance of P40,000 which he agreed to
pay within a period of two years. As security, the parties agreed
t h a t A shall mortgage the Colt Lancer which he bought in favor
of the motor
89
90
New provision.
91
92
93
Art. 1316, Civil Code. The four traditional real contracts, in the Roman jus
civile are commodatum, mutuum, depositum and pledge.
392
company. That was on Ju n e 15, 1980. On J u n e 20, 1980, the deed of

chattel mortgage was signed by both parties. On J u n e 25, 1980, the
deed was recorded in the Chattel Mortgage Register. When was the
contract perfected? Reading Art. 1319 of the Civil Code in relation
to Art. 1315, it is clear t h a t the contract was perfected only on June
25, 1980. It was only then t h a t there was a complete manifestation
of the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract.
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 in whose
behalf it has been executed, before it is revoked by the other
contracting party. 94
Contracts in Name of Another. — The principle enunciated

in Art. 1317 of the Code is a logical corollary to the principles of the
obligatory force and the relativity of contracts. It is also the basis of
the contract of agency (Arts. 1868-1932).
Under this article, no person may enter into a contract in the
nam e of another unless he has been duly authorized by the latter, or
unless he has by law a right to represent him. If a person, therefore,
enters into a contract with another in the nam e of another person,
although he has no authority or legal representation, or even if he
has such authority or representation, if he has acted beyond the
scope of his powers, the contract is unenforceable. What is meant
95
by a n unenforceable contract? According to the Code Commission:
“From various sources in Philippine laws and from deci-

sions of the Supreme Court of the Philippines, a new class of
defective contract is to a certain extent created. The term ‘un-
enforceable’ is used, as distinguished from ‘voidable.’ The latter
are binding, unless annulled by proper action in court, while the
94
95
See Arts. 1403, et seq., Civil Code.
393
Art. 1317 CONTRACTS
former cannot be sued upon or enforced, unless they are rati-

fied. As regards the degree of defectiveness, voidable contracts
are farther away from absolute nullity th an unenforceable con-
tracts. In other words, an unenforceable contract occupies an
intermediate ground between a voidable and void contract.’’96
Although the contract is unenforceable, it is, however, suscep-

tible of either express or implied ratification by the person in whose
behalf it h as been executed before it is revoked by the other con-
tracting party. 97
Badillo vs. Ferrer

152 SCRA 407,
409
Facts: Macario died intestate in 1966, leaving a widow,

Clavita and five minor children. He left a parcel of land. In 1967,
Clarita, in her own behalf and as natu ral guardian of the minor
plaintiff executed a deed of extra-judicial partition and sale of
the property through which she sold the property to Gregorio.
Modesta, a sister of Macario, was able to obtain guardianship
over the property and persons of the minor children on 1968.
In 1970, Modesta caused the minor children to file a
complaint to annul the sale of their participation in the property
and asked th at as co-owner they be allowed to execute the right
of legal redemption with respect to Clarita’s participation
therein. The trial court annulled the sale to Gregorio of the
minor children’s participation in the property and allowed them
to redeem the participation of their mother therein.
Held: This contention is untenable.
The Deed of Extrajudicial Partition and Sale is not a
voidable or an annullable contract under Article 1390 of the
New Civil Code. Article 1390 renders a contract voidable if one
of the parties is incapable of giving consent to the contract or if
the contracting party’s consent is vitiated by mistake, violence,
intimidation, undue influence or fraud. In this case, however,
the appellee minors are not even parties to the contract involved.
Their names were merely dragged into the contract by their
mother who claimed a right to represent them, purportedly in
accordance with Article 320 of the New Civil Code.
96
97
Art. 1317, Civil Code; see also Art. 1910, Civil Code.
394
“A contract entered into in the n ame of another by one

who h as 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 ha s been
executed, before it is revoked by the other contracting party.’’
Clearly, Clarita Ferrer Badillo has no authority or has
acted beyond her powers in conveying to the appellants t h at 5/12
undivided share of her minor children in the property involved
in this case. The powers given to her by the laws as the natural
guardian covers only matters of administration and cannot
include the power of disposition. She should have first secured
the permission of the court before she alienated t ha t portion of
the property in question belonging to her minor children.
The appellee minors never ratified this Deed of Extra-
judicial Partition and Sale. In fact, they question its validity
as to them. Hence, the contract remained unenforceable or
unauthorized. No restitution may be ordered from the appellee
minors either as to t hat portion of the purchase price which
pertains to their share in the property or a t least as to that
portion which benefited them because the law does not sanction
any.
395
CONTRACTS
CHAPTER 2
ESSENTIAL REQUISITES OF CONTRACTS
General Provisions
Art. 1318. There is no contract unless the following req-

uisites 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. 1
Requisites of Contracts in General. — As we have already

seen, the elements of a contract may be either essential, natural
or accidental. The essential elements are those without which
there can be no contract; the n at ural elements are those which are
derived from the very n at ure of the contract, and as a consequence,
ordinarily accompany the same, although they can be excluded by
the contracting parties if they so desire; the accidental elements are
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. The essential elements, on the other hand, may
be either common (comunes), special (especiales) or extraordinary
(especialisimos). The common elements are those which are present
in all contracts, such as consent, object and cause; the special are
present only in certain contracts, such as delivery in real contracts or
form in solemn ones; the extraordinary are those which are peculiar
to a specific contract, such as the price in a contract of sale. 2
1
2
396
ESSENTIAL REQUISITES OF CONTRACTS Art. 1319
Consent
The above classification can be understood better and with more

precision when considered from the viewpoint of the influence
which the two great bases of contracts — the law and the will of the
contracting parties — have over each group of elements. Thus, in the
descending order, the law imposes the essential elements, presumes
the natura l and authorizes the accidental; conversely, the will of the
contracting parties conforms to the first, accepts or repudiates the
second and establishes the third. 3
Section 1. — 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. 4
Concept of Consent. — The most important element, which

constitutes the very hear t and soul of contracts, is, unquestionably,
the consent of the contracting parties. In its derivative sense, the
word “consent” (cum sentire) merely means the agreement of wills.
Consequently, as applied to contracts, it may be defined as the
concurrence of the wills of the contracting parties with respect to
the object and the cause which shall constitute the contract. 5
Requisites of Consent. — Under the Civil Code, in order

t h a t there is consent, the following requisites must concur: first, the
consent must be manifested by the concurrence of the offer and the
acceptance (Arts. 1319-1326); second, the contracting parties must
possess the necessary legal capacity (Arts. 1327-1327); and third,
the consent must be intelligent, free, spontaneous, and real (Arts.
3
8 Manresa, 5th Ed., Bk. 2, 351.
4
5
3 Castan, 7th Ed., pp. 326-327; 8 Manresa, 5th Ed., Bk. 2, p. 365; 4 Sanchez
Roman 191.
397
Art. 1319 CONTRACTS
1330-1346). The first is expressly stated in the Code, the second and
6
the third are implied.

When Contracts are Perfected — In general, contracts
are perfected from the moment t h a t there is a manifestation of the
concurrence between the offer and the acceptance with respect to
the object and the cause which shall constitute the contract. (Art.
1319, par. 1, New Civil Code.)
However, if the acceptance is made by letter or telegram, we
must distinguish. According to Art. 1319, par. 2, of the New Civil
Code, the contract is perfected from the moment t h a t the offeror has
knowledge of such acceptance, while according to Art. 54 of the Code
of Commerce, the contract is perfected from the moment a n answer
is made accepting the offer. Because of the repealing clause found in
Art. 2270 of the New Civil Code, it is submitted t h a t Art. 54 of the
Code of Commerce can now be applied only to purely commercial
contracts, such as joint accounts, maritime contracts, etc. We can,
therefore, say t ha t the rule found in the second paragraph of Art.
1319 of the New Civil Code is the general rule, while t h a t found in
Art. 54 of the Code of Commerce is the exception.
Manifestation of Consent. — Before there is consent, it is
essential t h a t it must be manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are to constitute
the contract. Once there is such a manifestation of the concurrence
7
of the wills of the contracting parties, the period or stage of

negotiation is terminated. The contract, if consensual, is finally
perfected. 8
Thus, it was held, t h a t even if the draft renewal contract had

not been signed by the lessor, the parties may be deemed to have
agreed to review their lease contract considering the exchanges of
letters between, and the implementing acts of the parties. (Ramon
Magsaysay Award Foundation vs. CA, G.R. No. 55998, Jan. 17,
1985.)
6
According to Castan, consent presupposes the following elements or conditions:
(1) plurality of subjects; (2) legal capacity; (3) intelligent and voluntary; (4)
express or implied manifestation; and (5) concurrence of the internal and the
declared will. (3 Castan, 7th Ed., p. 327)
7
8
398
Consent
De Lim vs. Sun Life Assurance Co.

41 Phil. 263
On July 6, 1917, Luis Lim applied to the defendant

company for a policy of insurance of his life in the sum of
P5,000. In his application, he designated his wife, Pilar C.
de Lim, plaintiff herein, as beneficiary. The first premium
of P33 was paid, and upon payment, the company issued a
“provisional policy’’ accepting the application “provided that
the Company shall confirm this agreement by issuing a policy
on said application when the same shall be submitted to the
Head Office in Montreal.’’ Should the Company not issue such
a policy, “then this agreement shall be null and void ab initio x
x x .’’ A period of four months from the date of the application
was also stated as the period within which the Company shall
issue the policy. Luis Lim, however, died on August 24, 1917,
after the issuance of the provisional policy but before approval
of the application by the head office of the insurance company.
The instant action is brought by the beneficiary to recover from
the insurance company the sum of P5,000, the amount stated in
the provisional policy. The question now is whether or not the
contract has been perfected.
Held: “Our duty in this case is to ascertain the correct

meaning of the document above quoted. Certainly, language
could hardly be used which would more clearly stipulate that
the agreement should not go into effect until the home office
of the company should confirm by issuing a policy. As we read
and understand the so-called provisional policy it amounts to
nothing but a n acknowledgment on behalf of the company,
th at it h ad received from the person named therein the sum of
money agreed upon as the first year’s premium upon a policy to
be issued upon the application, if the application is accepted by
the company.
“It is of course a primary rule th at a contract of insurance,
like other contracts, must be assented to by both parties
either in person or by their agents. So long as a n application
for insurance has not been either accepted or rejected, it is
merely an offer or proposal to make a contract. The contract, to
be binding from the date of the application, must have been a
completed contract, one t hat leaves nothing to be done, nothing
to be passed upon, or determined, before it shall take effect.
There can be no contract of insurance unless the minds of the
parties have met in agreement. Our view is, t ha t a contract of
insurance was not here consummated by the parties.”
399
Art. 1319 CONTRACTS
Idem; Character of offer and acceptance. — As a n element

of a contract, a n offer may be defined as a proposal to make a con-
tract. In order to constitute a binding proposal, the first paragraph
9
of Art. 1319 declares t h a t the offer must be certain or definite. Thus,

where the defendant wrote a letter to the plaintiff stating t h a t he is
“in a position” and is “willing to entertain” the purchase of a yacht
belonging to the plaintiff under certain terms, and the plaintiff ac-
cepted all of such terms, it was held t h a t there was no perfected
contract, since the word “entertain” applied to a n act does not mean
the resolution to perform said act, but simply a position to deliber-
ate whether to perform or not to perform said act; consequently, the
letter of the defendant cannot be interpreted as a definite offer to
purchase the yacht but simply to deliberate whether or not he would
purchase the yacht. 10
As far as the acceptance is concerned, although the law does

not expressly say so, it is clear t h at in order t h a t there will be a
perfected contract, the acceptance must also be certain or definite.
Thus, where the plaintiff offered to the defendant certain machin-
eries in exchange for tractors and the latter answered stating “we
are willing to accept the proposition,’’ it was held t h a t there was
no perfected contract of barter, since the phrase “willing to accept’’
does not mean acceptance, but simply a disposition to accept the
offer in principle. Furthermore, the acceptance must be absolute
11
in character. In other words, it must be plain and unconditional;

12
consequently, if it involves any new proposal or if it is qualified,

it constitutes a counter-offer — in which case it is essential before
there can be a perfected contract t h a t there must be a definite and
absolute acceptance by the original offeror of such counter-offer. 13
Thus, where the defendant offered to the plaintiff a n option for three
months to buy a certain land for the price of its assessed government
valuation and the latter answered by accepting the offer, but subject
to certain modifications with regard to the terms of payment speci-
fied in the proposal, it is clear t h a t there is no perfected contract be-
9
3 Bouvier’s Law Dictionary, 2399.
10
Rosenstock vs. Burke, 46 Phil. 217.
11
Meads vs. Lasedeco, 52 Off. Gaz. 208.
12
13
Ibid. See Beaumont vs. Prieto, 41 Phil. 670; Zayco vs. Serra, 44 Phil. 326; Ba-
tanga n vs. Cojuangco, 78 Phil. 481. See also Logan vs. Philippine Acetylene Co., 33
Phil. 782; Datoc vs. Mendoza, CA, 47 Off. Gaz. 2427.
400
Consent
cause there is no concurrence between the offer and the acceptance. 14
The same can also be said with regard to a case where the defendant
gave a n option to the plaintiff to buy a certain sugar central for
P1,000,000, payable within three years and properly secured, and
the latter accepted the offer, placing a t the defendant’s disposal the
sum of P100,000 as par t payment, and a t the same time, notifying
him t h a t the Philippine National Bank had agreed to transfer the
defendant’s long term loan of P600,000 to the account of the plaintiff
who will thus assume the defendant’s liability to the said Bank for
the said amount. 15
Contracts t ha t are consensual in nature are perfected upon

mere meeting of the minds. Once there is concurrence between the
offer and the acceptance upon the subject matter, consideration
and terms of payment a contract is produced. The offer must be
certain. To convert the offer into a contract, the acceptance must
be absolute and must not qualify the terms of the offer; it must be
plain, unequivocal, unconditional and without variance of any sort
from the proposal. A qualified acceptance, or one t ha t involves a new
proposal, constitutes a counter-offer and is a rejection of the original
offer. Consequently, when something is desired which is not exactly
wh at is proposed in the offer, such acceptance is not sufficient to
generate consent because any modification or variation from the
terms of the offer annuls the offer.’’ (ABS-CBN Broadcasting Corp.
vs. Court of Appeals, G.R. No. 128690, Jan uar y 21, 1999.)
Idem; id. — Acceptance of complex offers. — To a certain
extent the rules regarding acceptance are modified in case of
complex offers. Thus, if the offeror proposes to lease one part and to
sell another part, acceptance of one by the offeree would ordinarily
result in a perfected contract, unless, of course, the offeror should
have made one offer dependent upon the other. However, the
prospective contracts which are comprised in a single offer may be
so interrelated in such a way t h a t the acceptance of one would not
a t all result in a perfected contract. Thus, in a n offer involving a
prospective contract of loan and the mortgage which will secure it,
acceptance by the future debtor of the proposed loan alone would not
give rise to a perfected contract. 16
14
Beaumont vs. Prieto, 41 Phil. 670, 249 U.S. 554.
15
Zayco vs. Serra, 44 Phil. 326.
16
401
Art. 1319 CONTRACTS
Idem; id. — Acceptance by letter or telegram. — If the

acceptance is made by letter or telegram, a n interesting question
arises. When or a t what precise moment would there be a meeting of
the offer and the acceptance upon the thing and the cause which are
to constitute the contract? As applied to consensual contracts, when
would there be a perfected contract?
There are actually four different theories which have been
advanced in order to pin-point the exact moment of perfection. 17
They are:
(1)The manifestation theory (manifestación) — According to
this theory, the contract is perfected from the moment the acceptance
is declared or made. This is the theory which is followed by the Code
of Commerce. 18
(2)The expedition theory (expedición) — According to this

theory, the contract is perfected from the moment the offeree
transmits the notification of acceptance to the offeror, as when the
letter is placed in the mailbox. This is the theory which is followed
by the majority of American courts.
(3)The reception theory (recepción) — According to this theory,
the contract is perfected from the moment t h a t the notification
of acceptance is in the h and of the offeror in such a m an ne r t h a t he
can, under ordinary conditions, procure the knowledge of its
contents, even if he is not able actually to acquire such knowledge
by reason of absence, sickness or some other cause. This is the
theory which is followed by the German Civil Code.
(4)The cognition theory (cognición) — According to this
theory, the contract is perfected from the moment the acceptance
comes to the knowledge of the offeror. This is the theory which is
followed by the Spanish Civil Code.
Evidently, we have retained the cognition theory as embodied
in the Spanish Civil Code. According to the second paragraph of Art.
1319 of the new Code, acceptance made by letter or telegram does
not bind the offeror 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. According to the Code
17
3 Castan, 7th Ed., pp. 385-386; 2 De Diego 102-103.
18
Art. 54, Code of Commerce.
402
Consent
Commissioners in their report, the Commission deliberated a t some

length on the question of whether acceptance by letter should take
effect upon the mailing of the same, as followed in American law,
or when the same comes to the knowledge of the offeror. It was,
however, finally decided to retain the old in order to avoid confusion
and litigation. 19
Although the Code seems to limit the rule to acceptance by

letter or telegram only, the weight of authority is to the effect that
such rule is applicable to all cases in which the acceptance is made
by a person who is not in the presence of the offeror, (contratación
entre ausentes.) This is, of course, premised upon the fact t h a t he is
20
not acting through a n agent. 21
It must be noted, however, t h a t Art. 54 of the Code of Commerce

declares t h a t “contracts entered into by correspondence shall be
perfected from the moment a n answer is made accepting the offer
or the condition by which the latter may be modified.’’ Is this rule
still applicable? In view of the repealing clause found in Art. 2270
of the New Civil Code, it is submitted t h a t it can be applied only to
purely commercial contracts which are still governed by the Code of
Commerce, such as joint accounts and maritime contracts. Hence,
we can very well say t h a t the rule found in the second paragraph of
Art. 1319 of the Civil Code is the general rule, while t h a t found in
Art. 54 of the Code of Commerce is the exception.
The cognition theory, as embodied in the second paragraph of
Art. 1319 of the Code, is very well illustrated in the case of Enriquez
vs. Sun Life Assurance Co. The facts of this case are as follows: The
22
records show t h a t on September 24, 1917, Joaquin Herrer applied

to the defendant company through its local office in Manila for a life
annuity. He paid the sum of P6,000 and was issued a provisional
receipt. The application was immediately forwarded to the head
office of the company in Montreal, Canada. On November 26, 1917,
the head office gave notice of acceptance by cable to Manila. Whether
notice of this acceptance was sent to Herrer by the Manila office is
a disputed question. On December 4, 1917, the policy was issued
19
20
3 Castan, 7th Ed., p. 385; 8 Manresa, 5th Ed., Bk. 2, p. 373.
21
22
41 Phil. 269.
403
Art. 1319 CONTRACTS
a t Montreal. On December 18, 1917, the lawyer of Herrer wrote to

the Manila office t h a t Herrer desired to withdraw his application.
The following day the local office replied to the lawyer stating that
the policy had been issued, and called attention to the notification
of November 26, 1917. This letter was received by the lawyer on
December 21, 1917. Herrer, however, died on December 20, 1917.
This action was subsequently commenced by the administrator of
the estate of Herrer to recover the sum of P6,000 from the defendant
company. The defendant company, however, contended t h a t the
plaintiff cannot recover the amount on the ground t ha t the contract
of life annuity had already been perfected. Holding t h a t it is the
provision of the second paragraph of Art. 1262 (now Art. 1319) of
the Civil Code and not Art. 54 of the Code of Commerce t h a t will
apply, and t h a t the letter of November 26, 1917, was never actually
mailed, and thus, was never received by the applicant, the Supreme
Court, speaking through Justice Malcolm, ruled t h a t the contract
was not perfected because it has not been proved satisfactorily that
the acceptance of the application ever came to the knowledge of the
applicant.
The theory is also illustrated in the case of Francisco vs.
GSIS. In this case, the plaintiff’s offer of compromise with respect
23
to the settlement of a n obligation which had already matured was

accepted by the Government Service Insurance System by means of
a telegram signed by the Board Secretary. For a year, the System
receipted payments made pursuant to the compromise agreement.
Is there a perfected contract in this case inspite of the fact t h a t the
General Manager of the System denied t h a t he authorized the Board
Secretary to send the telegram? According to the Supreme Court
there is already a perfected contract of compromise applying the
provision of the second paragraph of Art. 1319 of the New Civil Code.
It is of course a familiar doctrine t h a t if a corporation knowingly
permits one of its officers, or any other agent, to do acts within the
scope of a n apparent authority, and thus holds him out to the public
as possessing the power to do those acts, the corporation will, as
against anyone who h as in good faith dealt with the corporation
through such agent, be estopped from denying his authority. Hence,
even if it were the Board Secretary who sent the telegram, the
corporation could not evade the binding effect which it produced.
22
41 Phil. 269.
404
Consent
Idem; id. — Effect of constructive knowledge. — Since

the Code says t h a t the acceptance by letter or telegram does not
bind the offeror except from the time it came to his knowledge, there
is a clear implication t h a t such offeror must have read the contents
of the letter or telegram accepting his offer. In other words, as a
general rule, what is required by the law is actual knowledge of the
acceptance. Consequently, mere receipt of the letter or telegram
is not sufficient. Of course, ordinarily, once it is established that
the offeror has received the letter or telegram, there arises a
presumption t h a t he has read the contents thereof. But it is possible
t h a t he might not have been able to do so, such as when he was
absent or incapacitated a t the time of the receipt of the letter or
telegram. In such cases, it is quite clear t h a t he cannot be bound
by the acceptance. It is, however, different if, being able to do so,
he refused to open the letter or telegram because for some reason
or other he has already changed his mind or he has already decided
to revoke his offer or proposal. In such case, it would be unjust to
apply the cognition theory as embodied in the Civil Code literally.
The better rule would be to say t h a t since the offeror has already a
constructive knowledge of the contents of the letter or telegram, it
is but logical t h a t he shall be bound by the acceptance made by the
offeree. 24
Idem; id. — Withdrawal of offer. — An interesting problem

arising from the principle enunciated in the second paragraph of
Art. 1319 is whether the offeror after the offer has been made can
still withdraw it or not. Undoubtedly, the rule in this jurisdiction
is t h a t he may still withdraw his offer or proposal so long as he
still has no knowledge of the acceptance by the offeree. This can
25
be implied from the rule t h a t he is not bound by the acceptance

except from the time it comes to his knowledge; it is confirmed
to a certain extent by the new provision enunciated in Art. 1324.
This principle is illustrated in the case of Laudico vs. Arias. The 26
facts of this case are as follows: On February 6, 1919, defendant

wrote a letter to the plaintiff, giving him a n option to lease a certain
building to a third person, and transmitting to him for t h a t purpose
a tentative contract in writing containing the conditions upon which
24
25
26
43 Phil. 270.
405
Art. 1319 CONTRACTS
the proposed lease should be made. After certain negotiations, the

plaintiff finally wrote a letter to the defendant on March 6, 1919,
advising him t h a t all his propositions were accepted. This letter
was received by the defendant by special delivery a t 2:53 p.m. of
t h a t day. On t h a t same day, a t 11:25 a.m., the defendant had, in
turn, written a letter to the plaintiff withdrawing the offer. This
letter was sent through a messenger and should have been received
t h a t same morning, or a t least, before the defendant had received
the letter of acceptance. Because of the refusal of the defendant to
recognize the existence of a perfected contract, plaintiff brought this
action to compel him to execute the contract of lease of the building
in question. Holding t h a t no contract was perfected, the Supreme
Court, speaking through Justice Avanceña ruled:
“Under Article 1262, paragraph 2 (now Art. 1319, par. 2)

of the Civil Code, a n acceptance by the latter does not have any
effect until it comes to the knowledge of the offeror. Therefore,
before he learns of the acceptance, the latter is not yet bound by
it and can still withdraw the offer. Consequently, when Mr. Arias
wrote Mr. Laudico, withdrawing the offer, he had the right to do
so, inasmuch as he had not yet received notice of the acceptance.
And when the notice of the acceptance was received by Mr.
Arias, it no longer had any effect, as the offer was not then in
existence, the same having already been withdrawn. There was
no meeting of the minds through offer and acceptance, which is
the essence of the contract. While there was a n offer, there was
no acceptance, and when the latter was made and could have
binding effect, the offer was then lacking. Though both the offer
and the acceptance existed, they did not meet to give birth to a
contract.’’
Problem — Gigi offered to construct the house of Chito
for a very reasonable price of P1 Million, giving the latter 10
days within which to accept or reject the offer. On the fifth day,
before Chito could make up his mind, Gigi withdrew the offer.
What is the effect of the withdrawal of Gigi’s offer? (2005 Bar
Problem)
Answer — The withdrawal of Gigi’s offer will cause the
offer to cease in law. Hence, even if subsequently accepted, there
could be no concurrence of the offer and the acceptance . In the
absence of concurrence of offer and acceptance, there can be no
consent. (Laudico vs. Arias Rodriguez, G.R. No.16530, March
31, 1922). Without the consent, there is no perfected contract
for the construction of the house of Chito. (Salonga vs. Farrales,
406
Consent
G.R. No. L-47088, July 10, 1981). Article 1318 of the Civil Code
provides th at there can be no contract unless the following
requisites concur : (1) consent of the parties; (2) object certain
which is the subject matter of the contract; and (3) cause of the
obligation.
Gigi will not be liable to pay Chito any damages for
withdrawing the offer before the lapse of the period granted.
In this case, no consideration was given by Chito for the option
given. Thus, there is no perfected contract of option for lack of
cause of obligation. Gigi cannot be held to have breached the
contract. Thus, he cannot be held liable for damages (Suggested
Answers to the 2005 Bar Examination Questions, Philippine
Association of Law Schools).
Idem— Withdrawal of acceptance. — As far as the offeree

is concerned, however, the rule is different. The problem may be
stated by means of a n example. A, who is residing in Manila, has
offered to lease a certain parcel of land for a certain price to B, who is
residing in Baguio. B finally decides to accept the offer. So he writes
a letter to A accepting all of the terms and conditions of the offer.
The letter is mailed. Can he revoke it by using a more rapid means
of communication, let us say a telegram, in order to counteract the
acceptance?
Answering the above question in the negative, Manresa says:
“It is to be observed th at although the offeror is not bound

until he learns of the acceptance, the same thing can not be said
of the offeree who, from the moment t ha t he accepts, loses the
power to retract such acceptance since the right to withdraw
between the time of the acceptance and its communication
is a right which is expressly limited by law to the offeror.
Undoubtedly, under this rule there would exist a certain
inequality between the contracting parties during such interval;
but this is explained by the fact th at since the offeree is the first
person who knows of the concurrence of wills of the parties, as a
consequence, the obligation, as far as he is concerned, must also
commence earlier.’’27
Dr. Tolentino, however, maintains t ha t the acceptance may be

revoked before it comes to the knowledge of the offeror because in
27
407
Art. 1320 CONTRACTS
such case there is still no meeting of the minds, since the revocation
has cancelled or nullified the acceptance which thereby ceased to
have any legal effect. We believe t h a t this opinion is more logical.
28
After all, as far as the law is concerned, there is only one decisive
moment to consider and t h a t is the moment when the offeror has
knowledge of the acceptance made by the offeree. At any time before
t h a t moment, the offeror is not bound by his offer; neither should
the offeree be bound by his acceptance. Otherwise, it would then
be possible to say t h a t there are two moments when a consensual
contract is perfected — first, when the offeree transmits his
acceptance to the offeror, and second, when the offeror has knowledge
of the acceptance. Legally, this is not possible.
Problem — In a n offer to sell, parties failed to agree on the

size of the land to be sold. Is there a meeting of the minds of the
parties th at would perfect a contract?
Answer — There is no consent t h a t would perfect a
contract as there is no agreement on the exact area to be sold.
Contracts t h a t are consensual in n atur e are perfected upon
mere meeting of the minds. A contract is produced once there
is concurrence between the offer and the acceptance upon the
subject matter, consideration, an d terms of payment. The offer
mu s t be certain. To convert the offer into a contract, the
acceptance m u s t be absolute and m u st not qualify the terms
of the offer. I t must be plain, unequivocal, unconditional,
and without variance of any sort from the proposal,
constitutes a counter-offer and is a rejection of the original
offer. Hence, when something is required is desired which is
not exactly what is proposed in the offer, such acceptance is
not sufficient to generate consent because any modification
or variation from the terms of the offer.
Art. 1320. An acceptance may be express or

implied. Form of Acceptance. — According to the above
29
article, the
acceptance may be express or implied. Thus, in the case of
Perez vs. Pomar, where the defendant contended t h a t there was no
30
perfected contract entered into between him and the plaintiff,

4 Tolentino,
28
because there Civil Code, 1956 Ed., p. 418.
29
New provision.
30
2 Phil. 682.
408
Consent
was no proof t ha t he had accepted the services of the latter as

interpreter, the Supreme Court held:
“Not only is there an express and tacit consent which

produces true contracts, but there is also a presumptive consent
which is the basis of quasi-contracts, thus giving rise to the
multiple juridical relations which result in obligations for the
delivery of a thing or the rendition of a service. Notwithstanding
the denial of the defendant, it is unquestionable t h at it was
with his consent th at the plaintiff rendered him services
as interpreter, thus aiding him at a time when, owing to the
existence of a n insurrection in the province, the most disturbed
conditions prevailed. It follows, hence, th a t there was consent
on the part of both in the rendition of such service as interpreter.
Such services not being contrary to law or to good customs, it
was a perfectly licit object of a contract and such a contract must
necessarily have existed between the parties, as alleged by the
plaintiff.’’
Problem — A gasoline manufacturing company (TPMC)
obatined a loan from PNB and executed a real estate mortgage
over its parcel of land in Paranque City to secure its loan. When
the loan matured, PNB sent collection letters to TPMC. In reply,
TPMC proposed to pay its obligations by way of a dacion en pago
conveying its TCT No. 122533.Instead of accepting the offer, PNB
filed a petition for extrajudicial foreclosure of the REM. TPMC
filed a complaint for annulment of extrajudicial foreclosure sale
alleging th at its debt has already been extinguished by its offer
of dacion en pago. PNB contended th at the proposal of TPMC to
pay by way of dacion en pago did not extinguish its obligation as
it was not accepted by PNB. Hence, the extrajudicial foreclosure
sale was proper.Was PNB correct?
Answer — Yes, TPMC has no clear right to a n injunctive
relief because its proposal to pay by way of dacion en pago did
not extinguish its obligation. Undeniably, TPMC’s proposal to
pay by way of dacion en pago was not accepted by PNB.
Dacion en pago is a special mode of payment whereby
the debtor offers another thing to the creditor who accepts it
as equivalent of payment of an outstanding obligation. The
undertaking is really one of sale, t hat is, the creditor is really
buying the thing or property of the debtor , payment for which
is to be charged against the debtor’s debt. As such, the essential
elements of a contract of sale, namely, consent, object certain
and cause or consideration must be present. It is only when the
409
thing offered as an equivalent is accepted by the creditor that

novation takes place, thereby, totally extinguishing the debt.
Thus, the unaccepted proposal neither novates the par-
ties’ mortgage contract nor suspends its execution as there was
no meeting of the minds between the parties on whether the
loan will be extinguished by way of dacion en pago (Technogas
Philippines Mfg. Corp. vs. Philippine National Bank, G. R. No.
161004, April 14, 2008).
Art. 1321. The person making the offer may fix the
time, place, and manner of acceptance, all of which must be
complied with. 31
Art. 1322. An offer made through an agent is accepted

from the time acceptance is communicated to him. 32
Art. 1323. An offer becomes ineffective upon the death,

civil interdiction, insanity, or insolvency of either party
before acceptance is conveyed. 33
Effect of Death, Civil Interdiction, Insanity, or Insolven-

cy. — According to the above article, a n offer becomes ineffective
upon the death, civil interdiction, insanity, or insolvency of either
party before acceptance is conveyed. The word “conveyed” refers to
t h a t moment when the offeror has knowledge of the acceptance by
the offeree. Hence, the article merely means t h a t a n offer becomes
ineffective upon the death, civil interdiction, insanity, or insolvency
of either party before the offeror has knowledge of the acceptance by
the offeree.
Problem No. 1 — A, who resides in Manila, wrote to his

friend B, who is residing in Cotabato City, stating in the letter
th at he (A) is donating to him (B) one new car worth P25,000.
Upon receipt of the letter, B, called A by long distance telephone
telling A t hat he is accepting the donation. The same day B wrote
and mailed a letter to A accepting the donation. Immediately
after mailing the letter, B died of a heart failure. Who is entitled
to the car now, A or the heirs of B? Reasons. (1962 Bar Problem)
31
New provision.
32
New provision.
33
New provision.
410
ESSENTIAL REQUISITES OF CONTRACTS Arts. 1321-1323
Consent
Answer — A is entitled to the car. The reason is that

the donation in the instant case cannot produce any effect
whatsoever. According to Art. 748 of the Civil Code, if the value
of the personal property donated exceeds P5,000, the donation
and the acceptance shall be in writing; otherwise, the donation
is void. True, the acceptance by B was actually written and
mailed. But immediately after mailing the letter of acceptance,
B died. The effect is to bring into play the provision of Art. 1323
of the Civil Code which is certainly applicable here, considering
the provision of Art. 732. According to Art. 1323, a n offer
becomes ineffective upon the death, civil interdiction, insanity,
or insolvency of either party before acceptance is conveyed.
Analyzing the provision, it is clear t hat the offer of A ha s become
ineffective and th at the contract of donation, as a consequence,
has never been perfected.
Problem No. 2 — A donated a piece of land to B in a

donation inter vivos. B accepted the donation in a separate
instrument bu t A suddenly died in an accident before the
acceptance could be communicated to him. Is the donation
valid? Reasons. (1971 Bar Problem)
Answer — Even assuming t hat both the donation and

the acceptance are contained in a public instrument, which the
law requires (Art. 749, CC), the donation is not valid for the
following reasons:
(1)Under Art. 749 of the Civil Code which enunciates the

different formalities required in the execution of donations
inter vivos, the law declares th at if the acceptance is made in a
separate public instrument, the donor shall be notified thereof in
authentic form, and this step shall be noted in both instruments.
It is obvious th at in the instant case the requirement of
notification of the donor in authentic form (constancia autentica)
has not been complied with. It is of course axiomatic under the
law on donations t hat all of the formalities prescribed in Art.
749 of the Code are essential for validity.
(2)Art. 734 of the Civil Code declares t h at a donation is

perfected from the moment the donor knows of the acceptance
by the donee. It is also obvious th at in the in sta nt case A never
came to know of the acceptance by B because he suddenly died
in a n accident before such acceptance could be communicated to
him. Consequently, the contract of donation was never perfected.
(3)And finally, Art. 1323 of the Civil Code is decisive.
This article (which is certainly applicable here considering
411
Art. 1324 CONTRACTS
the provision of Art. 732 of the Code) declares t h at a n offer

becomes ineffective upon the death, civil interdiction, insanity
or insolvency of either party before acceptance is conveyed.
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. 34
Period for Acceptance: Options. — It is clear from the

above article t h a t there is a very great difference between the effect
of a n option which is without a consideration and the effect of one
which is founded upon a consideration as far as the right of the
offeror to withdraw his offer or proposal is concerned. If the option
is without any consideration, the offeror may withdraw his offer by
communicating such withdrawal to the offeree a t anytime before
acceptance; if it is founded upon a consideration, the offeror cannot
withdraw his offer.
In the case of Beaumont vs. Prieto, Justice Araullo explained
35
the nat ure of a n option founded upon a consideration in the following

words:
“In his Law Dictionary, Bouvier defines a n option as a

contract in the following language: ‘A contract by virtue of which
A, in consideration of the payment of a certain sum to B, acquires
the privilege of buying from, or selling to B, certain securities or
properties within a limited time at a specified price.’
“From Vol. 6, page 5001, of the work ‘Words and Phrases,’
citing the case of Ide vs. Leiser (24 Pac., 695, 10 Mont., 5; 24
Am. St. Rep. 17), the following quotation ha s been taken: ‘An
agreement in writing to give a person the ‘option’ to purchase
lands within a given time at a named price is neither a sale nor
an agreement to sell. It is simply a contract by which the owner
of property agrees with another person that he shall have the
right to buy his property at a fixed price within a certain time.
He does not sell his land; he does not then agree to sell it; but
he does sell something; th at is, the right or privilege to buy at
the election or option of the other party. The second party gets
34
New provision.
35
41 Phil. 670.
412
Consent
in praesenti, not lands, nor agreement t ha t he shall have lands,

but he does get something of value; th at is, the right to call for
and receive lands if he elects. The owner parts with his right to
sell his lands, except to the second party for a limited period.
The second party receives this right, or rather, from his point of
view, he receives the right to elect to buy.’
“But the two definitions above cited refer to a contract of
option, or, what amounts to the same thing, to a case where
there is cause or consideration for the obligation.’’
Art. 1324 standing alone, or in relation to the other articles

under this chapter of the Civil Code, is clear. However, the second
paragraph of Art. 1479 of the Civil Code under the law on sales
declares t h a t “an accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the promisor if
the promise is supported by a consideration distinct from the price.”
Interpreting this provision in relation to Art. 1324, in two cases, the 36
Supreme Court sustained the view t h a t this provision constitutes an

exception to the general rule stated in Art. 1324. If the option is not
supported by a consideration which is distinct from the purchase
price, the offer may still be withdrawn even if the offeree has already
accepted it.
The above interpretation, however, was finally abandoned in
Sanchez vs. Rigos (G.R. No. L-25494, Ju n e 14, 1972, 45 SCRA
368).
In this case, the Supreme Court ruled t h a t in unilateral
offers to buy or to sell, 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 promise partakes of the nature of a n offer to sell
which, if accepted, results in a perfected contract of sale. Stated in
another way, if the option is without a consideration, it is a mere
offer to sell which is not binding until accepted. If, however,
acceptance is made before a withdrawal, it constitutes a binding
contract of sale. There is already a concurrence of both offer and
acceptance. Under Art. 1319 of the Civil Code, the contract is
perfected.
Problem — “A’’ agreed to sell to “B’’ a parcel of land for

P5,000.00. “B’’ was given up to May 6, 1975 within which to
Gaz. 3447; Navarro vs. Sugar Producers, Inc., 1 SCRA 1180.

36
Southwestern Sugar and Molasses Co. vs. Atlantic Gulf &
Pacific Co., 51 Off. 413
Art. 1324 CONTRACTS
raise the necessary funds. It was further agreed t h a t if “B’’

could not produce the money on or before said date, no liability
would attach to him. Before May 6, 1975, “A’’ backed out of the
agreement. Is “A’’ obliged to sell the property to “B’’? Explain.
(1975 Bar Problem)
Answer — Assuming t hat the offer of “A’’ to sell the land to
“B’’ is merely a unilateral offer to sell, and t h at there is still no
bilateral agreement in the sense th at “B’’ h ad already agreed to
buy the land, “A’’ is not obliged to sell the property to “B.’’ In such
case, it is clear t hat the general rule stated in Art. 1324 and the
particular rule stated in Art. 1479, par. 2, of the Civil Code are
applicable. As a matter of fact, even if “B’’ has formally accepted
the option given to him by “A,’’ such acceptance would be of no
moment since the option is not supported by any consideration
distinct from the purchase price. “A’’ can always change his mind
at any time. The option does not bind him for lack of a cause or
consideration. It would have been different if “B’’ ha d accepted
the offer to sell within the period of the option before said offer
was withdrawn by “A.’’ In such a case, a contract of sale would
have been generated right then and there. As it turned out, “A’’
withdrew his offer in time. (See Sanchez vs. Rigor, 45 SCRA
368)
(Note: In Sanchez vs. Rigos, supra, the Supreme Court
finally resolved a question which arose out of the use of the word
“accepted’’ in modifying the phrase “unilateral promise to buy or
to sell’’ in Art. 1479, par. 2, of the Civil Code. “Accepted’’ refers
to the option, not to the offer, to buy or to sell; in other words, it
refers to the acceptance by either prospective vendee or vendor
of the option of, let us say, ninety days within which he shall
decide whether or not he shall buy or sell the thing. Thus, if
“A’’ offers to sell a lot to “B’’ for P200,000, and gives the latter
an option of ninety days within which to decide whether or not
he shall buy the property, and the latter accepts the option, two
possible situations may arise:
(1)In accepting the option, “B’’ pays to “A’’ a n “option
money’’ of, let us say, P5,000 which is distinct from the purchase
price. In such case, there is already a perfected preparatory
contract of option. “A’’ is bound by his offer. “B’’ shall now decide
within the period of the option whether or not he shall buy the
property. If he decides to buy, he shall then pay to “B’’ the price
of P200,000; if he decides otherwise, no contract of sale will ever
be perfected.
(2) In accepting the option, “B’’ does not pay any “option
money’’ to “A’’. In such case, there is no perfected preparatory
414
Consent
contract of option for lack of a consideration. The result is a mere

offer to sell, acceptance or which will be suffcient to generate a
perfected contract of sale. But suppose t ha t meanwhile, “A’’ has
changed his mind? The lot is no longer for sale. “B’’, on the other
hand, has decided to buy the property. What will now happen?
Under this situation, the one who is first to notify the other of
his decision emerges the victor. If “A’’ is the first to notify “B’’
of his change of mind, no contract of sale will ever be perfected;
if “B’’ is the first to notify “A’’ of his acceptance of the offer, a
contract of sale h as already been perfected.)
Problem — “Q,’’ the owner of a house and lot in Quezon
City, gave an option to “R’’ to purchase said property for
P100,000.00 within ninety days from May 1, 1979. “R’’ gave “Q’’
one (P1.00) peso as option money. Before the expiration of the
ninety-day period, “R’’ went to “Q’’ to exercise his option to pay
the purchase price but “Q’’ refused because somebody wanted
to buy his property for P150,000.00 and because there was no
sufficient consideration for the option. “R’’ sued “Q’’ to compel
him to accept payment and execute a deed of sale in his favor.
Decide the case. (1980 Bar Problem)
Answer — “Q’’ should be compelled to accept the purchase
price of P100,000.00 and to execute a deed of sale of the subject
property in favor of “R.’’ The reason is t ha t there is already a
perfected contract of sale.
Undoubtedly, in the in stant case, there is a unilateral
offer of “Q’’ to sell the subject property to “R.’’ For t ha t purpose,
the latter is given an option of ninety days from May 1, 1979
within which to exercise the option. The consideration for the
option is P1.00. According to the Civil Code, since there is a
consideration for the option, “Q’’ is now bound by his promise
to sell the property to “R’’ so long as the latter will exercise the
option within the agreed period of ninety days. “R’’ exercised his
option. Therefore, there is already a perfected contract of sale.
True, “Q’’ will suffer some sort of lesion or prejudice
if what he says about another desiring to buy the property
for P150,000.00 is established. True also, the consideration
of P1.00 for the option is grossly inadequate. The Civil Code,
however, declares t hat 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. Here, there is
no fraud, mistake or undue influence which would be a possible
basis for invalidating either the preparatory contract of option
or the principal contract of sale.
415
As a matter of fact, even assuming t ha t there is no

consideration for the option, the end result would still be the
same. Since “R’’ accepted the offer before it could be withdrawn
or revoked by “Q,’’ there is already a perfected contract of sale.
(Note: The second paragraph of the above answer, which
gives the raison d’etre for what is stated in the first paragraph,
is based on Arts. 1324 and 1479, par. 2, of the Civil Code. The
third paragraph, which disposes of the contentions or defenses
of the defendant, is based on Art. 1355 of the Civil Code. The
fourth paragraph, which is a sort of obiter, is based on Sanchez
vs. Rigos, 45 SCRA 368.)
Art. 1325. Unless it appears otherwise, business adver-

tisements of things for sale are not definite offers, but mere
invitations to make an offer. 37
Art. 1326. Advertisements for bidders are simply invita-

tions to make proposals, and the advertiser is not bound to
accept the highest or lowest bidder, unless the contrary ap-
pears. 38
Article Applied. — The above article may be illustrated by the

following problem:
Problem — “K’’ and Co. published in the newspaper an

“Invitation to Bid’’ inviting proposals to supply labor and
materials for a construction project described in the invitation.
“L,’’ “M’’ and “N’’ submitted bids. When the bids were opened,
it appeared th at “L’’ submitted the lowest bid. However, “K’’
and Co. awarded the contract to “N,’’ the highest bidder, on
the ground th at he was the most experienced and responsible
bidder. “L’’ brought an action against “K’’ and Co. to compel the
award of the contract to him and to recover damages.
Is “L’s’’ position meritorious? (1980 Bar Problem)
Answer — “L’s’’ position is not meritorious.
According to the Civil Code, advertisements for bidders
are simply invitations to make proposals, and the advertiser
is not bound to accept the highest or lowest bidder unless the
37
New provision.
38
New provision.
416
Consent
contrary appears. It is clear t hat the general rule applies in the

instant case. In its advertisement, “K’’ and Co. did not state that
it will award the contract to the lowest bidder. Therefore, in
awarding the contract to “N,’’ the defendant company acted in
accordance with its rights.
Art. 1327. The following cannot give consent to a con-

tract:
(1) Unemancipated minors;
(2)Insane or demented persons, and deaf-mutes who
do not know how to write. 39
Legal Capacity of Contracting Parties. — The capacity of

the contracting parties is, in effect, an essential element of a contract,
or to be more exact, it is a n indispensable requisite of consent. Since
it is so intimately interwoven with the latter as a n antecedent is
to a consequent, and since it is impossible in law to speak of an
effective consent without presupposing the capacity to give it, it is
perfectly understandable why the Code does not expressly mention
capacity as one of the essential elements. The Code in Art. 1327,
40
however, speaks of those who are incapacitated to give their consent

to a contract.
Idem; Incapacitated persons. — According to Art. 1327, the
following cannot give their consent to a contract: (1) Unemancipated
minors; (2) insane or demented persons; and (3) deaf-mutes who
do not know how to write. The second is broad enough to cover
all cases where one or both of the contracting parties are unable
to understand the natur e and consequences of the contract a t the
time of its execution, such as those in a state of drunkenness or
under a hypnotic spell or who are suffering from any kind of mental
incapacity whatsoever.
Because the law incapacitates them to give their consent to a
contract, the only way by which any one of those enumerated above
can enter into a contract is to act through a parent or guardian.
If this requirement is not complied with, the result is a defective
contract. If only one of the contracting parties is incapacitated
39
40
417
Art. 1327 CONTRACTS
to give his consent, the contract is voidable. If both of them are

41
incapacitated to give their consent, the contract is unenforceable. 42
Idem; id. — Unemancipated minors. — Under No. 1 of Art.

1327, unemancipated minors cannot give their consent to a contract. 43
However, if a minor is emancipated by marriage or by voluntary

concession, according to Art. 399 of the Civil Code, he shall have the
power to administer his property, but he cannot borrow money or
alienate or encumber real property without the consent of his father
or mother, or guardian.
Nevertheless, there are five exceptional cases where a contract
entered into by a n unemancipated minor may have all of the effects
of a valid contract. They are: first, when it is entered into by a minor
who misrepresents his age; second, when it involves the sale and
44
delivery of necessaries to the minor; third, when it involves a

45
natura l obligation and such obligation is fulfilled voluntarily by the

minor, provided t h a t such minor is between eighteen and twenty-one
years of age; fourth, when it is a marriage settlement or donation
46
propter nuptias, provided t h a t the minor is between twenty and

twenty-one years of age, if male, or between eighteen and twenty-
one years of age, if female; and fifth, when it is a life, health or
47
accident insurance taken on the life of the minor, provided t h a t the

minor is eighteen years old or more and the beneficiary appointed
is the minor’s estate, or the minor’s father, mother, husband wife,
child, brother, or sister. 48
Idem; id. — Effect of misrepresentation. — The first

exception is based on the principle of estoppel. Thus, in the case of
Mercado and Mercado vs. Espiritu, the Supreme Court held that
49
where the minors who entered into the contract have already passed
41
42
43
For legal effect of contracts entered into by unemancipated minors, see Gan
Tingco vs. Pabanguit, 35 Phil. 31; Ibañez vs. Rodriguez, 47 Phil. 554; Velayo vs. Al-
cantara, 47 Off. Gaz.
44
Mercado and Mercado vs. Espiritu, 37 Phil. 215; Sia S ua n vs. Alcantara, 47
Off. Gaz. 4561.
45
46
Arts. 1425, 1426, 1427, Civil Code.
47
48
Act No. 3424, as amended, Insurance Law.
49
37 Phil. 215.
418
Consent
the age of puberty and adolescence in such a way t h a t they could

misrepresent and actually did misrepresent themselves as having
reached the age of majority, they cannot, upon reaching the age of
majority, annul the contract on the ground of minority inasmuch
as they are already in estoppel. This doctrine was reiterated in the
cases of Sia Suan vs. Alcantara and Hermosa vs. Zobel. In his
50 51
concurring and dissenting opinion in the Alcantara case, however,

Justice Padilla declared:
“The contract of sale involved in the case of Mercado vs.

Espiritu was executed by the minors on May 17, 1890. The
law in force on this last mentioned date was not Las Siete
Partidas, which was the law in force at the time the causes of
action accrued in the cases decided by the Supreme Court of
Spain referred to, but the Civil Code which took effect in the
Philippines on December 8, 1889. As already stated, the Civil
Code requires the consent of both parties for the valid execution
of a contract (Art. 1261 — now Art. 1318, of the Civil Code). As a
minor cannot give his consent, the contract made or executed by
him has no validity and legal effect. There is no provision in the
Civil Code similar to th at of Law 6, Title 19 of the 6th Partida
which is equivalent to the common law principle of estoppel.52 If
there be an express provision in the Civil Code similar to Law
6, Title 19 of the 6th Partida, I would agree to the reasoning of
the majority. The absence of such provision in the Civil Code is
fatal to the validity of the contract executed by a minor. It would
be illogical to uphold the validity of a contract on the ground of
estoppel, because if the contract executed by a minor is null and
void for lack of consent and produces no legal effect, how could
such a minor be bound by misrepresentation about his age? If
he could not be bound by a direct act, such as the execution of
a deed of sale, how could he be bound by a n indirect act, such
as his misrepresentation as to his age? The rule laid down in
Young vs. Tecson, 39 Off. Gaz. 953, in my opinion, is the correct
one.’’53
50
47 Off. Gaz. 4561.
51
104 Phil. 769.
52
This was true under the Spanish Civil Code. However, the New Civil Code
(Art. 1431) now provides th a t through estoppel, a n admission or representation is
rendered conclusive upon the person making it and it cannot be denied or disproved
as against the person relying thereon.
53
The case of Young vs. Tecson was a case decided by the Court of Appeals hold-
ing that: “The theory advanced by the appellants th a t misrepresentation made by the
defendant as to his age estops him from denying t h at he was of age, or from assert-
419
Art. 1327 CONTRACTS
Be t ha t as it may, it is now well settled t h a t misrepresentation

by unemancipated minors with regard to their age when entering
into a contract shall bind them in the sense t h a t they are estopped
subsequently from impugning the validity of the contract on the
ground of minority. It is, however, necessary t h a t the misrepresen-
tation must be active, not merely constructive. 54
Braganza vs. Villa Abrille

105 Phil. 456
On Oct. 20, 1944, Rosario de Braganza and her two minor

sons, Rodolfo and Guillermo, who were then 18 and 16 years old
respectively, borrowed from Villa Abrille P70,000 in Japanese
military notes, promising to pay the latter solidarily P10,000 “in
legal currency of the Philippines, two years after the cessation of
present hostilities or as soon as International Exchange ha s been
established in the Philippines,’’ plus 2% interest per annum.
For failure to pay, Villa Abrille sued them in March, 1949.
Defendants, however, have interposed the minority of Rodolfo
and Guillermo de Braganza at the time when they signed the
note as a defense. Consequently, the principal questions to be
decided are: first, whether or not the minority of her co-signers
has any effect upon the liability of Mrs. Braganza; and second,
whether or not such co-signers can be held liable. The Supreme
Court held:
“Mrs. Braganza is liable because the minority of her co-
signers does not release her from liability, since it is a personal
defense of the minors. However, she can avail herself of the
defense but such defense will benefit her only as regards that
part of the debt for which the minors are responsible. (Art.
1148, now Art. 1222, Civil Code.) Therefore, she shall pay 1/3 of
P10,000 or P3,333.33, plus 2% interest from October, 1944.
“On the other hand, the Court of Appeals found the minors
liable because they did not state in the promissory note that
they are not yet of legal age and ‘when minors pretended to be
ing t h a t he was under age, a t the time he entered into the contract, for the breach
of which this action is brought is untenable, because under the principle of estoppel
the liability resulting from the misrepresentation ha s its juridical source in the
capacity of the person making the misrepresentation to bind himself. If the person
making the misrepresentation cannot bind himself by a contract, he cannot also be
bound by any misrepresentation he may have made in connection therewith.’’
54
420
Consent
of legal age, when in fact they were not, they will not later on
be permitted to excuse themselves from the fulfillment of the
obligation contracted by them, or to have it annulled.’ (Mercado,
et al. vs. Espiritu, 37 Phil. 15.) However, the Mercado case is dif-
ferent because the document signed therein by the minors spe-
cifically stated th at they were of age, here, the promissory note
contained no such statement. In other words, in the Mercado
case, the minors were guilty of active misrepresentation; where-
as in this case, the minors are guilty of passive or constructive
misrepresentation. From the minor’s failure to disclose their mi-
nority, it does not follow, as a legal proposition, t h at they will
not be permitted there after to assert it. According to Corpus
Juris Secundum (43, p. 206), ‘mere silence when making a con-
tract as to his age does not constitute a fraud which can be made
the basis of an action for deceit. In order to hold the infant li-
able, the fraud must be actual and not constructive.’ Therefore,
the minors in the case at bar cannot be legally bound by their
signatures in the promissory note.
“They cannot, however, be absolved entirely from mon-
etary responsibility. Under the Civil Code, even if their written
contract is voidable because of non-age, they shall make resti-
tution to the extent t hat they may have profited by the money
they received. (Art. 1304, now Art. 1399, Civil Code.) There is
testimony th at the funds were used for their support during the
Japanese occupation. Such being the case, it is but fair to hold
t hat they had profited to the extent of the value of such money,
which value h as been established in the Ballantyne Schedule. In
October, 1944, P40 Japanese military notes were equivalent to
P1.00 of current Philippine money. Hence, they shall pay jointly
P1,666.67, plus 6% interest beginning March 7, 1949, when the
complaint was filed.”
Idem; id. — Insane or demented persons. — Under No. 2 of

Art. 1327, insane or demented persons cannot give their consent to
a contract. It is, of course, well established t h a t “insane or demented
persons” include any person, who, a t the time of the celebration of
the contract, cannot understand the nature and consequences of the
act or transaction by reason of any cause affecting his intellectual
or sensitive faculties, whether permanent or temporary. Art. 1328,
however, provides th a t a contract entered into during a lucid interval
is valid. Thus, according to the Supreme Court:
“Even in the execution of contracts, in the absence of

a statu te to the contrary, the presumption of insanity and
421
Art. 1327 CONTRACTS
mental incapacity in a person under guardianship for mental

derangement, is only prima facie and may be rebutted by
evidence. A person under guardianship for insanity may still
enter into a valid contract and even convey property, provided
it is proven t hat at the time of entering into said contract, he
was not insane or th at his mental defect, if mentally deranged,
did not interfere with or affect his capacity to appreciate the
meaning and significance of the transaction entered into by
him. There are many cases of persons mentally deranged who,
although they have been having obsessions and delusions for
many years regarding certain subjects and situations, still are
mentally sound in other respects. There are others who, though
insane, have their lucid intervals when in all respect they are
perfectly sane and mentally sound. 5 5
What is the nature and extent of the mental incapacity which

will incapacitate a person from giving his consent to a contract?
In our present knowledge of the state of mental alienation such
certainty has not yet been reached in which we can determine with
precision who are those who are suffering from mental capacity and
who are those who are not. As a matt er of fact, the Code considers
as a demented person, or a t least, places in the same category as a
demented person anyone who is in a state of drunkenness or under a
hypnotic spell, when it declares in Art. 1328 t h a t a contract entered
into by such person is voidable. It is, however, a well-established
rule in contractual law t h a t in order to avoid a contract because of
mental incapacity, it is necessary to show t h a t a t the time of the
celebration of the contract one of the contracting parties was not
capable of understanding with reasonable clearness the nature
and effect of the transaction in which he was engaged. Hence, such
circumstances as age, sickness, or any other condition as such will
not necessarily justify a court of justice to interfere in order to
set aside a contract voluntarily entered into. Thus, where it was
56
established t h a t one of the contracting parties was suffering from

monomania or delusion of wealth a t the time of the execution of the
contract believing himself to be very wealthy when as a m atter of
fact he is not, it was held t h a t such fact alone will not be sufficient
to invalidate the contract so long as it was not proved th a t a t the
55
Dumaguin vs. Reynolds, 48 Off. Gaz. 3887.
56
Cui vs. Cui, 100 Phil. 913, citing Page on Contracts, Vol. 3, Sec. 2810.
422
Consent
moment of the execution of the contract he was incapable, crazy,

insane, or out of his mind. 57
Consequently, mental incapacity to enter into a contract is

a question of fact which must be decided by the courts. There is,
however, a presumption t h a t every person of legal age possesses the
necessary capacity to execute a contract, but the presumption is
58
prima facie and may be rebutted by proper evidence. Thus, in the

case of Carillo vs. Jaoco, where it was established t h a t the vendor
59
of several parcels of land was declared insane by a competent court

nine days after the execution of the contract of sale, the Supreme
Court still ruled:
“The fact th at nine days after the execution of the contract,

Adriana Carillo was declared mentally incapacitated by the
trial court does not prove th at she was so when she executed the
contract. After all this can perfectly be explained by saying that
her disease became aggravated subsequently.
“Our conclusion is t hat prior to the execution of the docu-
ment in question the usual state of Adriana Carillo was t h a t of
being mentally capable, and consequently, the burden of proof
th at she was mentally incapacitated at a specified time is upon
her who affirms said incapacity. If no sufficient proof to this ef-
fect is presented, her capacity must be presumed.’’
Idem; id. — Deaf-mutes. — With regard to deaf-mutes, we

must distinguish between the effect of a contract entered into by a
deaf-mute who knows how to write and t h a t of a contract entered
into by a deaf-mute who does not know how to write. The first is
perfectly valid, while the second is either voidable or unenforceable,
depending upon whether one or both of the parties are incapacitated.
This can be inferred from No. 2 of Art. 1327 which states t h a t deaf-
mutes who do not know how to write cannot give their consent to a
contract.
Idem; id. — Other incapacitated persons. — Besides the
persons enumerated in Art. 1327, there are others who are also
incapacitated to give their consent to a contract, such as married
57
Standard Oil Co. vs. Arenas, 19 Phil. 363.
58
Standard Oil Co. vs. Arenas, 19 Phil. 363; Dumaguin vs. Reynolds, 48
Off. Gaz.
59
Standard Oil Co. vs. Arenas, 19 Phil. 363.
3887.
423
Art. 1327 CONTRACTS
women of age in cases specified by law, persons suffering from civil

interdiction, and incompetents who are under guardianship.
60 61
It must be noted t h a t under Art 1263 of the Spanish Civil Code,

among the persons incapacitated to give their consent to a contract
are “married women in the cases specified by law,” whereas under
the present Civil Code, they are not included. This is, of course, in
conformity with the rule t h a t a married woman, twenty-one years of
age or over, is qualified for all acts of civil life except in cases specified
by law. In spite of its elimination from the list, it cannot be denied
62
t h a t there are still cases, although much more limited in extent than
under the old Code, where married women cannot give their consent
to a contract without first securing their husband’s consent. The
most evident example of this is t h a t contemplated by Art. 114 of the
Code regarding acquisition by a wife of property by gratuitous title.
According to this article, the husband’s consent is necessary, unless
the property is acquired from her ascendants, descendants, parents-
in-law and relatives within the fourth degree. 63
With regard to incompetents under guardianship, it must

be noted t h a t the mere fact t h a t a person is classified as an
“incompetent” in accordance with the New Rules of Court does not
necessarily mean t h a t he cannot give his consent to a contract, nor
does the mere fact t h a t he is not under guardianship necessarily
mean t h a t he can give his consent to a contract. Under Sec. 2 of
Rule 92 of the New Rules of Court, the word “incompetent’’ includes:
(1) persons suffering from civil interdiction; (2) hospitalized
lepers;
(3) prodigals; (4) deaf and dumb who are unable to read and
write;
(5) those who are of unsound mind, even though they have
lucid intervals; and (6) those who by reason of age, weak mind, and
other similar causes, cannot, without outside aid, take care of
themselves and manage their property becoming thereby a n easy
prey for deceit and exploitation. It is evident from wh at had
already been stated t h a t insane or demented persons as well as
deaf-mutes who cannot write cannot give their consent to a
contract, whether or not they
60
Art. 34, Revised Penal Code.
61
Rules 92-93, New Rules of Court.
62
63
With regard to contracts
with involving
regard toparaphernal property,
those involving conjugal property, see Art. 172, Civil Code.
see Art. 140, and
424
Consent
are under guardianship. The same is also true with regard to those
64
suffering from civil interdiction. On the other hand, prodigals

65
and those who by reason of age, weak mind, and other similar
causes, cannot take care of themselves and manage their property,
before they are placed under judicial guardianship, are disputably
presumed to possess contractual capacity. Consequently, whether
or not they can give their consent to a contract becomes a m atter of
proof. Hospitalized lepers, before they are placed under guardianship,
are, of course, not incapacitated. But once a n incompetent is placed
upon guardianship, such incompetent can enter into a contract only
through his guardian; otherwise, the contract is voidable.
Problem — Is a person of advanced years or age or by

reason of physical infirmities incapacitated to enter into a
contract?
Answer — A person is not incapacitated to enter into a
contract merely because of advanced years or by reason of
physical infirmities, unless such age and infirmities impair
his mental faculties to the extent t h at he is unable to properly,
intelligently and fairly understand the provisions of said
contract (Dr. Jose and Aida Yason and Faustino Arciaga, et. al.,
G.R. No. 145017, Jan. 28, 2005).
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. 66
Art. 1329. The incapacity declared in Article 1327 is subject

to the modification determined by law, and is understood to
be without prejudice to special disqualifications established
in the laws. 67
Disqualifications to Contract. — It is apparent t h a t the

persons specially disqualified mentioned in Art. 1329 refer to those
who are prohibited from entering into a contract with certain
persons with regard to certain property under certain circumstances
and not to those who are incapacitated to give their consent to a
contract.
64
65
Art. 34, Revised Penal Code.
67
Art. 1264,
66
NewSpanish
provision.Civil Code.
425
Thus, Sec. 145 of the Administrative Code declares t h a t no contract

relating to real property shall be made with any non-Christian
inhabitant of Mindanao and Sulu, unless such contract shall bear
the approval of the provincial governor of the province wherein the
contract was executed or his representative duly authorized for
such purpose in writing endorsed upon it. This rule is still intact
68
under Rep. Act No. 3872, although the sale is subject to the approval
of the Chairman of the Commission on National Integration. Any
contract executed in violation of this rule is void. Similarly, under
69
the Insolvency Law, a person who is declared insolvent before he is

discharged is prohibited from entering into a contract. 70
Attention must also be called to the following provisions of the

Civil Code:
“Art. 133. Every donation between the spouses during the

marriage shall be void. This prohibition does not apply when the
donation takes effect after the death of the donor.
“Neither does this prohibition apply to moderate gifts
which the spouses may give each other on the occasion of any
family rejoicing.’’
“Art. 1490. The husband and the wife cannot sell property
to each other, except:
“(1) When a separation of property was agreed upon in
the marriage settlements; or
“(2) When there has been a judicial separation of
property under Article 191.’’
“Art. 1491. The following persons cannot acquire by
purchase, even at a public or judicial auction, either in person
or through the mediation of another:
“(1) The guardian, the property of the person or persons
who may be under his guardianship;
“(2) Agents, the property whose administration
or sale
68
Act No. 2798 has extended the application of this rule to the non-Christians of
Mountain Province and Nueva Vizcaya.
69
Rep. Act No. 3872. See Porkan vs. Yatco, 70 Phil. 161; Porkan vs. Navarro, 73
Phil. 698; Madale vs. Raya, 49 Off. Gaz. 536; Miguel vs. Catalino, 26 SCRA 234; Heirs
of Lacamen vs. Heirs of Laruan, 65 SCRA 605.
70
Act No. 1956.
426
Consent
may have been entrusted to them, unless the consent of the

principal has been given;
“(3) Executors and administrators, the property of the
estate under administration;
“(4) Public officers and employees, the property of the
State or of any subdivision thereof, or of any government-owned
or controlled corporation, or institution, the administration of
which has been entrusted to them; this provision shall apply to
judges and government experts who, in any m anner whatsoever,
take part in the sale;
“(5) Justices, judges, prosecuting attorneys, clerks of
superior and inferior courts, and other officers and employees
connected with the administration of justice, the property
and rights in litigation or levied upon on execution before
the court within whose jurisdiction or territory they exercise
their respective functions; this prohibition includes the act
of acquiring by assignment and shall apply to lawyers, with
respect to the property and rights which may be the object of
any litigation in which they may take part by virtue of their
profession;
“(6) Any others specially disqualified by law.”
“Art. 1782. Persons who are prohibited from giving each
other any donation or advantage cannot enter into universal
partnership.’’
Idem; Distinguished from incapacity to contract. —

Disqualification to contract or prohibition to contract, referred to in
the previous section, must not be confused with incapacity to give
consent to a contract. The two may be distinguished from each other
as follows:
(1)Incapacity restrains the exercise of the right to contract,
while prohibition to contract restrains the very right itself; in other
words, a person who is incapacitated can still enter into a contract,
but he must do so through his parent or guardian, while one who
is prohibited from entering into a particular contract is absolutely
disqualified from entering into t h at contract;
(2)Incapacity is based upon subjective circumstances of cer-
tain persons which compel the law to suspend for a definite or in-
definite period their right to contract, while prohibition to contract,
427
Art. 1330 CONTRACTS
which has been improperly called special incapacity by certain au-

thors, is based upon public policy and morality; and
(3) A contract entered into by a n incapacitated person is

merely voidable in accordance with Art. 1390 of the Civil Code, while
t h a t entered into by one against whom a prohibition is directed is
void in accordance with Arts. 5 and 1409, No. 7, of the Civil Code. 71
Art. 1330. A contract where consent is given through

mistake, violence, intimidation, undue influence, or fraud is
voidable. 72
Vices of Consent. — Art. 1330 enumerates the different vices

which may vitiate consent. In addition to the five stated in this
article, we can also include simulation of contracts. 73
According to Castan, the vices of consent may be divided into

two distinct groups — vices of the will (vicios de la formacion de la
voluntad) and vices of declaration (vicios de la declaracion). The first
comprehends mistake, violence, intimidation, undue influence, and
fraud; the second comprehends all forms of simulated contracts. 74
Actually, Art. 1330, according to Manresa, enumerates in a

negative way the different requisites of consent objectively considered.
These requisites are t h a t the consent must be intelligent, t h a t it
must be free, and t h a t it m ust be spontaneous. Intelligent consent is
vitiated by mistake or error; free consent by violence, intimidation
and undue influence; spontaneous consent by fraud. Because of the 75
inclusion of simulation of contracts as one of the vices which vitiate

consent, we might add a fourth requisite — t h a t the consent must
be real. In the absence of any of the first three requisites because
consent is given through either mistake, or violence, or intimidation,
or undue influence, or fraud, the contract is voidable; in the absence
of the fourth requisite because the contract is simulated, it may be
71
72
73
Arts. 1345-1346, Civil Code. See also 3 Castan, 7th Ed., p. 330; 8 Manresa, 5th
Ed., Bk. 2, p. 393.
74
75
428
Consent
either void ab initio or valid as far as the real agreement is concerned

depending upon whether the simulation is absolute or relative. 76
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 correc-
tion. 77
Mistake. — The Code does not distinguish between mistake

as such and ignorance. Consequently, as it is understood in the Civil
Code, mistake may be defined not only as the wrong conception of a
thing, but also as the lack of knowledge with respect to a thing. 78
Idem; Mistakes which vitiate consent. — There are

two general kinds of mistakes — mistake of fact and mistake of law.
There is, of course, a mistake of fact when one or both of the
contracting parties believe t h a t a fact exists when in reality it does
not, or tha t such fact does not exist when in reality it does. On the
other hand, there is a mistake of law when one or both of the
contracting parties arrive a t an erroneous conclusion regarding the
interpretation of a question of law or the legal effects of a certain
act or transaction. As a general rule, it is only a mistake of fact
which will vitiate consent t hus rendering the contract voidable; a
mistake of law, on the other- hand, does not render the contract
voidable because of the well- known principle t h a t ignorance of
the law does not excuse anyone from compliance therewith. 79
76
77
78
79
Luna vs. Linatoc, 74 Phil. 15, citing Art. 3, Civil Code, 3 Castan, 7th Ed., pp.
330-331.
429
Art. 1331 CONTRACTS
Idem; id. — Mistake of fact. — For purposes of clarity, we

shall divide the different mistakes of fact which vitiate consent into
the following classes: 80
(1) Mistake as to object (error in re): This is the mistake which

is referred to in the first paragraph of Art. 1331 of the Code. It may
be subdivided into the following: (a) Mistake as to the identity of
the thing (error in corpore), as when the thing which constitutes the
object of the contract is confused with another thing; (b) mistake as
to the substance of the thing (error in substantia); (c) mistake as to
the conditions of the thing, provided such conditions have principally
moved one or both parties to enter into the contract; and (d) mistake
as to the quantity of the thing (error in quantitate), provided that
the extent or dimension of the thing was one of the principal reasons
of one or both of the parties for entering into the contract. 81
In order t h a t a contract is rendered voidable because of mistake

regarding the quantity of the thing which constitutes the object
thereof, it is necessary t h a t such mistake should refer not only to
the material out of which the thing is made, but also to the nature
which distinguishes it, generically or specifically, from all others,
such as when a person purchases a thing made of silver believing
t h a t it is made of gold. Consequently, if the mistake refers only to
accidental or secondary qualities (error in qualitate), the contract is
not rendered voidable. 82
In case of mistake regarding the quantity of the thing (error

in quantitate), it is important t h a t this class of mistake should be
distinguished from a mistake of account or calculation. In the first,
there is a real mistake as to the extent of the object of the contract;
in the second, there is only a n apparent mistake, a mere mistake
in mathematical computation. As a consequence, in the first, the
contract is voidable; in the second, it is not. Thus, if the parties enter
into a contract with respect to a parcel of land which they believe
has a n area of 100 hectares, when in reality it has a n area of only
50 hectares, there is mistake as to the quantity of the thing; the
contract in this case is voidable. If, on the other hand, they enter
into a contract in which it is agreed t h a t a parcel of land consisting
80
81
3 Castan, 7th Ed., pp. 331-332.
82
430
Consent
of 10 hectares shall be sold for P1,000 per hectare, and they thought
t h a t the total price is only P5,000, there is a mistake of account; the
mistake in this case can only be corrected. 83
Asiain vs. Jalandoni

45 Phil. 296
The records show th at the plaintiff offered to sell to

the defendant a certain hacienda for P55,000. During the
negotiation, he told the defendant th at it contained between 25
and 30 hectares and t hat the cane then planted would produce
2,000 piculs of sugar. Although doubtful of the extent of the
land, the defendant finally accepted the offer, paid P30,000 of
the purchase price and took possession of the land. While thus
in possession, he discovered th at the land was only about 18
hectares and the cane only about 800 piculs of sugar. Because
of this discovery, he refused to pay the balance of the purchase
price. As a consequence, plaintiff commenced this action to
recover the said balance. To the complaint, defendant filed an
answer and a counter complaint, asking t ha t the contract be
annulled.
Held: “Coordinating more closely the law and the facts in
the instant case, we reach the following conclusions: This was
not a contract of hazard. It was a sale in gross in which there
was a mutual mistake as to the quantity of land sold and as to
the amount of the standing crop. The mistake of fact as disclosed
not alone by the terms of the contract but by the attendant
circumstances, which it is proper to consider in order to throw
light upon the intention of the parties, is, as it is sometimes
expressed, the efficient cause of the concoction. The mistake
with reference to the subject matter of the contract is such
that, at the option of the purchaser, the contract is rescissible
(voidable). Without such mistake the agreement would not have
made and since this is true, the agreement is inoperative. It
is not deception but is more nearly akin to bilateral mistake
for which relief should be granted. Specific performance of the
contract can therefore not be allowed at the instance of the
vendor.
83
8 Manresa, 5th Ed., Bk. 2, pp. 403-404. For cases illustrating mistakes account,
see Pastor vs. Nicasio, 6 Phil. 152; Aldecoa & Co. vs. Warner, Barnes & Co., 16 Phil.
23; Gutierrez Hermanos vs. Oria Hermanos,30 Phil. 491; Oquinena & Co. vs. Muer-
tegui, 32 Phil. 261.
431
Art. 1332 CONTRACTS
“The ultimate result is to put the parties back in exactly

their respective positions before they became involved in the
negotiation and before accomplishment of the agreement. This
was the decision of the trial judge and we think t h a t decision
conforms to the facts and the principles of equity.’’
(2) Mistake as to person (error in persona): This kind of mis-

take or error may refer either to the name or to the identity or to
the qualification of a person. It is evident from the provision of the
second paragraph of Art. 1331 t h a t the only mistake with regard to
persons which will vitiate consent are mistakes with regard to the
identity or the qualifications of one of the contracting parties. Hence,
mistake with regard to the nam e of one or both of the contracting
parties will not invalidate the contract. In order t h a t mistake as to
persons shall vitiate consent, the following requisites must, how-
ever, concur: first, the mistake must be either with regard to the
identity or with regard to the qualification of one of the contracting
parties; and second, such identity or qualification must have been
the principal consideration for the celebration of the contract. Gen-
erally, this kind of mistake occurs in obligations to do which require
special qualifications of the parties or which are based on confidence.
Examples of these obligations are those arising from remuneratory
contracts, partnership, agency, deposit, commodatum, and lease of
services. 84
Art. 1332. When one of the parties is unable to read, or

if the contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the contract
must show that the terms thereof have been fully explained
to the former. 85
Rule Where a Party Is Illiterate. — The rule stated in the

above article was declared by the codifiers as “especially necessary
in the Philippines where unfortunately there is still a fairly large
number of illiterates and where documents are usually drawn up
in English and Spanish.” Thus, where the plaintiff, who cannot
86
84
3 Castan, 7th Ed., pp. 334-335; 8 Manresa, 5th Ed., Bk. 2, p. 402.
85
New provision.
86
Report of the Code Commission, p. 136, cited in Ayola vs. Valderama Lumber
Co., CA, 49 Off. Gaz. 980.
432
Consent
read and write, signed with a cross a document which she thought
was merely a promise to pay certain expenses which defendant had
advanced to her in a certain law suit, but which turned out to be
a n absolute deed of sale of two parcels of land and a carabao, said
document is voidable, for had she truly understood the contents
thereof, she would neither have accepted nor authenticated it by
her mark. Similarly, where the plaintiffs, both of whom are blind,
87
affixed their th umbm arks to a deed which they thought was a deed
of mortgage, but which turned out to be a deed of sale of certain
properties in favor of the defendant who is a son-in-law of one of
them, although the deed is a public document and the notary public
testified as to their due execution, since courts are given a wide
latitude in weighing the facts or circumstances in a given case and
since there exists a fiduciary relationship between the parties to the
contract, it was held t h a t such contract is voidable. The same is also
88
true where the plaintiff had testified t h a t he h ad signed a voucher

without knowing or understanding its contents. Since under Art.
1332, the burden of proving t h a t the plaintiff had understood the
contents of the document was shifted to the defendant and he had
failed to do so, the presumption of mistake still stands unrebutted
and controlling. 89
Article 1332 was intended for the protection of a party to a

contract who is a t a disadvantage due to his illiteracy, ignorance,
mental weakness or other handicap. This article contemplates a
situation wherein a contract has been entered into, but the consent
of one of the parties is vitiated by mistake or fraud committed by
the other contracting party. This is apparent from the ordering of
the provisions under Book IV, Title II, Chapter 2, Section 1 of the
Civil Code, from which Article 1332 is taken. Article 1330 states
t h a t “A contract where consent is given through mistake, violence,
intimidation, undue influence, or fraud is voidable.’’ (Hemedes vs.
Court of Appeals, 316 SCRA 348.)
In order t h a t 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. Fraud, on the other hand, is present when,
87
Dumasug vs. Modelo, 34 Phil. 252.
88
Trasporte vs. Beltran, CA, 51 Off. Gaz. 1434.
89
Ayola vs. Valderama Lumber Co., CA, 49 Off. Gaz. 980.
433
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. Clearly, Article 1332 assumes
t h a t the consent of the contracting party imputing the mistake or
fraud was given, although vitiated, and does not cover a situation
where there is a complete absence of consent. (Hemedes vs. Court of
Appeals, supra.)
Art. 1333. There is no mistake if the party alleging it

knew the doubt, contingency or risk affecting the object of
the contract. 90
Art. 1334. Mutual error as to the legal effect of an agree-

ment when the real purpose of the parties is frustrated, may
vitiate consent. 91
Mistake of Law. — Mistake of law as a rule will not vitiate

consent. There is, however, a n exception to this rule. According
to Art. 1334 (a new provision), mutual error as to the effect of an
agreement when the real purpose of the parties is frustrated, may
vitiate consent. Three requisites are, therefore, necessary in order
92
t ha t such mistake will vitiate consent. In the first place, the mistake
must be with respect to the legal effect of a n agreement; in the
second place, the mistake must be mutual; and in the third place,
the real purpose of the parties must have been frustrated.
Explaining the reason for the insertion of Art. 1334 in the Civil
Code, the Code Commissioners stated in their report:
“Mistake of law does not generally vitiate consent. But when
there is mistake on a doubtful question of law, or on the construction
or application of law, this is analogous to a mistake of fact, and the
maxim of ignorantia legis neminem excusat should have no proper
application. When even the highest courts are sometimes divided
upon difficult legal questions, and when one-half of the lawyers in all
90
New provision.
91
New provision.
92
The mistake referred to in this article seems to be the equivalent of what
Castan terms a mistake as to the na t u re of the contract (error in negocio) giving as
a n example a contract in which one of the parties believes th a t he is selling the
thing,
while the other thinks t ha t he is merely leasing it. (3 Castan, 7th Ed., 335.)
434
Consent
controversies on a legal question are wrong, why should a layman be

held accountable for his honest mistake on a doubtful legal issue?’’ 93
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 the intimidation, the age,
sex and condition of the person shall be borne in mind.
A threat to enforce one’s claim through competent au-
thority, if the claim is just or legal, does not vitiate consent. 94
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. 95
Violence and Intimidation. — The first paragraph of Art.

1335 gives the definition of violence, while the second paragraph of
the same article gives the definition of intimidation.
Because of the similarity between violence and intimidation,
especially with regard to their effects both upon the will of the
person upon whom they are exercised and upon the contract which
is produced thereby, the two are sometimes known as duress. One,
however, must be distinguished from the other. While violence
is external, intimidation is internal; while the first prevents the
expression of the will substituting it with a material act dictated by
another, the second influences the operation of the will, inhibiting
it in such a way t h a t the expression thereof is apparently t h a t of a
person who has freely given his consent. In the terse language of
96
Castan, violence is physical compulsion, while intimidation is moral

compulsion. 97
93
94
95
96
97
435
Idem; Requisites of violence. — In order t h a t consent is

vitiated through violence, it is essential t h a t the following requisites
must concur: first, the force employed to wrest consent must be
serious or irresistible; and second, it must be the determining
cause for the party upon whom it is employed in entering into the
contract. 98
Idem; Requisites of intimidation. — Intimidation, on the

other hand, requires the concurrence of the following requisites:
first, one of the contracting parties is compelled to give his consent
by a reasonable and well-grounded fear of a n evil; second, the evil
must be imminent and grave; third, the evil must be unjust; and
fourth, the evil must be the determining cause for the party upon
whom it is employed in entering into the contract. 99
Idem; id. — Character of intimidation. — In order that

intimidation may be sufficient to render a contract voidable, Art.
1335 requires t h a t one of the contracting parties should be compelled
by a reasonable and well-grounded fear of a n imminent and grave
evil upon his person or property or upon the person or property of his
spouse, descendants or ascendants. This presupposes t h a t the threat
or intimidation m ust be actual, serious and possible of realization,
and t h a t the actor can and still will carry out his threat. The 100
best illustrations of the application of this rule are those contracts

entered into during the Japanese occupation involving payments
in Japanese military notes, where it is established t h a t one of the
contracting parties was compelled to give his consent to the payment
by reason of a threat to report his non-acceptance of the military
notes to the Japanese authorities. Thus, it has been held t h a t the
threat to deliver anyone to the Kempetai or to the now infamous
Fort Santiago, for refusal to accept Japanese military notes, or for
any cause, even to intelligent persons of ordinary firmness would
surely infuse just fear of great bodily harm, should there be a refusal
considering the inquisitorial methods employed by the invaders and
wh at they had done. But the mere knowledge of the severe penalties
101
98
Ibid., pp. 337-338.
99
Ibid.
100
This rule, which is taken from Manresa (Vol. 8, Bk. 2, 5th Ed., p. 411), is enun-
ciated in the cases of Alarcon vs. Kasilag, CA, 40 Off. Gaz. 11th S, p. 203; De Asis vs.
Buenviaje, CA, 45 Off. Gaz. 317; Mirano vs. Mossessgeld Santiago, CA, 45 Off. Gaz.
343; Derequito vs. Dolutan, CA, 45 Off. Gaz. 1351; Valdeabella vs. Marquez, CA, 48
Off. Gaz. 719.
101
Rodriguez vs. De Leon, CA, 47 Off. Gaz. 6296.
436
Consent
imposed by the invaders upon a violation of their proclamations

and orders regarding non-acceptance of military notes, which was
common and applicable to all, without any proof of direct acts
showing the imminence and gravity of any injury, does not in itself
establish intimidation, since according to the law, such intimidation
exists only when one of the contracting parties is inspired with a
reasonable and well grounded fear of suffering a n imminent and
grave injury to his person or property, or to the person or property of
his spouse, descendants or ascendants. 102
Idem; id. — Distinguished from reluctant consent. —

From what had been stated, consent given through intimidation
must not be confused with consent given reluctantly and even against
good sense and judgment. There must be a distinction to be made
between a case where a person gives his consent reluctantly and
even against his good sense and judgment and where he, in reality,
gives no consent a t all as where he executes a contract against his
will under a pressure which he cannot resist. It is clear t h a t one acts
as voluntarily and independently in the eyes of the law when he acts
reluctantly and with hesitation as when he acts spontaneously and
joyously. Legally speaking, he acts voluntarily and freely when he
acts wholly against his better sense and judgment as when he acts
in conformity with them. Between the two acts there is no difference
in law.103
The test in order to determine whether consent given “under

pressure” is intimidation within the meaning of the law or not is
given by Justice Moreland in the following words:
“All men are presumed to be sane and normal and subject

to be moved by substantially the same motives. When of age
and sane, they must take care of themselves. In their resolu-
tions with others in the business of life, wits, sense, intelligence,
training, ability and judgment meet and clash and contest,
sometimes with gain and advantage to all, sometimes to a few
only, with loss and injury to others. In these contests men must
depend upon themselves — upon their own abilities, talents,
102
Valdeabella vs. Marquez, CA, 48 Off. Gaz. 719. To the same effect: Mirano vs.
Mossessgeld Santiago, CA, 45 Off. Gaz. 343; Phil. Trust Co. vs. Araneta, 46 Off. Gaz.
4254; Laraga vs. Bañez, 47 Off. Gaz. 696; Fernandez vs. Brownell, 51 Off. Gaz. 713.
103
Vales vs. Villa, 35 Phil. 769; Reyes vs. Zaballero, G.R. No. L-3561, May 23,
1951.
437
training, sense, acumen, judgment. The fact t h a t one may be

worsted by another, of itself, furnishes no cause of complaint.
One man cannot complain, because another is more able, or bet-
ter trained, or h as better sense or judgment t h an he has; and
when the two meet on a fair field the inferior cannot mu rm ur if
the battle goes against him. The law furnishes no protection to
the inferior simply because he is inferior, any more t ha n it pro-
tects the strong because he is strong. The law furnishes protec-
tion to both alike — to one no more or less t h a n to the other. It
makes no distinction between the wise and the foolish, the great
and the small, the strong and the weak. The foolish may lose all
they have to the wise; but th at does not mean t ha t the law will
give it back to them again. Courts cannot follow one every step
of his life and extricate him from one-sided contracts, or annul
the effects of foolish acts. Courts cannot constitute themselves
guardians of persons who are not legally incompetent. Courts
operate not because one person has been defeated or overcome
by another, but because he has been defeated or overcome il-
legally. Men may do foolish things, make ridiculous contracts,
use miserable judgments, and lose money by t hem — indeed, all
they have in the world; but not for t hat alone can the law inter-
vene and restore. There must be, in addition, a violation of law,
the commission of what the law knows as a n actionable wrong
before the courts are authorized to lay hold of the situation and
remedy it.
“Furthermore, even if an actionable wrong be committed
in such manner as to authorize the court to intervene, the
person injured may renounce his right to take the mat te r to the
courts and may compromise with the wrong-doer. Or, having
been placed in a very disadvantageous position by the wrong
committed against him, he may be offered by his adversary one
or more avenues of escape. He may be required to lose more
property to his enemy or go to the court for redress. In such case
the payment of a n additional su m as a means of escape is not
necessarily a payment for duress. The act was preceded by an
exercise of judgment. This much was plain to him; he h ad either
to let the matter stand as it was with the loss already sustained
or go to the courts to be relieved. His judgment, operating upon
this condition, told him to pay the additional sum rat h e r than
to suffer the inconvenience and expense of a n action in court.
A payment made under such conditions is not voidable. It
is a voluntary act of a sane and mature ma n performed upon
reflection. Not only this; it is a compromise of the original wrong
and a ratification of the relation which the wrongful act was
intended to establish between the parties.
438
Consent
“The same may be said with greater force of a case where

a person’s own voluntary act, uninfluenced by another, has put
him in a disadvantageous position — a position which another
may unjustly make use of to his injury. The failure to reduce a
contract to writing or to have witnesses present when a verbal
agreement is made, or to record an instrument, or to exclude
from the operation of its terms things verbally agreed to be
excluded, etc., may place a person in a disadvantageous position
with respect to another; but the demand t ha t he pays to secure
his extrication is not illegal, and payment made pursuant to
such demand is not necessarily voidable. He pays for his lack of
foresight. While the demand may be reprehensible morally, it is
not illegal; and of itself is not ground for relief.
“There must, then, be a distinction to be made between
a case where a person gives his consent reluctantly and even
against his good sense and judgment, and where he, in reality,
gives no consent at all, as where he executes a contract or performs
an act against his will under a pressure which he cannot resist.
It is clear th at one acts as voluntarily and indepedently in the
eyes of the law when he acts reluctantly and with hesitation,
as when he acts spontaneously and joyously. Legally speaking,
he acts as voluntarily and freely when he acts wholly against
his better sense and judgment as when he acts in conformity
with them. Between the two acts there is no difference in law.
But when his sense, judgment, and his will rebel and he refuses
absolutely to act as requested, but is nevertheless overcome
by force or intimidation to such a n extent t h at he becomes a
mere automaton and acts mechanically only, a new element
enters, namely, a disappearance of the personality of the actor.
He ceases to exist as an independent entity with faculties and
judgment and in his place is substituted another — the one
exercising the force or making use of the intimidation. While
his h an d signs, the will which moves it is another’s. While a
contract is made, it has, in reality and in law, only one party,
the one using the force or the intimidation; it is unenforceable
for lack of a second party.
“From these considerations it is clear t h at every case of
an alleged intimidation must be examined to determine within
which class it falls. If it is within the first class, it is not duress
in law, if it falls in the second, it is.’’104
104
Vales vs. Villa, 35 Phil. 769. To a certain extent the doctrine of absolute judi-
cial objectivity a s applied to contractual relations has been humanized by the provi-
sion of Art. 24 of the New Civil Code.
439
Martinez vs. Hongkong and Shanghai Bank

15 Phil. 252
This is an action to annul a contract on the ground that
plaintiff’s consent thereto was obtained under duress. Under
this contract, she agreed to a conveyance of several properties to
Aldecoa & Co. and the Hongkong and Shanghai Bank as settle-
ment of their claims against her and against her husband, who
in order to escape criminal charges, had escaped to Macao, a
territory not covered by any extradition treaty. It was estab-
lished at the trial th at during the period of negotiation, repre-
sentations were made to her by the defendants and concurred
in by her lawyers, th at if she assented to the requirements of
the defendants, the civil suit against herself and her husband
would be dismissed and the criminal charges against the latter
withdrawn, but if she refused, her husband must either spend
the rest of his life in Macao or be criminally prosecuted. The
question now is whether or not there was duress which would
invalidate the contract.
Held: “In order th at this contract can be annulled it
must be shown th at the plaintiff never gave her consent to
the execution thereof. It is, however, necessary to distinguish
between real duress and the motive which is present when one
gives his consent reluctantly. A contract is valid even though
one of the parties entered into it against his wishes and desires
or even against his better judgment. Contracts are also valid
even though they are entered into by one of the parties without
hope of advantage or profit. A contract whereby reparation is
made by one party for injuries which he ha s wilfully inflicted
upon another is one which from its inherent natu re is entered
into reluctantly by the party making the reparation. He is
confronted with a situation in which he finds the necessity
of making reparation or of taking the consequences, civil
or criminal, of his unlawful acts. He makes the contract of
reparation with extreme reluctance and only by the compelling
force of the punishment threatened. Nevertheless, such contract
is binding and enforceable.
“It is undisputed t hat the attorneys for the plaintiff in this
case advised her that, from the facts which they h ad before them,
facts of which she was fully informed, her husband had been
guilty of embezzlement and misappropriation in the management
of the business of Aldecoa & Co. and that , in their judgment,
if prosecuted therefor, he would be convicted. In other words,
under the advice of her counsel, the situation was so presented
to her t hat it was evident th at in signing the agreement, she
440
Consent
had all to gain and nothing to lose, whereas, in refusing to sign

said agreement, she had all to lose and nothing to gain. In the
one case, she would lose her property and save her husband.
In the other, she would lose her property and her husband too.
The argument thus presented to her by her attorneys addressed
itself to judgment and not to fear. It appealed to reason and
not to passion. It asked her to be moved by common sense and
not by love of family. It spoke to her own interests as much as
to those of her husband. The argument went to her financial
interests as well as to those of the defendants. It spoke to her
business judgment as well as to her wifely affections. From the
opinions of her attorneys as they were presented to her upon
facts assumed by all to be true, we do not well see how she could
reasonably have reached a conclusion other t h an t h at which
she did reach. It is of no consequence here whether or not her
lawyers advised her wrongly. It is of no importance whether, as
a matter of law, she would have been deprived of her alleged
interests in the properties mentioned in the m an ner described
and advised by her attorneys. The important thing is t h at she
believed and accepted their judgment and acted upon it. The
question is not did she make a mistake, but did she consent; not
was she wrongly advised, but was she coerced; not was she wise,
but was she duressed.
“From the whole case we are of the opinion t h a t the finding
of the court below th at the plaintiff executed the contract in
suit of her own free will and choice and not from duress is fully
sustained by the evidence.’’
Idem; id. — Determination of degree of

intimidation.
— According to the third paragraph of Art. 1335, to
determine the degree of the intimidation, the age, sex and
condition of the person shall be borne in mind. It is evident t h a t
this provision refers principally to the person intimidated. By
condition here is meant not only the resolute or weak character of
the person intimidated, but also his other circumstances, such as
his capacity or culture, which permits him to appreciate whether
or not there is a n imminent danger, his position, by which he can
determine whether or not it gives him a chance to thwart the
danger, his financial condition, because while a certain amount may
mean nothing to some, to others it may mean economic ruin. 105
105
8 Manresa, 5th Ed., Bk. 2, p. 418; Rodriguez vs. De Leon, CA, 47
Off. Gaz.
6296. 441
Art. 1337 CONTRACTS
But the applicability of the provision is even more evident in

the case of the spouse, descendant or ascendant of the contracting
party. When the evil which threatens is directed not against the
contracting party but against his spouse, descendant or ascendant,
we must consider not only the conditions of the contracting party,
but also the conditions of such spouse, descendant or ascendant,
because, although the evil which threatens may not be sufficiently
grave or serious to bring h a r m to the contracting party, it may have
a different effect upon a weak woman, a n aged father, or a
defenseless child. 106
Idem; id. — Effect of just or legal threat. — According

to the last paragraph of Art. 1335, a threat to enforce one’s claim
through competent authority, if the claim is just or legal, does not
vitiate consent. Consequently, even if it can be established t h a t the
reason or motive of a party in entering into a contract was the threat
of the other to proceed against him through the courts, the contract
would still be perfectly valid and not voidable. Thus, where it is
107
established t h a t a demand for the settlement of a n obligation made

by the creditor upon the debtor was accompanied by the threat that
upon failure of the latter to do so, a n action would be instituted
against him in court, it was held t ha t such threat is proper within
the realm of the law as a means to enforce collection of the obliga-
tion, and therefore, cannot constitute intimidation which would in-
validate any settlement entered into even if the claim proves to be
unfounded so long as the creditor who made the threat believed that
it was his right to do so. 108
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

106
Doronilla vs. Lopez, 3 Phil. 360; Martinez vs. Hongkong and Shanghai
107
Bank, 5 Phil. 252; Jalbuena vs. Ledesma, 8 Phil. 601; Berg vs. Nat. City Bank of
New York, 102 Phil. 309.
108
Berg vs. Nat. City Bank of New York, G.R. No. L-9312, Oct. 31, 1957.
442
Consent
unduly influenced was suffering from mental weakness, or

was ignorant or in financial distress. 109
Undue Influence. — According to Art. 1337 of the Code, 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. Concisely stated, undue influence invalidating a
contract is t ha t which substitutes the wishes of another for those of
a party to the contract or t h a t which deprives the latter of his free
agency. 110
Idem; Undue influence which vitiates consent. —

Although it h as often been stated that undue influence is an
unlawful influence, it appears t h a t no more is meant by the
expression “undue influence,” as used in this connection th an t h a t
it is the influence which deprives a person of his free agency.
Consequently, even if it can be established t h a t a person entered
into a contract through the importunity or persuasion of another
against his better judgment, if the deprivation of his free agency is
not proved, there is no undue influence which will invalidate the
contract. Thus, according to the Supreme Court:
“Solicitation, importunity, argument, and persuasion are

not undue influence and a contract is not to be set aside merely
because one party used these means to obtain the consent of
the other. Influence obtained by persuasion or argument or by
appeals to the affections is not prohibited either in law or morals
and is not obnoxious even in courts of equity. Such may be termed
‘due influence.’ The line between due and undue influence when
drawn, must be with full recognition of the liberty due every
true owner to obey the voice of justice, the dictates of friendship,
of gratitude and of benevolence, as well as the claims of kindred,
and when not hindered by personal incapacity or particular
regulations, to dispose of his own property according to his own
free choice. (9 Cyc. 455, and cases there cited.)’’111
The test, therefore, in order to determine whether or not there

is undue influence which will invalidate a contract is to determine
whether or not the influence exerted has so overpowered or
subjugated
109
New provision.
57 Am. Jur., Sec. 350, p. 258.
110
111
Martinez vs. Hongkong and Shanghai Bank, 15 Phil. 252.
443
Art. 1338 CONTRACTS
the mind of a contracting party as to destroy his free agency, making

him express the will of another r athe r th an his own. However, in
112
determining whether or not there is undue influence, the following

circumstances shall be considered: the confidential, family, spiritual
and other relations between the parties, or the fact t h a t the person
alleged to have been unduly influenced was suffering from mental
weakness, or was ignorant or in financial distress. 11 3
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. 114
Fraud. — Fr aud which will render a contract voidable refers

to those insidious words or machinations employed by one of the
contracting parties in order to induce the other to enter into a
contract, which, without them, he would not have agreed to. 115
Idem; Kinds of fraud. — The fraud which is defined in Art.

1338 must not be confused with the fraud which is mentioned in Arts.
1170 and 1171 of the Code. Fraud or dolo under the Civil Code, as
116
distinguished from fraud or dolo under the Revised Penal Code, may,
therefore, be classified as either fraud in the perfection of a contract
(Art. 1338) or fraud in the performance of a n obligation (Art. 1170).
The first is the fraud which is employed by a party to the contract in
securing the consent of the other party, while the second is the fraud
which is employed by the obligor in the performance of a pre-existing
obligation. Fra ud or dolo which is present or employed a t the time
of the birth or perfection of a contract, on the other hand, may be
subdivided into dolo causante and dolo incidente. Dolo causante or
causal fraud refers to those deceptions or misrepresentations of a
serious character employed by one party and without which the
other party would not have entered into the contract. This is the
fraud which is defined in Art. 1338. Dolo incidente or incidental
112
Coso vs. Fernandez Deza, 42 Phil. 595.
113
114
115
116
See distinctions under Art. 1171, Civil Code.
444
Consent
fraud refers to those deceptions or mispresentations which are not

serious in character and without which the other party would still
have entered into the contract. This is the fraud referred to in Art.
1344. The two may be distinguished from each other as follows:
(1)The first refers to a fraud which is serious in character,
while the second is not serious.
(2)The first is the cause which induces the party upon whom it
is employed in entering into the contract, while the second is not
the cause.
(3)The effect of the first is to render the contract voidable,
while the effect of the second is to render the party who employed it
liable for damages. 11 7
Idem; Requisites. — It is evident from the provisions of Arts.

1338 to 1344 of the Code t h a t in order t h a t the consent of a party
to a contract is vitiated by fraud, it is essential t h a t the following
requisites must concur:
(4)Fr au d or insidious words or machinations must have been
employed by one of the contracting parties;
(5)The fraud or insidious words or machinations must have
been serious;
(6)The fraud or insidious words or machinations must have
induced the other party to enter into the contract; and
(7)The fraud should not have been employed by both of the
contracting parties or by third persons.
Idem; id. — Nature of fraud. — According to Manresa, the
essence of this class of fraud lies in the deception or misrepresenta-
tion employed by one of the contracting parties to secure the con-
sent of the other. This is indicated by the phrase “insidious words or
machinations’’ used in Art. 1338 which is broad enough to compre-
hend any kind of deception, such as false promises, fictitious names,
fictitious qualifications, or fictitious authority — in short, all the
thousand and one forms of deception which may delude a contract-
117
8 Manresa, 5th Ed., Bk. 2, pp. 240-241; Hill vs. Veloso, 31 Phil. 160; Wood-
house vs. Halili, 49 Off. Gaz. 3374.
445
Art. 1338 CONTRACTS
ing party to give his consent, without necessarily constituting estafa

or some other offense under our penal laws. 118
Before a contract can be invalidated because of fraud, it

is, however, essential t h a t there must be proof of concrete facts
constituting the fraud or insidious words or machinations employed
by one of the contracting parties by virtue of which the other
party was induced to enter into the contract, which, without them,
he would not have agreed to. Furthermore, it is also essential
119
t h a t such insidious words or machinations must be prior to or

contemporaneous with the birth or perfection of the contract. 120
Eguaras vs. Great Eastern Life Assurance Co.

33 Phil. 263
This is an action for the collection of the value of an

insurance policy. The records show t hat Dominador Albay filed
a n application for an insurance on his life with the defendant
company; t hat since Albay was in poor health, the person who
presented himself for medical examination to the company
physician was not the applicant, but Castor Garcia, who posed
as Dominador Albay; t hat as a result of the favorable report of
the physician, the defendant company executed the contract
of insurance; t hat a short time thereafter the insured died. In
this action the company contends th at the contract should be
annulled on the ground of fraud.
Held: “The fraud which gave rise to the mistaken consent
given by the defendant company to the application for insurance
made by Albay and to the execution of the contract through
deceit, is plain and unquestionable. The fraud consisted in the
substitution at the examination of Castor Garcia in place of the
insured Dominador Albay, and as the deceit practiced in the
said contract is of a serious nature, the same is also ipso facto
void and ineffective (voidable), in accordance with the provision
of Article 1270 (now Art. 1344) of the Civil Code.’’121
118
8 Manresa, 5th Ed., Bk. 2, p. 423; Eguaras vs. Great E astern Life Ass. Co., 33
Phil. 263.
119
Ramos vs. Valencia, 47 Off. Gaz. 1978.
120
Eguaras vs. Great E astern Life Ass. Co., 33 Phil. 263.
121
To the same effect: Musngi vs. West Coast Ins. Co., 61 Phil. 864.
446
Consent
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. 122
Effect of Failure To Disclose Facts. — Failure to disclose

facts, when there is a duty to reveal them, as when the parties are
bound by confidential relations, constitutes fraud. Thus, where the
123
defendant, who is the manager of a certain corporation as well as

the owner of about 3/4 of the shares of capital stock thereof, bought
through a n agent 800 shares of capital stock from the plaintiff,
without disclosing the fact t h a t he had just negotiated the sale of
valuable properties to the government th us enhancing the value
of the capital stocks of the company, such nondisclosure is clearly
fraudulent; therefore, the sale can be annulled. However, the
124
innocent nondisclosure of a fact, when there is no duty to reveal

it, does not constitute fraud; consequently, such nondisclosure does
not affect the formation of the contract or operate to discharge the
parties from their agreement. 125
Art. 1340. The usual exaggerations in trade, when the

other party had an opportunity to know the facts, are not in
themselves fraudulent. 126
Effect of Exaggerations in Trade. — The usual exaggera-

tions in trade, when the other party had a n opportunity to know
the facts, are not in themselves fraudulent. Thus, according to the
127
Supreme Court:
“When the purchaser proceeds to make investigations

by himself, and the vendor does nothing to prevent such
investigations from being as complete as the former might wish,
the purchaser cannot later allege th at the vendor made false
representations to him.
“One who contracts for the purchase of real estate in
reliance on the representations and statements of the vendor
122
New provision.
123
124
Strong vs. Gutierrez Repide, 213 U.S. 419; 41 Phil. 947.
125
Tuazon vs. Marquez, 45 Phil. 481. To the same effect: Escudero vs. Flores, 51
Off. Gaz. 3444.
126
New provision.
127
447
as to its character and value, but after he h as visited and

examined it for himself, and has had the means and opportunity
of verifying such statements, cannot avoid the contract on the
ground t hat such statements were false or exaggerated.’’128
Art. 1341. A mere expression of an opinion does not sig-

nify fraud, unless made by an expert and the other party has
relied on the former’s special knowledge. 129
Effect of Expression of Opinion. — A mere expression of

a n opinion does not signify fraud, unless made by a n expert and
the other party has relied on the former’s special knowledge. This 130
principle is illustrated in the following case:
Songco vs.
Sellner 37 Phil.
254
The principal defense in this action for specific perfor-
mance relates to the false representation which, it is claimed,
was made by the plaintiff Songco with respect to the quantity
of uncut cane standing in the fields at the time the defendant
Sellner became the purchaser thereof. It is proved t h at Songco
estimated th at the crop would yield 3,000 piculs of sugar. As
the crop turned out, it produced only 2,017 piculs of sugar. The
question now is whether such representation of the plaintiff-
vendor is fraudulent, which, under Art. 1338, would invalidate
the contract. Holding th at such representation can only be con-
sidered as a mere expression of a n opinion, the Supreme Court
ruled:
“It is of course elementary th at a misrepresentation upon
a mere matter of opinion is not a n actionable deceit, nor is it a
sufficient ground for avoiding a contract as fraudulent. We are
aware t hat statements may be found in the books to the effect
t hat there is a difference between giving a n honest opinion and
making a false representation as to what one’s real opinion is.
We do not think, however, th at this is a case where any such
distinction should be drawn.
128
Azarraga vs. Gay, 52 Phil. 599. To the same effect: Songco vs. Sellner, 37 Phil.
254; Puato vs. Mendoza, 64 Phil. 457.
129
New provision.
130
448
Consent
“The law allows considerable latitude to seller’s statement,

or dealer’s talk, and experience teaches t h at it is exceedingly
risky to accept it at its face value. The refusal of the seller to
warran t his estimate should have admonished the purchaser
th at such estimate was put forth as a mere opinion; and we will
not now hold the seller to a liability equal to t h at which would
have been created by a warranty, if one had been given.
“Assertions concerning the property which is the subject of
a contract of sale, or in regard to its qualities and characteristics,
are the usual and ordinary means used by sellers to obtain a
high price and are always understood as affording to buyers no
ground for omitting to make inquiries. A m a n who relies upon
such a n affirmation made by a person whose interest might
so readily prompt him to exaggerate the value of his property
does so at his peril and must take the consequences of his own
imprudence.’’
Art. 1342. Misrepresentation by a third person does not

vitiate consent, unless such misrepresentation has created
substantial mistake and the same is mutual. 131
Effect of Misrepresentation by Third Persons. — Misrep-

resentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is
mutual. Even without Art. 1342, this rule would still be applicable
132
since it is a logical corollary to the principle t h a t in order to vitiate

consent, the fraud must be employed only by one of the contracting
parties. Besides, it would be clearly unjust to visit upon a contract-
ing party the disastrous effects of nullity simply because the other
contracting party has indiscreetly reposed his confidence upon a
third party. The precept, however, would not be applicable if the
third person makes the misrepresentation with the complicity or, at
least, with the knowledge, but without any objection, of the contract-
ing party who is favored. Neither is it applicable if the misrepresen-
tation has created substantial mistake and the same is mutual. 133
Problem — C, an old and ignorant woman, was helped by

V in obtaining a loan of P3,000.00 from X Rural Bank secured
by a mortgage on her house and lot. On the day she signed the
New provision.
131

132
133
8 Manresa, 5th Ed., Bk. 2, p. 427; Hill vs. Veloso, 31 Phil. 160.
449
promissory note and the mortgage covering the loan, she also
signed several documents. One of these documents signed by
her was promissory note of V for a loan of P3,000.00 also secured
by a mortgage on her house and lot. Several years later, she
received advice from the sheriff t hat her property shall be sold
at public auction to satisfy the two obligations. Immediately she
filed suit for annulment of her participation as co-maker in the
obligation contracted by V as well as of the mortgage in relation
to said obligation of V on the ground of fraud and mistake. Upon
filing of the complaint, she deposited P3,383.00 in court as
payment of her personal obligation including interests.
(a) Can be held liable for the obligation of V? Why?
(b)Was there a valid and effective consignation consid-
ering th at there was no previous tender of payment made by C
to the Bank? Why?
Answer — (a) C cannot be held liable for the obligation
of V. It is crystal clear th at C’s participation in V’s obligation
both as co-maker and as mortgagor is voidable not on the
ground of fraud because the Bank was not a participant in the
fraud committed by V, but on the ground of mistake. There was
substantial mistake on the p art of both C and the Bank mutually
committed by them as a consequence of the fraud employed by
V. (See Rural Bank of Caloocan City vs. CA, 104 SCRA
151.)
(b) Despite the fact th at there was no previous tender
of payment made directly to the Bank, nevertheless, the
consignation was valid and effective. The deposit was attached
to the record of the case and the Bank had not made any claim
thereto. Therefore, C was right in thinking t ha t it was useless
and futile for her to make a previous offer and tender of payment
directly to the Bank. Under the foregoing circumstances, the
consignation was valid, if not under the strict provisions of the
law, under the more liberal consideration of equity. (Ibid.)
Art. 1343. Misrepresentation made in good faith is not

fraudulent but may constitute error. 134
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.
134
New provision.
450
Consent
Incidental fraud only obliges the person employing it to

pay damages. 135
Magnitude of Fraud. — The second indispensable requisite

in order t h a t the fraud employed by one of the contracting parties
will vitiate the consent of the other is t h a t it should be serious in
character. This requisite is expressly stated in the first paragraph of
Art. 1344 of the Code.
According to Manresa, the serious character of the fraud refers
not to its influence, but to its importance or magnitude. By virtue
of this requisite, the annulment of a contract cannot, therefore, be
invoked just because of the presence of minor or common acts of
fraud whose veracity could easily have been investigated; neither
can such annulment be invoked because of the presence of ordinary
deviations from the truth, deviations, which are almost inseparable
from ordinary commercial transactions, particularly those taking
place in fairs or markets. 136
Relation Between Fraud and Consent. — The third in-

dispensable requisite in order t h a t the fraud employed by one of
the contracting parties will vitiate consent is t h a t it should have in-
duced the other party to enter into the contract. In other words, such
fraud must be the principal or causal inducement or consideration
for the consent of the party who is deceived in the sense t h a t he
would never have given such consent were it not for the fraud. This
is the fraud which Spanish commentators can dolo causante (dolus
causam dans).
If the fraud is merely incidental in the sense t h a t the party
who is deceived would have agreed to the contract even without it,
his consent is not vitiated and, as a consequence, the validity of the
contract is not a t all affected. Its only effect is to render the party
who has employed it liable for damages. This is the fraud which
Spanish commentators call dolo incidente (dolus incidens).
The following case will serve to illustrate the effect of dolo
incidente:
135
136
451
Woodhouse vs. Halili

49 Off. Gaz. 3374
Plaintiff and defendant entered into a contract whereby

it was agreed th at they shall organize a partnership for the
bottling and distribution of Mission soft drinks, plaintiff to act
as industrial partner and manager, and defendant as capitalist
partner; th at plaintiff was to secure the Mission soft drinks
franchise for and in behalf of the partnership; and t ha t he
was to receive 30% of the net profits of the business. Because
of the alleged failure of defendant to comply with this contract
after the bottling plant was already in operation, plaintiff
brought this action against him praying for the execution of
the agreed contract of partnership, a n accounting of the profits
of the business, as well as damages amounting to P200,000.
Defendant, in his answer, alleged th at his consent to the
contract was secured through plaintiff’s false representation
th at he had the exclusive bottling franchise of the Mission Dry
Corporation in the Philippines and that, although such franchise
was later on obtained from the Mission Dry Corporation, it
was he, the defendant, and not the plaintiff, who obtained it.
He also presented a counterclaim for P200,000 as damages.
Consequently, the principal questions which will have to be
decided in this case are: first, whether or not the plaintiff had
falsely represented t hat he had the exclusive franchise to bottle
Mission beverages in the Philippines; and second, whether this
false representation, if it existed, annuls the agreement to form
a partnership. Holding t hat there was breach of contract on the
part of the defendant as well as misrepresentation on the part
of the plaintiff, the Supreme Court, speaking through Justice
Labrador, ruled:
“We now come to the legal aspect of the false representa-

tion. Does it amount to a fraud t hat would vitiate the contract?
It must be noted th at fraud is manifested in illimitable number
of degrees or gradations, from the innocent praises of a sales-
man about the excellence of his wares to those malicious machi-
nations and representations t hat the law punishes as a crime. In
consequence, Article 1270 (now Art. 1344) of the Civil Code dis-
tinguishes two kinds of (civil) fraud or dolo — the causal fraud
which may be a ground for the annulment of a contract, and the
incidental deceit, which only renders the party who employs it
liable for damages. This Court h as held t ha t in order t h a t fraud
may vitiate consent, it must be the causal (dolo causante), not
merely the incidental (dolo incidente), inducement to the mak-
ing of the contract. The record abounds with circumstances in-
452
Consent
dicative of the fact t hat the defendant was led to the belief that
plaintiff had the exclusive franchise, but t h a t the same was to
be secured for or transferred to the partnership. The plaintiff
no longer had the exclusive franchise, or the option thereto, at
the time the contract was perfected. But while he h ad already
lost his option thereto (when the contract was entered into), the
principal obligation th at he assumed or undertook was to secure
said franchise for the partnership, as the bottler and distributor
for the Mission Dry Corporation. We declare, therefore, t h at if
he was guilty of a false representation, this was not the causal
consideration, or the principal inducement, t ha t led defendant
to enter into the partnership agreement. But, on the other hand,
this supposed ownership of an exclusive franchise was actual-
ly the consideration or price plaintiff gave in exchange for the
share of 30% granted him in the net profits of the partnership
business. Defendant agreed to give plaintiff 30% share in the
net profits because he was transferring his exclusive franchise
to the partnership.
“We conclude from the above th at while the representation

th at plaintiff had the exclusive franchise did not vitiate
defendant’s consent to the contract, it was used by plaintiff to
get from defendant a share of 30% of the net profits; in other
words, by pretending t hat he had the exclusive franchise and
promising to transfer it to defendant, he obtained the consent
of the latter to give him (plaintiff) a big slice in the net profits.
This is the dolo incidente defined in Article 1270 (now Art. 1344)
of the Civil Code, because it was used to get the other party’s
consent to a big share in the profits, an incidental m at t er in the
agreement.
“The last question for us to decide is t h a t of damages, dam-
ages th at plaintiff is entitled to receive because of defendant’s
refusal to form the partnership, and damages t h a t defendant is
also entitled to collect because of the falsity of plaintiff’s repre-
sentation. Under Article 1106 (now Art. 2200) of the Civil Code,
the measure of damages is the actual loss suffered and the prof-
its reasonably expected to be received embraced in the terms
daño emergente and lucro cesante. Plaintiff is entitled under the
terms of the agreement to 30% of the net profits of the business.
Against this amount of damages, we must set off the damage
defendant suffered by plaintiff’s misrepresentation t h at he had
the exclusive franchise, by which misrepresentation he obtained
a very high percentage of share in the profits.’’
453
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. 137
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. 138
Simulation of Contracts. — Simulations of contract, which

Castan calls vices of declaration (vicios de la declaración), may be
either absolute or relative. The simulation is absolute when there is
colorable contract but it has no substance as the contracting parties
do not intend to be bound by the contract a t all, as when a debtor
simulates the sale of his properties to a friend in order to prevent
their possible attachment by creditors. The basic characteristic
of this type of simulation of contract is the fact t h a t the apparent
contract is not really desired or intended to produce legal effects or
in any way alter the juridical situation of the parties. It is relative
139
when the contracting parties state a false cause in the contract to

conceal their true agreement, as when a person conceals a donation
by simulating a sale of the property to the beneficiary for a fictitious
consideration. The primary consideration in determining the true
nature of a contract is the intention of the parties. such intention
is determined from the express terms of their agreement as well
as from their contemporaneous and subsequent acts (Nena Lazalita
Tating vs. Felicidad Tating Marcella, et al., G.R. No. 155208, March
27,2007).
Idem; Effects. — While the other vices of consent (vicios de la
formacion de la voluntad) render the contract voidable, simulation
of contracts affects the contract in a n entirely different manner.
Thus, according to Art. 1346, a n absolutely simulated contract
is void, while a relatively simulated contract binds the parties and
the parties may recover from each other wh at they may have given
137
New provision.
138
139
Rodriguez vs. Rodriguez, 28 SCRA 229; Carrantes vs. Court of Appeals, 76
SCRA 514.
454
Consent
under the contract, while a relatively simulated contract is binding

and enforceable between the parties and their successors in interest
to their real agreement, 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 (Gaudencio Valerio et al., vs.
Vicenta Refresca, et al., G.R. No. 163687, March 28,2006). The legal
presumption is in favor of the validity of contracts. The party who
impugns the validity and regularity of a contract has the burden of
proving his allegation.
Contracts of Adhesion — In the case of Development Bank of
the Philippines vs. Perez, G.R. No. 14854, Nov. 11, 2004, the Court
held that:
(a) A contract of adhesion is so-called because its terms are
prepared by only one party while the other party merely affixes his
signature signifying his adhesion thereto.
A contract of adhesion is just as binding as ordinary contracts.
It is true t h a t we have, on occasion, struck down such contracts as
void when the weaker party is imposed upon in dealing with the
dominant bargaining party and is reduced to the alternative of
taking it or leaving it, completely deprived of the opportunity to
bargain on equal footing. Nevertheless, contracts of adhesion are
not invalid per se; they are not entirely prohibited. The one who
adheres to the contract is in reality free to reject it entirely; if he
adheres, he gives his consent
In the case of Sps. Francisco and Ruby Reyes vs. BPI Family
Savings Bank, Inc., et al., G. R. Nos. 149840-41, March 31,2006,
where the petitioner spouses undertook to secure the P15M loan of
Transbuilders Resources & Development Corporation to BPI-FSB
“and other credit accomodations of whatever nature obtained by the
Borrower/Mortgagor” under the Real Estate Mortgage they executed
in favor of BPI-FSB, the SC held t h a t while the stipulation proved
to be onerous to the petitioners, neither the law nor the courts will
extricate a party from a n unwise or undesirable contract entered
into with all the required formalities and with full awareness of its
consequences. Petitioners voluntarily executed the REM on their
property in favor of BPI-FSB to secure the loan. They cannot now be
allowed to repudiate their obligation to the bank after Transbuilder’s
default . While petitioner’s liability was written in fine print and in
a contract written by BPI-FSB, it h as been the consistent holding
455
of the Court t h a t contracts of adhesion are not invalid per se. On

numerous occasions, the Supreme Court has upheld the binding
effects of such contracts.
Section 2. — Object of Contract
Concept of Object. — Of all the requisites of a contract, the

object is, if not the most fundamental, the most indispensable in
order to have a t least the shadow of a contract. Without a cause an
agreement is possible, although inexplicable; without consent it is
possible a t least to have the appearance of a contract; but without
a n object there is nothing.
Although there are commentators who distinguish between the
juridical relations or obligations created and the prestations which
constitute the objects of these obligations, under the Civil Code,
the objects of contracts and t h a t of obligations are identical. This
fact is recognized by the provisions of Art. 1347 in relation with the
definition of obligations in Art. 1156 of the Code. Consequently, 140
the object of a contract may be defined as the thing, right or service

which is the subject matt er of the obligation which is created or
established. 141
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 authorized by law.
All services which are not contrary to law, morals, good
customs, public order or public policy may likewise be the
object of a contract. 142
Art. 1348. Impossible things or services cannot be the

object of contracts. 143
140
141
Adopted from the definition given by Castan (Vol. 3, 7th Ed., p. 243).
142
143
456
Object of Contract
Art. 1349. The object of every contract must be determi-

nate as to its kind. The fact that the quantity is not determi-
nate shall not be an obstacle to the existence of the contract,
provided it is possible to determine the same, without the
need of a new contract between the parties. 144
What May Be the Object of Contracts. — As a general rule,

all things or services may be the object of contracts. It is, however,
essential t h a t the following requisites must concur:
First: The object should be within the commerce of men; in
other words, it should be susceptible of appropriation and
transmissible from one person to another.
Second: The object should be real or possible; in other words, it
should exist a t the moment of the celebration of the contract, or at
least, it can exist subsequently or in the future.
Third: The object should be licit; in other words, it should not
be contrary to law, morals, good customs, public order or public
policy.
Fourth: The object should be determinate, or a t least, possible
of determination, as to its kind. 145
Consequently, the following cannot be the object of contracts: (1)

Things which are outside the commerce of men; (2) intransmissible
146
rights; (3) future inheritance, except in cases expressly authorized

147
by law; (4) services which are contrary to law, morals, good

148
customs, public order or public policy; (5) impossible things or

149
services; and (6) objects which are not possible of determination

150
as to their kind. 151
Idem; Appropriability and transmissibility. — In order

t h a t a thing, right or service may be the object of a contract, it is
essential t h a t it must be within the commerce of men. Consequently,
144
145
146
147
Ibid.
148
Ibid.
149
Art.
1348,
par.
151
Art.3,1349, Civil Code.
Civil
Code.
457
150
Ibid.
Art. 1349 CONTRACTS
two conditions must concur. In the first place, the thing, right or
service should be susceptible of appropriation; and in the second
place, it should be transmissible from one person to another. Those 152
things, rights or services which do not possess these conditions or

characteristics are outside the commerce of men, and therefore,
cannot be the object of contracts. These include: (1) those things
which are such by their very nature, such as common things like
the air or the sea, sacred things, res nullius, and property belonging
to the public domain; (2) those which are made such by special
prohibitions established by law, such as poisonous substances,
drugs, arms, explosives, and contrabands; and (3) those rights
which are intransmissible because either they are purely personal
in character, such as those arising from the relationship of husband
and wife, like jus consortium, or from the relationship of paternity
and filiation, like patria potestas, or they are honorary or political
in character, such as the right to hold a public office and the right of
suffrage. 153
Thus, in this jurisdiction, it has been held t h a t communal

things, such as public plazas, sidewalks, streets, rivers, fountains
and other things for public use cannot be sold or leased because they
are by their very nat ure outside the commerce of men. 154
Idem; Existence of object. — The most evident and

fundamental requisite in order t h a t a thing, right or service may
be the object af a contract is t h a t it should be in existence a t the
moment of the celebration of the contract, or a t least, it can exist
subsequently or in the future. Hence, according to the first sentence
of Art. 1347, even future things may be the object of contracts.
Idem; id. — Things which have perished. — In principle,
these things cannot be the object of contracts because they are
inexistent. The rule declared in Art. 1493 of the Civil Code to the
effect t h a t “if a t the time the contract of sale is perfected, the thing
which is the object of the contract has been entirely lost, the contract
shall be without any effect’’ can, therefore, be generalized. 155
152
153
154
Mun. of Cavite vs. Rojas, 30 Phil. 602; Muyot vs. de la Fuente, CA, 48 Off.
Gaz. 4866.
155
458
Object of Contract
Idem; id. — Future things. — It is clear from Art. 1347 that

a future thing may be the object of a contract. Such contract, ac-
156
cording to Manresa, maybe interpreted in two possible ways. It may

be interpreted as a conditional contract if its efficacy should depend
upon the future existence of the thing, or as a n aleatory contract if
one of the contracting parties should bear the risk t h a t the thing will
never come into existence. In case of doubt about the natu re of the
contract, it must be deemed to be conditional because of the prin-
ciple stated in Art. 1378 of the Code t h a t the doubt shall be resolved
in favor of the greatest reciprocity of interests. 157
Idem; id. — Rule with respect to future inheritance. —

There is, however, one very important exception to the rule th a t a
future thing may be the object of a contract. This exception is found
in the second paragraph of Art. 1347 which states t h a t no contract
may be entered into with respect to future inheritance. There are 158
several reasons for this exception. If the rule were otherwise, there
would always be the possibility t h a t one of the contracting parties
may be tempted to instigate the death of the other in order t h a t the
inheritance will become his. There would also be the possibility, and
this is more probable, t h a t fraud and prejudice may be committed or
occasioned thereby. Besides, the right to make a will would then be
subordinated to the right to enter into a contract. 159
By reason of the rule th a t no contract may be entered into with

respect to future inheritance, it has been held t h a t a n agreement for
the partition of the estate of a living person, made between those
who, in case of death, would inherit the estate is null and void. It 160
has also been held t ha t where the vendor undertook to convey to the
vendee his participation in the property left by his deceased father,
the part of the property belonging to his mother, who is still living,
cannot a t all be affected by the conveyance, since his interest in the
property of his mother a t the time of the execution of the deed of sale
was a future inheritance and could not be the subject ma tter of a
valid contract, pursuant to the second paragraph of Art. 1347. But 161
156
See also Arts. 1461 and 1462, Civil Code.
157
8 Manresa, 5th Ed., Bk. 2, p. 433. See Art. 1461, Civil Code.
158
This rule is complemented by Arts. 905 and 2035, No. 6, Civil Code.
159
160
Arroyo vs. Gerona, 58 Phil. 226. To the same effect: Tinsay vs. Yusay,
47 Phil.
161
RiveroTordilla
639; vs. Serrano, 48 Off.
vs. Tordilla, 60 Gaz.
Phil.642.
162; Reyes vs. Reyes, CA, 45 Off. Gaz. 1836.
459
Art. 1349 CONTRACTS
after the death of the decedent, anyone of the co-heirs may enter into
a contract with respect to the inheritance even before partition has
been effected. This is so because of the principle announced in Art.
777 of the Code t h a t the rights to the succession are transmitted at
the moment of the death of the decedent. 162
The following case, however, provides a n interesting study

of the applicability or inapplicability of the rule enunciated in the
second paragraph of Art. 1347:
Blas vs.
Santos 1 SCRA
899
Simeon Blas married M ar ta Cruz in 1898. Out of this

marriage there were three children. The following year after
Marta’s death, Simeon contracted a second marriage with
Maxima Santos. There were no children out of this marriage. At
the time of the second marriage, no liquidation of the properties
of the first marriage was made. On Dec. 26, 1936, only over a
week before his death on Jan. 9, 1937, Simeon executed a will
declaring all of his properties as conjugal and giving one-half
thereof to Maxima as her share. On the same date, Maxima
signed a notarized document, stating th at she had read the will
of her husband and th at she promises to convey by will one-
half of the share given to her to the children of her husband
by his previous marriage. As a result, the children of Simeon
by his first marriage brought this action against the estate of
Maxima asking for the enforcement of the promise contained
in the document. It is now contended t ha t the promise is not
enforceable because it lacks a sufficient cause or consideration
and that, being a contract with respect to future inheritance, it
falls within the purview of the prohibition enunciated in Art.
1271 (now Art. 1347) of the Civil Code.
Held: Considering th at the properties of the first marriage
had not been liquidated, and the further fact t ha t such properties
were actually included as conjugal properties of the second
marriage, it is clear th at the document signed by Maxima is the
compromise defined in Art. 1809 ( now Art. 2128) of the Civil
Code. Its execution was ordered by the testator evidently to
prevent his heirs by his first marriage from contesting his will
and demanding liquidation of the conjugal properties acquired
162
Osorio vs. Osorio, 41 Phil. 53; Ibarle vs. Po, 49 Off. Gaz. 1836.
460
Object of Contract
during his first marriage. It is, therefore, a contract with a

sufficient cause or consideration. Neither does the prohibition
enunciated in Art. 1271 (now Art. 1347) of the Civil Code
apply. What is prohibited under this article is a contract which
deals with any property or right not in existence or capable of
determination at the time of the contract, t h at a person may
in the future acquire by succession. Here, the subject matters
of the contract signed by Maxima are well-defined properties,
existing at the time of the agreement.
Idem; id. — Exceptions. — The prohibition enunciated in the

second paragraph of Art. 1347, however, is not absolute in character.
There are two exceptions. They are:
(1)Under Art. 130 of the Code, which allows the future
spouses to give or donate to each other in their marriage settlement
their future property to take effect upon the death of the donor and
to the extent laid down by the provisions of the Civil Code relating
to testamentary succession; and
(2)Under Art. 1080 of the Code, which allows a person to
make a partition of his estate by a n act inter vivos, provided t h a t the
legitime of compulsory heirs is not prejudiced.
Idem; id. — Impossible things or services. — According
to Art. 1348, impossible things or services cannot be the object of
contracts. Thus, if the parties enter into a contract with respect to
a n impossible thing like a mythical bird or animal or with respect
to a n impossible service like a trip to some distant planet or galaxy,
the contract is void or inexistent. It must be observed, however,
163
t h a t as far as impossible services are concerned, a distinction should

be made between absolute and relative impossibility. Absolute
impossibility, which arises from the very natu re or essence of the
act or service itself, renders the contract void; relative impossibility,
which arises from the circumstances or qualifications of the obligor
rendering him incapable of executing the act or service, allows the
perfection of the contract, although the fulfillment thereof is hardly
probable. Thus, as a consequence, in a contract of partnership where
one of the partners obligates himself to contribute to the common
fund a n amount which is beyond his means, the contract is not void
because the impossibility may disappear. When the impossibility
163
Art. 1409, Nos. 3 and 5, Civil Code.
461
Art. 1349 CONTRACTS
is permanent, however, as in the case of a person who is unable

to perform the service which he has contracted because of total
blindness, the contract is void. 164
Idem; Licitness of object. — It is also a n indispensable

requisite t h a t the object must be licit. Hence, the third paragraph of
Art. 1347 provides t h a t all services which are not contrary to law,
morals, good customs, public order and public policy may be the
object of a contract. This provision complements the provision of Art.
1306 of the Code. Consequently, the same principles which we have
taken up under t ha t article may also be applied here.
Idem; Determinability of object. — It is also a n indispen-
sable requisite t h a t the object is determinable, or a t least, determin-
able, as to its kinds.
When Art. 1349 says t h a t the object must be determinate as
to its kind, it simply means t h a t the genus of the object should
be expressed although there might be no determination of the
individual specie. Consequently, there need not be any specification
of the qualities and circumstances of the thing which constitutes
the object of the contract, since anyway according to Art. 1246
of the Code: “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.” Hence, if A and B enter into a n agreement by
165
virtue of which the former binds himself to deliver “ten horses” to

the latter, the contract is perfectly valid since the law merely
requires t h a t the object must be determinate, or a t least,
determinable, as to its kind.
Let us, however, assume t h a t there is no specification of the
quantity, although there is a specification of the class or genus
to which the object belongs, is the contract valid? According to
the second sentence of Art. 1349, the fact t h a t the quantity is not
determinate shall not be a n obstacle to the existence of the contract,
provided it is possible to determine the same, without the need of
164
165
For a detailed discussion of Art. 1349, see Manresa, Vol. 8, Bk. 2,
pp. 444-448.
5th Ed.,
462
Cause of Contracts
a new contract between the parties. Consequently, so long as it is

possible to determine the quantity of the object without the necessity
of any new contract, there can be no question about the validity of
a contract in which there is no specification of the quantity. This
would occur in those cases where the contract itself has established
the basis upon which such quantity can be determined, such as the
needs of a family, the provisions needed for a factory, the materials
for a particular work, and others of a similar nature. This can
166
be determined from the purpose or motive of the contract itself. In

case of failure of any of these means, the contract is without force
whatsoever. 167
In the case of Aurora Fe B. Camacho vs. CA et al., G.R.

No.127520, Feb. 9, 2007, the SC held t h a t Arts. 1349 and 1460 of
the New Civil Code provide the guidelines in determining whether
or not the object of the contract is certain. In this case, the object of
the contract is a 5,000 sq.m.portion of Lot 261, Balanga Cadastre.
The failure of the parties to state the exact location in the contract is
of no moment. This is a mere error occasioned by the parties’ fsilure
to describe with particularity the subject property, which does not
indicate the absence of the principal object as to render the contract
void. Since in this case, Camacho bound herself to deliver a potion
of Lot 261 to Atty. Banzon, the description of the property subject of
the contract is sufficient to validate the same.
Section 3. — Cause of Contracts
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. 168
Art. 1351. The particular motives of the parties in

entering into a contract are different from the cause thereof. 169
Concept of Cause. — In general, cause is the why of the

contract or the essential reason which moves the contracting parties
166
Liebenow vs. Phil. Vegetable Co., 39 Phil. 63.
167
168
169
New provision.
463
to enter into the contract. In other words, it is the immediate,

170
direct or most proximate reason which explains and justifies the

creation of a n obligation through the will of the contracting parties. 171
In particular, 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 contracts, it is the service or
benefit which is remunerated; and in contracts of pure beneficence,
it is the liberality of the benefactor. 172
Idem; Distinguished from consideration. — Actually, in

this jurisdiction, cause and consideration are used interchangeably.
After all, causa is merely the civil law term, while consideration is
the common law term. It is, however, undisputed t h a t the causa
in civil law jurisdictions is broader in scope th an consideration in
Anglo-American jurisdictions. Many agreements which cannot be
supported in Anglo-American law for want of consideration can be
enforced under the broader doctrine of causa. 173
Idem; Distinguished from object. — The cause must not

be confused with the object of the contract. Of course, there can
be no question about the difference between the two in cases of
remuneratory and gratuitous contracts, it is evident that, in the
first, the cause is the service or benefit which is remunerated,
while the object is the thing which is given in remuneration, and
in the second, the cause is the liberality of the donor or benefactor,
while the object is the thing which is given or donated. In onerous
contracts, however, there is a tendency to confuse one with the other.
Nevertheless, it is clear t h a t the cause, for each contracting party,
is the prestation or promise of a thing or service by the other, while
the object of the contract, on the other hand, is the thing or service
itself. Thus, in a contract of sale, the cause, as far as the vendor is
concerned, is the acquisition of the purchase price, while the cause,
as far as the vendee is concerned, is the acquisition of the thing, 174
stated in another way, the cause of the obligation of the vendor is
170
171
3 Castan, 7th Ed., p. 347, citing 2 Planiol, 1949 Ed., Sec. 279. These definitions
have been cited with approval in General Enterprises, Inc. vs. Lianga Bay Logging
Co., 11 SCRA 733.
172
173
174
464
Cause of Contracts
the obligation of the vendee, while the cause of the obligation of the
vendee is the obligation of the vendor. The objects of the contract,
175
on the other hand, are the thing which is sold and the price which
is paid. This view, which is upheld by Manresa and Castan, may
176
be illustrated by a n example. If A sells, a n automobile to B for

P20,000, delivery and payment to be made a t some specified date,
the cause of the contract, as far as A is concerned, is the promise of
B to pay him P20,000, while the cause, as far as B is concerned, is
the promise of A to deliver the automobile to him. The objects of the
contract, on the other hand, are the automobile and the purchase
price of P20,000. Dr. Tolentino, however, while concurring with the
opinion of Manresa and Castan t h a t as to the vendor the cause is the
obligation of the vendee to pay the price, and as to the vendee it is the
obligation of the vendor to deliver the automobile, maintains t h a t in
the example given, the object is the automobile itself because it is the
starting point of agreement, without which the negotiations would
never have begun. Consequently, the object of a n onerous contract
is the same as to both parties, although the cause is different. Dr. 177
Padilla, on the other hand, contends t h a t in bilateral contracts like

sale, the thing sold is the object, while the price paid is the cause. 178
We believe t h a t the view of Dr. Tolentino is the most logical.

Idem; Distinguished from motives. — Neither must the
cause be confused with the motives of the parties in entering into a
contract. 179
The motives which impel one to a sale or purchase are not

always the consideration of the contract as the term is understood
in law. One may purchase a n article not because it is cheap, for in
fact it may be dear, but because he may have some particular use
to which it may be put, because of a particular quality which the
article has, or the relation which it will bear, to other articles with
which it will be associated. These circumstances may constitute the
motive which induces the purchase, but the real consideration of
the purchase (as far as the vendor is concerned) is the money which
175
Dualde, “Concepto de la causa de los contratos,’’ cited by Castan, Vol. 3, 7th
Ed., p. 450.
176
177
178
Padilla, Civil Code, 1956 Ed., p. 553.
179
465
passed. As Castan says: “In the case of a contract of sale, the cause
180
as far as the vendor is concerned, is always the acquisition of the

purchase price, and as far as the vendee is concerned, it is always
the acquisition of the thing; the motives of the contracting parties,
on the other hand, are as different or complex and as capable of
infinite variety as the individual circumstances which may move
men to acquire things or to make money.’’ 181
Consequently, the cause of the contract and the motives of the

contracting parties may be distinguished from each other in the
following ways:
(1)While the cause is the direct or most proximate reason of a
contract, the motives are the indirect or remote reasons;
(2)While the cause is the objective or juridical reason of a
contract, the motives are the psychological or purely personal
reasons;
(3)While the cause is always the same, the motives differ for
each contracting party; and 182
(4)While the legality or illegality of the cause will affect the

existence or validity of the contract, the legality or illegality of the
motives will not affect the existence of the contract.
There are times, however, when the boundary line between
motive and cause disappears altogether. The motive may be regarded
as causa when the contract is conditioned upon the attainment of
the motive of either contracting party. In other words, motive
becomes causa when it predetermines the purpose of the contract.
The best examples are the decided cases. Thus —
(1) Where a married m a n of ma ture years donated a parcel
of land to a girl of sixteen subject to the condition t h a t the latter
shall cohabit with him, and such condition is accepted, it is clear
t h a t the donation is conditioned upon the attainment of the motive
of the donor; in other words, it predetermines the purpose of the
contract. Thus considered, the conveyance is clearly predicated upon
a n illegal causa. Consequently, it is void. Therefore, under what is
180
De Jesus vs. Urrut ia & Co., 33 Phil. 171.
181
3 Castan, 7th Ed., pp. 346-347.
182
Ibid.
466
Cause of Contracts
now Art. 1412 of the New Civil Code, there can be no recovery of
wh at has already been delivered. (Liguez vs. CA, 102 Phil. 577.)
(2)Where a mother sold two fishponds to a daughter
and the latter, in turn, resold the same fishponds to her and her
stepfather, as a consequence of which said fishponds were converted
into conjugal properties, it is clear t h a t the motive or purpose is
to circumvent the law against donations between spouses (Art.
133, CC). This motive or purpose is the illegal causa rendering
the contract void. Consequently, the rule of in pari delicto non
oritur actio, now enunciated in Art. 1412 of the New Civil Code, is
applicable. (Rodriguez vs. Rodriguez, 20 SCRA 908.)
(3)Where a Filipino leased a parcel of land to a n alien for 99
years with a n option to buy the property within 50 years, provided
t h a t the latter shall become a Filipino citizen, it is clear t h a t the
motive or purpose of the arrangement, which has resulted in the
virtual transfer of ownership to the lessee, is to circumvent the
Constitutional prohibition of transfer of lands to aliens. This motive
or purpose is the illegal causa rendering the contract void. However,
it will be the provision of Art. 1416 and not of Art. 1412, of the New
Civil Code th a t will apply. Because of public policy, the lessor will be
allowed to recover the property. (Phil. Banking Corp. vs. Lui She, 21
SCRA 52.)
Liguez vs. Court of Appeals

102 Phil. 577
This is a n action commenced by Conchita Liguez against
the widow and heirs of Salvador Lopez to recover a parcel of
land in their possession. The records show t ha t Salvador Lopez,
a married man of mature years, donated the land to Conchita,
who was then a minor of 16, subject to the condition t ha t she will
cohabit with him as his mistress. The donation was accepted
and Conchita became the donor’s mistress until his death.
Because defendants have advanced the defense of the nullity
of the contract by virtue of the illegality of the cause is of pure
beneficence, the cause is actually the liberality of the donor;
hence, what is illicit or illegal is the motive of such donor and
not the cause of the contract, since liberality per se can never be
illegal. The Supreme Court, however, speaking through Justice
J.B.L. Reyes, held:
“The flaw in this argument lies in ignoring the
the liberality
fact that of the donor is deemed causa only in contracts of
467
pure beneficence; th at is to say, contracts in which the idea of

self-interest is totally absent on the part of the transferor. Here
the facts demonstrate th at in making the donation, the donor
was not moved exclusively by the desire to benefit Conchita
Liguez, but also gratify his sexual impulse. Actually, therefore,
the donation was but one part of an onerous transaction that
must be viewed in its totality. Thus considered, the conveyance
was clearly predicated upon an illicit causa.
“With respect to appellant’s contention regarding the

distinction between causa and motive, it is well to note that
Manresa himself (Vol. 8, pp. 641-642), while maintaining the
distinction, expressly excepts from the rule those contracts that
are conditioned upon the attainment of the motives of either
party. The same view is held by the Supreme Court of Spain in
its decisions of February 4, 1941, and December 4, 1946, holding
t hat the motive may be regarded as causa when it predetermines
the purpose of the contract. In the present case, it is scarcely
disputable th at Lopez would not have conveyed the property in
question had he known th at appellant would refuse to cohabit
with him; so th at the cohabitation was a n implied condition
to the donation and being unlawful, necessarily tainted the
donation itself.
“However, since the rule th at parties to a n illegal contract,

if equally guilty, will not be aided by the law but will both be left
where it finds them, has been interpreted as barring the party
from pleading the illegality of the bargain as a cause of action or
as a defense, appellant is, therefore, entitled to so much of the
donated property as may be found upon proper liquidation not
to prejudice the share of the widow or the legitimes of the forced
heirs.’’
Cause in Onerous Contracts. — 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. From this it necessarily
follows t hat a promise made by one party may be a sufficient cause for
a promise made by another party. It is not, therefore, necessary that
the cause or consideration should pass from one party to the other
a t the time of the execution of the contract. Thus, where a logging
183
company by contract designated a certain agency as its distributor to
183
Enriguez de Cavada vs. Diaz, 37 Phil. 982; Phil. Banking Corp. vs.
102 Phil. 577.
Lui She,
468
Cause of Contracts
export logs to Korea and Europe a t the best market price obtainable
on condition t h a t it would pay the latter a commission of 13% of the
gross value of the logs, it was held t h a t for the former the cause of
the agreement is the distribution of its logs in the areas agreed upon
which the latter undertook to accomplish, whereas for the latter
the cause is its commitment to sell or export the logs for onerous
consideration. 184
Idem; Accessory contracts. — In accessory contracts the

rule is t h a t the cause of the accessory contract is identical with that
of the principal contract. Thus, it has been held t h a t as a mortgage
is a n accessory contract, its cause is the very cause of the principal
contract from which it receives its life, and without which it cannot
exist as an independent contract, although it may secure an obligation
incurred by another. The same principle is applicable to the case
185
of a n accommodation party who binds himself jointly and severally

with the principal debtor for the payment of a debt by affixing his
signature to a promissory note for the accommodation of the latter.
This is so in spite of the fact t h a t he might not have received even
a single centavo of the money given to the accommodated party.
In the words of the Supreme Court, “the consideration which sup-
ports the promise of the accommodation maker is t h a t parted
with by the person taking the note and received by the person
accommodated.’’ 186
Idem; Moral obligations. — May a moral or n at ura l

obligation constitute a sufficient cause or consideration to support
an onerous contract? The jurisprudence with respect to this
question in this jurisdiction is meager. I t is, however, clear t h a t
where the moral obligation arises wholly from ethical
considerations, unconnected with any civil obligation and, as
such, is not demandable in law but only in conscience, it can
not constitute a sufficient cause or consideration to support an
onerous contract, but where such moral obligation is based
187
upon a previous civil obligation which has already been barred

by the statut e of limitations a t the time
184
General Enterprises, Inc. vs. Lianga Bay Co., 11 SCRA 733.
185
China Banking Corp. vs. Lichauco, 46 Phil. 460.
186
National Bank vs. Maza, 48 Phil. 207; Acuna vs. Veloso, 50 Phil. 241. But see
Sta ndard
187
Fisher vs. Robb,
Oil Co. 69 Phil.
vs. Arenas, 101. 363.
19 Phil.
469
when the contract is entered into, it constitutes a sufficient cause or

consideration to support the said contract. 188
Fisher vs. Robb

69 Phil. 101
The defendant was one of the organizers of a certain en-

terprise known as the Philippine Greyhound Club, Inc. which
was formed for the purpose of introducing dog racing in the
Philippines, while the plaintiff was one of those who had in-
vested a certain sum of money in the venture. It appears that
this venture did not succeed, and, as a result, the defendant
wrote a letter to the plaintiff explaining the critical condition of
the company, and, at the same time, stating t h a t he felt “a moral
responsibility for those who had sent in the second payment of
their subscription” and t h at he will see to it t h at “stockholders
who had made such payment shall be reimbursed such amount
as soon as possible out of his own personal funds.” This action
now is brought to enforce the “obligation.” The principal ques-
tion to be decided, among others, is whether there is a sufficient
cause or consideration to justify the promise made by the defen-
dant in his letter. Answering this question in the negative, the
Supreme Court, speaking through Justice Villareal, held:
“The contract sought to be judicially enforced by the
plaintiff appellee against the defendant is onerous in character,
because it supposes the deprivation of the lat ter of a n amount
of money which impairs his property, which is a burden, and
for it to be legally valid it is necessary t h at it should have a
consideration consisting in the lending or promise of a thing or
service by such party. The defendant-appellant is required to
give a thing, namely the payment of the sum of P2,000, but the
plaintiff-appellee has not given or promised anything or service
to the former which may compel him to make such payment.
The promise which said defendant-appellant has made to the
plaintiff-appellee to retu rn to him P2,000 which he ha d paid to
the Philippine Greyhound Club, Inc. as a second installment
of the amount of the shares for which he ha d subscribed, was
prompted by a feeling of pity which said defendant-appellant
had for the plaintiff-appellee as a result of the loss which the
latter had suffered because of the failure of the enterprise. The
188
Villaroel vs. Estrada, 71 Phil. 14. Strictly speaking, the moral obligation in
this case is a na tural obligation (Arts. 1423, et seq., Civil Code), as distinguished from
a purely moral obligation, such as th a t referred to in the case of Fisher vs. Robb.
470
Cause of Contracts
obligation which the said defendant-appellant had contracted

with the plaintiff-appellee is, therefore, purely moral, and, as
such, is not demandable in law, but only in conscience, over
which h u man judges have no jurisdiction.”
Villaroel vs. Estrada

71 Phil. 140
This was originally an action commenced by the plaintiff
(respondent) against the defendant (petitioner) for the purpose
of enforcing a contract entered into on August 9, 1930, by virtue
of which the defendant undertook to pay to the plaintiff a certain
debt which his deceased mother had incurred from the deceased
parents of the said plaintiff more t han eighteen years ago. It is
submitted th at this debt had already prescribed. The question
now is whether this action will prosper, considering t h at the
debt incurred by the defendant’s mother h ad already prescribed.
The Supreme Court, speaking through Justice Avanceña, ruled:
“The present action is not founded on the original obligation
contracted by the mother of the defendant, which h ad already
prescribed, but on th at contracted by the defendant on August 9,
1930, in assuming the obligation which had already prescribed.
The defendant being the only heir of the original debtor with the
right to succeed in her inheritance, t hat debt lawfully contracted
by his mother, although it lost its efficacy by prescription, is
nevertheless now a moral obligation as far as he is concerned,
a moral obligation which is a sufficient consideration to create
and make effective and demandable the obligation which he had
voluntarily contracted on August 9, 1930.’’
Cause in Remuneratory Contracts. — According to Art.

1350, the cause in remuneratory contracts is the service or benefit
which is remunerated. From this we can say t h a t a remuneratory
contract is one in which one of the contracting parties remunerates
or compensates the service or benefit rendered or given by the
other party, although such service or benefit does not constitute a
demandable debt. This may be clarified by means of a n example.
189
If A gives a certain property in accordance with the formalities

prescribed by law to his lawyer friend, B, in remuneration for legal
services which the latter had rendered to him freely in the past and
such gift is duly accepted, the cause as far as A is concerned would
189
471
be the legal services rendered by B, although such services do not

constitute demandable debts.
Cause in Contracts of Pure Beneficence. — The cause
in contracts of pure beneficence, on the other hand, is the mere
liberality of the benefactor. Thus, if A makes a pure donation of a
certain property to B in accordance with the formalities prescribed
by law, its cause is the mere liberality (causa liberalitatis) of the
donor or benefactor. The liberality would be the equivalent of what
Manresa calls “el cariño, el desprendimiento, la admiracion, la
generosidad, el agradecimiento, la compasion.”
Art. 1352. Contracts without cause, or with unlawful

cause, produce no effect whatever. The cause is unlawful if
it is contrary to law, morals, good customs, public order or
public policy. 190
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. 191
Art. 1354. Although the cause is not stated in the con-

tract, it is presumed that it exists and is lawful, unless the
debtor proves the contrary. 192
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. 193
Essential Requisites of Cause. — In order t h a t there will

be a sufficient cause upon which a contract may be founded, it is
essential t h a t the following requisites must concur:
First: The cause should be in existence a t the time of the
celebration of the contract;
Second: The cause should be licit or lawful; and
Third: The cause should be true. 194
190
191
Code. 192Art. 1277, Spanish Civil
Code. 193New provision.
194
3 Castan, 7th Ed., pp. 348-351.
472
Cause of Contracts
If the contract has no cause, or even if it has, if the cause

should be illicit or unlawful, the rule is t h a t it shall not produce
any effect whatsoever, or what amounts to the same thing, it is
inexistent or void from the beginning. The same is true if the
195
cause stated in the contract is false, unless it can be proved t h a t

the contract is, in reality, founded upon another cause which is true
and lawful. 196
Idem; Effect of lack of cause. — By express provision of

Art. 1352, if the contract is not founded upon any cause, then it
shall not produce any effect whatsoever. This precept is confirmed
by Art. 1409 of the Code which declares as inexistent those contracts
which are absolutely simulated or fictitious as well as those whose
cause did not exist a t the time of the transaction. Hence, it has been
held t h a t if the purchase price in a contract of sale was never in
fact paid by the purchaser or vendee to the vendor, the contract is
inexistent for all purposes for lack of a cause or consideration. 197
The same rule is applicable in cases of conveyances of property

where the conveyance or transfer is simulated without any cause
or consideration whatsoever whether the purpose of the grantor is
to defraud his creditors or to avert the possible attachment of the
property. However, the rule is not applicable where the purchaser
198
or vendee failed to fully pay for the property, even if there is a

stipulation in the contract of sale t h a t full payment shall be made
a t the time of the celebration thereof. As a ma tter of fact, even
199
where the contract itself expressly states t h a t the consideration for

the sale of a piece of land is only one peso (P1.00), it does not follow
t h a t the contract or sale is void or inexistent for lack of a cause or
consideration. The reason is obvious. There is a consideration. The
contract may be voidable because of the inadequacy of the cause
or consideration, but certainly, it is not void or inexistent. Thus,
in Carantes vs. Court of Appeals, speaking through Chief Justice
200
Fred Ruiz Castro, the Supreme Court declared:
195
Arts. 1352, 1409, Nos. 1, 2, 3, Civil Code.
196
197
Ocejo, Perez & Co. vs. Flores, 40 Phil. 921; Onejera vs. Iga Sy, 76 Phil. 580.
198
De Belen vs. Coll. of Customs, 46 Phil. 241; Gallon vs. Gayares, 53 Phil. 43;
Escutin vs. Escutin, 60 Phil. 922; Gonzales vs. Trinidad, 67 Phil. 682; Navarro vs.
Diego, CA, 40 Off. Gaz. 2106.
199
Puato vs. Mendoza, 64 Phil. 457.
200
76 SCRA 514.
473
“We do not agree with the respondent court’s legal conclu-

sion t hat the deed of “Assignment of Right to Inheritance’’ is
void ab initio and inexistent on the grounds that real consent
was wanting and the consideration of P1.00 is so shocking to the
conscience th at there was in fact no consideration, hence, the
action for the declaration of the contract’s inexistence does not
prescribe pursuant to Article 1410 of the new Civil Code.
“Article 1409(2) of the new Civil Code relied upon by the
respondent court provides th at contracts “which are absolutely
simulated or fictitious’’ are inexistent and void from the
beginning. The basic characteristic of simulation is the fact
th at the apparent contract is not really desired or intended to
produce legal effects or in any way alter the juridical situation
of the parties.
“The respondents’ action may not be considered as one to
declare the inexistence of a contract for lack of consideration. It
is total absence of cause or consideration t h at renders a contract
absolutely void and inexistent. In the case a t bar consideration
was not absent. The sum of P1.00 appears in the document as
one of the considerations for the assignment of inheritance. In
addition — and this of great legal import — the document recites
th at the decedent Mateo Carantes had, during his lifetime,
expressed to the signatories to the contract t ha t the property
subject-matter thereof rightly and exclusively belonged to the
petitioner Maximino Carantes. This acknowledgment by the
signatories definitely constitutes valuable consideration for the
contract.”
In order t h a t the cause shall be considered as existing, is it

necessary t h a t it should be stated in the contract? This question
must be resolved in the negative. According to Art. 1354, even if
the cause is not stated in the contract, it is presumed t h a t it exists
and is lawful, unless the debtor proves the contrary. This is true 201
even where the contract falls within the purview of the Statu te of
Frauds. 202
If instead of a n absolute lack of cause or consideration, there is

lesion or inadequacy of cause, shall this not invalidate the contract?
Again, this question must be resolved in the negative. This is clear
201
Azarraga vs. Rodriguez, 9 Phil. 637; Eliot vs. Montemayor, 9 Phil. 960; Stand-
ard Oil Co. vs. Arenas, 19 Phil. 211; Dumaguin vs. Reynolds, 48 Off. Gaz. 3887.
202
Bhen, Meyer & Co. vs. Davis, 37 Phil. 431. See Art. 1403, No. 2, Civil Code.
474
Cause of Contracts
from the provision of Art. 1355, which states that lesion or inadequacy
of cause, except in cases specified by law, shall not invalidate a
contract, unless there has been fraud, mistake or undue influence.
This provision (which is new) reiterates the doctrine enunciated by
the Supreme Court in several notable cases. However, if it can be
203
established t h a t the lesion or inadequacy of the cause was due to

fraud, mistake or undue influence, such fact will render the contract
voidable. 204
Despite the fact t h a t lesion or inadequacy of cause, in itself, can

not render the contract inexistent or void under Art. 1355 or voidable
under Art. 1330, the party who has suffered the lesion or damage is
not left without a remedy. There is always the possibility t h a t the
contract may be rescissible in accordance with the provisions of Art.
1381 of the Code, in which case he can file a n action for rescission.
Idem; Effect of unlawful cause. — According to Art. 1352 of
the Code, the cause is unlawful when it is contrary to law, morals,
good customs, public order or public policy. According to the same
article, if a contract has a n unlawful cause, it shall not produce any
effect whatsoever; in other words it is void from the very beginning. 205
Thus, it has been held t h a t where the cause or consideration for

the sale of a certain property is no other t han the accumulated
usurious interests which the vendor-debtor has not yet paid, the
sale is void because of the illegality of the cause or consideration. It 206
has also been held t h a t a contract affecting the course of a criminal

prosecution is invalid, because such a contract would be manifestly
contrary to public policy and the due administration of justice. In 207
the words of the Supreme Court, “in the interest of the public it is
of the utmost importance t ha t criminals should be prosecuted and
t h a t all criminal proceedings should be instituted and maintained
in the form and m anner prescribed by law. To permit a n offender to
203
Asky vs. Cosalan, 46 Phil. 179; Gabriel vs. Mateo, 71 Phil. 497; Garcia vs.
Manas, 45 Off. Gaz. 1815.
204
See Arts. 1330, et seq., Civil Code; see also Alsua-Betts vs. Court of Appeals,
92 SCRA 332, 368.
205
See Art. 1409, No. 1, Civil Code.
206
Mulet vs. People of the Phil., 73 Phil. 63. But see Briones vs. Cammayo, 41
SCRA, 404; see also comments under Art. 1420.
207
Arroyo vs. Berwin, 36 Phil. 386; Velez vs. Ramas, 40 Phil. 787; Navarro vs.
Yuan, CA, 40 Off. Gaz. 1675; Reyes vs. Gonzales, 45 Off. Gaz. 381; Monteney vs.
Gomez, 104 Phil. 1059.
475
escape the penalties prescribed by law by the purchase of immunity

from private individuals would result in a manifest perversion of
justice.’’ This doctrine, which has been reiterated several times in
208
the past, is very aptly illustrated in the case of Velez vs. Ramas. 209
The facts of this case are as follows: C, wife of A and daughter of B,

while employed in a pawnshop owned by X, embezzled the amount
of more th an P2,000. In order to prevent her criminal prosecution, A
and B signed a document obligating themselves jointly and severally
to pay to X the amount embezzled including interest. Because of
their failure to comply with their promise, the latter filed this action
against them. The Supreme Court, however, ruled:
“We are of the opinion th at the trial court was correct in

the conclusion th at an action cannot be maintained upon this
contract. In our opinion, the consideration for this agreement is
clearly illicit, which fact is apparent on the face of the contract,
and the case is accordingly governed by Art. 1275 (now Art.
1352) of the Civil Code.
“There has been no period since contract law reached
the state of consciousness, when the maxim ex turpi causa
non oritur actio was not recognized. A contract based upon
a n unlawful object is and always has been void ab initio by
the common law, by the civil law, moral law, and all laws
whatsoever. It is immaterial whether the illegal character of
the contract is revealed in the matter of the consideration, in
the promise as expressed in the agreement or in the purpose
which the agreement, though legal in expression, is intended
to accomplish. If the illegality lurks in any element, or even
subsists exclusively in the purpose of the parties, it is fatal to
the validity of the contract.
“By the universal consensus of judicial opinion in all ages
it has been considered contrary to public policy to allow parties
to make agreements designed to prevent or stifle prosecutions
for crime. It is self-evident t hat the law cannot sanction
a n engagement which is subversive of h u m a n society. The
machinery for the administration of justice cannot be used to
promote an unlawful purpose.’’
208
Arroyo vs. Berwin, 36 Phil. 386.
209
40 Phil. 787.
476
Cause of Contracts
However, the above case should be distinguished from the following

case:
Mactal vs. Melegrito

111 Phil. 363
Plaintiff gave to defendant P1,770 to be used in the

purchase of palay, with the obligation to return said amount
within 10 days, if not spent for said purpose. The lat ter never
bought palay nor returned said amount. As a result, the former
accused him of estafa. When the case was about to be heard, a
common friend, acting upon defendant’s request, prevailed upon
plaintiff to move for the dismissal of the case and be contented
with a promissory note to be executed by the defendant. The note
was executed and, accordingly, the criminal case was dismissed.
Defendant, however, was unable to comply with his promise
despite repeated demands. Subsequently, plaintiff brought this
action against him for the recovery of the P1,770. Defendant
now contends t hat the promissory note is void because the
consideration thereof is the dismissal of the estafa case which is
certainly contrary to public policy.
Held: This contention is untenable. It is admitted that
defendant h ad received the P1,770 from plaintiff to be used for
the purchase of palay. The cause or consideration, therefore,
for the promise was the pre-existing debt of said defendant, not
the dismissal of the estafa case, which merely furnished the
occasion for the execution of the promissory note.
It must also be noted t ha t in applying the provision of Art. 1352

regarding the effect of a n unlawful cause, it is always necessary
to consider the provisions of Arts. 1411 and 1412 of the Code. It
must be observed t h a t these provisions presuppose the existence
of a n illicit or illegal cause which is determinative of the nullity of
the contract. Accordingly, they cannot be applied to simulated or
fictitious transfers of property, where the motive of the grantor may
be either to defraud his creditors or to avert the possible attachment
of the property. As stated in a previous section, the cause of the
contract should not be confused with the motive of the contracting
parties. However, when the motive of one of the contracting
210
parties predetermines the purpose of the contract and such motive
210
Gonzales vs. Trinidad, 67 Phil. 862; Navarro vs. Diego, CA, 40 Off. Gaz. 2106.
477
or purpose is illegal or immoral, it is clear t h a t such illegal or illicit

motive or purpose becomes the illegal causa, t hus rendering the
contract void from the beginning. 211
Idem; Effect of false cause. — According to Art. 1353, the

statem ent of a false cause in contracts shall render them void, if it
should not be proved t ha t they were founded upon another cause
which is true and lawful. Thus, where the deed of sale expressly
states t h a t the purchase price has been paid when in fact it has
never been paid, it is evident t h a t the contract of sale is invalid
in accordance with the general rule announced in Art. 1353 and
confirmed by Art. 1409, No. 2, which declares as inexistent those
contracts which are absolutely simulated or fictitious. It must be
observed, however, t h a t the simulation of a contract may be either
absolute or relative. The first is inexistent from the very beginning,
212
while the second binds the parties to their true agreement, provided
t h a t it does not prejudice third persons and is not contrary to law,
morals, good customs, public order or public policy. It is, therefore,
213
clear that if a contract is simulated, it does not necessarily follow that

it is inexistent or void, provided, of course, t h a t it can be established
t h a t it is, in reality, founded upon another cause which is true and
lawful.
211
Liguez vs. Court of Appeals, 102 Phil. 577; Rodriguez vs. Rodriguez, 20 SCRA
908; Philippine Banking Corp. vs. Lui She, 21 SCRA 52.
212
213
478
CHAPTER 3
FORMS OF CONTRACTS
Art. 1356. 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. In such cases, the right of the parties stated
in the following articles cannot be exercised. 1
Form of Contracts; General Rule. — According to the above

article, whatever, may be the form in which a contract may have
been entered into, the general rule is t h a t it shall be obligatory,
provided all of the essential requisites for its validity are present.
We have, therefore, retained the “spiritual system” of the Spanish
Code by virtue of which the law looks more a t the spirit r ath er than
a t the form of contracts. Hence, under our legal system, the form in
which a contract is executed has no effect, as a general rule, upon its
obligatory force, provided all of the essential requisites for its validity
are present. Thus, it has been held t h a t contracts of partnership, of 2
agency, and of lease of services, although executed verbally, are

3 4
obligatory as far as the contracting parties are concerned. It has

been also held t h a t a verbal extrajudicial partition of property
is valid and binding among the parties thereto. In such a case, 5
1
2
Fernandez vs. De la Rosa, 1 Phil. 671; Thunga Chiu vs. Que Bentec, 2 Phil. 561.
3
Gutierrez Hnos. vs. Orense, 28 Phil. 571; Del Castillo vs. Robinson, CA, 44 Off.
Gaz. 4981.
4
Arroyo vs. Azur, 76 Phil. 493.
5
Duran vs. Cecilio, CA, 43 Off. Gaz. 2237; Hernandez vs. Andal, 44 Off. Gaz.
2672.
479
Art. 1356 CONTRACTS
however, the right of a partitioner or of his successor in interest is

merely a jus ad rem (personal), not a jus in re (real), if the partition
involves immovable property; in other words, his right over the land
which has been alloted to him or to his predecessor in interest is
personal, and, as a consequence, is enforceable only against the
other partitioners, provided t h a t no innocent purchasers for value
are prejudiced. 6
Idem; Exceptions. — It must be observed, however, that

when Art. 1356 speaks of contracts as being obligatory regardless
of the form in which they may have been entered into, it does not
include those contracts for which the law prescribes a certain form
either for validity or for enforceability. It is, therefore, evident that
there are two exceptions to the general rule. These exceptions are:
(1) when the law requires t h a t the contract must be in a certain
form in order to be valid; and (2) when the law requires t h a t the
contract must be in a certain form in order to be enforceable.
Commenting on these exceptions, the Code Commission de-
clared:
“The project seeks to combine the spiritual system of the

Spanish Code and the principles of Anglo-American law as
manifested in the Statute of Frauds.
“Examples when form is essential to validity are donations
of an immovable (Art. 749) and of a movable worth more than
P5,000 (Art. 748). Instances when a contract is unenforceable,
unless it be in a certain form, are those embodied in the Statute
of Frauds as formulated in Article 1403 of the project.
“These exceptions are calculated to avoid litigation.
Oral contracts frequently lead to fraud in the fulfillment of
obligations, or to false testimony. So long as the possibility of
dishonesty exists in contractual relations, the spiritual system
cannot be adopted in a n unqualified manner.’’7
Idem; id. — Formalities for validity. — There are certain

contracts for which the law prescribes certain forms for their
validity. These contracts maybe classified as follows: first, those
6
Ibid.
7
480
FORMS OF CONTRACTS Art. 1356
which must appear in writing; second, those which must appear in a

public document; and third, those which must be registered.
Contracts which must appear in writing are as follows:
(1)Donations of personal property whose value exceeds five
thousand pesos. According to Art. 748 of the Code, the donation and
the acceptance shall be made in writing; otherwise, it shall be void.
(2)Sale of a piece of land or any interest therein through an
agent. According to Art. 1874 of the Code, the authority of the latter
shall be in writing; otherwise, the sale shall be void.
(3)Agreements regarding payment of interest in contracts of
loan. According to Art. 1956 of the Code, no interest shall be due
unless it has been expressly stipulated in writing. The validity of the
contract of loan, however, is not affected.
(4)Antichresis. According to Art. 2134 of the Code, in
contracts of antichresis, the amount of the principal and of the
interest shall be specified in writing; otherwise, the contract shall
be void.
Contracts which must appear in a public document are as
follows:
(5)Donations of immovable property. According to Art. 749 of
the Code, the donation must be made in a public document. The
acceptance, on the other hand, may be made in the same deed of do-
nation or in a separate public document. If the acceptance is made
in a separate public document, the donor shall be notified thereof in
a n authentic form, and this step shall be noted in both instruments.
Noncompliance with any of these formalities shall render the dona-
tion void.
(6)Partnerships where immovable property or real rights are
contributed to the common fund. According to Arts. 1771 and 1773 of
the Code, in a contract of partnership where immovable property or
real rights are contributed to the common fund, it is necessary that
the contract must appear in a public instrument and t h a t there must
be a n inventory of the immovable property or real rights, signed by
the partners, and attached to the public instrument; otherwise, the
contract is void.
481
Art. 1357 CONTRACTS
Contracts which m ust be registered are as follows:

(1)Chattel mortgages. According to Art. 2140 of the Code, by
a chattel mortgage, personal property is recorded in the Chattel
Mortgage Register as a security for the performance of a n obligation.
If the movable, instead of being recorded, is delivered to the creditor
or a third person, the contract is a pledge and not a chattel mortgage.
(2)Sales or transfers of large cattle. According to the Cattle
Registration Act, no sale or transfer of large cattle shall be valid
unless it is duly registered and a certificate of transfer is secured.
8
Idem; id. — Formalities for enforceability. — There are

also certain contracts which are unenforceable by action, unless they
are in writing and properly subscribed, or unless they are evidenced
by some note or memorandum, which must also be in writing and
properly subscribed. These contracts are governed by the St atute of
Frauds. 9
Form of Contracts Required by Law. — It must be noted

t h a t it is not only in the two exceptional cases mentioned in the
preceding sections where the law prescribes a certain form in the
execution of contracts. Art. 1358 of the Code enumerates certain
kinds of contracts which must appear either in a public or in a
private document. The purpose of the requirement, however, is not
to validate or to enforce the contract, but to insure its efficacy; in
other words, the form required is neither for validity nor
enforceability but for the convenience of the contracting
parties. Hence, the forms required by law for the execution of
certain contracts may be divided into: (1) those which are necessary
for the convenience of the contracting parties or for the efficacy of
the contract; (2) those which are necessary for the validity of the
contract; and (3) those which are necessary for the enforceability of
the contract. The first is governed by Arts. 1356 to 1358 of the Code,
the second by scattered provisions of the Code and by special laws,
and the third by the Stat ute of Frauds.
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
8
Sec. 22, Act No. 1147; Art. 1581; Civil Code.
9
482
each other to observe that form, once the contract has been
perfected. This right may be exercised simultaneously with
the action upon the contract. 10
Art. 1358. The following must appear in a public docu-

ment:
(1)Acts and contracts which have for their object the
creation, transmission, modification or extinguishment of
real rights over immovable property; sales of real property
or of an interest therein are governed by Articles 1403, No. 2
and 1405;
(2)The cession, repudiation or renunciation of heredi-
tary rights or of those of the conjugal partnership of gains;
(3)The power to administer property, or any other
power which has for its object an act appearing or which
should appear in a public document, or should prejudice a
third person;
(4)The cession of actions or rights proceeding from an
act appearing in a public document.
All other contracts where the amount involved exceeds
five hundred pesos must appear in writing, even a private
one. But sales of goods, chattels or things in action are gov-
erned by Articles 1403, No. 2, and 1405. 11
Formalities for Efficacy. — Although, as a general rule,

contracts shall be obligatory in whatever form they may have been
entered into, yet there are certain contracts falling within the purview
or scope of this rule which, by reason of their importance, should be
executed in accordance with certain formalities in order to insure
their efficacy and to protect the interests of the contracting parties
as well as t h a t of third persons. The Civil Code, recognizing this
necessity, enumerates in Art. 1358 the different classes of contracts
which must appear either in a public or in a private document, and
grants in Art. 1357 a coercive power to the contracting parties by
10
11
483
Art. 1358 CONTRACTS
which they can reciprocally compel the observance of the required

form. 12
The following principles are clearly deducible from a n exami-

nation of the cases decided by the Supreme Court in which these
provisions were applied:
(1)Arts. 1357 and 1358 do not require the execution of the
contract either in a public or in a private document in order to
validate or enforce it but only to insure its efficacy, so t h a t after its
existence has been admitted, the party bound may be compelled to
execute the necessary document. 13
(2)Even where the contract has not been reduced to the

required form, it is still valid and binding as far as the contracting
parties are concerned. Consequently, both articles presuppose the
14
existence of a contract which is valid and enforceable. 15
(3)From the moment one of the contracting parties invokes

the provisions of Arts. 1357 and 1358 by means of a proper action,
the effect is to place the existence of the contract in issue, which
must be resolved by the ordinary rules of evidence. 16
(4)Art. 1357 does not require t h a t the action to compel the

execution of the necessary document must precede the action upon
the contract. As a m att er of fact, both actions may be exercised
17
simultaneously. 18
(5)However, although the provisions of Art. 1357, in connec-

tion with those of Art. 1358, do not operate against the validity of
the contract nor the validity of the acts voluntarily performed by the
parties for the fulfillment thereof, yet from the moment when any of
the contracting parties invokes said provisions, it is evident t h a t un-
12
Thunga Chiu vs. Que Bentec, 2 Phil. 261; Bian Hing vs. Tan Bomping, 48 Phil.
253; Escueta vs. Pando, 76 Phil. 256; Dauden-Hernaez vs. De los Angeles, 27 SCRA
1276.
13
Doliendo vs. Depino, 12 Phil. 758; Dievas vs. Acuña, 16 Phil. 447; Hawaiian-
Philippine Co. vs. Hernaez, 45 Phil. 760.
14
Thunga Chiu vs. Que Bentec, 2 Phil. 251; Soriano vs. Cortez, 8 Phil. 459; Conlu
vs. Araneta, 15 Phil. 387; Osorio vs. Cortez, 24 Phil. 653.
15
Solis vs. Barroso, 53 Phil. 913.
16
Peyer vs. Peyer, 77 Phil. 366.
17
Rodriguez vs. Pamintua n, 37 Phil. 876.
18
484
der them the execution of the required document m ust precede the
determination of the other obligations derived from the contract. 19
Dauden-Hernaez vs. De los Angeles

27 SCRA 1276
Marlene Dauden, a movie actress, filed a complaint against

the Hollywood F a r East Productions, Inc. and its President
and General Manager, Ramon Valenzuela, to recover P14,700
representing the balance of her compensation as leading actress
in two motion pictures produced by the defendant company.
Upon motion of defendants, the lower court dismissed the
complaint because “the claim of plaintiff was not evidenced by
any written document, either public or private’’ in violation of
Art. 1358 of the New Civil Code. As a last recourse, plaintiff
appealed to the Supreme Court on the ground t h a t the court
below had abused its discretion.
Held: We hold th at there was abuse, since the ruling herein
contested betrays a basic and lamentable misunderstanding
of the role of the written form in contracts, as ordained in the
present Civil Code.
In the matter of formalities, the contractual system of our
Civil Code still follows t h at of the Spanish Civil Code of 1889
and of the “Ordenamiento de Alcala” of upholding the spirit
and intent of the parties over formalities; hence, in general,
contracts are valid and binding from their perfection regardless
of form, whether they be oral or written. This is plain from
Articles 1315 and 1356 of the present Civil Code. To this general
rule, the Code admits two exceptions, to wit: (1) Contracts for
which the law itself requires th at they be in some particular
form in order to make them valid and enforceable (the so called
solemn contracts). Examples of these are the contracts or
agreements contemplated in Arts. 748, 749, 1744, 1773, 1874,
1956, and 2134 of the present Civil Code. (2) Contracts t h at the
law requires to be proved by some writing (memorandum) of its
terms, as in those covered by the Statute of Frauds, now Art.
1403(2) of the Civil Code. Their existence not being probable by
mere oral testimony (unless wholly or partly executed), these
contracts are exceptional in requiring a writing embodying the
terms thereof for their enforceability by action in court.
19
Manalo vs. De Mesa, 25 Phil. 495.
485
Art. 1358 CONTRACTS
The contract sued upon by petitioner herein does not come

under either exception. It is true th at it appears included in the
last clause of Art. 1358, but it nowhere provides t h a t the absence
of written form in this case will make the agreement invalid or
unenforceable. On the contrary, Art. 1357 clearly indicates that
contracts covered by Art. 1358 are binding and enforceable by
action despite the absence of writing.
Wherefore, the order dismissing the complaint is set aside,
and the case is ordered remanded to the court of origin for fur-
ther proceedings not at variance with this decision.
Problem — Spouses Robert and Yollie wanted to sell their
house. They found a prospective buyer, Nina. Yollie negotiated
with Nina for the sale of the property. They agreed on a fair price
of P2 Million. Nina sent Yollie a letter confirming her intention
to buy the property. Later, another couple, Marius and Ellen ,
offered a similar house at a lower price of P1.5 Million. But Nina
insisted on buying the house of Robert and Yollie for sentimental
reasons. Nina prepared a deed of sale to be signed by the couple
and a manager’s check for P2 Million. After receiving the P2
Million, Robert signed the deed of sale. However, Yollie was not
able to sign it because she was saying she changed her mind.
Yollie filed suit for nullification of the deed of sale and for moral
and exemplary damages against Nina. Does Nina have any
cause of action against Robert and Yollie? (2006 Bar Problem)
Answer — Considering th at the contract has already been
perfected and taken out of the operation of the stat ut e of frauds,
Nina can compel Robert and Yollie to observe the form required
by law in order for the property to be registered in the n ame of
Nina which can be filed together with the action for the recovery
of house.(Art. 1357, NCC). In the alternative, she can recover
the amount of P2 Million th at she paid. Otherwise, it would
result in solution indebiti or unjust enrichment.
486
CHAPTER 4
REFORMATION OF INSTRUMENTS
Art. 1359. 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 the reformation
of the instrument to the end that such true intention may be
expressed.
If mistake, fraud, inequitable conduct, or accident has
prevented a meeting of the minds of the parties, the proper
remedy is not reformation of the instrument but annulment
of the contract. 1
Doctrine of Reformation of Instruments. — When the

true intention of the parties to a perfected and valid contract are not
expressed in the instrum ent purporting to embody their agreement
by reason of mistake, fraud, inequitable conduct or accident, one of
the parties may ask for the reformation of the instrum ent so that
such true intention may be expressed. In order t h a t there can be a
2
reformation of the instrument, the following requisites must, there-

fore, concur:
(1)There must be a meeting of the minds of the contracting
parties;
(2) Their true intention is not expressed in the instrument;
and
1
New provision.
2
487
Art. 1359 CONTRACTS
(3)Such failure to express their true intention is due to mis-

take, fraud, inequitable conduct or accident. 3
Thus, where the complaint fails to allege t h a t the instrument

to be reformed does not express the real agreement or intention of
the parties, it is clear t h a t no cause of action is stated therein since
such allegation is essential considering the fact t h a t the object of an
action for reformation is to make the instrument conform to the real
agreement or intention of the parties. 4
Idem; Rationale of doctrine. — The doctrine of reformation

of instruments is based on justice and equity. According to the Code
Commission:
“Equity orders the reformation of a n instrument in

order t hat the true intention of the contracting parties may be
expressed.
“The courts do not attempt to make another contract for
the parties. The rationale of the doctrine is t h a t it would be
unjust and inequitable to allow the enforcement of a written
instrument which does not reflect or disclose the real meeting
of the minds of the parties. The rigor of the legalistic rule that
a written instrument should be the final and inflexible criterion
and measure of the rights and obligations of the contracting
parties is thus tempered, to forestall the effects of mistake,
fraud, inequitable conduct or accident.’’5
Idem; Distinguished from annulment of contracts. — The

most fundamental distinction between a n action for the reformation
of a n instrument and a n action for the annulment of a contract is
t h a t while the first presupposes a perfectly valid contract in which
there has already been a meeting of the minds of the contracting
parties, the second is based on a defective contract in which there
has been no meeting of the minds because the consent of one or
both of the contracting parties has been vitiated. Consequently,
if mistake, fraud, inequitable conduct, or accident has prevented
a meeting of the minds of the parties, the proper remedy is not
3
Ibid.
4
Garcia vs. Bisaya, 97 Phil. 609. To the same effect: Ongsiaco vs. Ongsiaco, 101
Phil. 1196.
5
488
REFORMATION OF INSTRUMENTS Arts. 1360-1365
reformation of the instrument but annulment of the contract. 6
Thus, where the vendee has been led to enter into a contract of sale
through fraud or mispresentation on the part of the vendor or in
the mistaken belief, that, as stated in the deed, the property he was
buying was unregistered land, it is evident t h a t the proper remedy
is not reformation of the deed of sale but annulment of the contract. 7
Art. 1360. The principles of the general law on the

reformation of instruments are hereby adopted insofar as
they are not in conflict with the provisions of this Code. 8
Art. 1361. When a mutual mistake of the parties causes

the failure of the instrument to disclose their real agreement,
said instrument may be reformed. 9
Art. 1362. If one party was mistaken and the other acted
fraudulently or inequitably in such a way that the instrument
does not show their true intention, the former may ask for
the reformation of the instrument. 10
Art. 1363. When one party was mistaken and the other
knew or believed that the instrument did not state their
real agreement, but concealed that fact from the former, the
instrument may be reformed. 11
Art. 1364. When through the ignorance, lack of skill,

negligence or bad faith on the part of the person drafting
the instrument or of the clerk or typist, the instrument does
not express the true intention of the parties, the courts may
order that the instrument be reformed. 12
Art. 1365. If two parties agree upon the mortgage or

pledge or real or personal property, but the instrument
6
7
Garcia vs. Bisaya, 97 Phil. 609.
8
New provision.
9
New provision. For illustrative cases see Philippine Sugar Estate Development
Co. vs. Gov’t. of P.I., 247 U.S. 385; Bank of the P.I. vs. Fidelity and Surety Co., 51
Phil. 57; Jardenil vs. Solas, 73 Phil. 626; De la Cruz vs. Del Pilar, 95 Phil. 444.
10
New provision. See Ong Chua vs. Carr, 53 Phil. 975.
11
New provision.
12
New provision.
489
states that the property is sold absolutely or with a right of

repurchase, reformation of the instrument is proper. 13
Art. 1366. There shall be no reformation in the following

cases:
(1)Simple donations inter vivos wherein no condition is
imposed;
(2) Wills;
(3) When the real agreement is void. 14
Art. 1367. When one of the parties has brought an action

to enforce the instrument, he cannot subsequently ask for its
reformation. 15
Art. 1368. Reformation may be ordered at the instance

of either party or his successors in interest, if the mistake
was mutual; otherwise, upon petition of the injured party, or
his heirs and assigns.
Art. 1369. The procedure for the reformation of instru-
ments shall be governed by rules of court to be promulgated
by the Supreme Court. 16
Contracts of Adhesion. — A contract of adhesion is defined

as 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. (PCIB vs. CA, 255 SCRA 299.)
The Supreme Court ruled in the case of Ayala Corporation vs.
Ray Burton Development Corp., August 7, 1998, 294 SCRA 48, that
a contract of adhesion in itself is not a n invalid agreement. This
type of contract is as binding as a mutually executed transaction.
The Supreme Court h as emphatically ruled in the case of Ong Yiu
vs. Court of Appeals, et al., t h a t “contracts of adhesion wherein one
party imposes a ready-made form of contract on the other x x x
are contracts not entirely prohibited. The one who adheres to the
contract is in reality free to reject it entirely; if he adheres he gives
13
New provision. See Aquino vs. Deala, 63 Phil. 582; Marquez vs. Valencia, 77
Phil. 782.
14
New provision.
15
New provision.
16
New provision.
490
his consent.’’ This ruling was reiterated in Philippine American

General Insurance Co., Inc. vs. Sweet Lines, Inc., et al., wherein the
Supreme Court further declared through Justice Florenz Regalado
t ha t “not even a n allegation of ignorance of a party excuses non-
compliance with the contractual stipulations since the responsibility
for ensuring full comprehension of the provisions of a contract of
carriage (a contract of adhesion) devolves not on the carrier but on
the owner, shipper, or consignee as the case may be.’’
The Supreme Court continued to state in the above-cited case
t ha t contracts of adhesion, however, stand out from other contracts
(which are bilaterally drafted by the parties) in t h a t the former is
accorded inordinate vigilance and scrutiny by the courts in order to
shield the unwary from deceptive schemes contained in ready-made
covenants. As stated by the Court, speaking through Justice J.B.L.
Reyes, in Qua Chee Gan vs. Law Union and Rock Insurance Co.,
Ltd.: “The courts cannot ignore t h a t nowadays, monopolies, cartels
and concentration of capital, endowed with overwhelming economic
power, manage to impose upon parties dealing with them cunningly
prepared ‘agreements’ that the weaker party may not change one with,
his participation in the ‘agreement’ being reduced to the alternative
to ‘take it or leave it’ labeled since Raymond Saleilles ‘contracts
by adherence’ (contracts d’ adhesion) in contrast to those entered
into by parties bargaining on a n equal footing. Such contracts (of
which policies of insurance and international bill of lading are prime
examples) obviously call for greater strictness and vigilance on the
par t of the courts of justice with a view to protecting the weaker
party from abuses and imposition, and prevent their becoming traps
for the unwary.’’
The stringent treatment towards contracts of adhesion which
the courts are enjoined to observe is in pursuance of the mandate in
Article 24 of the New Civil Code t h a t “(i)n all contractual, property
or other relations, when one of the parties is at a disadvantage
on account of his moral dependence, ignorance, indigence, mental
weakness, tender age or other handicap, courts must be vigilant for
his protection.’’ (Ayala Corporation vs. Ray Burton Development
Corp., 294 SCRA 48.)
The Supreme Court further ruled in the case of Ayala Corpo-
ration vs. Ray Burton Development Corp. (RBDC), t h a t the validity
and/or enforceability of a contract of adhesion will have to be deter-
491
mined by the peculiar circumstances obtaining in each case and the

situation of the parties concerned. In the i nstant case, the stipu-
lations in the Deed Restrictions and Special Conditions are plain
and unambiguous which leave no room for interpretation. Moreover,
there was even no attempt on the part of RBDC to prove that, in the
execution of the Deed of Sale on the subject lot, it was a weaker or a
disadvantaged party on account of its moral dependence, ignorance,
mental weakness or other handicap. On the contrary, as testified to
by Edwin Ngo, President of RBDC, the latter is a realty firm and
has been engaged in realty business, and t h a t he, a businessman for
30 years, represented RBDC in the negotiations and in the eventual
purchase of the subject lot from PALMCREST. Edwin Ngo’s testi-
mony proves t h a t RBDC was not a n unwary party in the subject
transaction. Instead, Edwin Ngo has portrayed RBDC as a knowl-
edgeable realty firm experienced in real estate business.
Problem — (a) What is a contract of adhesion?

(b) Are contracts of adhesion void or prohibited?
Answer — In the case of Development Bank of the
Philippines vs. Perez, G.R. No. 14854, Nov. 11, 2004, the Court
held that:
(a)A contract of adhesion is so-called because its terms are
prepared by only one party while the other party merely
affixes his signature signifying his adhesion thereto.
(b)A contract of adhesion is just as binding as ordinary
contracts. It is true th at we have, on occasion, struck down such
contracts as void when the weaker party is imposed upon in
dealing with the dominant bargaining party and is reduced to
the. Nevertheless, contracts of adhesion are not invalid per se;
they are not entirely prohibited. The one who adheres to the
contract is in reality free to reject it entirely; if he adheres, he
gives his consent.
In the case of Sps. Francisco and Ruby Reyes vs. BPI
Family Savings Bank, Inc., et al., G. R. Nos. 149840-41, March
31,2006, where the petitioner spouses undertook to secure
the P15M loan of Transbuilders Resources & Development
Corporation to BPI-FSB “and other credit accomodations of
whatever nature obtained by the Borrower/Mortgagor” under
the Real Estate Mortgage they executed in favor of BPI-FSB,
the Supreme Court held th at while the stipulation proved to be
onerous to the petitioners, neither the law nor the courts will
492
extricate a party from a n unwise or undesirable contract entered

into with all the required formalities and with full awareness
of its consequences. Petitioners voluntarily executed the REM
on their property infavor of BPI-FSB to secure the loan. They
cannot now be allowed to repudiate their obligation to the bank
after Transbuilder’s default. While petitioner’s liability was
written in fine print and in a contract written by BPI-FSB, it
has been the consistent holding of the Court t h at contracts of
adhesion footing are not invalid per se. On numerous occasions,
the Supreme Court has upheld the binding effects of such
contracts.
Contracts of Credit Cards. — In the case of Spouses

Ermitano vs. Court of Appeals, April 21, 1999, G.R. No. 127246, the
Supreme Court ruled t h a t the contract between the parties is indeed
a contract of adhesion, so-called because its terms are prepared by
only one party while the other party merely affixes his signature
signifying his adhesion thereto. Such contracts are not void in
themselves. They are as binding as ordinary contracts. Parties who
enter into such contracts are free to reject the stipulations entirely.
This Court will not hesitate to rule out blind adherence to such
contracts if they prove to be too one-sided under the attendant facts
and circumstances. Because of the peculiar natur e of contracts of
adhesion, the validity thereof must be determined in the light of
the circumstances under which the stipulation is intended to apply.
For the cardholder to be absolved from liability for unauthorized
purchases made through his lost or stolen card, two steps must be
followed: (1) the cardholder must give written notice to the credit
card company, and (2) the credit card company must notify its
member establishments of such loss or theft, which, naturally, it
may only do upon receipt of a notice from the cardholder. Both the
cardholder and the credit card company, then, have a responsibility
to perform, in order to free the cardholder from any liability arising
from the use of a lost or stolen card. In this case, the cardholder
has complied with what was required of her under the contract
with credit card company. Having thu s performed her part of the
notification procedure, it was reasonable for the cardholder to
expect t h a t the credit card company would perform its par t of the
procedure, which is to forthwith notify its member-establishments.
Prompt notice by the cardholder to the credit card company of the
loss or theft of her card should be enough to relieve the former of
493
any liability occasioned by the unauthorized use of her lost or stolen

card. The questioned stipulation in this case, which still requires
the cardholder to wait until the credit card company h as notified all
its member-establishments, puts the cardholder a t the mercy of the
credit card company which may delay indefinitely the notification
of its members to minimize if not to eliminate the possibility of
incurring any loss from unauthorized purchases. Or, as in this
case, the credit card company may for some reason fail to promptly
notify its members through absolutely no fault of the cardholder.
To require the cardholder to still pay for unauthorized purchases
after he has given prompt notice of the loss or theft of her card to the
credit card company would simply be unfair and unjust. The Court
cannot give its assent to such a stipulation t h a t could clearly run
against public policy.
In the case of Emmanuel Aznar vs. Citibank, N.A. (Philippines),
G. R. No.164273, March 28, 2007, the Supreme Court held t h a t the
terms and conditions of Citibank’s Mastercard constitute a contract
of adhesion. It is settled t h a t the contracts between cardholders
and the credit card companies are contracts of adhesion, so-called,
because their terms are prepared by only one party while the other
merely affixes his signature signifying his adhesion thereto. In this
case, paragraph 7 of the terms and conditions states t h a t Citibank is
not responsible if the card is not honoured by any merchant affiliate
for any reason. While it is true t h a t Citibank may have no control
of all the actions of its merchant affiliates, and should not be held
liable therefor, it is incorrect, however, to give it blanket freedom
from liability if its card is dishonoured by any merchant affiliate
for any reason. Such phrase renders the statem ent vague and as
the said terms and conditions constitute a contract of adhesion, any
ambiguity in its provisions must be construed against the party who
prepared the contract, in this case Citibank.
Citibank also invokes paragraph 15 of its terms and conditions
which limits its liability to P1,000.00 or the actual damage proven,
whichever is lesser. Again, such stipulation cannot be considered as
valid for being unconscionable as it precludes payment of a larger
amount even though damage may be clearly proven. The Supreme
Court is not precluded from ruling out blind adherence to the terms
of a contract if the attendant facts and circumstances show t h a t they
should be ignored for being obviously too one-sided.
494
CHAPTER 5
INTERPRETATION OF CONTRACTS
Art. 1370. If the terms of a contract are clear and leave

no doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control.
If the words appear to be contrary to the evident inten-
tion of the parties, the latter shall prevail over the former. 1
Art. 1371. In order to judge the intention of the contract-

ing parties, their contemporaneous and subsequent acts
shall be principally considered. 2
Primacy of Intention of Parties. — The cardinal rule in the

interpretation of contracts is to the effect t h a t the intention of the
contracting parties should always prevail because their will has the
force of law between them. Art. 1370 of the Civil Code consecrates
this rule and provides, further, t h a t if the terms of contract are clear
and leave no doubt as to the intention of the contracting parties, the
literal sense of its stipulations shall be followed; and if the words
appear to be contrary to the evident intention of the contracting
parties, the intention shall prevail. As a rule, in the construction
3
and interpretation of a document the intention of the parties must

be sought. This is the basic rule in the interpretation of contracts
because all other rules are but ancilliary to the ascertainment of the
meaning intended by the parties. And once this intention has been
1
2
3
Kasilag vs. Rodriguez, 69 Phil. 317. To the same effect: Manila Engineering Co.
vs. Cranston, 45 Phil. 842; Roman vs. Asia Banking Corp., 46 Phil. 705; Valdez vs.
Sibal, 46 Phil. 930; National Bank vs. Paez, 54 Phil. 393; Abella vs. Gonzaga, 56
Phil. 132; Acosta vs. Llacuna, 59 Phil. 540; H.E. Heacock Co. vs. Buntal
Manufacturing Co., 66 Phil. 245; Jose vs. Veloso, 67 Phil. 191; Marquez vs. Valencia,
44 Off. Gaz. 895.
495
ascertained it becomes a n integral part of the contract as though it

had been originally expressed therein in unequivocal terms. 4
These principles were reiterated by the SC in the case of

Manila Banking Corp. vs. Teodoro, Jr. (169 SCRA 95), where it
was held: The character of the transactions between the parties is
not, however, determined by the language used in the document
but by their intention. Thus, the Court, quoting from the American
Jurisprudence (68 2d, Secured Transaction, Section 50) said: “The
character of the transaction between the parties is to be determined
by their intention, regardless of what language was used or what the
form of the transfer was. If it was intended to secure the payment
of money, it must be construed as a pledge. However, even though
a transfer, if regarded by itself, appears to have been absolute, its
object and character might still be qualified and explained by a
contemporaneous writing declaring it to have been a deposit of the
property as collateral security. It has been said t h a t a transfer of
property by the debtor to a creditor, even if sufficient on its face to
make a n absolute conveyance, should be treated as a pledge if the
debt continues in existence and is not discharged by the transfer,
and t h a t accordingly, the use of the terms ordinarily importing
conveyance, of absolute ownership will not be given t h a t effect in
such a transaction if they are also commonly used in pledges and
mortgages and therefore do not unqualifiedly indicate a transfer of
absolute ownership, in the absence of clear and ambiguous language
or other circumstances excluding a n intent to pledge. (Lopez vs.
Court of Appeals, 114 SCRA 671 [1982].)
Further, in the case of Philippine National Construction Cor-
poration vs. The Hon. CA, et al., G.R. No. 159417, Jan.25,2007, the
Court held t h a t the contract between parties is the formal expres-
sion of the parties’ rights, duties and obligations. It is the best evi-
dence of the intention of the parties. Thus, when the terms of an
agreement have been reduced to writing, it is considered as con-
taining all the terms agreed upon and there can be , between the
parties and their successors in interest, no evidence of such terms
other t ha n the contents of the written agreement. Furthermore, it
is a rule t h a t if the terms of a contract are clear and leave no doubt
as to the intention of the contracting parties, the literal meaning
6
Nielsen & Co. vs. Lepanto Consolidated Mining Co., 18 SCRA 1040.
496
INTERPRETATION OF CONTRACTS Arts. 1370-1371
of its stipulation shall control. The contract is the law between the
parties and when the words of the contract are clear and can easily
be understood, there is no room for contruction (Olivares and Robles
vs. Sarmiento, G.R. 158384, Ju n e 12, 2008).
Idem; How to judge intention. — In order to judge the in-
tention of the contracting parties, their contemporaneous and subse-
quent acts shall be principally considered. This is, of course, without
prejudice to the consideration of other factors as fixed or determined
by the other rules of interpretation mentioned in the Civil Code and
in the Rules of Courts. Hence, as a general rule, documents are in-
terpreted in the precise terms in which they are expressed, but the
courts, in the exercise of their sound discretion, are called upon to
admit direct and simultaneous circumstantial evidence necessary
for their interpretation with the purpose of making the true inten-
tion of the parties prevail. One pattern is to ascertain the contempo-
5
raneous and subsequent acts of the contracting parties in relation to

the transaction under consideration. Thus, where there is evidence
regarding the intention of the parties to extend the contract equiva-
lent to the period of suspension caused by the war and the parties
understood the suspension to m ean extension, it was held t h a t the
suspension of the agreement means the extension of the same for a
period equivalent to the suspension. 6
Problem — What is the cardinal rule applicable in a case

where the terms of a contract are clear and leave no doubt upon
the intention of the contracting parties?
Answer — It is a cardinal rule t ha t if the terms of a
contract are clear and leave no doubt as to the intention of
the contracting parties, the literal meaning of its stipulation
shall control. In the case of Philippine National Construction
Corporation vs. The Hon. CA, et al., G.R. No. 159417, Jan.25,
2007, the Court held t hat the contract between parties is the
formal expression of the parties’ rights, duties and obligations.
It is the best evidence of the intention of the parties. Thus, when
5
Aves vs. Orillenedo, 70 Phil. 262, citing Arts. 1370 and 1371 of the Civil Code.
To the same effect: Atlantic Gulf Co. vs. Insular Government, 10 Phil. 166; Figueras
vs. Rocha, 13 Phil. 504; Tanido vs. Jumaoan, 17 Phil. 335; Soler vs. Chesley, 43 Phil.
529; Kidney vs. Carter, 43 Phil. 953; Rivero vs. Rabe, 54 Phil. 982; Gonzales
vs. La
Previsora,
6
Nielsen &74Co.Phil. 165.
vs. Lepanto Consolidated Mining Co., 18 SCRA 1040.
497
the terms of an agreement have been reduced to writing, it is

considered as containing all the terms agreed upon and there
can be, between the parties and their successors in interest, no
evidence of such terms other th an the contents of the written
agreement.
It is further required th at the various stipulations of a
contract shall be interpreted together, attributing to the doubtful
ones th at which may result from all of them t aken jointly (Bobie
Rose V. Frias vs. Flora San Diego-Sison, G.R. No.155223, April
3, 2007).
Art. 1372. However general the terms of a contract may

be, they shall not be understood to comprehend things that
are distinct and cases that are different from those upon
which the parties intended to agree. 7
Art. 1373. If some stipulation of any contract should

admit of several meanings, it shall be understood as bearing
that import which is most adequate to render it effectual. 8
Art. 1374. The various stipulations of a contract shall be

interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken jointly. 9
Art. 1375. Words which may have different significations

shall be understood in that which is most in keeping with
the nature and object of the contract. 10
Art. 1376. The usage or custom of the place shall be

borne in mind in the interpretation of the ambiguities of a
contract, and shall fill the omission of stipulations which are
ordinarily established. 11
Art. 1377. The interpretation of obscure words or

stipulations in a contract shall not favor the party who
caused the obscurity. 12
7
8
9
10
11
12
498
INTERPRETATION OF CONTRACTS Arts. 1378-1379
Art. 1378. When it is absolutely impossible to settle

doubts by the rules established in the preceding articles, and
the doubts refer to incidental circumstances of a gratuitous
contract, the least transmission of rights and interests shall
prevail. If the contract is onerous, the doubt shall be settled
in favor of the greatest reciprocity of interests.
If the doubts are cast upon the principal object of the
contract in such a way that it cannot be known what may
have been the intention or will of the parties, the contract
shall be null and void. 13
Art. 1379. The principles of interpretation stated in Rule

123 of the Rules of Court shall likewise be observed in the
construction of contracts. 14
13
14
New provision. The provisions of Rule 123 of the Rules of Court referred to are
Secs. 58-67, now Secs. 8-17, Rule 130, New Rules of Court.
499
CONTRACTS
CHAPTER 6
RESCISSIBLE CONTRACTS
Classes of Defective Contracts. — There are four classes

of defective contracts under the present Civil Code. They are: first,
rescissible contracts; second, voidable contracts; third, unenforceable
contracts; and fourth, void or inexistent contracts. Explaining
the reasons behind this new classification, the Code Commission
declared in its report:
“A great deal of confusion has been created by the faulty

terminology used by the Spanish Code as regards defective
contracts. There is no sufficient clarity as to ‘contratos nulos’
and ‘contratos anulables’ — void and voidable contracts.
“In order to put a n end to the foregoing uncertainty and
other ambiguities in the Spanish Code, the project in a clear-cut
and unequivocal way classifies and defines the various kinds
of defective contracts, and states their consequences. There
are, under the recommended plan, four kinds of such contracts,
namely (in the order of defectiveness): (1) rescissible; (2)
voidable; (3) unenforceable; and (4) void or inexistent contracts.
“It is believed th at with the explicit provisions of the
Project upon the subject of defective contracts, the present
nebulous state of the law will be dispelled. It is neither wise
nor just t hat parties should be left in doubt as to the degree of
effectiveness of their contractual relations. The legal profession
is also entitled to know in a positive and unequivocal manner
what contracts are rescissible, voidable, unenforceable, and
void. It is hoped th at this clarification of the law on this most
far-reaching subject will go far toward forestalling many
controversies and litigations.’’1
1
500
Idem; Essential features. — The essential features of the

different classes of defective contracts are:
1. As to defect:
(a)In rescissible contracts, there is damage or injury
either to one of the contracting parties or to third persons;
(b)In voidable contracts, there is vitiation of consent or
legal incapacity of one of the contracting parties;
(c)In unenforceable contracts, the contract is entered
into in excess or without any authority, or does not comply with
the Statut e of Frauds, or both contracting parties are legally
incapacitated;
(d)In void or inexistent contracts, one or some of the
essential requisites of a valid contract are lacking either in fact
or in law.
2. As to effect:
(a)The first are considered valid and enforceable until
they are rescinded by a competent court;
(b)The second are considered valid and enforceable
until they are annulled by a competent court;
(c)The third cannot be enforced by a proper action in
court;
(d)The fourth do not, as a general rule, produce any
legal effect.
3. As to prescriptibility of action or defense:
(a) In the first, the action for rescission may prescribe;
(b)In the second, the action for annulment or the
defense of annulability may prescribe;
(c)In the third, the corresponding action for recovery, if
there was total or partial performance of the unenforceable
contract under No. 1 or No. 3 of Art. 1403, may prescribe.
(d)In the fourth, the action for declaration of nullity or
inexistence or the defense of nullity or inexistence does not
prescribed.
501
Art. 1380 CONTRACTS
4. As to susceptibility of ratification:
(a) The first are not susceptible of ratification;
(b) The second are susceptible of ratification;
(c) The third are susceptible of ratification;
(d) The fourth are not susceptible of ratification.
5. As to who may assail contracts:
(a)The first maybe assailed not only by a contracting
party but even by a third person who is prejudiced or damaged
by the contract;
(b) The second may be assailed only by a contracting
party;
(c) The third may be assailed only by a contracting
party;
(
The fourth may be assailed not only by a contracting
partyd)but even by a third person whose interest is directly
affected.
6. As to how contracts may be assailed:
(a)The first may be assailed directly only, and not
collaterally;
(b) The second may be assailed directly or collaterally;
(c) The third may be assailed directly or collaterally;
(d) The fourth may be assailed directly or collaterally.
Art. 1380. Contracts validly agreed upon may be re-

scinded in the cases established by law. 2
Rescissible Contracts in General. — In a rescissible

contract, all of the essential requisites of a contract exist and the
contract is valid, but by reason of injury or damage to either of the
contracting parties or to third persons, such as creditors, it may be
rescinded. A rescissible contract is, therefore, a contract which is
3
2
3
502
RESCISSIBLE CONTRACTS Art. 1380
valid because it contains all of the essential requisites prescribed

by law, but which is defective because of injury or damage to either
of the contracting parties or to third persons, as a consequence of
which it may be rescinded by means of a proper action for rescission.
Before it is rescinded, a rescissible contract is valid and,
therefore, legally effective. The only way by which it can be attacked
is by means of a direct action for rescission based on any of the
causes expressly specified by law; hence, it cannot be attacked
collaterally. 4
Idem; Characteristics. — Rescissible contracts, therefore,

possess the following characteristics:
(1)Their defect consists in injury or damage either to one of
the contracting parties or to third persons.
(2) Before rescission, they are valid and, therefore, legally
effective.
(3) They can be attacked directly only, and not collaterally.
(4) They can be attacked only either by a contracting party or
by a third person who is injured or defrauded.
(5) They are susceptible of convalidation only by prescription,
and not by ratification.
Idem; Concept of rescission. — Rescission is a remedy
granted by law to the contracting parties, and even to third persons,
to secure the reparation of damages caused to them by a contract,
even if the same should be valid, by means of the restoration of
things to their condition prior to the celebration of the contract. 5
Idem; id. — Distinguished from resolution. — Rescission

of rescissible contracts must not be confused with the rescission
or resolution of reciprocal obligations under Art. 1191 of the Code.
Although there are similarities both with respect to validity and
effects, they are distinguished from each other in the following ways:
(1) As to party who may institute action: In rescission the
action may be instituted not only by a party to the contract but even
by a third person, while in resolution the action may be instituted
only by a party to the contract.
4
Borja vs. Addison, 44 Phil. 895.
5
503
Art. 1380 CONTRACTS
(2)As to causes: In rescission there are several causes or

grounds such as lesion, fraud and others expressly specified by law,
while in resolution the only ground is failure of one of the parties to
(3)As to power of the courts: In rescission there is no
power of the courts to grant a n extension of time for performance
of the obligation so long as there is a ground for rescission, while
in resolution the law expressly declares t h a t courts shall have a
discretionary power to grant a n extension for performance provided
t h a t there is a just cause.
(4)As to contracts which may be rescinded or resolved: In
rescission any contract, whether unilateral or reciprocal, may be
rescinded, while in resolution only reciprocal contracts may be
resolved.
Idem; id. — Distinguished from rescission by mutual
consent. — Neither must rescission be confused with rescission of
a contract by mutual consent of the contracting parties. One must
be distinguished from the other — first, with respect to the causes
of rescisssion, second, with respect to the laws applicable, and third,
with respect to the effects. The following case will serve to illustrate
these distinctions:
Aquino vs.
Tañedo 31 Phil.
517
The records show th at plaintiff purchased some lands
from the defendant and, as a consequence, took possession of the
same and collected their products. Subsequently, they dissolved
the contract of sale, and, as a result thereof, plaintiff returned
the lands, while defendant bound himself to ret urn the pa rt of
the purchase price which plaintiff has paid. The question now is
whether or not the plaintiff is obliged to return to the defendant
the products of the lands which he had collected during his
possession. The defendant contends t hat he is obliged, invoking
the provisions of Art. 1295 (now Art. 1385) of the Civil Code. The
Supreme Court, however, ruled:
“The rescission mentioned in the contract is not the
rescission referred to in Article 1295 (now Art. 1385). Although
the plaintiff and the defendant employed the word rescind,
or has
it the not,
meaning
in theofcontract
the word rescission
executed to which
by them, Article
either 1295
the scope
504
(now Art. 1385) refers and which takes place only in the cases
mentioned in the preceding Articles, 1291 and 1292 (now Arts.
1381 and 1382). Rescission, in the light of these provisions, is
a relief which the law grants, on the premise t ha t the contract
is valid, for the protection of one of the contracting parties and
third persons from all injury and damage t ha t the contract may
cause, or to protect some incompatible and preferential right
created by the contract. Article 1295 (now Art. 1385) refers to
contracts th at are rescissible in accordance with law in the cases
expressly fixed thereby, but it does not refer to contracts that
are rescinded by mutual consent and for the mutual convenience
of the contracting parties. The rescission in question was not
originated by any of the causes specified in Articles 1291 and
1292 (now Arts. 1381 and 1382), nor is it any relief for the
purposes sought by these articles. It is simply another contract
for the dissolution of a previous one, and its effects, in relation
to the contract so dissolved, should be determined by the
agreement made by the parties, or by the application of other
legal provisions, but not by Article 1295 (now Art. 1385), which
is not applicable.’’6
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 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. 7
6
To the same effect: Luneta Motor Co. vs. Richey, CA, 39 Off. Gaz. 1101.
7
505
Art. 1382 CONTRACTS
Art. 1382. Payments made in a state insolvency for ob-

ligations to whose fulfillment the debtor could not be com-
pelled at the time they were effected, are also rescissible. 8
Contracts in Behalf of Ward. — The first of the rescissible

contracts are those which are entered into by guardians whenever
the wards whom they represent suffer lesion or damage by more
th an one-fourth of the value of the things which are the object
thereof. This is, however, without prejudice to the provision of Art.
9
1386 which states t h a t rescission shall not take place with respect
to contracts approved by the courts.
It must be noted t h a t under the Rules of Court, a judicial
guardian entering into a contract with respect to the property of
his ward must ordinarily secure the approval of a competent court. 10
This is also true in the case of a father or mother considered as a

natura l guardian of the property of a child under parental authority
where such property is worth more tha n two thousand pesos. As 11
a mat ter of fact, if the contract involves the sale or encumbrance of

real property, judicial approval is indispensable. Consequently, if
12
a guardian sells, mortgages or otherwise encumbers real property

belonging to his ward without judicial approval, the contract is
unenforceable, and not rescissible even if the latter suffers lesion
13
or damage of more t han one-fourth of the value of the property.

However, if he enters into a contract falling within the scope of
his powers as guardian of the person and property, or only of the
property, of his ward, such as when the contract involves acts of
administration, express judicial approval is not necessary, in 14
which case the contract is rescissible if the latter suffers the lesion
or damage mentioned in No. 1 of Art. 1381 of the Code.
Contracts in Behalf of Absentees. — The second of the
rescissible contracts are those entered into in behalf of absentees,
if the latter suffer the lesion or damage stated in the preceding
8
9
10
See Rules 95-96, New Rules of Court.
11
12
13
Arts. 1403, No. 1, and 1317, Civil Code.
14
Sec. 1, et seq., Rule 96, New Rules of Court. See 2 Moran, 1957 Ed., p. 506.
506
number. However, such contracts are not rescissible if they have

15
been approved by the courts. 16
Since the powers and duties of a legal representative of an

absentee are exactly the same as those of a guardian, the principles 17
enunciated in the preceding section are also applicable here.

Whether the contract is entered into by a guardian in behalf of
his ward or by a legal representative in behalf of a n absentee, before
it can be rescinded on the ground of lesion, it is indispensable that
the following requisites must concur:
(1)The contract must have been entered into by a guardian in
behalf of his ward or by a legal representative in behalf of an
absentee; 18
(2)The ward or absentee must have suffered lesion of more

th an one-fourth of the value of the property which is the object of the
contract; 19
(3)The contract must have been entered into without judicial

approval;20
(4)There must be no other legal means for obtaining

reparation for the lesion; 21
(5)The person bringing the action must be able to return

whatever he may be obliged to restore; and 22
(6)The object of the contract must not be legally in the

possession of a third person who did not act in bad faith. 23
If the object of the contract is legally in the possession of a third

person who did not act in bad faith, the remedy available to the
person suffering the lesion is indemnification for damages and not
rescission. 24
15
16
17
18
Art. 1381, Nos. 1 and 2, Civil Code.
19
Ibid.
20
21
22
23
24
507
Art. 1382 CONTRACTS
Contracts in Fraud of Creditors. — The third of the re-

scissible contracts are those undertaken in fraud of creditors when
the latter cannot in any other man ner collect the claims due them. 25
This complements Art. 1177 of the Code which states t h a t one of

the remedies available to the creditor after he has exhausted all the
property in possession of the debtor is to impugn the acts which the
latter may have done to defraud him.
However, before a contract can be rescinded on the ground that
it has been entered into in fraud of creditors, it is indispensable that
the following requisites must concur:
(1)There must be a credit existing prior to the celebration of
the contract;
(2)There must be a fraud, or a t least, the intent to commit
fraud, or a t least, the intent to commit fraud to the prejudice of the
creditor seeking the rescission;
(3)The creditor cannot in any other legal m anner collect his
credit; and
26
(4)The object of the contract must not be legally in the

possession of a third person who did not act in bad faith. 27
If the object of the contract is legally in the possession of a

third person who did not act in bad faith, the remedy available to
the creditor is to proceed against the person causing the loss for
damages. 28
Accion pauliana — Article 1381 of the Civil Code enumerates

the contracts which are rescissible, and among them are “those
contracts undertaken in fraud of creditors when the latter cannot in
any other m anner collect the claims due them.’’ The action to rescind
contracts in fraud of creditors is known as accion pauliana. For this
action to prosper, the following requisites must be present: (1) the
plaintiff asking for rescission has a credit prior to the alienation; (2)
the debtor has made a subsequent contract conveying a patrimonial
benefit to a third person; (3) the creditor has no other legal remedy
to satisfy his claim; (4) the act being impugned is fraudulent; (5) the
25
26
27
28
508
third person who received the property conveyed, if it is by onerous

title, has been a n accomplice in the fraud. The general rule is that
rescission requires the existence of creditors at the time of the
alleged fraudulent alienation, and this m ust be proved as one of the
bases of the judicial pronouncement setting aside the contract.
Without any prior existing debt, there can neither be injury nor
fraud. While it is necessary t h a t the credit of the plaintiff in the
accion pauliana must exist prior to the fraudulent alienation, the
date of the judgment enforcing it is immaterial. Even if the
judgment be subsequent to the alienation, it is merely declaratory,
with retraoctive effect to the date when the credit was constituted.
(Citations omitted.) (Chief Justice Davide, Jr., First Division,
Siguan vs. Lim, G.R. No. 134685, November 19, 1999.)
Contracts Referring to Things Under Litigation. — The
fourth of the rescissible contracts are 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. 29
The case contemplated in this num ber is different from that

contemplated in the preceding number. Here the purpose is to secure
the possible effectivity of a claim, while in the preceding number the
purpose is to guarantee a n existing credit; here there is a real right
involved, while in the preceding number there is a personal right,
both of which deserve the protection of the law. They are, however,
similar in the sense t h a t in both cases the person who can avail of
the remedy of rescission is a stranger to the contract. 30
Contracts by Insolvent. — Under Art. 1382, payments

made in a state of insolvency for obligations to whose fulfillment
the debtor could not be compelled a t the time they were effected, are
also rescissible.
In order t h a t the payment can be rescinded, it is
indispensable
(1) t h a t it must have been made in a state of insolvency,
and (2) t h a t the obligation must have been one which the debtor
could not be compelled to pay a t the time such payment was
effected. It is, therefore, clear t h a t the basis of the rescissible
character of the transaction is fraud as in the case of Nos. 3 and 4
of Art. 1381.
30
29
509
Art. 1382 CONTRACTS
Insolvency, as it is used in this article, should be understood

in its popular or vulgar, not technical, sense. Hence, it refers to the
financial situation of the debtor by virtue of which it is impossible
for him to fulfill his obligations. A judicial declaration of insolvency
31
is not, therefore, necessary. 32
According to Manresa, the obligations contemplated by this

article comprehend not only those with a term or which are subject
to a suspensive condition, but even void and n at ural obligations as
well as those which are condoned or which have prescribed. 33
An interesting question arises with respect to the payment of

a n obligation which is subject to a suspensive period. Let us assume
t h a t A is indebted to B for P10,000 and to C for P5,000. Let us say
t h a t the obligation in favor of C is subject to a suspensive period.
While in a state of insolvency, A pays his obligation to C before the
expiration of the term or period. Can B rescind the payment? Under
Art. 1382, there is no question t h a t the payment is rescissible, but
then this conclusion would be in direct conflict with the provision of
No. 1 of Art 1198 of the Code under which A can be compelled by C to
pay the obligation even before the expiration of the stipulated term
or period since by his insolvency he has already lost his right to the
benefit of such term or period. According to Manresa, however, the
conflict can easily be resolved by considering the priority of dates
between the two debts. If the obligation with a period became due
before the obligation to the creditor seeking the rescission became
due, then the latter cannot rescind the payment even if such
payment was effected before the expiration of the period; but if the
obligation with a period became due after the obligation to the
creditor seeking the rescission became due, then the latter can
rescind the payment. 34
Other Rescissible Contracts. — Besides those enumerated

in Arts. 1381 and 1382, there are also other contracts which are
specially declared by law to be subject to rescission. Examples of 35
31
Ibid., p. 561.
32
Under Sec. 70 of the Insolvency Law (Act No. 1956), any payment, pledge,
mortgage, conveyance, sale, assignment or transfer of property made by a n insolvent
within one month before the filing of the petition in insolvency by or against him, is
void, except when made for a valuable consideration and in good faith.
33
34
Ibid., p. 536. This is, of course, without prejudice to the provisions of the Civil
35
Art. 1381, No.
Code regarding 5, Civilof Code.
preference credits. See Arts. 2241, et seq., Civil Code.
510
these contracts are those contemplated in Arts. 1098, 1189, 1526,

1534, 1539, 1542, 1556, 1560, 1567, and 1659 of the Code.
Art. 1383. The action for rescission is subsidiary; it can-

not be instituted except when the party suffering damage
has no other legal means to obtain reparation for the same. 36
Subsidiary Character of Action. — The action for rescission

is subsidiary, consequently, it cannot be instituted except when the
party suffering damage has no other legal means to obtain
reparation for the same. Hence, before a party who is
37
prejudiced can avail himself of this remedy, it is essential t h a t he

has exhausted all of the other legal means to obtain reparation. 38
Thus, even where the fraud charged which is the ground for a n
action for rescission actually did exist, where there is no allegation
or evidence t ha t the creditor has already exhausted all of legal
remedies to obtain reparation from the debtor, the action to
rescind the sale in question made by said debtor is not
maintainable. 39
Nevertheless, if it can be established t h a t the
property which is alienated or transferred by the debtor to
another was his only property a t the time of the transaction, an
action for rescission can certainly be maintained because it is clear
t h a t in such case the creditor can have no other remedy. 40
Parties Who May Institute Action. — According to Castan,

the action for rescission may be instituted by the following: (1) The
person who is prejudiced, such as the party suffering the lesion
in rescissory actions on the ground of lesion, the creditor who is
defrauded in rescissory actions on the ground of fraud, and other
persons authorized to exercise the same in other rescissory actions;
(2) their representatives; (3) their heirs; and (4) their
creditors by virtue of the subrogatory action defined in Art. 1177 of
the Code. 41
An heir, therefore, may institute a n action for the rescission

of a rescissible contract. As a rule, he may do so as a representative
of the person who suffers from lesion or of the creditor who is
36
37
38
41
39
Goquiolay
3 Castan, vs.p.Sycip,
7th Ed., 433. 9 SCRA 663.
40
Regalado vs. Luchsinger & Co., 5 Phil. 625; Guash vs. Espiritu, 11 Phil. 184;
Honrado vs. Mercayda, CA, 49 Off. Gaz. 1492.
511
Art. 1384 CONTRACTS
defrauded. Suppose, however, t h a t it can be established t h a t the

decedent, during his lifetime, entered into a contract with another
in order to defraud him of his legitime, can he institute a n action for
the rescission of such contract after the death of the decedent? It is
clear t h a t in this case the compulsory heir does not have any right
to institute the action as a representative of the decedent, since
the decedent himself does not have the right. It would, however, be
possible for him to institute the action in his own right under No.
3 of Art. 1381 of the Civil Code. This was recognized in the case of
Concepcion vs. Sta. Ana. According to the Supreme Court:
“The reason why a forced heir has the right to institute an

action of rescission is th at the right to the legitime is similar to a
credit of a creditor. As Manresa correctly stat es in commenting
on Article 1291 (now Art. 1381) of the Civil Code: “The rights
of a forced heir to the legitime are undoubtedly similar to a
credit of a creditor insofar as the right to the legitime may be
defeated by fraudulent contracts, and are superior to the will
of those bound to respect them. In its judgment of October 28,
1897, the Supreme Court of Spain held t h at the forced heirs
instituted as such by their father in the latter’s testament have
the undeniable right to institute a n action to annul contracts
entered into by the father to their prejudice. As it is seen the
action is called action of nullity, but it is ra t he r a n action of
rescission taking into account the purpose for which it is
instituted and the confusion of ideas th at h as prevailed in this
matter.’’42
Art. 1384. Rescission shall be only to the extent necessary

to cover the damages caused. 43
Extent of Rescission. — It must be observed t h a t the primary

purpose of rescission is reparation for the damage or injury which
is suffered either by a party to the contract or by a third person.
In order t h a t this purpose may be realized the rescission does not
necessarily have to be total in character; it may also be partial.
Consequently, according to Art. 1384, rescission shall be only to the
extent necessary to cover the damages caused. This precept, which
42
Concepcion vs. Sta. Ana, 87 Phil. 787. The opinion of Manresa quoted here is
found in Vol. 8, Bk. 2, 5th Ed., pp. 555-556. See Art. 221, No. 4, Civil Code.
43
New provision.
512
was not found in the old Code, is in accordance with the doctrine
enunciated by the Supreme Tribunal of Spain on December 10, 1904,
to the effect t h a t a contract in fraud of creditors may be partially
rescinded to a n extent which is sufficient to satisfy the damage
caused to the creditor. 44
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 posses-
sion of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded
from the person causing the loss. 45
Effect of Rescission in Case of Lesion. — It is evident

t h a t the first paragraph of Art. 1385 is applicable only to rescissory
actions on the ground of lesion and not to rescissory actions on the
ground of fraud. This is so because in the latter there can certainly
be no obligation on the part of the plaintiff-creditor to restore
anything since he h as not received anything. 46
Once a contract is rescinded on the ground of lesion, there

arises a n obligation on the part of both contracting parties to return
to the other the object of the contract, including fruits or interests.
Consequently, rescission is not possible, unless he who demands it
can r eturn whatever he may be obliged to restore. Thus, where a
guardian alienates certain properties of a minor for P85,000 to a
certain person, and subsequently, the minor, upon reaching the age
of majority, brings a n action for the rescission of the contract on
the ground of lesion, the effect if rescission is granted would be the
restoration of things to their condition prior to the celebration of the
contract. But if the plaintiff cannot refund the amount including
interest, the action will certainly fail because positive statutory
44
45
Art. 1295. Spanish Civil Code.
46
513
Art. 1385 CONTRACTS
law, no less t ha n uniform court decisions, require, as a condition

precedent to rescission, t h a t the consideration received should be
refunded. 47
The “fruits of the thing” stated in Art. 1385 refer not only
to natural, industrial and civil fruits but also to other accessions
obtained by the thing, while interest refers to legal interest. It
must be observed, however, t h a t as far as the obligation to restore
the fruits is concerned, the rules on possession shall be applied. 48
Consequently, the determination of the good or bad faith of the

party obliged to restore is of transcendental importance in order to
assess the fruits or the value thereof which must be returned as well
as the expenses which must be reimbursed. Thus, it has been held
49
t h a t as a condition to the rescission of a contract of sale of a parcel of

land, the vendor must refund to the vendees (who are in good faith)
a n amount equal to the purchase price, plus the sum expended by
them in improving the land. 50
Effect of Rescission Upon Third Persons. — According to

the second paragraph of Art. 1385, rescission shall not take place
when the thing which constitutes the object of the contract is legally
in the possession of a third person who did not act in bad faith. It is
evident that this rule is applicable to all kinds of rescissible
contracts. There are, however, two indispensable requisites which
must concur in order t h a t the acquisition of the thing which
constitutes the object of the contract by a third person shall defeat a n
action for rescission. These requisites are: first, t h a t the thing
must be legally in the possession of the third person; and second,
t h a t such third person must not have acted in bad faith. Where the
thing which constitutes the object of the contract happens to be
movable property, the concurrence of these requisites offers no
difficulty because of the principle t ha t possession of movable
property acquired in good faith is equivalent to a title. Where the
51
thing happens to be immovable property, however, it is

indispensable t h a t the right of the third person must be
registered or recorded in the proper registry before we can say
t h a t the thing is legally in his possession, or what
47
Uy Soo Lim vs. Tan Unchuan, 38 Phil. 522.
48
49
50
Gov’t. of the P.I. vs. Wagner, 54 Phil. 132.
51
514
amounts to the same thing, before he is protected by law. Thus,

Manresa, commenting on the provision of the second paragraph of
Art. 1385, says:
“The acquisition by a third person is a n obstacle to the

efficaciousness of the action for rescission, where the following
two circumstances are present, to wit, th at such third person
is in lawful possession of the realty, th at is to say t h at he is
protected by the law against said action by the registration in
the registry, and th at he did not act in bad faith.’’52
Consequently, it has been held t h a t a third person to whom the

realty has been transferred who h as not registered his right in the
proper registry cannot be protected against the effects of a judgment
rendered in the action for rescission. However, where he has
53
registered his right over the realty under the Land Registration Act
(Act No. 496), there would then be no legal obstacle to the transfer
of the title of the said property, and for this special reason the said
transfer cannot be rescinded. This doctrine was enunciated by the
Supreme Court in the following case:
Sikatuna vs.
Guevara 45 Phil. 371
The records show th at a contract of a lease of certain lot

situated in Manila was entered into between the partnership
Jacinto, Palma y Hnos, as lessor, and Potenciana Guevara, as
lessee. This contract contained a n option by which the lessor
is given the right to purchase within a period of one year from
the time of the execution thereof a house which the lessee had
constructed on the lot, but in case of failure to exercise such
right, the lessee is given the right to purchase the lot. The period
for the option having expired without the lessor exercising its
right, Guevara offered to purchase the lot, but the said lessor
refused. In view of such refusal, Guevara brought a n action to
compel the lessor to sell the lot to her. There was, however, no
notice of the commencement of such action filed with the office
of the Register of Deeds. During the pendency of such case, the
aforesaid lessor sold the lot under litigation to the Sikatuna
52
8 Manresa, 5th Ed., Bk 2, pp. 379-380, quoted by the Supreme Court in Cord-
evero vs. Villaruz, 46 Phil. 473, a nd in Gatchalian vs. Manalo, 68 Phil. 608.
53
Cordevero vs. Villaruz, 46 Phil. 473.
515
Art. 1385 CONTRACTS
Corporation. This sale was recorded in the Registry in accordance

with Act No. 496, otherwise known as the Land Registration
Act. Subsequently, judgment was rendered in the civil case in
favor of Guevara, but it was not executed because the lot had
already been sold to the Sikatuna Corporation. Later, the new
owner ordered Guevara to vacate the premises. Having declined
to do so, the corporation commenced these proceedings against
her for unlawful detainer. In her answer, she contended that
since the contract involves the sale of property under litigation
without the approval of the litigants or of competent judicial
authority, it should be rescinded. This contention was upheld by
the lower court. The Supreme Court, speaking through Justice
Romualdez, however, ruled:
“As the appellant rightfully contends the rescission
of the sale does not lie in the present case because the
property is now in the legal possession of a third person
who has not acted in bad faith. There is no doubt but that
in this case the plaintiff corporation has the character of a
third person, and it has not been shown t ha t it had acted
in bad faith.
“This case has a special circumstance in t h at it deals
with property registered under the Land Registration Act
No. 496, Section 78, which provides t h a t acts concerning
properties registered under the law shall affect only the
parties litigant, unless a notice of the commencement of
the action is recorded, which does not appear to have been
done in the case before us. There was, therefore, no legal
obstacle to the transfer of the title of the said property,
and for this special reason the said transfer cannot be
rescinded.’’54
In spite of the impossibility of maintaining a n action for the

rescission of the contract where the object thereof is legally in the
possession of a third person who did not act in bad faith, the person
who is prejudiced is not left without any remedy. He may still
bring a n action for indemnity for damages against the person who
caused the loss. This action may be directed against the guardian,
55
54
From this case, it is clear t h a t when the law speaks of “third persons,” it refers
not only to subsequent transferees who are strangers to the contract which is
sought to be rescinded, but even to the immediate transferees who are not
strange rs to the contract.
55
516
RESCISSIBLE CONTRACTS Arts. 1386-1388
representative of the absentee or litigant who transferred the

thing, as the case may be. It may even be directed against a third
56
person who, in bad faith, had previously acquired the thing and,
subsequently, had alienated it to a n innocent purchaser for value. 57
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. 58
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 fraudu-
lent when made by persons against whom some judgment
has been rendered in any instance or some writ of attach-
ment has been issued. The decision or attachment need not
refer to the property alienated, and need not have been ob-
tained 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. 59
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. 60
Proof of Fraud. — As we have seen in a previous section one

of the requisites which must be established in order t h a t a contract
may be rescinded on the ground t h a t it has been entered into in
56
57
58
59
60
517
fraud of creditors is the existence of fraud, or a t least, the intent to

defraud. Such fraud or intent to defraud may be either presumed in
accordance with Art. 1387 of the Code or duly proved in accordance
with the ordinary rules of evidence.
Idem; Presumptions of fraud. — The law presumes that
there is fraud of creditors in the following cases:
(1)Alienations of property by gratuitous title if the debtor
has not reserved sufficient property to pay all of his debts contracted
before such alienations. 61
(2)Alienations of property by onerous title if made by a

debtor against whom some judgment has been rendered in any
instance or some writ of attachment has been issued. The decision
or attachment need not refer to the property alienated and need
not have been obtained by the party seeking the rescission. Thus, 62
where the debtor alienated a certain property, which was his only
attachable property, to his son after judgment had been rendered
against him and a writ of execution had been issued, there is a
presumption t h a t such alienation is fraudulent in accordance
with the rule stated in the second paragraph of Art. 1387. This 63
presumption becomes stronger when it is established t h a t the

conveyance by the judgment debtor is for the purpose of preventing
the judgment creditor or other creditors from seizing the property. 64
But where no judgment or preliminary attachment exists against

the debtor, the presumption is not applicable. 65
Cabaliw vs. Sadorra

64 SCRA 310
Isidora Cabaliw was the wife of Benigno Sadorra by his
second marriage solemnized on May 5, 1915, before the Justice
of the Peace of Bayambang, Pangasinan. This couple had a
daughter named Soledad Sadorra. During their marriage, the
61
62
63
Regalado vs. Luchsinger & Co., 5 Phil. 25. To the same effect: see Cabaliw vs.
Sadorra, 64 SCRA 310.
64
Bachrach vs. Peterson, 7 Phil. 571. To the same effect: Panlileo vs. Victorio, 36
Phil. 706; Saavedra vs. Martinez, 68 Phil. 676; Contreras vs. China Banking Corp.,
76 Phil. 709.
65
Manila Mercantile Co. vs. Flores, 50 Phil. 759.
518
spouses acquired two (2) parcels of land situated in Iniangan,

Dupax, Nueva Vizcaya. One parcel with a n area of 14.4847
hectares was acquired by a Sales P aten t and covered by Original
Certificate of Title No. 1 of the Land Records of Nueva Vizcaya
issued in the name of Benigno Sadorra. The other piece of land
about 1-1/2 hectares and covered by Tax Declaration Nos. 6209
and 6642 was secured through purchase.
Having been abandoned by her husband, Isidora Cabaliw
instituted an action for support with the Court of First Instance
of Manila, entitled “Isidora Cabaliw de Orden versus Benigno
Sadorra’’ docketed therein as Civil Case No. 43193. On January
30, 1933, judgment was rendered requiring Benigno Sadorra to
pay his wife, Isidora Cabaliw, the amount of P75.00 a month in
terms of support as of Jan u ary 1, 1933, and P150.00 in concept
of attorney’s fees and the costs.
Unknown to Isidora Cabaliw, on August 19, 1933, Benigno
Sadorra executed two (2) deeds of sale over the two parcels of
land above described in favor of his son-in-law, Sotero Sadorra,
the latter being married to Encarnacion Sadorra, a daughter of
Benigno Sadorra by his first marriage. These deeds were duly
registered and Original Certificate of Title No. 1 was cancelled
and replaced with T.C.T. No. 522 of the Register of Deeds of
Nueva Vizcaya.
Because of the failure of her husband to comply with
the judgment of support, Isidora Cabaliw filed in Civil Case
43192 a motion to cite Benigno Sadorra for contempt and the
Court of First Instance of Manila in its Order of May 12, 1937,
authorized Isidora to take possession of the conjugal property,
to administer the same, and to avail herself of the fruits thereof
in payment of the monthly support in arrears. With this order of
the Court, Isidora proceeded to Nueva Vizcaya to take possession
of the aforementioned parcels of land, and it was then t h at she
discovered t hat her husband had sold them to his son-in-law
Sotero.
On February 1, 1940, Isidora filed with the Court of First
Instance of Nueva Vizcaya Civil Case No. 449 against her
husband and Sotero Sadorra for the recovery of the lands in
question on the ground th at the sale was fictitious; a t the same
time a notice of lis pendens was filed with the Register of Deeds
of Nueva Vizcaya.
In May of 1940, Benigno Sadorra died.
On J u n e 7, 1948, the above-mentioned notice of lis
was cancelled
pendens by the Register of Deeds of Nueva Viscaya upon
519
the filing of a n affidavit by Sotero Sadorra to the effect t ha t Civil

Case No. 449 had been decided in his favor and t ha t he was
adjudged the owner of the land covered by T.C.T. No. 522, but
th at his copy of the decision was lost during the war.
On October 1, 1954, Isidora and her daughter Soledad
filed with the Court of First Instance of Nueva Vizcaya Civil
Case 634 to recover from the spouses Sotero and Encarnacion
Sadorra the aforementioned two parcels of land; they also
caused the annotation of a cautionary notice and notice of lis
pendens over T.C.T. 522.
On November 22, 1955, the complaint was amended
and named additional party-defendants were the children of
Benigno Sadorra by his first marriage. The amended complaint
prayed among others: (1) th at the deeds of sale executed by
Benigno Sadorra be declared null and void; (2) t h a t defendant-
spouses Sotero and Encarnacion Sadorra be directed to yield
the possession of the lands in question; and (3) t ha t said lands
be ordered partitioned among plantiffs and defendants who
are children by the first marriage of Benigno Sadorra in the
proportions provided by law.
During the pendency of Civil Case 634 certain parties
intervened claiming t hat they had purchased part s of the land
covered by T.C.T. 522.
After trial, the lower court rendered judgment and among
other things: (1) declared the deed of sale executed by Benigno
Sadorra to be simulated and fictitious; (2) recognized and upheld
the rights of the intervenor-purchasers who acquired their
portions prior to the registration of the notice of lis pendens on
October 1, 1954, but dismissed the claims of the intervenors who
allegedly bought parts of the land subsequent thereto; and (3)
ordered the partition of the remaining unsold lands between
Isidora Cabaliw, Sotero Sadorra, on one ha nd and the children
by the first marriage of Benigno Sadorra on the other.
From the foregoing decision of the lower court in Civil
Case 634 spouses Sotero and Encarnacion Sadorra appealed to
the Court of Appeals and so did the intervenors whose claims
were dismissed. (CA-G.R. No. 26956-R.) On November 29, 1965,
the appellate court by a vote of 3 to 2 reversed the decision of
the trial court, and dismissed the amended complaint of Isidora
Cabaliw.
Hence, this petition filed by Isidora Cabaliw and her
daughter, Soledad Sadorra, for the Court to review the adverse
judgment of the Court of Appeals.
520
The Supreme Court, speaking through Justice Muñoz

Palma, held:
The Court of Appeals sustained the validity and
efficacy of the deeds of sale executed by Benigno Sadorra
in favor of his son-in-law (Exhibits I and I-1) on the
ground t hat these are public documents and as such are
presumed by law to have been fair and legal; t h at the
vendee Sotero Sadorra is presumed to have acted in good
faith, citing Art. 44, Spanish Civil Code, Art. 627, New
Civil Code; t hat fraud is never presumed, and it is settled
in this jurisdiction t hat strong and convincing evidence is
necessary to overthrow the validity of a n existing public
instrument. The appellate court continued t h at inasmuch
as under the old Civil Code in force a t the time of the sale,
the husband was empowered to dispose of the conjugal
property without the consent of the wife, the sales made by
Benigno Sadorra were valid, and the wife Isidora cannot
now recover the property from the vendee.
The judgment of the Court of Appeals cannot be
sustained.
The facts narrated in the first portion of this Decision
which are not disputed, convincingly show or prove t ha t the
conveyances made by Benigno Sadorra in favor of his son-in-law
were fraudulent. For the heart of the matt er is t h a t about seven
months after a judgment was rendered against him in Civil Case
No. 43192 of the Court of First Instance of Manila and without
paying any part of th at judgment, Benigno Sadorra sold the only
two parcels of land belonging to the conjugal partnership to his
son-in-law. Such a sale even if made for a valuable consideration
is presumed to be in fraud of the judgment creditor who in this
case happens to be the offended wife.
Article 1297 of the old Civil Code (now Art. 1387 of the
New Civil Code) which was the law in force a t the time of the
transaction provides:
“Contracts by virtue of which the debtor alienates
property by gratuitous title are presumed to be made in
fraud of creditors.
“Alienations by onerous title are also presumed
fraudulent when made by persons against whom some
judgment has been rendered in any instance or some writ
of attachment has been issued. The decision or attachment
need not refer to the property alienated and need not have
been obtained by the party seeking rescission.’’ (Emphasis
supplied.)
521
The above-quoted legal provision was totally disregarded

by the appellate court, and there lies its basic error.
We agree with petitioners that the parties here do not stand
in equipoise, for the petitioners have in their favor, by a specific
provision of law, the presumption of fraudulent transaction
which is not overcome by the mere fact t h at the deeds of sale
in question were in the nature of public instruments. As well
said in the dissenting opinion of Justice Magno Gatmaitan, the
principle invoked by the majority opinion t h at to destroy the
validity of a n existing public document “strong and convincing
evidence is necessary” operates “where the action was brought
by one party against the other to impugn the contract . . . but
th at rule can not operate and does not, where the case is one
wherein in the suit is not between the parties inter se but is
one instituted by a third person, not a party to the contract but
precisely the victim of it because executed to his prejudice and
behind his back; neither law, nor justice, nor reason, nor logic,
should so permit, otherwise, in such case, the courts would be
furnishing a most effective shield of defense to the aggressor.”
(pp. 30-31, CA Decision)
Furthermore, the presumption of fraud established by the
law in favor of petitioners is bolstered by other indicia of bad
faith on the part of the vendor and vendee. Thus (1) the vendee
is the son-in-law of the vendor. In the early case of Regalado
vs. Luchsinger & Co., 5 Phil. 625, this Court held t h a t the close
relationship between the vendor and the vendee is one of the
known badges of fraud. (2) At the time of the conveyance, the
vendee, Sotero, was living with his father-in-law, the vendor,
and he knew th at there was a judgment directing the latter to
give a monthly support to his wife Isidora and t h a t his father-
in-law was avoiding payment and execution of the judgment.
(3) It was known to the vendee t h a t his father-in-law
had no properties other th an those two parcels of land
which were being sold to him. The fact t h a t a vendor
transfers all of his property to a third person when there is a
judgment against him is a strong indication of a scheme to
defraud one who may have a valid interest over his properties.
Added to the above circumstances is the undisputed fact
th at the vendee Sotero Sadorra secured the cancellation of the
lis pendens on No. O.C.T. 1, which was annotated in 1940 at
the instance of Isidora Cabaliw, and the issuance of a transfer
certificate of title in his favor, by executing a n affidavit (Exhibit
H) on J u n e 7, 1948, wherein he referred to Isidora as “the late
Isidora Cabaliw’’ when he knew for a fact t h at she was alive,
522
and alleged th at Civil Case 449 of the Court of First Instance

of Nueva Vizcaya was decided in his favor where in t ru t h there
was no such decision because the proceedings in said case
were interrupted by the last world war. Such conduct of Sotero
Sadorra reveals, as stated by the lower court, a n “utter lack of
sincerity and truthfulness” and belies his pretensions of good
faith.
On the p art of the transferee, he did not present satis-
factory and convincing evidence sufficient to overthrow the
presumption and evidence of a fraudulent transaction. His is
the burden of rebutting the presumption of fraud established
by law, and having failed to do so, the fraudulent n ature of the
conveyance in question prevails.
The decision of the Court of Appeals makes mention of Art.
1413 of the old Civil Code (now Art. 166 of the New Civil Code)
which authorizes the husband as administrator to alienate and
bind by onerous title the property of the conjugal partnership
without the consent of the wife, and by reason thereof concludes
th at petitioner Isidora Cabaliw can not now seek annulment
of the sale made by her husband. On this point, counsel for
petitioners rightly claims th at the lack of consent of the wife
to the conveyances made by her husband was never invoked
nor placed in issue before the trial court. What was claimed all
along by plaintiff, Isidora Cabaliw now petitioner, was t h a t the
conveyances or deeds of sale were executed by her husband to
avoid payment of the monthly support adjudged in her favor and
to deprive her of the means to execute said judgment. In other
words, petitioner seeks relief not so much as a n aggrieved wife
but more as a judgment creditor of Benigno Sadorra. Art. 1413
therefore is inapplicable; but even if it were, the result would
be the same because the very article reserves to the wife the
right to seek redress in court for alienations which prejudice her
or her heirs. The undisputed facts before Us clearly show that
the sales made by the husband were merely a scheme to place
beyond the reach of the wife the only properties belonging to the
conjugal partnership and deprive her of what rightly belongs to
her and her only daughter Soledad.
PREMISES CONSIDERED, We find merit to this Petition

for Review and We set aside the decision of the appellate court
for being contrary to the law applicable to the facts of the case.
The decision of the trial court stands affirmed with costs against
private respondents.
So Ordered.
523
It must be observed, however, t h a t the above presumptions

are disputable, and therefore, may be rebutted by satisfactory and
convincing evidence to the contrary. Thus, if it can be established
66
t h a t the transferee acquired the property in good faith, without the

least intention of impairing the judgment obtained by the creditor
against the transferor, and t h a t he paid the purchase price in the
belief t h a t the latter could freely dispose of the said property, the
presumption of fraud is overthrown. 67
Honrado vs. Marcayda, et al.

49 Off. Gaz. 1492, C.A.
This is an action commenced by plaintiff against the
defendants for the rescission of a contract of sale on the ground
t hat such contract was entered into in fraud of creditors. The
records show th at Felipe Lotivio purchased a parcel of land from
Luisa Marcayda for P1,000, although at the time the contract
was executed there was already a judgment in favor of the
plaintiff against the latter with regard to the property and a writ
of attachment h ad already been issued. The plaintiff contends
t hat the sale is fraudulent in accordance with the rule stat ed in
the second paragraph of Art. 1297 (now Art. 1387) of the Civil
Code; the defendant Felipe Lotivio, on the other hand, contends
t hat he is a purchaser in good faith and for value. Consequently,
the questions upon which this case hinges are (1) whether or not
Felipe Lotivio was a purchaser in good faith and for value, and
(2) if he is, whether or not the contract of sale executed
could be rescinded.
Held: “The sale was consummated on Jan u ary 6, 1936, in
consideration of P1,000. Original certificate of title No. 14567
showed th at the land was free from any lien or encumbrance.
Felipe Lotivio was not, under the law, supposed to go farther to
find out whether the land has any other lien not appearing on
the face of the title as held in the cases of Reynes vs. Barrera, 68
Phil. 656; Hernandez vs. Vda. de Salas, 69 Phil. 744; Visayan
Surety and Insurance Corp. vs. Verzosa, 72 Phil. 362. It is well
settled th at when the property sold on execution is registered
under the Torrens system, registration is the operative act
66
Peña vs. Mitchell, 9 Phil. 587 & Streiff vs. Coll. of Customs, 31 Phil. 643; Na-
tional Exchange Co. vs. Katigbak, 54 Phil. 599; Buencamino vs. Bantug, 58 Phil. 521;
Gatchalian vs. Manalo, 68 Phil. 708.
67
Buencamino vs. Bantug, 58 Phil. 521. To the same effect: Peña vs. Mitchell, 9
Phil. 587; Gatchalian vs. Manalo, 68 Phil. 706.
524
th at gives validity to the transfer or creates a lien on the land

and a purchaser on execution is not required to go behind the
registry to determine the condition of the property, and he is
only charged with notice of the burdens of the certificate of title.
To require him to do more is to defeat one of the primary objects
of the Torrens system.
“In the present case, the writ of attachment issued by the
justice of the peace court of Daraga, Albay was not annotated
on the back of the original certificate of title. True enough that
it was filed with the office of the Register of Deeds of Albay,
but such fact is not a notice to the whole world. Consequently,
such unregistered order of attachment does not create any lien
or burden upon the land in question.
“The valuable consideration of P1,000 paid to Luisa
Marcayda by Felipe Lotivio, who does not appear to be her
relative is, in our opinion, not small for the property since its
improvements are assessed at no less th an P800. It is fitting to
apply in this case the principle of ‘innocent purchaser for value’
as declared and applied in the case of Bailon vs. Cacias, et al.,
40 Off. Gaz., p. 1896, August, 1941.
“ ‘According to our Supreme Court in the case of Cui, et
al. vs. Henson, 51 Phil. 600: ‘A purchaser in good faith is one
who buys property of another without notice t ha t some other
person has a right to, or an interest in, such property and pays a
full and fair price for the same, at the time of such purchase, or
before he h as notice of the claim or interest of some other person
in the property. Good faith consists in a n honest intention to
abstain from taking any unconscientious advantage of another.
Good faith is the opposite of fraud and of bad faith and its
nonexistence must be established by competent proofs.’
“Tested by these doctrines, we hold and declare that
defendant Felipe Lotivio was, under the foregoing circumstances,
a purchaser in good faith and for value; and for this reason, we
also hold t h at the presumption of fraud as contemplated in
Article 1297 of the old Civil Code (now Art. 1387 of the new
Civil Code) can be considered overcome and overthrown as held
in the cases of Peña vs. Mitchell, 9 Phil. 587; Guash vs. Espiritu,
1 1 Phil. 184; Kuenkle vs. Watson & Co., 13 Phil. 26; Golinko vs.
Monjardin, 31 Phil. 643; Asia Banking Corp. vs. Corcuera, 51
Phil. 781.
“Therefore, the contract of sale, for the reasons above
stated, is not rescissible.’’
525
Idem; Badges of fraud. — It is not, however, indispensable

t h a t the creditor shall have to depend upon the two presumptions
established in the first and second paragraphs of Art. 1387 in order
to prove the existence of fraud or the intention to defraud. According
to the third paragraph of the same article, the design to defraud
creditors may be proved in any other m anner recognized by the law of
evidence. Thus, in determining whether or not a certain conveyance
68
is fraudulent the question in every case, in the words of Justice

Moreland, is whether the conveyance was a bona fide transaction or
merely a trick or contrivance to defeat creditors. It is not sufficient
t h a t it is founded on a good or valuable cause or consideration or is
made with bona fide intent: it must have both elements. If defective
in either of these particulars, although good between the parties,
it is rescissible as far as the creditors are concerned. The rule is
universal both a t law and in equity t h a t whatever fraud creates
justice will destroy. The test as to whether or not a conveyance is
fraudulent is — does it prejudice the rights of creditors? 69
In the consideration of whether or not certain transfers or

conveyances are fraudulent, the following circumstances have been
denominated by the courts as badges of fraud. 70
(1)The fact t ha t the cause or consideration of the conveyance is

inadequate.
(2)A transfer made by a debtor after suit has been begun and
while it is pending against him.
(3) A sale on credit by a n insolvent debtor.
(4) Evidence of large indebtedness or complete insolvency.
(5)The transfer of all or nearly all of his property by a debtor,
especially when he is insolvent or greatly embarrassed financially.
(6)The fact t h a t the transfer is made between father and
son, when there are present others of the above circumstances.
(7)The failure of the vendee to take exclusive possession of all
the property.
68
Ayles vs. Reyes, 18 Phil. 243.
69
Oria vs. McMicking, 21 Phil. 243.
70
Ibid.
526
Thus, where it is proved t h a t a certain corporation, which is

heavily indebted to a certain bank, sold a large tract of land worth
P400,000 to the vendee for only P36,000 in spite of the fact t h a t at
the time of such sale it did not have any liquidated assets and that
all of its other assets were pledged or mortgaged, some of which were
for far more th an their actual value, such circumstances would be
sufficient to establish the fraudulent character of the conveyance. 71
Consequently, the sale can be set aside by means of a n action for

rescission a t the instance of the creditor. But where the sale is
founded on a fictitious cause or consideration it would be futile for
such creditor to invoke its rescission since such action presupposes
the existence of a valid, not inexistent, contract. The remedy of the
72
creditor in such case would be to ask for a declaration of nullity of

the conveyance.
Similarly, where it is proved t h a t the person to whom the
property conveyed is a son of the transferor or a mother-in-law or a
near relative, coupled with the fact t h a t a t the time of the transfer
or conveyance the said transferor was financially embarrassed
or had no other means with which he could settle his personal
obligations, the weight of evidence would be sufficient to justify a
decree of rescission on the ground of fraud. The evidence becomes
73
more conclusive if the fact of relationship between the vendor

and the vendee is aggravated by the fact t h a t the conveyance was
made in secrecy and for a n inadequate consideration a t a time
when the vendor had no other means with which he could settle
his obligations. It m ust be noted, however, t h a t the mere fact of
74
relationship between vendor and vendee, as when the vendor is the

vendee’s mother, is not in itself a n element of fraud, if the sale was
made for a valuable consideration and said vendor was not a t the
time of the conveyance insolvent. 75
71
Asia Banking Corp. vs. Nable Jose, 51 Phil. 763.
72
Onglengco vs. Ozaeta, 70 Phil. 43.
73
Gaston vs. Hernaez, 58 Phil. 823.
74
Ayles vs. Reyes, 18 Phil. 243; Alpuerto vs. Perez, 38 Phil. 785.
75
Standard Oil Co. vs. Castro, 64 Phil. 716.
527
Rivera vs. Li Tam & Co.

4 SCRA 1072
Rafael Li Tam died intestate, survived by his wife, Marcosa

Rivera, and several children by a Chinese wife. Marcosa filed
a claim for P252,658.33 against the intestate which the court
approved on the strength of a deed wherein the decedent
acknowledged said indebtedness to his wife. Thereafter,
Arminio Rivera, administrator of the estate, proceeded against
the defendant company for a n accounting of the income derived
from the shares of stock owned by the decedent in said company.
In answer, defendant company alleged t h at the decedent was
no longer a stockholder in said company, having transferred
his shares to his children by his Chinese wife. Hence, Rivera
brought this action asking for the rescission of the transfer on
the ground t hat it was made in fraud of creditors.
Held: The fraudulent character of the transfer is clearly
inferable from the facts th at the transferees are the decedents’
own children, th at no consideration was given for the transfer,
t hat the corporation was the business of the decedent, and
t hat he has a n outstanding obligation of more t h an P250,000
with his wife which he had invested in the corporation. And to
complete the fraudulent scheme, the defendants dissolved the
old corporation and formed a new one for no apparent reason. In
view of such fraud, the transfer is, therefore, of no effect.
Idem; id. — Acquisition by third person in

good faith.
— While it is true t h a t the test as to whether or not a
conveyance is fraudulent is to determine whether or not it is
prejudicial to the rights of the creditors, nevertheless, it is also
true t h a t such a test would not be applicable if the conveyance is
made in good faith or with a bona fide intent and for a valuable
cause or consideration. In other words, if the property is acquired
76
by a purchaser in good faith and for value, the acquisition as far as

the law is concerned is not fraudulent. The right of such purchaser
over the property is legally superior to t h a t of any other person
even as against the creditor who is prejudiced by the conveyance.
Consequently, the contract or conveyance is not rescissible. 77
76
Oria vs. McMicking, 21 Phil. 243.
77
See Honrado vs. Marcayda, supra, for definition of “purchaser in good faith and
for value” and also for authorities
528
Idem; id. — Acquisition by third person in bad faith. —

On the other hand, if the property is acquired by one who is not a
purchaser in good faith and for value, it is clear t h a t the contract or
conveyance is rescissible. In such case the creditor who is prejudiced
can still proceed after the property. This is so, even though the said
property may have been transferred or conveyed to other persons
who are not innocent purchasers for value. However, if for any cause
or reason, it should be impossible for the acquirer in bad faith to
retur n the property, he shall indemnify the creditor seeking the
rescission for damages suffered on account of the alienation. If it
happens t ha t there are two or more alienations, the first acquirer
shall be liable first, and so on successively. Thus, if A, against
78
whom a judgment for the payment of a certain debt in favor of X has

been rendered, conveys his only property to B in fraud of X, and B,
who is aware of the fraud, in turn, conveys the property to C, and
the latter, who is also aware of the fraud, also conveys the property
to D, who is a purchaser in good faith and for value, although
the conveyance to D cannot be rescinded, yet X can still proceed
against B for damages suffered by him on account of the fraudulent
alienation, and if he fails to recover he can still proceed against C.
It must be noted, however, t h a t if the reason for the impossibility of
returning the property acquired in bad faith is a fortuitous event,
then under the principle announced in Art. 1174 of the Code, there
can be no liability of the acquirer. 79
Art. 1389. The action to claim rescission must be com-

menced 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. 80
Prescriptive Period. — As a general rule, the action for the

rescission of a contract must be commenced within four years. Under
No. 1 of Art. 1391, this period must be counted from the time of the
termination of the incapacity of the ward; under No. 2, it must be
78
79
80
529
Art. 1389 CONTRACTS
counted from the time the domicile of the absentee is known; under
Nos. 3 and 4 and also under Art. 1382, it must be counted from the
time of the discovery of the fraud. In certain cases of contracts of
sale which are specially declared by law to be rescissible, however,
the prescriptive period for the commencement of the action is six
months or even forty days, counted from the day of delivery.
81
81
Arts. 1543, 1571, 1577, Civil Code.
530
CHAPTER 7
VOIDABLE CONTRACTS
Voidable Contracts in General. — Voidable contracts may

be defined as those in which all of the essential elements for validity
are present, although the element of consent is vitiated either by
lack of legal capacity of one of the contracting parties, or by mistake,
violence, intimidation, undue influence, or fraud. 1
The most essential feature of a voidable contract is t h a t it is

binding until it is annulled by a competent court. Consequently,
once it is executed there are only two possible alternatives left to the
party who may invoke its voidable character — to attack its validity
or to convalidate it either by ratification or by prescription. Its
validity may be attacked either directly by means of a proper action
in court or indirectly by way of defense. The action itself is called
annulment in order to distinguish it from a n action for the rescission
of rescissible contracts or from a n action for the declaration of
absolute nullity or inexistence of void or inexistent contracts, while
the defense itself is called annulability or relative nullity in order
to distinguish it from the defense of absolute nullity or inexistence
in void or inexistent contracts or the defense of unenforceability in
unenforceable contracts. 2
Idem; Characteristics. — Voidable contracts possess the

following characteristics:
(1)Their defect consists in the vitiation of consent of one of
the contracting parties.
1
See Art. 1390, Civil Code, and Art. 1300, Spanish Civil Code.
2
Castan calls the defect of voidable contracts (contratas anulables) “anulabi-
lidado nulidad relativa’’ in order to distinguish it from the defect of void contracts
(contratos inexistentes) which he calls “nulidad absoluta.’’ Derecho Civil, Vol. 3, 7th
Ed., pp. 409-415.
531
CONTRACTS
(2)They are binding until they are annulled by a competent

court. 3
(3)They are susceptible of convalidation by ratification or by

prescription. 4
Their defect or voidable character cannot be invoked by third

persons. 5
Idem; Distinguished from rescissible contracts. — Void-

able and rescissible contracts may be distinguished from each other
in the following ways:
(4)In a voidable contract the defect is intrinsic because it
consists of a vice which vitiates consent, while in a rescissible
contract the defect is external because it consists of damage or
prejudice either to one of the contracting parties or to a third person. 6
(5)In the former the contract is voidable even if there is no

damage or prejudice, while in the latter the contract is not
rescissible if there is no damage or prejudice. 7
(6)In the former the annulability of the contract is based on

the law, while in the latter the rescissibility of the contract is based
on equity. Hence, annulment is not only a remedy but a sanction,
while rescission is a mere remedy. Public interest, therefore,
predominates in the first, while private interest predominates in the
second. 8
(7)The causes for annulment are different from the causes for
rescission. 9
(8)The former is susceptible of ratification, while the latter is

not.
10
(9)Annulment may be invoked only by a contracting party,

while rescission may be invoked either by a contracting party or by
a third person who is prejudiced. 11
3
4
Arts. 1390, 1391, 1392-1396, Civil Code.
5
6
7
Ibid.
8
9
10
Ibid.
11
532
VOIDABLE CONTRACTS Art. 1390
Art. 1390. The following contracts are voidable or an-

nullable, even though there may have been no damage to the
contracting parties:
(1)Those where one of the parties is incapable of giv-
ing consent to a contract;
(2)Those where the consent is vitiated by mistake, vio-
lence, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by
a proper action in court. They are susceptible of ratification. 12
Contracts Which Are Voidable. — The two general classes

of voidable contracts enumerated in Art. 1390 of the Code have
already been discussed in detail in our discussion of consent as an
essential requisite of contracts. Hence, it is unnecessary to discuss
13
them again in this chapter.

It must be observed that in a voidable contract all of the essential
requisites for validity are present, although the requisite of consent
is defective because one of the contracting parties does not possess
the necessary legal capacity, or because it is vitiated by mistake,
violence, intimidation, undue influence or fraud. Consequently, if
consent is absolutely lacking or simulated, the contract is inexistent,
not voidable. 14
It must also be observed t h a t even though there may have been

no damage to the contracting parties, the contracts enumerated in
Art. 1390 are still voidable. Hence, whether a contract which the law
considers as voidable has already been consummated or is merely
executory is immaterial; it can always be annulled by a proper
action in court.
The following decision penned by Justice Abad Santos is quite
interesting:
12
New provision superseding Art. 1300, Spanish Civil Code.
13
See comments on Arts. 1327-1329, with respect to legal incapacity, and on
Arts. 1330-1344, with respect to mistake, violence, intimidation, undue influence,
and fraud.
14
Arts. 1345, 1409, No. 2, Civil Code.
533
Art. 1390 CONTRACTS
Felipe vs. Heirs of Aldon

120 SCRA 628
Maximo Aldon married Gimena Almosara in 1936. The

spouses bought several pieces of land sometime between 1948
and 1950. In 1960-62, the lands were divided into three lots,
1370, 1371 and 1415 of the San Jacinto Public Land Subdivision,
San Jacinto, Masbate.
In 1951, Gimena Almosara sold the lots to the spouses
Eduardo Felipe and Hermogena V. Felipe. The sale was made
without the consent of her husband, Maximo.
On April 26, 1976, the heirs of Maximo Aldon, namely his
widow Gimena and their children Sofia and Salvador Aldon,
filed a complaint in the Court of First Instance of Masbate
against the Felipes. The complaint which was docketed as Civil
Case No. 2372 alleged th at the plaintiffs were the owners of Lots
1370, 1371 and 1415; t hat they had orally mortgaged the same
to the defendants; and a n offer to redeem the mortgage had been
refused so they filed the complaint in order to recover the three
parcels of land.
The defendants asserted th at they had acquired the lots
from the plaintiffs by purchase and subsequent delivery to
them. The trial court sustained the claim of the defendants and
rendered the following judgment:
“a. declaring the defendants to be the lawful owners of
the property subject of the present litigation;
b.declaring the complaint in the present action to be
without merit and is therefore hereby ordered dismissed;
c.ordering the plaintiffs to pay to the defendants the
amount of P2,000.00 as reasonable attorney’s fees and to pay
the costs of the suit.’’
The plaintiffs appealed the decision to the Court of Appeals
which rendered the following judgment:
“PREMISES CONSIDERED, the decision appealed
from is hereby REVERSED and SET ASIDE, and a new one
is hereby RENDERED, ordering the defendants-appellees
to surrender the lots in question as well as the plaintiffs’-
appellants’ muniments of title thereof to said plantiffs-
appellants, to make an accounting of the produce derived
from the lands including expenses incurred since 1951,
and to solidarily tu rn over to the plaintiffs-appellants the
NET monetary value of the profits, after deducting the
534
su m of P1,800.00. No attorney’s fees nor moral damages

are awarded for lack of any legal justification; therefore,
No costs.”
The ratio of the judgment is stated in the following
paragraphs of the decision penned by Justice Edgardo L. Paras
with the concurrence of Justices Venicio Escolin and Mariano A.
Zosa:
“One of the principal issues in the case involves the
nature of the aforementioned conveyance or transaction,
with appellants claiming the same to be a n oral contract of
mortgage or antichresis, the redemption of which could be
done anytime upon repayment of the P1,800.00 involved
(incidentally the only thing written about the transaction
is the aforementioned receipt re the P1,800). Upon the
other hand, appellees claim t hat the transaction was one of
sale, accordingly, redemption was improper. The appellees
claim th at plaintiffs never conveyed the property because
of a loan or mortgage or antichresis and t ha t wha t really
transpired was the execution of a contract of sale through
a private document designated as a ‘Deed of Purchase
and Sale’ (Exhibit 1), the execution having been made
by Gimena Almosara in favor of appellee Hermogena V.
Felipe.
“After a study of this case, we have come to the
conclusion th at the appellants are entitled to recover the
ownership of the lots in question. We so hold because
although Exh. 1 concerning the sale made in 1951 of the
disputed lots is, in Our opinion, not a forgery the fact is
th at the sale made by Gimena Almosara is invalid, having
been executed without the needed consent of her husband,
the lots being conjugal. Appellees’ argument t h at this
was a n issue not raised in the pleadings is baseless,
considering the fact th at the complaint alleges t h a t the
parcels were purchased by plaintiff Gimena Almosara and
her late husband Maximo Aldon’ (the lots having been
purchased during the existence of the marriage, the same
are presumed conjugal) and inferentially, by force of law,
could not be disposed of by a wife without her husband’s
consent.”
The defendants are now the appellants in this petition
for review. They invoke several grounds in seeking the reversal
of the decision of the Court of Appeals. One of the grounds is
factual in nature; petitioners claim t hat “respondent Court of
Appeals has found as a fact th at the ‘Deed of Purchase and Sale’
535
Art. 1390 CONTRACTS
executed by respondent Gimena Almosara is not a forgery and

therefore its authenticity and due execution is already beyond
question.’’ We cannot consider this ground because as a rule
only questions of law are reviewed in proceedings under Rule
45 of the Rules of Court subject to well-defined exceptions not
present in the instant case.
The legal ground which deserves attention is the legal
effect of a sale of lands belonging to the conjugal partnership
made by the wife without the consent of the husband.
It is useful at this point to re-state some elementary rules:
The husband is the administrator of the conjugal partnership.
(Art. 165, Civil Code) Subject to certain exceptions, the husband
cannot alienate or encumber any real property of the conjugal
partnership without the wife’s consent. (Art. 166, Idem.) And
the wife cannot bind the conjugal partnership without the
husband’s consent, except in cases provided by law. (Art. 172,
Idem.)
In the instant case, Gimena, the wife, sold lands belonging
to the conjugal partnership without the consent of the husband
and the sale is not covered by the phrase “except in cases
provided by law.” The Court of Appeals described the sale as
“invalid” — a term which is imprecise when used in relation
to contracts because the Civil Code uses specific names in
designating defective contracts, namely rescissible (Arts. 1380,
et seq.), voidable (Arts. 1390, et seq.), unenforceable (Arts. 1403,
et seq.), and void or inexistent (Arts. 1409, et seq.)
The sale made by Gimena is certainly a defective contract
but of what category? The answer: it is a voidable contract.
According to Art. 1390 of the Civil Code, among the voidable
contracts are “Those where one of the parties is incapable of
giving consent to the contract.” (Par. 1.) In the i nst ant case
Gimena had no capacity to give consent to the contract of sale.
The capacity to give consent belonged not even to the husband
alone but to both spouses.
The view t hat the contract made by Gimena is a voidable
contract is supported by the legal provision t h at contracts
entered by the husband without the consent of the wife when
such consent is required, are annullable a t her instance
during the marriage and within ten years from the transaction
questioned. (Art. 173, Civil Code.)
Gimena’s contract is not rescissible for in such
the essential
contractelements
all are untainted but Gimena’s consent was
536
tainted. Neither can the contract be classified as unenforceable

because it does not fit any of those described in Art. 1403 of the
Civil Code. And finally, the contract cannot be void or inexistent
because it is not one of those mentioned in Art. 1409 of the Civil
Code. By process of elimination, it must perforce be a voidable
contract.
The voidable contract of Gimena was subject to annulment
by her husband only during the marriage because he was the
victim who had an interest in the contract. Gimena, who was the
party responsible for the defect, could not ask for its annulment.
Their children could not likewise seek the annulment of the
contract while the marriage subsisted because they merely had
an inchoate right to the lands sold.
The termination of the marriage and the dissolution of
the conjugal partnership by the death of Maximo Aldon did not
improve the situation of Gimena. What she could not do during
the marriage, she could not do thereafter.
The case of Sofia and Salvador Aldon is different. After
the death of Maximo they acquired the right to question the
defective contract insofar as it deprived them of their hereditary
rights in their father’s share in the lands. The father’s share
is one-half (1/2) of the lands and their share is two-thirds (2/3)
thereof, one-third (1/3) pertaining to the widow.
The petitioners have been in possession of the lands since
1951. It was only in 1976 when the respondents filed action to
recover the lands. In the meantime, Maximo Aldon died.
Two questions come to mind, namely: (1) Have the
petitioners acquired the lands by acquisitive prescription? (2)
Is the right of action of Sofia and Salvador Aldon barred by the
statute of limitations?
Anent the first question, We quote with approval the fol-
lowing statement of the Court of Appeals:
“We would like to state further t h at appellees
[petitioners herein] could not have acquired ownership
of the lots by prescription in view of what we regard as
their bad faith. This bad faith is revealed by testimony
to the effect th at defendant-appellee Vicente V. Felipe
(son of appellees Eduardo Felipe and Hermogena V.
Felipe) attempted in December in 1970 to have Gimena
Almosara sign a ready-made document purporting to sell
the disputed lots to the appellees. This actuation clearly
indicated th at the appellees knew the lots did not still
537
Art. 1390 CONTRACTS
belong to them, otherwise, why were they interested in a

document of sale in their favor? Again why did Vicente
V. Felipe tell Gimena th at the purpose of the document
was to obtain Gimena’s consent to the construction of an
irrigation pump on the lots in question? The only possible
reason for purporting to obtain such consent is that the
appellees knew the lots were not theirs. Why was there
an attempted improvement (the irrigation tank) only in
1970? Why was the declaration of property made only in
1974? Why were no attempts made to obtain the husband’s
signature, despite the fact t hat Gimena and Hermogena
were close relatives? All these indicate the bad faith of the
appellees. Now then, even if we were to consider appellees’
possession in bad faith as possession in the concept of
owners, this possession at the earliest started in 1951,
hence the period for extraordinary prescription (30 years)
had not yet lapsed when the present action was instituted
on April 26, 1976.
As to the second question, the children’s cause of action
accrued from the death of their father in 1959 and they had
thirty (30) years to institute it (Art. 1141, Civil Code). They filed
action in 1976 which is well within the period.
WHEREFORE, the decision of the Court of Appeals is
hereby modified. Judgment is entered awarding to Sofia and
Salvador Aldon their shares of the lands as stated in the body of
this decision; and the petitioners as possessors in bad faith shall
make an accounting of the fruits corresponding to the share
aforementioned from 1959 and solidarily pay their value to Sofia
and Salvador Aldon; costs against the petitioners.
SO ORDERED.
Note: There are others who believe t h at when a wife sells
or encumbers conjugal land without the consent of her husband,
the contract is unenforceable, not voidable. According to them,
the defect of the contract consists of lack of authority, not
incapacity. Therefore, No. (1) of Art. 1403 of the Civil Code is
applicable.
In the case of Guiang vs. Court of Appeals (June 26, 1998,
291 SCRA 372), the Supreme Court clearly stated t h at Article
1390, par. 2, refers to contracts visited by vices of consent,
i.e., contracts which were entered into by a person whose
consent was obtained and vitiated through mistake, violence,
intimidation, undue influence or fraud. In the said case, private
respondent’s consent to the contract of sale of their conjugal
538
property was totally inexistent or absent. x x x This being the

case, said contract properly falls within the ambit of Article
124 of the Family Code, which was correctly applied by the two
lower courts. x x x In the event th at one spouse is incapacitated
or otherwise unable to participate in the administration of the
conjugal properties, the other spouse may assume sole powers
of administration. These powers do not include the powers of
disposition or encumbrance which must have the authority of the
court or the written consent of the other spouse. In the absence
of such authority or consent, the disposition or encumbrance
shall be void. However, the transaction shall be construed as
a continuing offer on the part of the consenting spouse and the
third person, and may be perfected as a binding contract upon
the acceptance by the other spouse or authorization by the court
before the offer is withdrawn by either or both offerors. (165a)
Art. 1391. The action for annulment shall be brought

within four years.
This period shall begin: In cases of intimidation, violence
or undue influence, from the time the defect of the consent
ceases.
In case of mistake or fraud, from the time of the discovery
of the same.
And when the action refers to contracts entered into
by minors or other incapacitated persons, from the time the
guardianship ceases. 15
Prescriptive Period. — According to Art. 1391, the action for

annulment must be commenced within a period of four years. If the
action refers to contracts entered into by incapacitated persons, the
period shall be counted from the time the guardianship ceases; if it
refers to those where consent is vitiated by violence, intimidation
or undue influence, the period shall be counted from the time such
violence, intimidation or undue influence ceases or disappears; and
if it refers to those where consent is vitiated by mistake or fraud,
the period shall be counted from the time of the discovery of such
mistake or fraud. If the action is not commenced within such period,
the right of the party entitled to institute the action shall prescribe. 16
15
16
Naval vs. Enriquez, 3 Phil. 699; Ullman vs. Hernaez, 30 Phil. 69;
vs. Villanueva,
Villanueva 91 Phil. 43.
539
Art. 1391 CONTRACTS
Carantes vs. Court of Appeals

76 SCRA 514
This is an appeal by certiorari from the decision of the

Court of Appeals in CA-G.R. 36078-R promulgated on December
23, 1970 reversing the judgment of the Court of First Instance
of Baguio City, Branch II, in Civil Case 804, and from the
appellate court’s resolution dated March 7, 1971 denying herein
petitioner’s motion for reconsideration.
Mateo Carantes was the original owner of Lot No. 44
situated at Loakan, Baguio City, as evidenced by Original
Certificate of Title No. 3 issued in his na me on September 22,
1910 by virtue of Free P aten t No. 5 granted to him on the same
date. In 1913 Mateo died. He was survived by his widow Ogasia
and six children, namely, Bilad, Crispino, Maximino, Apung
and Sianang, all surnamed Carantes.
In 1930, construction of the Loakan Airport was commenced
by the Government. Because a portion of Lot No. 44 was needed
for the landing field, the Government instituted proceedings
(Civil Case 338) for its expropriation. For the purpose, Lot No.
44 was subdivided into Lots Nos. 44-A, 44-B, 44-C, 44-D, and
44-E. The portion expropriated by the Government was Lot No.
44-A.
In 1933, Special Proceedings Nos. 409 to 413 were filed
with the court for the settlement of the estate of the late
Mateo Carantes. One of his sons, herein petitioner Maximino
Carantes, was appointed and qualified as judicial administrator
of the estate. In his capacity as administrator, Maximino filed
on Ju n e 20, 1939 a project of partition wherein he listed as the
heirs of Mateo Carantes who were entitled to inherit the estate,
himself and his brothers and sisters, or the latter’s surviving
children. Apparently because negotiations were, by t h at time,
under way for the purchase by the Government of Lots Nos.
44-B and 44-C for the purpose of widening the Loakan Airport,
the only property listed by Maximino in the project of partition
was the remaining portion of Lot No. 44.
On October 23, 1939 a deed denominated “Assignment of
Right to Inheritance” was executed by four of Mateo Carantes’
children, namely, Bilad, Sianang, Lauro and Crispino, and
the heirs of Apung Carantes (also a son of Mateo who died in
1923), namely, Pitag, Bill, Alson, Eduardo and Juan, assigning
to Maximino Carantes their rights to inheritance in Lot No.
44. The stated monetary consideration for the
assignment was the document contains a recital to the effect
P1.00. However,
540
th at the said lots, “by agreement of all the direct heirs and heirs
by representation of the deceased Mateo Carantes as expressed
and conveyed verbally by him during his lifetime, rightly and
exclusively belong to the particular heir, Maximino Carantes,
now and in the past in the exclusive, continuous, peaceful and
notorious possession of the same for more t h an ten years.”
On the same date Maximino Carantes sold to the
Government Lots Nos. 44-B and 44-C and divided the proceeds
of the sale among himself and the other heirs of Mateo.
On February 6, 1940, upon joint petition of the heirs

of Mateo Carantes, the Court of First Instance of Baguio
City issued an Order in another proceeding — Administrative
Case No. 368 — cancelling O.C.T. No. 3. P u r su a n t thereto the
said title was cancelled, and in its place Transfer Certificate of
Title No. 2533 was issued in the joint names of the five children
of Mateo Carantes and the children of Apung Carantes
(representing their deceased father) as co-owners pro
indiviso, or one-sixth share for each child.
On March 16, 1940, Maximino Carantes registered the

deed of “Assignment of Right to Inheritance.’’ Accordingly,
T.C.T. No. 2533 in the names of the heirs was
cancelled, and in lieu thereof Transfer Certificate of Title No.
2540 was issued on the same date in the name of Maximino
Carantes. Also on the same date, Maximino, acting as exclusive
owner of the land covered by T.C.T. No. 2540, executed a
formal deed of sale in favor of the Government over Lots Nos.
44-B and 44-C.
On February 21, 1947, as a result of the approval of

the Subdivision Survey Plan psd-16786, and pursuant to the
deed of sale executed in 1940 by Maximino Carantes in favor
of the Government, T.C.T. No. 2540 in Maximino’s na me was
cancelled, and in lieu thereof Transfer Certificate of Title No.
T-98, covering Lots Nos. 44-A, 44-B and 44-C, was issued in the
name of the Government, while Transfer Certificate of Title No.
T-99, covering the remaining Lots Nos. 44-D (100,345 square
meters) and 44-E (10,070 square meters) was issued in the name
of Maximino Carantes, who has up to the present remained the
registered owner of said lots.
On September 4, 1958, the present complaint was filed by

three children of the late Mateo Carantes, namely, Bilad, Lauro
and Crispino, and by some of the surviving heirs of Apung and of
Sianang
was named(also childrendefendant,
principal of Mateo Carantes).
and some ofMaximino
the heirs Carantes
of Apung
541
Art. 1391 CONTRACTS
and Sianang were impleaded as parties-defendants in view of

their alleged reluctance to join as parties-plaintiffs.
In their complaint, the plaintiffs alleged inter alia that
they and/or their predecessors-in-interest executed the deed of
“Assignment of Right to Inheritance” on October 23, 1939, only
because they were made to believe by the defendant Maximino
Carantes th at the said instrument embodied the understanding
among the parties t hat it merely authorized the defendant
Maximino to convey portions of Lot No. 44 to the Government in
their behalf to minimize expenses and facilitate the transaction;
and th at it was only on February 18, 1958, when the plaintiffs
secured a copy of the deed, t hat they came to know t h a t the
same purported to assign in favor of Maximino their rights to
inheritance from Mateo Carantes. The plaintiffs prayed that
the deed of “Assignment of Right to Inheritance” be declared
null and void; t hat Lots Nos. 44-D and 44-E covered by T.C.T.
No. T-99 be ordered partitioned into six (6) equal shares and
the defendant Maximino Carantes be accordingly ordered to
execute the necessary deeds of conveyance in favor of the other
distributees; and th at the said defendant be ordered to pay the
plaintiffs the sum of P1,000 as attorney’s fees and the sum of
P200 as costs of suit.
After trial, the court rendered its decision on January
28, 1965. It was the trial court’s opinion t ha t since a n action
based on fraud prescribes in four years from the discovery of
the fraud, and in this case the fraud allegedly perpetrated by
the defendant Maximino Carantes must be deemed to have been
discovered on March 16, 1940 when the deed of assignment was
registered, the plaintiffs’ right of action had already prescribed
when they filed the action in 1958; and even assuming t h at the
land remained the common property of the plaintiffs and the
defendant Maximino Carantes notwithstanding the execution
of the deed of assignment, the co-ownership was completely
repudiated by the said defendant by performance of several
acts, the first of which was his execution of a deed of sale in
favor of the Government on October 23, 1939, hence, ownership
had vested in the defendant Maximino Carantes by acquisitive
prescription. The court accordingly dismissed the complaint. It
likewise dismissed the counter claim.
The plaintiffs moved for reconsideration. Their motion
having been denied in an Order dated March 8, 1965, they
appealed to the Court of Appeals.
As adverted to above, the Court of Appeals
judgment
reversed
of thethe
trial court, hence the present recourse.
542
Speaking through Chief Justice Fred Ruiz Castro, the

Supreme Court held:
“We do not agree with the respondent court’s legal

conclusion t hat the deed of “Assignment of Right to
Inheritance’’ is void ab initio and inexistent on the grounds
th at real consent was wanting and the consideration of
P1.00 is so shocking to the conscience t h a t there was in
fact no consideration, hence, the action for the declaration
of the contract’s inexistence does not prescribe pursuant to
Article 1410 of the new Civil Code.
“Article 1409(2) of the New Civil Code relied upon by
the respondent court provides th at contracts “which are
absolutely simulated or fictitious” are inexistent and void
from the beginning. The basic characteristic of simulation
is the fact t hat the apparent contract is not really desired
or intended to produce legal effects or in any way alter the
juridical situation of the parties.
“The respondents’ action may not be considered
as one to declare the inexistence of a contract for lack of
consideration. It is total absence of cause or consideration
th at renders a contract absolutely void and inexistent. In
the case at bar, consideration was not absent. The sum of
P1.00 appears in the document as one of the considerations
for the assignment of inheritance. In addition — and
this is of great legal import — the document recites that
the decedent Mateo Carantes had, during his lifetime,
expressed to the signatories to the contract t h a t the
property sub matter thereof rightly and exclusively
belonged to the petitioner Maximino Carantes. This
acknowledgment by the signatories definitely constitutes
valuable consideration for the contract.
“The present action is one to annul the contract
entitled “Assignment of Right to Inheritance” on the
ground of fraud.
“Article 1390 of the new Civil Code provides that
a contract “where the consent is vitiated by mistake,
violence, intimidation, undue infuence or fraud,” is
voidable or annullable. Even Article 1359, which deals on
reformation of instruments, provides in its paragraph 2
th at ‘If mistake, fraud, inequitable conduct, or accident
has prevented a meeting of the minds of the parties, the
proper remedy is not reformation of the instrument but
annulment of the contract.’ When the consent to a contract
543
Art. 1391 CONTRACTS
was fraudulently obtained, the contract is voidable. Fraud

or deceit does not render a contract void ab initio, and can
only be a ground for rendering the contract voidable or
annullable pursuant to Article 1390 of the new Civil Code
by a proper action in court.
“The present action, being one to annul a contract
on the ground of fraud, its prescriptive period is four years
from the time of the discovery of the fraud.
“The next question t hat must be resolved is: from
what time must fraud, assuming t h at there was fraud,
be deemed to have been discovered in the case a t bar?
From February, 1958, when according to the private
respondents, and as found by the respondent court, the
private respondents actually discovered t h a t they were
defrauded by the petitioner Maximino Carantes when
rumors spread th at he was selling the property for half a
million pesos? Or from March 16, 1940, when, as admitted
by the parties and found by both the trial court and the
respondent court, the deed of “Assignment of Right to
Inheritance” was registered by the petitioner in the Office
of the Register of Deeds?
“The weight of authorities is to the effect t h at the
registration of a n instrument in the Office of the Register
of Deeds constitutes constructive notice to the whole
world, and, therefore, discovery of the fraud is deemed to
have taken place at the time of the registration. In this
case the deed of assignment was registered on March 16,
1940, and in fact on the same date T.C.T. No. 2533 in the
names of the heirs of Mateo Carantes was cancelled, and
T.C.T. No. 2540 in the name of the petitioner was
issued in lieu thereof. The four-year period within
which the private respondents could have filed the
present action consequently commenced on March 16,
1940; and since they filed it only on September 4, 1958, it
follows th at the same is barred by the stat ut e of
limitations.”
Should the defense also prescribe within the same period as

the action for annulment? Although Art. 1391 speaks only of the
action, Spanish commentators advance the view t h a t the defense
shall also prescribe after the lapse of four years, since the basis of
the action and the basis of the defense are identical. In Braganza 17
17
3 Castan, 7th Ed., pp. 415-416, citing Manresa, De Buen a nd Ramos.
544
vs. Villa Abrille, however, the Supreme Court declared t h a t “there

18
is reason to doubt the pertinency of the period fixed by Art. 1301

— now Art. 1391 of the Civil Code where minority is set up only as
a defense to a n action, without the minors asking for any positive
relief from the contract.” Although this statement in the decision is
not controlling because it is based on a n assumption, nevertheless,
we believe t h a t this view is more just and logical.
It is interesting to note t h a t the above aspect of the law was
taken up in the Bar Examinations of 1979. Thus —
Problem — Mrs. S borrowed P20,000.00 from PG. She

and her 19-year old son, Mario, signed the promissory note for
the loan, which note did not say anything about the capacity of
the signers. Mrs. S made partial payments little by little. After
seven (7) years, she died leaving a balance of P10,000.00 on the
note. PG demanded payment from Mario who refused to pay.
When sued for the amount, Mario raised the defense: t h at he
signed the note when he was still a minor. Should the defense
be sustained? Why?
Answer No. 1 — The defense should be sustained. Mario
cannot be bound by his signature in the promissory note. It must
be observed th at the promissory note does not say anything
about the capacity of the signers. In other words, there is no
active fraud or misrepresentation; there is merely silence or
constructive fraud or misrepresentation. It would have been
different if the note says th at Mario is of age. The principle of
estoppel would then apply. Mario would not be allowed to invoke
the defense of minority. The promissory note would then have
all the effects of a perfectly valid note. Hence, as far as Mario’s
share in the obligation is concerned, the promissory note is
voidable because of minority or non-age. He cannot, however, be
absolved entirely from monetary responsibility. Under the Civil
Code, even if his written contract is voidable because of minority
he shall make restitution to the extent t ha t he may have been
benefited by the money received by him (Art. 1399, Civil Code).
True, more th an four years have already elapsed from the time
th at Mario had attained the age of 21. Apparently, his right
to interpose the defense has already prescribed. It h as been
held, however, t hat where minority is used as a defense and
no positive relief is prayed for, the four-year period (Art. 1391,
18
105 Phil. 456.
545
Civil Code) does not apply. Here, Mario is merely interposing

his minority as a n excuse from liability. (Braganza vs. Villa
Abrille, 105 Phil. 456.)
Answer No. 2 — The defense should not be sustained. It
must be noted t hat the action for annulment was instituted by
PG against Mario when the latter was already 26 years old.
Therefore, the right of Mario to invoke his minority as a defense
has already prescribed. According to the Civil Code, actions for
annulment of voidable contracts shall prescribe after four years.
In the case of contracts which are voidable by reason of minority
or incapacity, the four-year period shall be counted from the
time the guardianship ceases (Art. 1391, Civil Code). The same
rule should also be applied to the defense. In the i nstant case,
since more th an four years already elapsed from the time Mario
had attained the age of 21, therefore, he can no longer interpose
his minority as a defense. It would have been different if four
years had not yet elapsed from the time Mario had attained the
age of 21. Since there was no active fraud or misrepresentation
on his part at the time of execution of the promissory note, it
is clear t hat the contract is voidable as far as he is concerned.
In such case, the defense of minority should then be sustained.
(Braganza vs. Villa Abrille, 105 Phil. 456.)
Art. 1392. Ratification extinguishes the action to annul a

voidable contract. 19
Art. 1393. Ratification may be effected expressly or

tacitly. It is understood that there is a tacit ratification if,
with knowledge of the reason which renders the contract
voidable and such reason having ceased, the person who has
a right to invoke it should execute an act which necessarily
implies an intention to waive his right. 20
Art. 1394. Ratification may be effected by the guardian

of the incapacitated person. 21
Art. 1395. Ratification does not require the conformity

of the contracting party who has no right to bring the action
for annulment. 22
19
Art. 1309, Spanish Civil Code, in
modified form. 20Art. 1311, Spanish Civil Code, in
modified form. 21New provision.
22
546
Art. 1396. Ratification cleanses the contract from all its

defects from the moment it was constituted. 23
Concept of Ratification. — Besides prescription, the action

for annulment of a voidable contract may also be extinguished by
ratification. 24
Ratification or confirmation as it is known in the Spanish Civil

Code is defined as the act or means by virtue of which efficacy is
given to a contract which suffers from a vice of curable nullity. 25
Requisites of Ratification. — Ratification or confirmation

requires the concurrence of the following requisites: 26
First: The contract should be tainted with a vice which is

susceptible of being cured.
Second: The confirmation should be effected by the person who
is entitled to do so under the law.
Third: It should be effected with knowledge of the vice or defect
of the contract.
Fourth: The cause of the nullity or defect should have already
disappeared.
The first requisite of confirmation is t h a t the contract should be
tainted with a vice which is susceptible of being cured. It is evident
t h a t confirmation presupposes the existence of a vice in the contract
because otherwise it would not have any object. Furthermore, such
vice should be susceptible of being cured because otherwise the
contract would be void or inexistent and, therefore, not susceptible
of confirmation. 27
The second requisite is t h a t the confirmation should be

effected only by the person who is entitled to do so under the law.
This is implied from the provisions of Arts. 1394 and 1395. Hence,
if the contract was entered into by a n incapacitated person, the
confirmation can be effected only by such person upon attaining or
23
24
Art. 1392, Civil Code. For a third mode of extinguishing the action,
see Art.
1401, Civil Code.
25
27
8 Manresa,
26 5th Ed.,
3 Castan, 7th Bk.
Ed., 2,p. pp.
419;668-670.
8 Manresa, 5th Ed., 2, pp. 668-671.
547
Art. 1396 CONTRACTS
regaining capacity or by his guardian if he has not yet attained or

regained capacity, and if the contract was executed through mistake,
violence, intimidation, undue influence, or fraud, it can be effected
only by the innocent party. 28
The third requisite is t h a t the confirmation should be effected

with knowledge of the vice or defect of the contract. This is clear
from the provision of Art. 1393. Since confirmation is above all a
form of expressing the will, as such it requires, independently of the
act to which it refers, the same conditions of freedom, knowledge
and clarity which consent also requires, although it does not require
the conformity of the other party who has no right to invoke the
nullity of the contract. Consequently, confirmation may also be
invalidated by mistake, violence, intimidation, undue influence, or
fraud. It must be noted, however, t h a t the contract may be
29
tainted with several vices, such as when it has been executed

through mistake and fraud. In such case, if the person entitled to
effect the confirmation ratifies or confirms the contract with
knowledge of the mistake, but not of the fraud, his right to ask for
annulment is not extinguished thereby since the ratification or
confirmation has only purged the contract of mistake, but not of
fraud. 30
The fourth requisite is t h a t the cause of nullity should have

already ceased or disappeared because otherwise the act of confir-
mation would also suffer from the very vice or defect which it seeks
to cure. It must be observed, however, t h a t in the case of contracts
31
entered into by incapacitated persons, this is not indispensable in

a sense, because even while the incapacity continues to exist, the
confirmation may be effected by the guardian of the incapacitated
person. 32
Forms of Ratification. — There is no special form required

for confirmation, but, as the law provides, it may be effected
expressly or tacitly. The first is not defined in the Code, but,
undoubtedly, there is an express confirmation if, with
knowledge of the reason which renders the contract voidable and
such reason having ceased, the person who has a right to invoke
it should expressly declare
Arts. 1394-1395, Civil Code. See 3 Castan, 7th Ed., p. 419.

28

29
32
30
Ibid., p. 672.
31
548
his desire to convalidate it, or what amounts to the same thing,

to renounce his right to annul the contract. On the other hand,
33
there is a tacit confirmation, if, with knowledge of the reason which

renders the contract voidable and such reason having ceased, the
person who has a right to invoke it should execute a n act which
necessarily implies a n intention to waive his right. 34
Thus, where it is established t h a t a minor who had entered

into a contract of sale, not only failed to repudiate it upon reaching
the age of majority, but also disposed of the greater part of the
proceeds after he became of age and after he had knowledge of the
facts which he now seeks to disaffirm, it was held t h a t there was a
tacit ratification or confirmation of the contract. Similarly, if the
35
person who can effect the confirmation, instead of demanding the

annulment of a contract of sale, should proceed to collect the greater
part of the purchase price, as set out in a promissory note, it is clear
t h a t there is already a tacit confirmation of the contract. 36
Effects of Ratification. — The effects of ratification or

confirmation are clearly pointed out in Arts. 1392 and 1396. In the
first place, ratification extinguishes the action to annul the contract;
and in the second place, it cleanses the contract of its defects from
the moment it was constituted. 37
Art. 1397. The action for the annulment of contracts

may be instituted by all who are thereby obliged principally
or subsidiarily. However, persons who are capable cannot
allege the incapacity of those with whom they contracted;
nor can those who exerted intimidation, violence, or undue
influence, or employed fraud, or caused mistake base their
action upon these flaws of the contract. 38
Who May Institute Action. — From Art. 1397 of the Code it

can be inferred t h a t two different requisites are required to confer
the necessary capacity for the exercise of the action for annulment.
33
34
35
Uy Soo Lim vs. Tan Unchuan, 38 Phil. 552.
36
Tacalinar vs. Corro, 34 Phil. 8898.
37
Arts. 1392, 1396, Civil Code; 3 Castan, 7th Ed., p. 420.
38
549
Art. 1397 CONTRACTS
The first requisite is t h a t the plaintiff must have a n interest in the

contract. The second is t h a t the victim and not the party responsible
for the vice or defect must be the person who must assert the same. 39
Discussing the first requisite, the Supreme Court, in a leading

case, declared:
“From these legal provisions (referring to what are now

Arts. 1390 and 1397 of the Civil Code) it is deduced t h at it is the
interest h ad in a given contract, th at is the determining reason of
the right which lies in favor of the party obligated principally or
subsidiarily to enable him to bring an action for the annulment
of the contract in which he intervened and therefore he who has
no right in a contract is not entitled to prosecute a n action for
annulment, for according to the precedents established by the
courts the person who is not a party to a contract, or who has
no cause of action or representation from those who intervened
therein, is manifestly without right of action and personality
such as to enable him to assail the validity of the contract.’’40
Consequently, a third person who is a stranger to the contract

cannot institute a n action for its annulment. There is, however, an
exception to this rule. According to the Supreme Court, a person who
is not a party obliged principally or subsidiarily under a contract
may exercise a n action for annulment of the contract if he is
prejudiced in his rights with respect to one of the contracting
parties, and can show detriment which would positively result to
him from the contract in which he has no intervention. Thus, 41
where the remaining partners of a partnership executed a chattel

mortgage over the properties of the partnership in favor of a
former partner to the prejudice of creditors of the partnership, the
latter have a perfect right to file the action to nullify the chattel
mortgage. 42
39
8 Manresa, 6th Ed., Bk. 2, p. 639; Wolfson vs. E state of Martinez, 20 Phil. 340.
40
Ibañez vs. Hongkong & Shanghai Bank, 22 Phil. 572. To the same effect: Com-
pania General vs. Topino, 4 Phil. 33; Martell Ong vs. Jariol, 17 Phil. 244; Dy Sun vs.
Brilliantes, 93 Phil. 175.
41
Teves vs. People’s Homesite & Housing Corp., 23 SCRA 1141; De
Santos vs.
City of Manila, 45 SCRA 409; Singsong vs. Isabela Sawmill, 88 SCRA 623.
42
Singsong vs. Isabela Sawmill, 88 SCRA 623. But would this not be confusing
the concept
sible contracts?of annulment of voidable contracts with the concept of rescission of rescis-
550
The second requisite, on the other hand, is based on the well-

known principle of equity t h a t whoever goes to court must do so
with clean hands. Some commentators say t h a t only the party who
43
is prejudiced can institute the action. This statement, however, is

misleading for the simple reason t h a t the action for annulment is
independent of the lesion or damage suffered by the plaintiff. This is
clear from the provision of Art. 1390 which states t h a t the contracts
enumerated therein are voidable, even though there may have been
no damage to the contracting parties. 44
Problem No. 1 — X, of age, entered into a contract with Y,

a minor. X knew and the contract specifically stated the age of Y.
May X successfully demand annulment of the contract? Reason.
(1971 Bar Problem)
Answer — X cannot successfully demand annulment of
the contract. True, said contract is voidable because of the fact
th at at the time of the celebration of the contract, Y, the other
contracting party, was a minor, and such minority was known to
X (Arts. 1327, No. 1, 1390 CC). However, the law is categorical
with regard to who may institute the action for annulment of the
contract. In addition to the requirement t h at the action may be
instituted only by the party who has an interest in the contract
in the sense th at he is obliged thereby either principally or
subsidiarily, Art. 1397 of the Civil Code further requires t ha t in
case of contracts voidable by reason of incapacity of one of the
contracting parties, the party who has capacity cannot allege the
incapacity of the party with whom he contracted. Because of this
additional requisite, it is clear th at Y and not X can institute the
action for annulment.
Problem No. 2. — Pedro sold a piece of land to his nephew
Quintin, a minor. One month later, Pedro died. Pedro’s heirs
then brought an action to annul the sale on the ground that
Quintin was a minor and therefore without legal capacity to
contract. If you are the judge, would you annul the sale? (1974
Bar Problem)
Answer — If I am the judge, I will not annul the sale.
The Civil Code in Art. 1397 is explicit. Persons who are capable
cannot allege the incapacity of those with whom they contracted.
True, Pedro who sold the land to the minor Quintin is already
43
Bastida vs. Dy Buncio & Co., 93 Phil. 195.
44
551
dead, and it is his heirs who are now assailing the validity of
the sale. However, under the principle of relativity of contracts
recognized in Art. 1311 of the Civil Code, the contract takes
effect not only between the contracting parties, but also between
their assigns and heirs.
(Note: Another way of answering the above problem would
be to state the two requisites which must concur in order that
a voidable contract may be annulled. These requisites are: (a)
th at the plaintiff must have an interest in the contract; and (b)
th at the victim or the incapacitated party must be the person
who must assert the same. The second requisite is lacking in the
instant case.)
Art. 1398. An obligation having been annulled, the con-

tracting parties shall restore to each other the things which
have been the subject matter of the contract, with their
fruits, and the price with its interest, except in cases pro-
vided by law.
In obligations to render service, the value thereof shall
be the basis for damages. 45
Art. 1399. When the defect of the contract consists in the

incapacity of one of the parties, the incapacitated person is
not obliged to make any restitution except insofar as he has
been benefited by the thing or price received by him. 46
Effects of Annulment. — If the contract has not yet been

consummated, it is evident, although the Code does not expressly
say so, t h a t the contracting parties shall be released from the
obligations arising therefrom. However, if the contract has already
47
been consummated, the rules provided for in Arts. 1398 to 1402 of

the Code shall govern.
Idem; Obligation of mutual restitution. — Upon the an-
nulment of the contract, if the prestation thereof consisted in obliga-
tions to give, the parties shall restore to each other the things which
have been the subject ma tter of the contract, with their fruits, and
the price with its interest, except in cases provided by law. If, on
45
46
47
3 Castan, 7th Ed., pp. 416-417.
552
VOIDABLE CONTRACTS Arts. 1398-1399
the other hand, the prestation consisted in obligations to do or not

to do, there will have to be a n apportionment of damages based on
the value of such prestation with corresponding interests. In other 48
words, upon annulment the contracting parties should be restored

to their original position by mutual restitution. 49
There is, therefore, practically no difference between the effect

of rescission based on lesion as enunciated in the first paragraph
of Art. 1385 of the Code and the general effect of annulment as
enunciated in Art. 1398. As in the case of rescission, the question
of fruits shall be governed by the rules on possession. Interest of
course, refers to the legal interest. 50
Idem; id. — Rule in case of incapacity. — The principle of

mutual restitution as enunciated in Art. 1398 is, however, modified
by the provision of Art. 1399. When the defect of the contract consists
in the incapacity of one of the contracting parties, the incapacitated
person is not obliged to make any restitution except insofar as he has
been benefited by the thing or price received by him. It is evident
51
t h a t this rule is applicable only and exclusively to those cases where

the nullity arises from the incapacity of one of the contracting
parties. Consequently, if the nullity should arise from some other
cause, the general rule enunciated in Art. 1398 shall govern. 52
The benefit spoken of in Art. 1399 which obliges the incapaci-

tated person to make restitution does not necessarily presuppose a
material and permanent augmentation of fortune; it is sufficient if
there has been a prudent and beneficial use by the incapacitated per-
son of the thing which he has received. In order to determine this, it
is necessary to know his necessities, his social position as well as his
duties as a consequence thereof to others. Thus, such benefit is pres-
ent if the thing received is used for food, clothing, shelter, health,
and others of a similar character. It is, however, clear t h a t the proof
of such benefit is cast upon the person who has capacity, since it is
presumed in the absence of proof t h a t no such benefit has accrued
48
Art. 1398 Civil Code; 3 Castan, 7th Ed., pp. 416-417.
49
Cadwallader & Co. vs. Smith, Bell & Co., 7 Phil. 461. To the same effect: Du-
masug vs. Modelo, 34 Phil. 252; Oliveros vs. Porciongcola, 69 Phil. 305; Talag vs.
Tankengco, 92 Phil. 1066.
50
51
52
553
to the incapacitated person. Thus, where two minors borrowed a

53
certain amount from the creditor during the Japanese occupation,

and such indebtedness is evidenced by a promissory note, while it
is true t h a t they cannot be bound by their signatures because of
their minority, they can still be compelled to make restitution to the
extent t ha t they may have been benefited by the money which they
received. Since there is proof t h a t the funds were used for their sup-
port during the Japanese occupation, it is but fair to hold t h a t they
had profited to the extent of the value of such money. They must,
therefore, reimburse the creditor the value of such money, which
value m ust be computed in accordance with the Ballantyne Sched-
ule.
54
It must be observed t h a t Art. 1399 cannot be applied to those

cases where the incapacitated person can still return the thing
which he has received. Thus, according to the Supreme Court,
whatever difference may exist in the authorities as to the obligation
of a n incapacitated person to r eturn the entire consideration
received by virtue of a contract of sale as a condition precedent to
disaffirming the contract, they are unanimous in holding t h a t he
must retur n such portion thereof as remains in his possession upon
reaching or attaining capacity. Hence, if after attaining capacity, it
is established t h a t he not only failed to ask for the annulment of the
contract but he also squandered t h a t part of the consideration which
remained, it is clear t h a t there is already a n implied ratification or
confirmation. 55
Art. 1400. Whenever the person obliged by the decree

of annulment to return the thing can not do so because it
has been lost through his fault, he shall return the fruits
received and the value of the thing at the time of the loss,
with interest from the same date. 56
Art. 1401. The action for annulment of contracts shall be

extinguished when the thing which is the object thereof is
53
Ibid., pp. 648-649.
54
55
Uy Soo Lim vs. Tan Unchuan, 38 Phil. 552. See also Young vs. Tecson, CA, 39
Off. Gaz. 953.
56
554
lost through the fraud or fault of the person who has a right
to institute the proceedings.
If the right of action is based upon the incapacity of any
one of the contracting parties, the loss of the thing shall not
be an obstacle to the success of the action, unless said loss
took place through the fraud or fault of the plaintiff. 57
Art. 1402. As long as one of the contracting parties does

not restore what in virtue of the decree of annulment he is
bound to return, the other cannot be compelled to comply
with what is incumbent upon him. 58
Effect of Failure to Make Restitution. — Sometimes, for

some reason or other, the action for annulment is commenced after
the lapse of several years from the time of the consummation of the
contract. Suppose then t h a t prior to the commencement of the action,
the thing which constitutes the object of the contract is lost, what is
the effect upon the right of the party who, ordinarily, is entitled to
institute the action for annulment? This question is resolved in part
by the provisions of Arts. 1400 to 1402 of the Code.
Idem; Where loss is due to fault of defendant. — According
to Art. 1400, when the person obliged by the decree of annulment to
retur n the thing cannot do so because it has been lost through his
fault, he shall r et urn the fruits received and the value of the thing
a t the time of the loss, with interest from the same date. It is evident
t h a t this rule is applicable only when the loss of the thing is due to
the fault of the party against whom the action for annulment may
be instituted. This is so because if the loss is due to the fault of the
59
party who has a right to institute the action, the provision of Art.
1401 shall apply. The loss of the thing which constitutes the object of
the contract through the fault of the party against whom the action
for annulment may be instituted shall not, therefore, extinguish the
action for annulment. The only difference from a n ordinary action
for annulment is that, instead of being compelled to restore the
thing, the defendant can only be compelled to pay the value thereof
a t the time of the loss.
57
58
59
555
Art. 1402 CONTRACTS
Idem; Where loss is due to fault of plaintiff. — However,

if the loss of the thing is due to the fraud or fault of the party who is
entitled to institute the proceedings, according to the first paragraph
of Art. 1401, the action for annulment shall be extinguished.
There are, therefore, three modes whereby such action may be
extinguished. They are: (1) prescription; (2) ratification; and (3) the
loss of the thing which is the object of the contract through the fraud
or fault of the person who is entitled to institute the action.
The second paragraph of Art. 1401, on the other hand, which
a t first blush seems to be a n exception to the rule stated in the first
paragraph, has created a legal absurdity. Under the old Code, the
provision was as follows: “If the cause of action is the incapacity of
any of the contracting parties, the loss of the thing shall not be an
obstacle to the success of the action, unless it has occurred through
the fraud or fault of the plaintiff after having acquired capacity.” 60
Hence, under the old law, if the loss of the thing was due to the fraud
or fault of the plaintiff after he h ad acquired capacity, the general
rule was applicable; in other words, the action was extinguished.
But if the loss was due to the fraud or fault of the plaintiff during
his incapacity, the exception was applicable; in other words, the loss
would not be a n obstacle to the success of the action. However, with
the deletion of the phrase “after having acquired capacity” from the
provision of the second paragraph of Art. 1401 of the present Code,
the result is a n absolute redundancy. Whether the loss occurred
during the plaintiff’s incapacity or after he had acquired capacity,
the action for annulment would still be extinguished in accordance
with the rule stated in the first paragraph.
Idem; Where loss is due to fortuitous event. — Unfortu-
nately, the Code in Arts. 1400 and 1401 does not provide for the ef-
fect of the loss of the object of the contract through a fortuitous event
upon the right to ask for the annulment of the contract. In spite of
this omission, it is, however, possible to apply the general principles
regarding the effects of fortuitous events to any problem t h a t may
arise.
If the person obliged by the decree of annulment to ret ur n the
thing cannot do so because it has been lost through a fortuitous
event, the contract can still be annulled, but with this difference —
60
556
the defendant can be held liable only for the value of the thing at
the time of the loss, but without interest thereon. The defendant,
and not the plaintiff, must suffer the loss because he was still the
owner of the thing a t the time of the loss; he should, therefore, pay
the value of the thing, but not the interest thereon because the loss
was not due to his fault. 61
If it is the plaintiff who cannot return the thing because it

has been lost through a fortuitous event, the contract may still be
annulled, but with this difference — he must pay to the defendant
the value of the thing a t the time of the loss, but without interest
thereon. According to Dr. Tolentino, if the plaintiff offers to pay the
value of the thing a t the time of its loss as a substitute for the thing
itself, the annulment of the contract would still be possible, because,
otherwise, we would arrive a t the absurd conclusion t h a t a n action
for annulment would in effect be extinguished by the loss of the
thing through a fortuitous event. 62
61
4 Tolentino, Civil Code, 1956 Ed., pp. 558-559.
62
Ibid., pp. 557-558.
557
CONTRACTS
CHAPTER 8
UNENFORCEABLE CONTRACTS
Unenforceable Contracts in General. — Unenforceable

contracts are those which cannot be enforced by a proper action in
court, unless they are ratified, because, either they are entered into
without or in excess of authority or they do not comply with the
st atute of frauds or both of the contracting parties do not possess
the required legal capacity. As regards the degree of defectiveness,
1
they occupy a n intermediate ground between voidable and void

contracts. 2
Idem; Classes. — There are three general classes of

unenforceable contracts. They are: first, those contracts entered into
in the nam e of another person by one without any authority or in
excess of his authority; second, those which do not comply with the
St atute of Frauds; and third, those where both contracting parties
are legally incapacitated. Under the old law, the first were considered
as a special type of void contracts — void contracts which were
susceptible of ratification as distinguished from void and inexistent
contracts which were (and still are) not susceptible of ratification.
Under the present law, they are now placed in the same category
as contracts which do not comply with the Stat ute of Frauds. Yet 3
there is no question t h a t the defects from which each of these three

classes of unenforceable contracts suffers are essentially different
1
2
3
While the classification in the other defective contracts is based on the defect
from which the contracts suffer, here it is based on the consequence. As a result,
the classification found in Art. 1403 has been criticized on the ground t h a t it places
contracts which are tainted with a vice or defect which affects not only their enforce-
ability but also their validity in the same category as contracts which are tainted with
a mere formal defect which affect only their enforcement.
558
from each other. In the first, there is absolutely no consent insofar as

the person in whose nam e the contract is entered into is concerned;
in the second, there is no writing, note or memorandum by which
the contract maybe proved; while in the third, consent is absolutely
vitiated by the legal incapacity of both of the contracting parties.
From these differences, consequences which are also essentially
different from each other arise.
Idem; Characteristics. — Although they are essentially dif-
ferent from each other, yet all unenforceable contracts possess the
following characteristics:
(1) They cannot be enforced by a proper action in court; 4
(2) They are susceptible of ratification; 5
(3) They cannot be assailed by third persons. 6
Idem; Distinguished from rescissible contracts. — An

unenforceable contract may be distinguished from a rescissible con-
tract in the following ways:
(4)An unenforceable contract cannot be enforced by a proper
action in court, while a rescissible contract can be enforced, unless it
is rescinded.
(5)The causes for the unenforceable character of the former
are different from the causes for the rescissible character of the
latter.
(6)The former is susceptible of ratification, while the latter is
not.
(7)The former cannot be assailed by third persons, while the
latter may be assailed by third persons who are prejudiced.
Idem; Distinguished from voidable contracts. — An
unenforceable contract may be distinguished from a voidable
contract in the following ways:
(1) An unenforceable contract cannot be enforced by a proper
action in court, while a voidable contract can be enforced, unless it
is annulled.
4
5
Arts. 1403, 1405, 1407, 1371, Civil Code.
6
559
Art. 1403 CONTRACTS
(2) The causes for the unenforceable character of the former

are different from the causes for the voidable character of the latter.
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 agreement hereafter made shall be unenforceable by ac-
tion, unless the same, or some note or memorandum thereof,
be in writing, and subscribed by the party charged, or by
his agent; evidence, therefore, of the agreement cannot be
received without the writing, or a secondary evidence of its
contents:
(a)An agreement that by its terms is not to be
performed within a year from the making thereof;
(b)A special promise to answer for the debt,
default, or miscarriage of another,
(c)An agreement made in consideration of mar-
riage, other than a mutual promise to marry;
(d)An agreement for the sale of goods, chattels or
things in action, at a price not less than Five hundred
pesos, unless the buyer accept and receive part of such
goods and chattels, or the evidences, or some of them,
of such things in action, or pay at the time some part of
the purchase money, but when a sale is made by auction
and entry is made by the auctioneer in his sales book, at
the time of the sale, of the amount and kind of property
sold, terms of sale, price, names of the purchasers
and person on whose account the sale is made, it is a
sufficient memorandum;
(e)An agreement for the leasing for a longer
period than one year, or for the sale of real property or
of an interest therein;
560
UNENFORCEABLE CONTRACTS Art. 1403
(f) A representation as to the credit of a

third person.
(3) Those where both parties are incapable of giving
consent to a contract. 7
Contracts Without or in Excess of Authority. — Contracts

entered into in the nam e of another person by one who has been
given no authority or legal representation, or who has acted beyond
his powers are unenforceable. Under the old law, such contracts were
classified as void contracts, although susceptible of ratification. 8
According to Art. 1404, such contracts shall be governed by Art. 1317

and by the principles of agency in Title X of the Code. Consequently,
the following principles are applicable:
(1)No one may contract in the nam e of another without being
authorized by the latter or unless he has a right to represent him. If
he is duly authorized, he must act within the scope of his powers. 9
(2)A contract entered into in the nam e of another by one who

has no authority or legal representation, or who h as acted beyond
his powers, is unenforceable. This principle is reiterated in the law
10
on agency. 11
(3)However, such contract may be ratified, expressly or

impliedly, by the person in whose behalf it has been executed, before
it is revoked by the other contracting party. 12
It must be noted t h a t under the old law (Spanish Civil Code),

the terms “confirmation” and “ratification” were not interchangeable.
7
New provision.
8
Tipton vs. Velasco, 6 Phil. 67; Gutierrez Hnos. vs. Orense, 28 Phil. 517; Tacali-
n a r vs. Corro, 34 Phil. 898; Ibañez vs. Rodriguez, 47 Phil. 554; Zamboanga Trans. Co.
vs. Bachrach Motor Co., 62 Phil. 244; Gana vs. Archbishop of Manila, 43 Off. Gaz.
3224.
9
10
Arts. 1403, No. 1, 1317, Civil Code.
11
Art. 1898, Civil Code. “If the agent contracts in the n ame of the principal, ex-
ceeding the scope of his authority, and the principal does not ratify the contract, it
shall be void if the party with whom the agent contracted is aware of the limits of the
powers granted by the principal. In this case, however, the agent is liable if he un-
dertook to secure the principal’s ratification.” It must be noted th a t this article says
th a t the contract is void, whereas Art. 1403, No. 1, says th a t it is unenforceable. Now,
which is which? The mistake is in Art. 1898. The correct term is “unenforceable.”
12
561
Art. 1403 CONTRACTS
Confirmation was a term used to designate the act by which a voidable

contract was cured of its vice or defect, while ratification was used
exclusively to designate the act by which a contract entered into by a
person in behalf of another without or in excess of authority is cured
of its defect. Under the present Code, the term ratification is now
used to designate the act of validating any kind of defective contract.
Under the old law, it was also customary to distinguish confir-
mation and ratification from recognition. Recognition or acknowl-
edgment refers to a n act whereby a defect of proof is cured, such as
when a n oral contract is put in writing, or when a private instru-
ment is converted into a public instrument. Thus, according to the
Supreme Court, in the case of Luna vs. Linatoc: 13
“Confirmation tends to cure a vice of nullity, and ratifi-

cation is for the purpose of giving authority to a person who
previously acted in the name of another without authority. Rec-
ognition, on the other hand, is merely to cure a defect of proof.
In recognition, there is no vice to be remedied such as fraud,
violence or mistake, so th at the case is distinguished from con-
firmation. In recognition, the person acting on behalf of another
is duly authorized to do so, so the situation is different from
ratification.’’
Contracts Infringing Statute of Frauds. — The second

class of unenforceable contracts are those which do not comply with
the St atute of Frauds. The Statute of Frauds, being essentially a
rule of substantive law, is now found in No. 2 of the Art. 1403 of the
Civil Code, t hus superseding the statut e as enunciated in Sec. 21 of
Rule 123 of the old Rules of Court.
Idem; Purpose of Statute. — The Stat ute of Frau ds was
enacted for the purpose of preventing frauds. Hence, it should not
be made the instrument to further them. 14
Idem; Form required by Statute. — Under the Stat ute of

Frauds, the only formality required is t h a t the contract or agreement
must be in writing and subscribed by the party charged or by his
74 Phil. 15.
13
Phil. National Bank vs. Phil. Vegetable Oil Co., 49 Phil. 857; Shoemaker vs. La
14
Tondeña, 68 Phil. 24.
562
agent. However, it has been held t h a t a telegram advising a person

15
to whom a verbal promise for the sale of land h ad been previously

made to come a t once in order to complete the purchase, but which
telegram neither describes the property nor states the purchase
price, and which is not signed by any person having authority to
bind the seller, is not a sufficient memorandum of sale to satisfy the
requirement of the statute. 16
Idem; Effect of noncompliance with Statute. — In case of

noncompliance with the Statute of Frauds, the contract or
agreement is unenforceable by action. This is clear from the st atute
itself which states t h a t evidence of the agreement cannot be received
without the writing, or a secondary evidence of its contents. What
is, therefore, affected by the defect of the contract or agreement is
not its validity, but its enforceability.
The St atute of Fraud s simply provides the method by which
the contracts enumerated therein may be proved. It does not declare
t h a t said contracts are invalid because they are not reduced to
writing. A contract exists and is valid even though it is not clothed
with the necessary form. Consequently, the effect of non-compliance
with the requirement of the statut e is simply t h a t no action can be
enforced unless the requirement is complied with. It is, therefore,17
clear t h a t the form required is for evidential purposes only. Hence,

if the parties permit a contract to be proved, without any objection,
it is then just as binding as if the statut e has been complied with. 18
Idem; Contracts Covered by Statute. — There are six

classes of contracts which are covered by the St atute of Frauds.
They are:
(1) An agreement t h a t by its terms is not to be performed
within a year from the making thereof. It is well-settled that
this refers only to agreements which by their terms are not to be
performed on either side within a year from the execution thereof.
Hence, those which are to be fully performed on one side within a
year are taken out of the operation of the statute. Thus, when in an
19
15
Jimenez vs. Rabot, 38 Phil. 378.
16
Basa vs. Raquel, 45 Phil. 655.
17
Gallemit vs. Tabilaran, 20 Phil. 241.
18
Domalagan vs. Bolifer, 33 Phil. 471.
19
Phil. National Bank vs. Phil. Vegetable Oil Co., 49 Phil. 857.
563
Art. 1403 CONTRACTS
oral contract, which by its terms is not to be performed within one

year from the execution thereof, one of the contracting parties has
already complied within the year with the obligations imposed upon
him by said contract, the other party cannot avoid the fulfillment of
those incumbent upon him under the same contract by invoking the
Statute of Frauds, because such st at ute aims to prevent and not to
protect fraud. 20
(2) A special promise to answer for the debt, default or mis-

carriage of another. It is well-settled t h a t a promise in order to fall
under the st atute must be collateral, not independent or original.
Thus, in the case of Reiss vs. Memije, the Supreme Court held:
21
“The true test as to whether a promise is within the statute

has been said to lie in the answer to the question whether the
promise is a n original or a collateral one. If the promise is an
original or an independent one, th at is, if the promisor becomes
thereby primarily liable for the payment of the debt, the promise
is not within the statute. But, on the other hand, if the promise is
collateral to the agreement of another and the promisor becomes
thereby merely a surety, the promise must be in writing.
J u st what is the character of a promise as original or
collateral is a question of law and fact which must in each
case be determined from the evidence as to the language used
in making the promise, and the circumstances under which
the promise was made; and since as a general rule the parties
making a promise of this nature rarely understand the legal
and technical difference between an original and collateral
promise, the precise form of words used, even when established
by undisputed testimony, is not always conclusive. So t h at it is
said th at ‘While, as a matter of law, a promise, absolute in form,
to pay or to be responsible or to be the paymaster is a n original
promise, and while on the other hand, if the promisor says, ‘I
will see you paid,’ or ‘I will pay if he does not,’ or uses equivalent
words, the promise standing alone is collateral, yet under all
the circumstances of the case, an absolute promise to pay, or
a promise to be responsible, may be found to be collateral,
or promises deemed prima facie collateral may be adjudged
original.’’
20
Shoemaker vs. La Tondeña, 68 Phil. 24.
21
15 Phil. 350.
564
(3)An agreement made in consideration of marriage, other

th an a mutual promise to marry. Thus, marriage settlements and
22
donations by reason of marriage, according to the Code, shall be

regulated by the Statute of Frauds. 23
(4)An agreement for the sale of goods, chattels or things in

action, a t a price not less t han Five hundred pesos. 24
(5)An agreement for the leasing of real property for a longer

period th an one year, or for the sale of real property or a n interest
therein. 25
Thus, in the case of Syquia vs. CA (151 SCRA 507), the

Supreme Court ruled t h a t a n alleged oral assurance or promise of
the representatives of the lessor t ha t the lessee should be given
priority or a renewal of the lease cannot be enforceable. This is
because under Article 1403, No. 2(e), of the New Civil Code, a n
agreement for the leasing for a longer period th an one year is
unenforceable by action unless the same, or some note or
memorandum thereof, be in writing and subscribed by the party
charged, or by his agent. In the subsequent case of Zaide vs. CA
(163 SCRA 705), the SC reiterated the principle enunciated in
Syquia case and further ruled t h a t the writing be in the form of
a public document, thus it held: “If the agreement concerns “the
sale of land or of a n interest therein,’’ the law requires not only t h a t
“the same, or some note or memorandum thereof, be in writing, and
subscribed by the party charged,’’ in order t h a t it may be
enforceable by action (Article 1403 [2]), but also that the writing be
in the form of a “public document’’ (Article 1358). The law finally
provides that, “if the law requires a document or other special
form,’’ as in the acts and contracts enumerated in Article 1358,
the contracting parties may compel each other to observe that form,
once the contract has been perfected and such right may be
exercised simultaneously with the action upon the contract (Article
1357).
22
For illustrative cases, see Atienza vs. Castillo, 72 Phil. 589; Cabague vs. Aux-
ilio, 48 Off. Gaz. 4823.
23
24
For illustrative case, see Robles vs. Lizarraga Hnos, 50 Phil. 387.
25
For illustrative cases, see Gorospe vs. Ilayat, 29 Phil. 21; Fernandez vs. Bayan,
62 Phil. 909; Pascual vs. Realty Investment, Inc., 91 Phil. 257; Valino vs. Medina,
CA, 49 Off. Gaz. 592.
565
Art. 1403 CONTRACTS
Western Mindanao Co. vs. Medalle

79 SCRA 703
Appeal from the order of the Court of First Instance of

Zamboanga City dismissing the complaint upon the ground
th at the claim on which it is founded is unenforceable under the
Statute of Frau ds and special law.
The complaint, filed on December 16, 1960, alleges that:

“2. — The Plaintiff is engaged in logging operations
in Curuan, Zamboanga City and in connection with the
said logging operation it obtained on September 8, 1955 a
right-of-way through the said Lot 2136 of the Cadastral
Survey of Zamboanga from Mr. Luciano Hernandez,
then the registered owner, a copy of the agreement being
enclosed as Annex ‘A’;
“3. — The former owners of the logging concession
operated by the Plaintiff constructed and maintained the
said road through Lot 2136, but the Plaintiff improved
the said road, paying to the registered owner for all the
improvements damaged by the improvement of the road;
“4. — Long before the execution of the right-of-way
agreement on September 8, 1955, since then and up to
the present time the said road has been maintained and
used not only by the predecessor of the Plaintiff and the
Plaintiff, but also by the public;
“5. — The said Lot 2136 was purchased by the
defendants in 1958 and the said road then existed and
was in public use and the defendants did not oppose but
instead allowed the continued use and maintenance of the
road by the Plaintiff and the public;
“6. — The said road is indispensable to the business
operations of the Plaintiff, because it is the only access
from their concession to the highway;
“7. — That defendants have now sent to the
Plaintiff a notice (Annex ‘B’) of their intention to close the
road; and
“8. — The Plaintiff has the right to the continued
use of said road, the closing of which will cause injustice
and irreparable damages to the Plaintiff and the Plaintiff
is willing to post a bond for the issuance of a writ of
preliminary injunction to stop the defendants from closing
the road.”
566
xxx xxx xxx
Wherefore, the plaintiff prayed th at a writ of preliminary

injunction be issued restraining the defendants from closing the
said road, and after hearing, make the injunction permanent.
It also prayed th at the defendants be directed to recognize and
respect the said road right-of-way agreement. Copies of the
road right-of-way agreement and the letter of the defendants
advising the plaintiff of the closure of the road were attached
thereto. Upon the filing of a bond in the amount of P1,000.00,
a writ of preliminary injunction was issued, restraining the
defendants from closing the road.
Instead of a responsive pleading, the defendant filed a
motion to dismiss the complaint on Jan u ary 4, 1961, upon the
ground th at the claim on which the action or suit is founded
is unenforceable under the provisions of the Stat ut e of Frauds
and special law, in th at the first page of the said road right-
of-way agreement was not signed by both parties and their
instrumental witnesses; page two thereof is not dated, and the
signature of the plaintiff’s corporate agent does not appear;
and th at said agreement is not acknowledged before a person
authorized to administer oaths.
The plaintiff opposed the motion, stating t h a t the agree-
ment between plaintiff and Luciano Hernandez is not one of
those agreements specified in the Statute of Frauds. Neverthe-
less, the trial court granted the motion to dismiss on January
17, 1961 and dismissed the cases.
The plaintiff filed a motion for reconsideration of the
said order, insisting th at the road right-of-way agreement is
not covered by the Statute of Frauds. Then, on March 4, 1961,
the plaintiff filed an Amended Complaint, accompanied by a
motion for its admission. The plaintiff therein prayed, among
others, th at the Defendants be ordered to keep the road open
and to respect the right-of-way agreement and “should it be
ascertained th at under the law the plaintiff is bound to pay
compensation for the right-of-way to the defendants, it is prayed
th at the reasonable amount of such compensation be fixed.
After hearing the parties, the trial court issued a n order
on September 6, 1961, denying the motion for reconsideration.
Whereupon, the plaintiff perfected a n appeal to the Court
of Appeals. The appellate court, finding t h a t only questions of
law are raised, elevated the appeal to this Court.
567
Art. 1403 CONTRACTS
The Supreme Court, speaking through Justice H. Concep-

cion, held:
The appeal is meritorious. The Stat ut e of Frauds
refers to specific kinds of transactions and cannot apply
to any th at is not enumerated therein. The transactions or
agreements covered by said statute are the following:
“(a) An agreement th at by its terms is not to be
performed within a year from the making thereof;
“(b) A special promise to answer for the debt,
default, or miscarriage of another;
“(c) An agreement made in consideration of mar-
riage, other th an a mutual promise to marry;
“(d) An agreement for the sale of goods, chattels or
things in action, at a price not less th an five hundred pesos
unless the buyer accept and receive pa rt 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 a t the time of
the sale, of the amount and kind of property sold, terms
of sale, price, names of purchasers and person on whose
account the sale is made, it is sufficient memorandum;
“(e) An agreement for the leasing for a longer
period th an one year, for the sale of real property or of an
interest therein;
“(f) A representation as to the credit of a third
person.’’
Obviously, an agreement creating a n easement of right-of-
way is not one of those contracts covered by the stat ut e of frauds
since it is not a sale of real property or of a n interest therein.
The trial court, therefore erred in dismissing the case upon
the defendants’ claim th at the road right-of-way agreement in
question is unenforceable under the Statut e of Frauds. Besides,
the complaint, as amended, may be viewed not only as a claim for
the recognition of the existence of an easement of right-of-way on
defendants’ estate, but also a demand for the establishment of
an easement of right-of-way, if none exists, pursuant to Art. 649
of the Civil Code, in view of the plaintiff’s offer to pay reasonable
compensation for the use of the land.
WHEREFORE, the judgment appealed from is hereby
reversed and the orders of Janu ary 17, 1961 and September 6,
1961 set aside. Costs against the defendant-appellees.
SO ORDERED.
568
(6) A representation as to the credit of a third person.
Problem — “A” and “B” entered into a verbal contract

whereby “A” agreed to sell to “B” his only parcel of land for
P20,000.00 and “B” agreed to buy at the aforementioned price.
“B” went to the bank, withdrew the necessary amount, and re-
turned to “A” for the consummation of the contract. “A,” how-
ever, had changed his mind and refused to go through with the
sale. Is the agreement valid? Will an action by “B’’ against “A”
for specific performance prosper? Reason. (1982 Bar problem)
Answer — It must be observed th at there are two questions
which are asked. They are:
(1)Is the agreement valid? The answer is yes. It is a
time honored rule t hat even a verbal agreement to sell land is
valid so long as there is already an agreement with respect to
the object and the purchase price.
(2)Will an action by “B” against “A” for specific per-
formance prosper? The answer is no, unless it is ratified. The
reason is obvious. The agreement, being a n agreement of sale
of real property, is covered by the Statut e of Frauds. It can-
not, therefore, be enforced by a court action because it is not
evidenced by any note or memorandum or writing properly sub-
scribed by the party charged.
(Note: The above answer is based on No. 2 of Art. 1403 of
the Civil Code and on decided cases.)
Idem; Effect of Performance of Contract. — The rule is

well established t h a t the Statut e of Fraud s is applicable only to
those contracts which are executory and not to those which have
been consummated either totally or partially. The basis of this rule
26
is, of course, the fact t h a t in such case there is already a ratification

of the contract within the meaning of Art. 1405 of the Civil Code.
There is acceptance of benefits.
26
Arroyo vs. Azur, 76 Phil. 493. To the same effect: Almirol vs. Monserrat, 48
Phil. 67; Asturias Sugar Central, Inc. vs. Montinola, 69 Phil. 725; Diana vs. Macalibo,
74 Phil. 70; Fac turan vs. Sabanal, 46 Off. Gaz. 310; Carbonnel vs. Poncio, 103
Phil.
655.
569
Art. 1403 CONTRACTS
Carbonnel vs. Poncio, et al.

103 Phil. 655
The records show th at plaintiff purchased from defendant
Poncio a parcel of land; th at she paid part of the agreed price
with the understanding t hat she will pay the balance upon the
execution of the deed of conveyance; t ha t defendant refused
to execute the deed in spite of repeated demands; and that
defendant sold the land to his co-defendants who knew of the
first sale. Defendants, however, contend t h at plaintiff’s claim is
unenforceable under the Statu te of Frauds.
Held: “It is well settled in this jurisdiction t h a t the Statute
of Frauds is applicable only to executory contracts (Facturan
vs. Sabanal, 81 Phil. 512), not to contracts t h a t are totally or
partially performed. (Almirol, et al. vs. Monserrat, 48 Phil.
67, 70; Robles vs. Lizarraga Hermanos, 50 Phil. 387; Diana
vs. Macalibo, 74 Phil. 70) The reason is simple. In executory
contracts there is a wide field for fraud because unless they be
in writing there is no palpable evidence of the intention of the
contracting parties. The statute has precisely been enacted to
prevent fraud. (Moran, Comments on the Rules of Court, Vol.
III, 1957 ed., p. 178) However, if a contract ha s been totally
or partially performed, the exclusion of parol evidence would
promote fraud or bad faith, for it would enable the defendant to
keep the benefits already derived by him from the transaction
in litigation, and, at the same time, evade the obligations,
responsibilities or liabilities assumed or contracted by him
thereby. So th at when the party concerned has pleaded partial
performance, such party is entitled to a reasonable chance to
establish by parol evidence the tru th of his allegation, as well as
the contract itself.”
Idem; Ratification. — Contracts infringing the Sta tute of

Frauds are susceptible of ratification. According to Art. 1405 of the
Civil Code, such contracts may be ratified either (1) by the failure to
object to the presentation of oral evidence to prove the same, or (2)
by the acceptance of benefits under them.
Problem — Can an oral sale of land be judicially enforced
as between the contracting parties, if the land has not been
delivered but the buyer h as paid ten percent (10%) of the
purchase price? (1974 Bar problem)
Answer — Yes, an oral sale of land where the land h as not
been delivered but the buyer has paid ten percent (10%) of the
purchase price may be judicially enforced. Well-settled is the
rule t hat the Statu te of Frauds by virtue of which oral contracts
570
are unenforceable by court action is applicable only to those

contracts which are executory and not to those which have been
consummated either totally or partially. The reason is obvious.
In effect, there is already a ratification of the contract because
of acceptance of benefits. As a matter of fact, this reason is now
embodied in the New Civil Code. According to Art. 1405 of said
Code, contracts infringing the Statute of Frauds are ratified by
the failure to object to the presentation of oral evidence to prove
the same, or by the acceptance of benefits under them.
Problem — “O” verbally leased his house and lot to “L’’ for
two years at a monthly rental of P250.00 a month. After the first
year, “O” demanded a rental of P500.00 claiming t h at due to the
energy crisis, with the sudden increase in the price of oil, which
no one expected, there was also a general increase in prices. “O”
proved a n inflation rate of 100%. When “L’’ refused to vacate the
house, “O” brought an action for ejectment. “O” denied t h at they
had agreed to a lease for two years.
Question No. 1 — Can the lessee testify on a verbal
contract of lease? Reason. (1981 Bar problem)
Answer — Yes, the lessee “L” may testify on the verbal
contract of lease. Well-settled is the rule t h at the St at ut e of
Fraud s by virtue of which oral contracts (such as the contract in
the instan t case) are unenforceable by court action is applicable
only to those contracts which have not been consummated, either
totally or partially. The reason for this is obvious. In effect, there
is already a ratification of the contract by acceptance of benefits.
Here “L’’ has been paying to “O” a monthly rental of P250.00 for
one year. The case is, therefore, withdrawn from the coverage of
the Statute of Frauds.
(Note: The above answer is based on Arts. 1403, No. 2 and
1405 of the Civil Code, and on decided cases.)
Question No. 2 — Assuming t hat “O” admits the two-year
contract, is he justified in increasing the rental? Why? (1981 Bar
problem)
Answer — Yes, “O’’ is justified in increasing the monthly
rental. Since it is admitted th at the contract of lease is for a
definite term or period of two years, it is crystal clear t ha t the
case is withdrawn from the coverage of the new rental law. Now
during the hearing of the case, “O” was able to prove a n inflation
rate of 100%. Therefore, a n increase is justified.
(Note: The above answer is based on Batas
25.) Pambansa Blg.
571
Contracts Where Both Parties Are Incapacitated. —

Contracts where both parties are legally incapacitated are also
unenforceable. If only one of the parties is incapacitated, the
27
contract is voidable. 28
As in the case of those entered into in the nam e of another by

one without or in excess of authority, contracts where both parties
are legally incapacitated may be ratified either expressly or implied-
ly. Such ratification may be effected by the parents or guardians of
the contracting parties. Although the Code does not say so, there is
no reason why it cannot also be effected by the parties themselves
upon attaining or regaining capacity. We must, however, distin-
guish between the effect of ratification by the parent or guardian of
one of the contracting parties or by the latter himself upon attaining
capacity and the effect of ratification by the parents or guardians
of both parties or by both of such themselves upon attaining capac-
ity. In the first, the contract becomes voidable; hence, the rules on
voidable contracts shall govern. In the second, the contract shall be
validated from its inception. 29
Art. 1404. Unauthorized contracts are governed by

Article 1317 and the principles of agency in Title X of this
Book. 30
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 benefits under them. 31
Art. 1406. When a contract is enforceable under the

Statute of Frauds, and a public document is necessary for its
registration in the Registry of Deeds, the parties may avail
themselves of the right under Article 1357. 32
Art. 1407. In a contract where both parties are incapable

of giving consent, express or implied ratification by the par-
27
28
29
30
New provision.
31
New provision.
32
New provision.
572
ent, or guardian, as the case may be, of one of the contract-

ing parties shall give 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. 33
Art. 1408. Unenforceable contracts cannot be assailed

by third persons. 34
33
New provision.
34
New provision.
573
CONTRACTS
CHAPTER 9
VOID OR INEXISTENT CONTRACTS
Void and Inexistent Contracts in General. — In general,

a void or inexistent contract may be defined as one which lacks
absolutely either in fact or in law one or some of the elements which
are essential for its validity. Thus, if there is absolutely no consent,
1
object or cause, or if the formalities which are essential for validity

are not complied with, or even if there is a cause and a n object, if
such cause or object is contrary to law, morals, good customs, public
order or public policy, or if the contract is expressly prohibited or
declared by law to be void, the contract is void or inexistent.
Although used interchangeably, strictly speaking, void and
inexistent contracts are different from each other. Contracts which
are void refer to those where all of the requisites of a contract are
present, but the cause, object or purpose is contrary to law, morals,
good customs, public order or public policy, or contract itself is
prohibited or declared void by law. On the other hand, contracts
which are inexistent refer to those where one or some or all of those
requisites which are essential for the validity of a contract are
absolutely lacking, such as those which are absolutely simulated or
fictitious, or those where the cause or object did not exist a t the
time of the transaction. This distinction between void and inexistent
contracts, which h as already been expressly recognized by the
Supreme Court, is important especially in connection with the
2
application of the in pari delicto principle as enunciated in Arts. 1411

and 1412 of the Code. This is so because if the contract is inexistent,
it is open to attack even by the parties thereto, but if the contract is
1
2
Liguez vs. Court of Appeals, 102 Phil. 577; Motion for Reconsideration, Feb.
13, 1958.
574
not inexistent but merely void or illegal, specific articles of the Civil
Code command t h a t neither party thereto may be heard to invoke
its unlawful character as a ground for relief. Consequently, the two
3
may be distinguished from each other as follows:

(1)In a void contract, all of the requisites of a contract are
present, but the cause, object or purpose is contrary to law, morals,
good customs, public order or public policy, or the contract itself is
prohibited or declared by law to be void; in a n inexistent contract,
one or some or all of those requisites which are essential for validity
are absolutely lacking.
(2)The principle of pari delicto is applicable in the first, but
not in the second. Consequently, the first may produce legal effects,
but the second cannot produce any effect whatsoever.
Idem; Distinguished from Rescissible Contracts. — A
void or inexistent contract may be distinguished from a rescissible
contract in the following ways:
(3)A void or inexistent contract produces as a rule no effect
even if it is not set aside by a direct action, while a rescissible
contract is valid, unless it is rescinded. 4
(4)The defect of the former consists in absolute lack in fact or

in law of one or some of the essential elements of a contract, while
the defect of the latter consists in lesion or damage to one of the
contracting parties or to third persons. 5
(5)In the former, the nullity or inexistence of the contract is

based on the law, whi1e in the latter the rescissible character is
based on equity. Hence, absolute nullity is not only a remedy but a
sanction, while rescission is a mere remedy. Public interest, therefore,
predominates in the first, while private interest predominates in the
second. 6
(6)The action for the declaration of the nullity or inexistence of

a contract is imprescriptible, while the action for the rescission of a
contract is prescriptible. 7
3
Ibid.
4
Art. 1380, 1409, Civil Code.
5
Ibid.
6
7
575
CONTRACTS
(5) The nullity or inexistence of a contract cannot as a rule

be assailed by third persons, while the rescissible character of a
contract may be assailed by third persons. 8
Idem; Distinguished from Voidable Contracts. — A void

or inexistent contract may be distinguished from a voidable contract
in the following ways:
(1)A void or inexistent contract produces as a rule no effect
even if it is not set aside by a direct action, while a voidable contract
is binding, unless it is annulled. 9
(2)The causes for the inexistence or absolute nullity of the

former are different from the causes for the annulability or relative
nullity of the latter. 10
(3)The former is not susceptible of ratification, while the

latter is susceptible of ratification. 11
(4)The action for the declaration of the nullity or inexistence of

a contract is imprescriptible, while the action for the annulment of
a contract is prescriptible. 12
(5)The defense of inexistence or absolute nullity is available to

third persons whose interests are directly affected, while the
defense of annulability is not available to third persons. 13
Idem; Distinguished from Unenforceable Contracts.

—A void or inexistent contract may be distinguished from
an unenforceable contract in the following ways:
(1)In a void or inexistent contract, there is in reality no
contract a t all, while in a n unenforceable contract, there is actually
a contract which cannot be enforced by a court action, unless it is
ratified. 14
(2)The causes for the inexistence or absolute nullity of the

former are different from the causes for the unenforceability of the
latter. 15
8
Arts. 1381, 1382, 1409, Civil Code.
9
10
Ibid.
11
Ibid.
12
Arts.
1391,
1410,
Ibid.
Civil
15
Code.
13
Arts. 576
1397,
1421,
Civil
Code.
14
Arts.
VOID OR INEXISTENT CONTRACTS Art. 1409
(3)The former is not susceptible of ratification, while the

latter is susceptible of ratification. 16
(4)The former can be assailed by third persons whose inter-

ests are directly affected, while the latter cannot be assailed by third
persons. 17
Art. 1409. The following contracts are inexistent and

void from the beginning:
(5)Those whose cause, object or purpose is contrary to
law, morals, good customs, public order or public policy;
(6) Those which are absolutely simulated or fictitious;
(7)Those whose cause or object did not exist at the
time of the transaction;
(4) Those whose object is outside the
commerce of men;
(5)
Those which contemplate an impossible service;
Those
(6) where the intention of the parties relative to
the principal object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by
law.
These contracts cannot be ratified. Neither can the right
to set up the defense of illegality be waived. 18
Contracts Which Are Void or Inexistent. — The seven

classes of void or inexistent contracts enumerated in Art. 1409
have already been discussed in previous chapters of this text. It is, 19
therefore unnecessary to discuss them all over again in this chapter.

It must be observed, however, t h a t Nos. 1, 4, 5, 6 and 7 refer to
contracts which are void, while Nos. 2 and 3 refer to contracts which
are inexistent.
16
Arts. 1404, 1405, 1407, 1409, Civil Code.
17
18
New provision.
19
For comments, cases and related provisions on No. 1, see those under Arts.
1306, 1346, 1347, 1352; on No. 2, see those under Arts. 1345, 1346, on No. 3, see those
under Arts. 1347, 1352; on No. 4, see those unde r Art. 1347; on No. 5, see those under
Art. 1348; on No. 6, see those under Art. 1378.
577
Art. 1409 CONTRACTS
Besides those enumerated in the article, we can include those

which are the direct results of previous illegal contracts, those 20
where there is no concurrence between the offer and the acceptance

with regard to the object and the cause of the contract, and those
which do not comply with the required form when such form is
essential for validity. 21
No. 7, however, is broad enough to include all other contracts

which are not included in the enumeration. The first part is a
reiteration of the principle declared in Art. 5 of the Code that
acts which are executed against the provisions of mandatory or
prohibitory laws shall be void, except when the law itself authorizes
their validity. Examples of such acts are those regulated by
Arts. 133, 1490, 1491, 1689, 1782, 1799, 2035, 2088 and 2130 of the
Code.
Problem — (a) Cite a n example of a contract which is

contrary to morals.
(b)Can the nullity of the stipulation on the usurious
interest affect
(i) the lender’s rights to recover the principal loan;
(ii) the terms of the real estate mortgage?
Answer — (a) Stipulations authorizing iniquitous or
unconscionable interests are contrary to morals, if not against
the law. Under Art. 1409 of the New Civil Code, these contracts
are inexistent and void from the very beginning. They cannot
be ratified nor the right to set up their illegality as a defense be
waived.
(b) The nullity of the stipulation on the usurious inter-
est does not, however, affect the lender’s right to recover the
principal loan. Nor would it affect the terms of the real estate
mortgage (REM). The right to foreclose the mortgage remains
with the creditors and said right can be exercised upon the fail-
ure of the debtors to pay the debt due. The debt due is to be con-
sidered without the stipulation of the excessive interest. A legal
interest of 12% per an n um will be added in place of the excessive
interest formerly imposed.
20
21
578
But in a situation where the total amount of indebtedness

during the foreclosure proceedings is pegged in a n amount
which included interest which is excessive, iniquitous and
exorbitant, the foreclosure proceedings cannot be given effect
and will be considered invalid.. If the foreclosure proceedings
were considered valid, this would result in a n inequitable
situation wherein the borrowers will have their land foreclosed
for failure to pay a n over-inflated loan only a small part of
which they were obligated to pay. (Heirs of Zoilo Espiritu and
Primitiva Espiritu vs. Sps. Maximo Landrito and Paz Landrito,
etc., G.R.No. 169617, April 3, 2007).
Idem; Characteristics. — In Tongoy vs. Court of Appeals,

123 SCRA 99 (1983), the Court said t h a t the following are the most
fundamental characteristics of void or inexistent contracts:
(1)As a general rule, they produce no legal effects whatsoever in
accordance with the principle “quod nullum est nullum producit
effectum.’’ 22
(2) They are not susceptible of ratification. 23
(3)The right to set up the defense of inexistence or absolute

nullity cannot be waived or renounced. 24
(4)The action or defense for the declaration of their

inexistence or absolute nullity is imprescriptible. 25
(5)The inexistence or absolute nullity of a contract cannot be

invoked by a person whose interests are not directly affected. 26
Idem; Effects. — As far as inexistent contracts are concerned,

it is clear t h a t such contracts can produce no legal effect whatsoever
in accordance with the principle “quod nullum est nullum producit
effectum.’’ However, in the case of void contracts where the
27
nullity proceeds from the illegality of the cause or object, a certain

qualification must be made. Under Arts. 1411 and 1412 of the Civil
Code, nullity of contracts due to illegal cause or object, when executed
22
Ibid., p. 410.
23
24
Ibid.
25
26
Art. 1421, Civil Code; 3 Castan, 7th Ed., p. 410.
27
579
Art. 1409 CONTRACTS
(and not merely executory), will produce the effect of barring any
action by a guilty to recover what he has already given under the
contract.
The above principle is very well illustrated in the case of
Liguez vs. Court of Appeals. Here, the deceased, Salvador Lopez,
28
a married m a n of m atur e years, donated a parcel of land belonging

to the conjugal partnership to Conchita Liguez, a minor of sixteen,
subject to the condition t h a t the latter shall become his mistress.
The donation was duly accepted. After the perfection of the donation,
Conchita became the mistress of Lopez. When Lopez died, his widow
and heirs took possession of the land. Subsequently, Conchita
commenced a n action for the recovery of the property. The widow
and heirs of the deceased now maintain t h a t since the cause of the
contract is illegal or immoral, consequently, it is inexistent, and
therefore, can produce no effect whatsoever; hence, they are entitled
to the property donated. Plaintiff, on the other hand, contends that
wh at is illegal is the motive of the donor and not the cause, since the
contract in this case is one of pure beneficence. Hence, the principal
questions to be resolved are: (1) What is the character of the contract
— valid, void or inexistent? (2) Assuming t h a t the contract is
either void or inexistent, what are its effects, if any? The decision
of the Supreme Court may be summarized as follows:
(1)According to the plaintiff, the contract is valid because the
condition t h a t she will become the mistress of the donor is merely the
motive of a party to the contract and not the causa. In other words,
according to her, the contract here is a contract of pure beneficence;
hence, the causa is the liberality of the benefactor, and certainly,
29
under the law, liberality per se can never be illegal. This contention
is untenable. The contract is onerous in character. Here the facts
clearly demonstrate t h a t in making the donation, the donor was
not moved exclusively by the desire to benefit the donee, but also to
gratify his sexual impulse. While it is true t ha t we must not confuse
the causa of a contract with the motives of the contracting parties, 30
there is a n exception. The motive may be regarded as causa when

it pre-determines the purpose of the contract. In other words, we
must except from the rule those contracts t h a t are conditioned upon
28
102 Phil. 577.
29
30
580
the attainment of the motives of either party. In the present case, it

is scarcely disputable t h a t the donor would not have conveyed the
property in question had the donee refused to accept the condition
t h a t she will cohabit with him. Hence, the cohabitation was an
implied condition of the donation, and being unlawful, necessarily
tainted the donation.
Because of the illegality of the causa, according to the defendants,
the contract is inexistent. Again this contention is untenable. The
contract here is void, not inexistent. A void contract is different from
a n inexistent contract. The first refers to those contracts where all
of the requisites of a contract are present, but the cause, object or
purpose is contrary to law, morals, good customs, public order or
public policy, or the contract itself is prohibited or declared by law to
be void, while the second refers to those contracts where one or some
of those requisites which are essential for validity are absolutely
lacking.
(2) Since the contract is void by reason of the illegality of the
cause, the provisions of Art. 1412 of the Civil Code are, therefore,
applicable. It must be noted, however, t h a t the principle of in pari
delicto is not applicable here. Plaintiff was only a minor of 16 at
the time of the donation, while the donor was a married m a n of
ma ture years and experience. It is well known t h a t minors occupy
a privileged position under our law. As a m atter of fact, the law’s
tender care for them is now emphasized in Art. 1415 of the Civil
Code. Consequently, the two parties are not in pari delicto. At any
rate, even if they were in pari delicto the same rules would still
apply. Under Arts. 1411 and 1412 of the Code, nullity of contracts
due to illegal cause or object, when executed (and not merely
executory) will produce the effect of barring any action by a
guilty party to recover what he has already given under the
contract. These articles make it plain that, as far as the guilty party
is concerned, his act of conveying property pursuant to a n illicit
contract operates to divest him of the ownership of the property,
and to bar him from recovering it from his transferee, just as if the
transfer were through a bargain legal from its inception.
Although repugnant, “the law deems it more repugnant t h a t a
party should invoke his own guilt as a reason for relief from a
situation which he h as deliberately entered. This serves to
explain why the tainted conveyance to the extent that it has
been carried out becomes conclusive as between the guilty
parties, even if without effect against strangers without notice; and
581
Art. 1409 CONTRACTS
why a guilty party may not ask the courts for a restoration to the
status quo ante.” The same reasons can also be applied to the case
of the successors or heirs of the guilty party. They cannot attack the
validity of the donation in their quality as successors or heirs of the
donor, since it is undeniable t h a t they cannot be placed in a better
position t ha n their predecessor.
It must be observed, however, t h a t the property donated is
conjugal. Does t h a t mean t h a t the donation made by Lopez to the
plaintiff shall not be given any effect with respect to the share of
the widow? The answer is simple. Since the donation was made
under the old law, the Civil Code of 1889 shall apply. The second
paragraph of Art. 1419 of the old Code considers the donation as
merely fraudulent, subject to collation upon liquidation of the
conjugal partnership and deduction of its value from the donor’s
share in the conjugal profits. 31
Therefore, the plaintiff is entitled to so much of the donated

property as may be found upon proper liquidation not to prejudice
the share of the widow or the legitimes of the compulsory heirs.
But suppose t h a t the above donation had been made after the
effectivity of the New Civil Code, would the same rules stated in the
decision still apply?
It is submitted th a t as far as the donor is concerned, the
same rules with respect to the illegality of the donation and its
consequences would still apply. The contract would still be void
because of the illegality of the causa or consideration for the reasons
stated in Liguez. It would also be void under Art. 174 of the New
Civil Code (a provision not found in the Spanish Civil Code) which
declares t h a t “with the exception of moderate donations for charity,
neither husband nor wife can donate any property of the conjugal
partnership without the consent of the other.’’ Consequently, as
far as the donor is concerned, Art. 1412 of the Civil Code would be
applicable.
However, as far as the wife of the donor is concerned the
applicable rules would be different. Art. 173 of the New Civil Code
states: “The wife may, during the marriage and within ten years
31
The law which is now applicable is found in Arts. 173 and 174 of the New Civil
Code.
582
from the transaction questioned, ask the courts for the annulment
of any contract of the husband entered into without her consent,
when such consent is required, or any act or contract of the husband
which tends to defraud her or impair her interest in the conjugal
partnership property. Should the wife fail to exercise this right,
she or her heirs, after the dissolution of the marriage, may demand
the value of the property fraudulently alienated by the husband.”
Does this provision, which was not found in the Spanish Civil Code,
spell the remedy of the wife in Liguez? I do not think so; it only
indicates it. It must be observed t h a t the article presupposes either
a voidable (or unenforceable) contract executed by the husband, and
not a void contract. Therefore, the remedy of the wife is to bring
a n action for the declaration of absolute nullity of the contract of
donation, a remedy which will have all of the effects of a n action for
reconveyance. The action would be imprescriptible because it would
be based on a void contract. If she dies without bringing the action,
her heirs in their capacity as heirs, would be able to institute the
action. The principle of pari delicto in such a case cannot be applied
because the wife or her heirs were not parties to the illegal contract.
The case of Francisco J. Chavez vs. PCGG (May 19, 1999,
307 SCRA 394) states, among others t h a t where the Agreements
undeniably contain terms and conditions t h a t are clearly contrary
to the Constitution and the laws and are not subject to compromise,
such terms and conditions cannot be granted by the PCGG to
anyone. Being so, no argument of the contractors will make such
illegal and unconstitutional stipulations pass the test of validity.
The void agreement will not be rendered operative by the parties’
alleged performance (partial or full) of their respective prestations.
A contract t h a t violates the Constitution and the law is null and void
ab initio and vests no rights and creates no obligations. It produces
no legal effect a t all.
A void contract cannot be ratified. — In the case of
Guiang vs. Court of Appeals (June 26, 1998, 291 SCRA 372), the
Supreme Court ruled t h a t the trial court correctly held: “By the
specific provision of the law (Art. 1390, Civil Code) therefore, the
Deed of Transfer of Rights cannot be ratified, even by a n ‘amicable
settlement.’ The participation by some barangay authorities in
the ‘amicable settlement’ cannot otherwise validate a n invalid act.
Moreover, it cannot be denied t h a t the ‘amicable settlement’ entered
into by plaintiff Gilda Corpuz and defendant spouses Guiang is a
583
Art. 1410 CONTRACTS
contract. It is a direct offshoot of the Deed of Transfer of Rights. By

express provision of law, such a contract is also void. Thus, the legal
provision, to wit: ‘Art. 1422. A contract which is the direct result
of a previous illegal contract, is also void and inexistent.’ (Civil
Code of the Philippines.) In summation therefore, both the Deed of
Transfer of Rights and the ‘amicable settlement’ are null and void.’’
Doctrinally and clearly, a void contract cannot be ratified. In the
same case, the Supreme Court also ruled t h a t the sale of a conjugal
property requires the consent of both the husband and the wife. The
absence of the consent of one renders the sale null and void, while
the vitiation thereof makes it merely voidable. Only in the latter
case can ratification cure the defect.
Art. 1410. The action or defense for the declaration of

the inexistence of a contract does not prescribe. 32
Imprescriptibility of Action or Defense. — Because of the

fact t h a t the defect of void or inexistent contracts is of a more or
less permanent character, mere lapse of time cannot give efficacy
to such contracts. In other words, the defect is of such a nature
t h a t it cannot be cured by prescription. This principle of impres-
33
criptibility is applicable not only to the action for the declaration

of the inexistence or absolute nullity of the contract but also to the
defense.
Castillo vs.
Galvan 85 SCRA
526
Appeal from the order of the Court of First Instance of
Pangasinan dismissing the complaint filed in Civil Case No.
D-1227 and the order denying the motion for the reconsideration
of said order.
The complaint, filed on August 1, 1961, is for the annulment
of a document, denominated “DEED OF ABSOLUTE SALE,’’
executed on August 3, 1965, by and between Paulino Galvan,
professedly the predecessor-in-interest of herein plaintiffs, and
defendants Josefa Galvan and Natividad S. Galvan, and for
damages and attorney’s fees. The plaintiffs therein alleged that
Paulino Galvan, during his lifetime, was the registered owner
32
New provision.
(laches) — has
33 not this
Eugenio doctrine eroded
vs. Perdido, 97 Phil.entirely
41. Butthe provision
how of Art.
about the 1410?of
doctrine
stale demands
584
of a n undivided one-half (1/2) interest over two parcels of land,

known as Lot Nos. 4541 and 4542 of the Dagupan Cadastre
and covered by OCT Nos. 3813 and 3917, respectively, of the
Register of Deeds of Dagupan City. The other undivided half
is owned by his two daughters by a first marriage, herein
defendants Josefa Galvan and Natividad Galvan. On these lots,
which are contiguous, is built the family home. On February 10,
1961, Paulino Galvan died and the plaintiffs, out of “delicadeza”
waited for the defendants to initiate the move for the settlement
of his estate. But, after waiting for some time and finding that
none was forthcoming, the plaintiffs became apprehensive, so
th at they began to go over the papers concerning the properties
of the decedent. In the office of the Register of Deeds of Dagupan
City, they were surprised to find a deed of sale, signed by the
late Paulino Galvan and the plaintiff, Maria Encarnacion
Castillo, whereby they had purportedly sold for P500.00 the
one-half undivided portion of Paulino Galvan over said lots in
favor of the defendants. When apprised of the existence of a
deed of sale, plaintiff Maria Encarnacion Castillo remembered
th at way back in 1953, she and her husband Paulino Galvan
were made to sign a certain document by Josefa Galvan “upon
the fraudulent misrepresentation t hat the said document was
only for purpose of enabling them, the co-owners of the parcels
of land in question, to have their separate tax declarations for
the respective portions owned by them so t h a t they can pay
their respective real estate taxes separately, the said spouses
not knowing th at the said document is a deed of sale for which
no consideration was even paid.’’ The plaintiffs further alleged
th at Paulino Galvan could not have intented to sell his share
and participation over the lots in question during his lifetime as
he had no other residential lot to live in and there is no necessity
for him to sell the same as he and his wife ha d sufficient income
to sustain them. Besides, the undivided half share of Paulino
Galvan was worth around P22,500.00 so t ha t he could not have
sold it for only P500.00. Wherefore, they prayed t h at the deed of
sale be declared null and void; th at the plaintiffs be declared the
owners of four-sixths (4/6) of the undivided half share pertaining
to Paulino Galvan; th at the defendants be ordered to pay the
amount of P1,500.00 as attorney’s fees; and to pay the costs of
suit.
The defendants filed their answer with counterclaim on
August 23, 1961 wherein they interposed negative and affirmative
defenses. As their affirmative defense, the defendants claim that
“they are the absolute and exclusive owners of whole parcels of
land described in the complaint for having acquired the portions
585
Art. 1410 CONTRACTS
belonging to their late father Paulino Galvan through legal and

valid conveyance and this fact is known to the plaintiffs long
before the filing of the complaint.”
Three years thereafter, or on August 24, 1964, but before
the case was tried, the defendants filed an amended answer with
the corresponding motion to admit it, which amended answer
contained a n allegation th at “the action of plaintiffs is barred by
the statute of limitations.”
The plaintiffs filed objections to the defendants’ motion
to amend their answer. Plaintiffs’ principal objection was their
contention th at the defendants had waived the right to plead
the statute of limitations and were estopped from pleading it
by reason of the fact t hat they h ad tried to do so after the filing
of their answer to the complaint. The plaintiffs further contend
th at the inclusion of the defense of prescription substantially
altered the defense.
Over plaintiffs’ objections, the trial court permitted the
defendants to amend their answer by adding the defense of
statute of limitations.
Then two more years later or on August 27, 1966, the
defendants filed a motion to dismiss the complaint upon the
ground t hat the action is barred by the st at ut e of limitations
for the reason th at the present action for the annulment of the
instrument of sale is based upon fraud which should be brought
within four (4) years from the time of the discovery of the same
in accordance with Article 1391 of the Civil Code; and fraud, as
a ground for annulment, shall be deemed to be discovered from
the date of the registration of the alleged fraudulent documents;
and considering t hat the deed of sale in question was registered
on August 4, 1955, while the action for its annulment was
commenced only on August 1, 1961, or after the lapse of more
th an four (4) years from its registration with the Register of
Deeds, the action for annulment had prescribed.
The trial court sustained the defendants’ contention,
and, consequently, dismissed the complaint without costs, on
September 22, 1966. A motion for the reconsideration of this
order having been denied on November 2, 1966, the plaintiffs
interposed the present appeal.
On the question of extinctive prescription, the Supreme
Court, speaking through Justice H. Concepcion, ruled:
The other issue raised is whether or not the trial
court improperly dismissed the complaint on the ground
586
of prescription. In its order dated September 22, 1966,

dismissing the complaint, the trial court said:
“The complaint, among others, prays for the annul-
ment of document, which is a deed of sale dated August 3,
1955, purporting conveyance of the two parcels described
in the complaint in favor of defendants Josefa Galvan and
Natividad Galvan and Emilio Samson. Said document
(Exh. 1 for defendants) was registered on August 4, 1955
(Exhs. 1-A and 1-B). It is the contention of the defendants
th at plaintiffs’ action has prescribed as the same was not
presented within four years from the registration of the
document.
“The court sustains defendants’ contention. The ba-
sis of the annulment is alleged fraud, and the action for
the annulment of the document should be brought within
4 (four) years from the discovery of fraud (Mauricio vs.
Villanueva, L-11072, September 24, 1959), and t h a t such
discovery of fraud is deemed to have taken place when the
instrument was filed and registered with the Register of
Deeds and a new transfer certificate of title is issued in
the name of the vendee for the registration of the deed
constitutes constructive notice to the whole world (Diaz
vs. Gorricho, L-11229, March 29, 1958; Ignacio Gerona, et
al. vs. Carmen de Guzman, et al., L-19060, May 29, 1964).
“In view of the foregoing, the court resolves to dis-
miss as it hereby dismisses, the complaint without costs.”
The allegations of the complaint show, however, t h a t the

plaintiffs’ action is to declare void and inexistent the deed of
sale executed by Paulino Galvan and Encarnacion Castillo on
August 3, 1955 in favor of Josefa and Natividad Galvan, upon the
grounds that: (a) there is fraud in securing the signatures of the
vendors in said deed of sale; and (b) there was no consideration
given at the time of the transaction. In other words, the
plaintiffs are seeking a judicial declaration t h at the deed of sale
in question is void ab initio, which action is impres-criptible.
The trial court erred, therefore, in dismissing the complaint for
the reasons stated.
WHEREFORE, the judgment appealed from is reversed
and the order of September 22, 1966, dismissing the complaint,
is hereby set aside. Let this case be remanded to the court of
origin for further proceedings. Without costs.
SO ORDERED.
587
Art. 1410 CONTRACTS
The concurring opinion of Justice Aquino to the above

decision is as follows:
I concur. The trial court committed a grievous error

in dismissing the complaint on the ground of prescription.
It erroneously assumed t hat plaintiffs’ cause of action is
for the annulment of a deed of sale on the ground of fraud.
In reality, plaintiffs’ action is to declare void or inexistent

the fictitious deed of sale of August 3, 1955 on the ground that
its consideration did not exist at the time of the transaction.
That action is imprescriptible (Arts. 1409[3] and 1410, Civil
Code).
F rau d was alleged in the complaint merely to show why
the alleged vendor (the septuagenarian father of the vendees)
signed the deed of sale.
The plaintiffs categorically alleged in paragraph 9 of the
complaint th at no consideration was paid for the sale. They
prayed th at the sale “be declared null and void.” (pp. 4-6, Record
on Appeal.) The thrust of the action is to secure a judicial
declaration th at the sale is void ab initio.
A contract of sale is void and produces no effect whatsoever
where the price, which appears thereon as paid, has in fact never
been paid by the purchaser to the vendor (Arts. 1352 and 1353,
Civil Code; Ocejo, Perez and Co. vs. Flores and Bas, 40 Phil. 921;
Mapalo vs. Mapalo, L-21489, May 19, 1966, 17 SCRA 114, 122.)
Such a sale is nonexistent and cannot be considered
consummated. (Borromeo vs. Borromeo, 98 Phil. 432; Cruzado
vs. Bustos and Escaler, 34 Phil. 17; Garanciang vs. Garanciang,
L-22351, May 21, 1969, 28 SCRA 229.)
Plaintiffs’ cause of action is supported by the following
ultimate facts alleged in their complaint:
Paulino Galvan married twice. By his first marriage, he
begot two daughters, defendants Josefa Galvan and Natividad
Galvan. His second wife was Encarnacion Castillo with whom
he begot three children named Elisea, Patrocinio and Florangel.
Paulino Galvan was the owner of a one-half pro-indiviso
share in two parcels of land located at Burgos Street, Dagupan
City with a total area of 1,115 square meters. The other one-half
share is owned by Natividad Galvan and Josefa Galvan, his two
daughters of the first marriage.
588
Existing on those two lots is the conjugal house of the

spouses Paulino Galvan and Encarnacion Castillo. The house is
made of wood with galvanized iron roofing.
On August 3,1955, when Paulino Galvan, who did not
have much education, was already seventy-eight years old, his
daughter, Josefa, asked him and his wife, Encarnacion, also old
and not highly educated, to sign a document which, according to
Josefa, was necessary in order to have separate tax declarations
for their respective one-half portions of the two lots.
The Galvan spouses signed the document. Paulino Galvan
died on February 10, 1961 at the age of eighty-four years. He was
survived by his second wife and his five above-named children.
It was only after the death of Paulino Galvan t ha t his
widow and their three children discovered t h at the document,
which Josefa had asked her father to sign, was a deed of sale,
which is in English, a language not known to the Galvan spous-
es.
Paulino Galvan could not have sold his one-half share in
the two lots for a measly sum of P500, the price stated in the
deed of sale, because in 1961 the two lots were worth P45,000,
at forty pesos a square meter. Paulino Galvan’s one-half share
was worth at least P22,500.
The action to declare the sale void was filed on August 1,
1961 against Natividad Galvan and Josefa Galvan. They pleaded
as a defense th at the sale was valid. Later, they amended their
answer by pleading prescription. The trial court dismissed the
complaint on th at ground.
The trial court overlooked the fact t h at the fraudulent
manner by which the signatures of the Galvan spouses in the
deed were obtained strengthens plaintiffs’ theory t h at the sale is
void or inexistent because it would appear t h at the said spouses
did not consent at all to the sale.
In the Mapalo case, supra, the spouses, Miguel Mapalo
and Candida Quiba, illiterate farmers, decided to donate
to Maximo Mapalo the brother of Miguel, the eastern half of
their 1,635-square meter residential land located in Manaoag,
Pangasinan.
However, they were deceived into signing on October
15, 1936 a deed of absolute sale for the entire land in favor of
Miguel Mapalo. Their signatures were procured by fraud. They
were made to believe by Maximo and the notary public t h a t the
589
Art. 1410 CONTRACTS
document was a deed of donation covering the eastern half of

their land.
Although the deed of sale stated a consideration of P500
(as in the instant case), the said spouses did not receive anything
of value for the land. The spouses remained in possession of the
western half of the land.
On March 15, 1938 Maximo Mapalo registered the sale
and obtained a Torrens title for the entire land. On October
20, 1951 Maximo sold the entire land to Evaristo, Petronila,
Pacifico and Miguel, all surnamed Narciso. A transfer certificate
of title was issued to the Narcisos’ for the whole land. They took
possession of the eastern half of the land.
On February 7, 1952 the Narcisos’ sued the Mapalo
spouses. They prayed th at they be declared the owners of the
entire land. They sought to recover possession of its western
portion. The Mapalo spouses filed a counterclaim, wherein they
prayed t hat the western half of the land be conveyed to them.
They alleged t hat their signatures to the deed of sale were
obtained through fraud. They sued the Narcisos’ in 1957. They
asked th at the 1936 and 1951 deeds of sale be declared void as
to the western portion.
The Court of Appeals held th at the sale was merely
voidable on the ground of fraud; t hat the action for annulment
should have been brought within four years from the registration
of the sale, and that, as t hat period had already expired, the
action had also prescribed.
This Court, reversing the decision of the Court of Appeals,
held th at the 1936 sale was not merely voidable but was void or
inexistent and th at the “inexistence of a contract is permanent
and incurable and cannot be the subject of prescription.’’ The
holding of the trial court th at the Mapalo spouses should
be issued a Torrens title for the western half of the land was
affirmed.
The ruling in the Mapalo case is squarely applicable to
this case.
In the instan t case, the plaintiffs, the widow and a child
of the first marriage, as compulsory heirs of Paulino Galvan,
the victim of the alleged fraud, have the right to sue to declare
the sale void because they were deprived of their legitime in
the estate of Paulino Galvan. (Art. 221[4], Civil Code; Reyes vs.
Court of Appeals, 95 Phil. 952; Armentia vs. Patriarca, L-18210,
December 29, 1966, 18 SCRA 1253, 1258-1260.)
590
VOID OR INEXISTENT CONTRACTS Arts. 1411-1412
It is interesting to note t h a t the above case became the basis of

a problem asked in the Bar Examinations of 1979. The problem is as
follows:
“On the basis of a document entitled ‘Deed of Absolute

Sale’ a certain lot and building then leased by its owner, PC,
to JG with monthly rental of P1,000.00 was sold to, and thus
registered in the latter’s name. Six years after the issuance
of the title to JG, MC the sole heir of PC who ha d just died,
brought a n action for recovery of the property alleging in his
complaint, among others, t h at PC then very old and with weak
eyesight was tricked by J G into signing the Deed of Absolute
Sale upon the fraudulent misrepresentation t h at said document
was only a renewal of the lease contract over the property; that
the price stated in the document is only P10,000.00 although the
property was then worth about P50,000.00. J G moved to dismiss
the action on the ground of prescription. Should the motion be
granted?’’
Also, in the case of Paluwagan ng Bayan Savings Bank vs.
King (172 SCRA 60), it was held t hat an action to declare the
nullity of a void judgment does not prescribe.
Art. 1411. When the nullity proceeds from the illegality

of the cause or object of the contract, and the act constitutes
a criminal offense, both parties being in pari delicto, they
shall have no action against each other, and both shall be
prosecuted. Moreover, the provisions of the Penal Code
relative to the disposal of effects or instruments of a crime
shall be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties
is guilty; but the innocent one may claim what he has given,
and shall not be bound to comply with his promise. 34
Art. 1412. If the act in which the unlawful or forbidden

cause consists does not constitute a criminal offense, the
following rules shall be observed:
(1) When the fault is on the part of both contracting
parties, neither may recover what he has given by virtue
34
Art. 1410 in relation to Art. 1409(3) of the Civil Code.
591
of the contract, or demand the performance of the other’s

undertaking;
(2) When only one of the contracting parties is at fault,
he cannot recover what he has given by reason of the con-
tract, or ask for the fulfillment of what has been promised
him. The other, who is not at fault, may demand the return
of what he has given without any obligation to comply with
his promise. 35
Principle of In Pari Delicto. — When the defect of a void

contract consists in the illegality of the cause or object of the
contract, and both of the parties are a t fault or in pari delicto, the
law refuses them every remedy and leaves them where they are.
This rule which is embodied in Arts. 1411 and 1412 of the Code is
wh at is commonly known as the principle of in pari delicto.
Thus, where the contract involves a violation of our coast-wise
trade law, or of our contraband laws, such as the importation of
36
silver into this country, and both of the contracting parties are in
37
pari delicto, it is evident t h a t under Art. 1411 of the Code neither

party would have any remedy against the other. The rule is expressed
in the maxims: “Ex dolo malo non oritur actio’’ and “In pari delicto
potior est conditio defendantis.’’ The law will not aid either party
to a n illegal agreement it leaves them where they are. Of course,
this presupposes t h a t the fault of one party is more or less equal or
equivalent to the fault of the other party. 38
Rodriguez vs. Rodriguez

20 SCRA 908
This is a n appeal by Concepcion Felix Vda. de Rodriguez

from the decision of the Court of First Instance of Bulacan in
Civil Case No. 2565, which she commenced on May 28, 1962,
to secure declaration of nullity of two contracts executed on
Jan u ar y 24, 1934 and for the recovery of certain properties.
35
36
Perez vs. Herranz, 7 Phil. 693.
37
Iribar vs. Millat, 5 Phil. 362. For cases illustrating Art. 1411, see Go Chioco vs.
Martinez, 45 Phil. 256; Harden vs. Benguet Consolidated Mining Co., 58 Phil. 141.
38
Bough vs. Cantiveros, 40 Phil. 209.
592
Arts. 1411-1412
The facts of this case may be briefly stated as follows:

Concepcion Felix, widow of the late Don Felipe
Calderon, and with whom she ha d one living child,
Concepcion Calderon, contracted a second marriage on
J u n e 20, 1929, with Domingo Rodriguez, a widower with
four children by a previous marriage, named Geronimo,
Esmeragdo, Jose and Mauricio, all surnamed Rodriguez.
There was no issue in this second marriage.
Prior to her marriage to Rodriguez, Concepcion
Felix was the registered owner of 2 fishponds located in
the barrio of Babañgad, municipality of Bulacan, Bulacan
province, Nos. 605 and 807. Under the date of Jan ua ry 24,
1934, Concepcion Felix appeared to have executed a deed of
sale conveying ownership of the aforesaid properties of her
daughter, Concepcion Calderon, for the sum of P2,500.00,
which the latter in tu rn appeared to have transferred
to her mother and stepfather by means of a document
dated Janu ary 27, 1934. Both deeds, notarized by Notary
Public Jose D. Mendoza, were registered in the office of
the Register of Deeds of Bulacan on Jan u ar y 29, 1934, as
a consequence of which, the original titles were cancelled
and TCT Nos. 13815 and 13816 were issued in the names
of the spouses Domingo Rodriguez and Concepcion Felix.
On March 6, 1953, Domingo Rodriguez died intestate,
survived by the widow, Concepcion Felix, his children Geronimo,
Esmeragdo, and Mauricio and grandchildren Oscar, J u a n and
Ana, surnamed Rodriguez, children of a son, Jose, who had
predeceased him.
On March 16, 1953, the above-named widow, children
and grandchildren of the deceased entered into a n extrajudicial
settlement of his (Domingo’s) estate, consisting of one-half of
the properties allegedly belonging to the conjugal partnership.
Among the properties listed as conjugal were two parcels of
land in Bulacan, Bulacan, which, together with another piece of
property, were divided among the heirs in this manner:
“WHEREAS, the parties have furthermore agreed
t hat the fishpond covered by TCT Nos. 13815, 13816, and
24109 of the Office of the Register of Deeds of Bulacan,
containing an area of 557,971 sq.m., which is likewise
the conjugal property of the deceased and his surviving
spouse; 1/2 of the
in the conjugal same and
property; or 278,985.50
3/4 of the sq.m. belongs
remaining halfto
said Concepcion Felix Vda. de Rodriguez, as her share
593
or 209,239.125 sq.m. are transferred in full ownership to

Geronimo Rodriguez. Esmeragdo Rodriguez and Mauricio
Rodriguez, share and share alike, while the other 1/4 or
69,746.375 sq.m. of the said remaining half goes in equal
shares to Oscar Rodriguez, J u a n Rodriguez and Ana
Rodriguez.”
As a result of this partition, TCT Nos. 13815 and 13816
were cancelled and TCT Nos. T-11431 and T-14432 were issued
in the names of the said heirs of the deceased.
On March 23, 1953, in a power of attorney executed by the
children and grandchildren of Domingo Rodriguez, Concepcion
Felix Vda. de Rodriguez was named their attorney-in-fact,
authorized to manage their shares in the fishponds (Exh. 4).
On July 2, 1954, the heirs ended their co-ownership by
executing a deed of partition, dividing and segregating their
respective shares in the properties, pursuant to a consolidation
and subdivision plan (PCS-3702), in accordance with which,
Concepcion Felix Vda. de Rodriguez obtained TCT No. T-12910,
for the portion pertaining to her (Exh. L), while TCT No. T-12911
was issued to the other heirs, for their shares. This latter title
was subsequently replaced by TCT No. 16660 (Exh. M).
On October 12, 1954, the Rodriguez children executed
another document granting unto the widow lifetime usufruct
over one-third of the fishpond which they received as hereditary
share in the estate of Domingo Rodriguez, which grant was
accepted by Concepcion Felix Vda. de Rodriguez.
Then, in a contract dated December 15, 1961, the widow
appeared to have leased from the Rodriguez children and
grandchildren the fishpond (covered by TCT No. 16660) for a
period of 5 years commencing August 16, 1962, for a n annual
rental of P7,161.37 (Exh. 5).
At about this time, it seemed th at the relationship between
the widow and her stepchildren had turned for the worse. Thus,
when she failed to deliver to them the balance of the earnings
of the fishponds, in the amount of P3,000.00, her stepchildren
endorsed the matter of their lawyer who, on May 16, 1962, sent
a letter of demand to the widow for payment thereof. On May
28, 1962, Concepcion Felix Vda. de Rodriguez filed the present
action in the Court of First Instance of Manila naming as
defendants, Geronimo Rodriguez, Esmeragdo Rodriguez, Oscar
Rodriguez, Concepcion Bautista Vda. de Rodriguez, as guardian
of the minors J u a n and Ana Rodriguez, and Antonio Diaz de
594
Rivera and Renato Diaz de Rivera, as guardians of the minors

Maria Ana, Mercedes, Margarita, Mauricio, Jr. and Domingo
(children of Mauricio Rodriguez who had also died).
The action to declare null and void the deeds of transfer
of plaintiff’s properties to the conjugal partnership was based
on the force and pressure on her; t ha t the conveyances of
the properties — from plaintiff to her daughter and then to
the conjugal partnership of plaintiff and her husband — are
both without consideration; th at plaintiff participated in the
extrajudicial settlement of estate (of the deceased Domingo
Rodriguez) and in other subsequent deeds or instruments
involving the properties in dispute, on the false assumption
th at the said properties had become conjugal by reason of the
execution of the deeds of transfer in 1934, then laboring under
the same false assumption, plaintiff delivered to defendants, as
income of the properties from 1953 to 1961, the total amount of
P56,976.58. As alternative cause of action, she contented that
she would claim for her share, as surviving widow, of 1/5 of the
properties in controversy, should such properties be adjudged
as belonging to the conjugal partnership. Thus, plaintiff prayed
th at the deeds of transfer mentioned in the complaint be declared
fictitious and simulated; th at the “Extrajudicial Settlement of
Estate’’ be also declared null and void; t ha t TCT No. 16660 of
the Registry of Deeds of Bulacan be cancelled and another one
be issued in the name of plaintiff, Concepcion Felix Vda. de
Rodriguez; th at defendants be ordered to pay plaintiff the sum
of P56,976.58, with legal interest thereon from the date of the
filing of the complaint, and for appropriate relief in connection
with her alternative cause of action.
In their separate answers, defendants not only denied
the material allegations of the complaint, but also set up
as affirmative defenses lack of cause of action, prescription,
estoppel and laches. As counterclaim, they asked for payment
by the plaintiff of the unpaid balance of the earnings of the land
up to August 15, 1962 in the sum of P3,000.00, for attorney’s
fees and expenses of litigation.
On October 5, 1963, judgment was rendered for the
defendants. In upholding the validity of the contracts, the court
found th at although the two documents, Exhibits A and B,
were executed for the purpose of converting plaintiff’s separate
properties into conjugal assets of the marriage with Domingo
Rodriguez, the consent of the parties thereto was voluntary,
contrary to the allegations of plaintiff and her witness. The court
also ruled t h at having taken part in the questioned transactions,
595
plaintiff was not the proper party to plead lack of consideration

to avoid the transfers; t hat contracts without consideration are
not inexistent, but are only voidable, following the ruling in
the case of Concepcion vs. Sta. Ana (87 Phil. 787); t h at there
was ratification or confirmation by the plaintiff of the transfer
of her property, by her execution (with the other heirs) of the
extrajudicial settlement of estate; th at being a voluntary party
to the contracts, Exhibits A and B, plaintiff cannot recover the
properties she gave thereunder. Plaintiff’s alternative cause of
action was also rejected on the ground th a t action for rescission
of the deed of extrajudicial settlement should have been filed
within 4 years from its execution (on March 16, 1953).
From the decision of the Court of First Instance, plaintiff
duly appealed to this Court, insisting th at the conveyances in
issue were obtained through duress, and were inexistent, being
simulated and without consideration.
Speaking through Justice J.B.L. Reyes, the Supreme
Court held:
We agree with the trial Court t ha t the evidence
is not convincing th at the contracts of transfer from
Concepcion Felix to her daughter, and from the lat ter her
mother and stepfather were executed through violence
or intimidation. The charge is predicated solely upon the
improbable and biased testimony of appellant’s daughter,
Concepcion C. Martelino, whom the trial court refused
to believe, considering t hat her version of violence and
h arassment was contradicted by Bartolome Gualberto,
who had lived with the Rodriguez spouses from 1917 to
1953, and by the improbability of Rodriguez threatening
his stepdaughter in front of the Notary Public who
ratified her signature. Furthermore, as pointed out by the
appealed decision, the charge of duress should be treated
with caution considering t hat Rodriguez h ad already died
when the suit was brought for duress, like fraud, is not to
be lightly laid at the door of men already dead. (Cf. Prevost
vs. Gratz, 6 Wheat. [U.S.] 481, 498; Sinco vs. Longa, 51
Phil. 507.)
What is more decisive is th at duress being merely a vice
or defect of consent, a n action based upon it must be brought
within four years after it has ceased;39 and the present action
39
Article 1301 of the Civil Code of 1889, in force when the assailed
executed (1934).were
contracts
596
was instituted only in 1962, twenty-eight (28) years after the

intimidation is claimed to have occurred, and no less t ha n nine
(9) years after the supposed culprit died (1953). On top of it,
appellant entered into a series of subsequent transactions with
appellees th at confirmed the contracts t ha t she now tries to set
aside. Therefore, this cause of action is clearly barred.
Appellant’s main stand in attacking the conveyances in
question is th at they are simulated or fictitious, and inexistent
for lack of consideration. We shall examine each purported
defect separately.
The charge of simulation is untenable, for the characteristic
of simulation is the fact th at the apparent contract is not really
desired or intended to produce legal effects or in any way alter
the juridical situation of the parties. Thus, where a person, in
order to place his property beyond the reach of his creditors,
simulates a transfer of it to another, he does not really intend
to divest himself of his title and control of the property, hence,
the deed of transfer is but a sham. But appellant contends
th at the sale by her to her daughter, and the subsequent sale
by the latter to appellant and her husband, the late Domingo
Rodriguez, were done for the purpose of converting the property
from paraphernal to conjugal, thereby vesting a half interest in
Rodriguez, and evading the prohibition against donations from
one spouse to another during coverture (Civil Code of 1889, Art.
1334). If this is true, then the appellant and her daughter must
have intended the two conveyances to be real and effective; for
appellant could not intend to keep the ownership of the fishponds
and at the same time vest half of them in her husband. The
two contracts of sale then could not have been simulated, but
were real and intended to be fully operative, being the means to
achieve the result desired.
Nor does the intention of the parties to circumvent by
these contracts the law against donations between spouses
make them simulated ones.
Ferrara, in his classic book “La Simulacion de los Negocios
Juridicos” (Sp. trans, 1926), pp. 95, 105, clearly explains the
difference between simulated transactions and transactions in
fraudem legis:
Otra figura que debe distinguirse de la simulacion es
el fraus legis. Tambien aqui se di u n a gran confucion que
persiste a u n en la jurisprudencia, apegada tenazmente
a antiguos errores. Se debe a Bahr el haber defendido
con vigor la antitesis teorica que existe entre negocio
597
fingido y haber atacada la doctrina comun que hacia una

mescolanza con los dos conceptos.
“Se confunde — dice (2) —, el negocio in fraudem
legis con el negocio simulado; aunque la natural eza de
ambos sea totalmente diversa. El negocio fraudulento no
es, en absoluto, u n negocio aparante. Es perfectamente
serio: se quiere realmente. Es mas, se quiere tal
como se h a realizado, con todas las consecuencias que
corresponden a la forma juridica elegida. Muchas veces,
estas consecuencias con incomodas para u n a u otra de
las partes, aunque serian mucho mas incomodas las
consecuencias que llevaria consigo el acto prohibido.
x x x x x x
xxx
“El resultado de las precedentes investigaciones
es el siguiente: el negocio simulado quiere producir una
apariencia; el negocio fraudulente, u n a realidad; los
negocios simulados son ficticios, no queridos; los negocios
in fraudem son serios, reales, y realizados en tal forma
por las partes para consequir u n resultado prohibido: la
simulacion nunca es u n medio para eludir la ley, sino
para ocultar su violacion. La transgresion del contenido
verbal e inmediato de la norma se encubre bajo el manto
de u n negocio licito, lo cual no altera el caracter del contra
legem agere. Tan verdad es, que si se h a redactado una
contraescritura que documenta y declara la verdadera
naturaleza del negocio realizado, no queda mas que aplicar
pura y simplemente la prohibicion.
“Tambien el fraude quiere perjudicar la ley, pero
emplea para ello medios diversos y sigue distintos
caminos. No oculta el acto eterior, sino que lo deja claro y
visible, tratando de huir sesgadamente de la aplicacion de
la ley merced a u n a artistica y sabia combinacion de varios
medios juridicos no reprobados.”
Appellant invokes our decision in Vasquez vs. Porta, 98
Phil. 490, but to no purpose. The mortgage and foreclosure sale
involved in th at case were typical simulations, merely apparent
but not really intended to produce legal effects, as proved by
the Court’s finding th at the alleged creditor and buyer a t the
foreclosure sale “Porta himself ostensibly acknowledged by
his inertia in allowing the doctor (alleged mortgagor debtor)
to exercise dominical power thereon without any protest on
wife,part
his when“(cas.
her cit.,
husband
p. 495).
diedNot
“found
only among
this, but
histhe
papers
mortgagor’s
Porta’s
598
cancellation of the mortgage in his favor and the draft of the

complaint for foreclosure.’’ Plainly, the precedent cited is here
inapplicable.
Were the two conveyances from appellant to her daughter
and from the latter to the spouses Rodriguez void ab initio or
inexistent for lack of consideration? We do not find them to be
so. In the first transaction, the price of P2,500.00 is recited in
the deed itself (Exh. A); in the second (Exh. B), the consideration
set forth is P3,000.00. Now, Article 1274 of the Civil Code of
1889 (in force when the deeds were executed) provided t h a t —
“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.’’ (Italics supplied.)
Since in each conveyance the buyer became obligated to
pay a definite price in money, such undertaking constituted in
themselves actual causa or consideration for the conveyance
of the fishponds. That the prices were not paid (assuming ad
arguendo th at Concepcion Martelino’s testimony to this effect
is true) does not make the sales inexistent for want of causa.
As ruled in Enriquez de la Cavada vs. Diaz, 37 Phil. 982, “the
consideration (causa) need not pass from one (party) to the other
at the time the contract is entered into. x x x The consideration
need not be paid at the time of the promise. The one promise is
a consideration for the other.’’
What would invalidate the conveyances now under scru-
tiny is the fact t hat they were resorted to in order to circumvent
the legal prohibition against donations between spouses con-
tained in Article 1334, paragraph 1, of the Civil Code of 1889,
then prevailing. That illegal purpose tainted the contracts, for
as held by the Spanish Tribunal Supremo in its decision of 2
April 1941: “ha de ser reputado ineficaz, por exigencias inelud-
ibles del caracter social y moral del Derecho, todo contrato que
persiga un fin ilicito o inmoral, sea cualquiera el medio em-
pleado por los contratantes para lograr esa finalidad, no justi-
ficada por un interes digno de ser socialmente protegido.’’ The
illicit purpose then becomes illegal causa within the terms of
the old Civil Code, for as declared by the same Spanish Court
in its decision of 14 December 1940 — “toda vez que to que car-
acteriza fundamentalmente la ilicitud de la causa es la lesion de
un interes general juridico o moral,’’ a ruling reiterated in the
decision of 2 April 1941 when the Court ruled: “El concepto de
la causa ilicita, tal como la desenvuelve y aplica con gran ampli-
tud y flexibilidad la doctrina moderna, permite cobijar, no solo
599
las covenciones ilicitas por razon de su objeto o de su motivo x x

x sino tambien multiples convenciones que no encerrando en si
ningun de directa antijuricidad son ilicitas por el matiz in moral
que reviste la operacion en su conjunto x x x.’’
Unfortunately for herein appellant, in contracts invalidat-
ed by illegal subject matter or illegal causa, Articles 1305 and
1306 of the Civil Code then in force apply rigorously the rule in
pari delicto non oritur actio, denying all recovery to the guilty
party inter se. And appellant is clearly as guilty as her husband
in the attempt to evade the legal interdiction of Article 1334 of
the Code, already cited. Wherefore, her present action to rein-
vindicate the conveyed properties was correctly repulsed by the
Court below.
“ART. 1306. If the act which constitutes the illicit con-
sideration is neither a crime nor a misdemeanor, the following
rules shall be observed:
1. When both parties are guilty, neither of them can
recover what he may have given by virtue of the contract, or
enforce the performance of the undertaking of the other party;
xxx xxx xxx
That Article 1306 applies to cases where the nullity arises
from the illegality of the consideration of the purpose of the
contract was expressly recognized by this Supreme Court in
Gustilo vs. Maravilla. 48 Phil. 449-450.40
Finally, it cannot be denied th at plaintiff-appellant had
knowledge of the nullity of the contract for the transfer of her
properties in 1934, because she was even a party thereto. And yet,
her present action was filed only on May 28, 1962 and after the
breaking up of friendly relations between her and defendants-
appellees. Appellant’s inaction to enforce her right, for 28 years,
cannot be justified by the lame excuse th at she assumed t h at the
transfer was valid. Knowledge of the effect of t ha t transaction
would have been obtained by the exercise of diligence. Ignorance
which is the effect of inexcusable negligence, it has been said, is
no excuse for laches. (Go Chi Gun, etc., et al. vs. Co Cho, et al.,
G.R. No. L-5208, Feb. 28, 1955.) Even assuming for the
sake of argument t hat appellant held her peace, during the
lifetime of her husband, out of legitimate fear for her life,
there is no justification for her failure to bring the proper
action after his
Phil. 695. 40See also Liguez vs. Court of Appeals, 102 Phil. 581-582; Perez
vs. Herranz, 7
600
death in 1953. Instead, she entered into a series of agreements

with herein appellees, the children of her husband by a prior
marriage, of partition, usufruct and lease of their share in
the fishponds, transactions th at necessarily assumed that
Rodriguez has acquired one-half of the litigated fishponds. In
the circumstances, appellant’s cause has become a stale demand
and her conduct placed her in estoppel to question the validity
of the transfer of her properties. (Manila, et al. vs. Galvan, et
al., G.R. No. L-23507, May 24, 1967; Perez vs. Herranz, 7 Phil.
695-696.)
In view of the foregoing, the decision appealed from is
affirmed. Costs against appellant Concepcion Felix Vda. de
Rodriguez.
So ordered.
It must be observed, however, t h a t the principle of in pari

delicto applies only to cases of existing contracts with a n illegal
cause or object and not to simulated or fictitious contracts nor to
those which are inexistent for lack of a n essential requisite such as
cause or consideration. 4 1 In other words, the principle can have no
application to inexistent contracts, since such contracts are always
open to attack even by the parties thereto. But where the contract is
void because of the illegality of the cause or the object, the principle
is applicable since the Code in Arts. 1411 and 1412 commands that
neither party thereto may be heard to invoke its unlawful character
as a ground for relief. It must also be observed t h a t the illegality
42
must be with respect to the cause or the object of the contract and
not with respect to the motives of the contracting parties. Thus, if
the plaintiff transfers to the defendant a parcel of land by means of
a fictitious deed of sale for the purpose of averting its attachment by
his creditors, it is clear t h a t the principle, enunciated in Art. 1412 of
the Civil Code is not applicable, since what is illegal is the motive of
the transferor and not the object or the cause of the contract. 43
Idem; Effect if only one party is at fault. — When only one

of the contracting parties is a t fault, we must have to distinguish
between a case where the contract has already been executed
and one where it is merely executory. If the contract has already
41
Vasquez vs. Porta, 98 Phil. 490.
42
Liguez vs. Court of Appeals, supra.
43
Gonzales vs. Trinidad, 67 Phil. 682.
601
been executed, the guilty party is barred from recovering what he

has given to the other party by reason of the contract. Although
repugnant, “the law deems it more repugnant t ha t a party should
invoke his own guilt as a reason for relief from a situation which
he had deliberately entered.’’ The innocent party, however, may
44
demand for the return of what he has given. On the other hand, if
45
the contract is merely executory, it is clear t h a t it cannot produce

any legal effect whatsoever. Neither of the contracting parties can
demand for the fulfillment of any obligation arising from the
contract nor be compelled to comply with such obligation. 46
Idem; Exceptions. — The principle of pari delicto is not,

however, absolute in character. The Civil Code recognizes the
following exceptions:
(1)Payment of usurious interest. In such case, the law allows
the debtor to recover the interest paid in excess of t ha t allowed by
the usury laws, with interest thereon from the date of payment. 47
(2)Payment of money or delivery of property for a n illegal

purpose, where the party who paid or delivered repudiates the
contract before the purpose has been accomplished, or before any
damage has been caused to a third person. In such case, the courts
may allow such party to recover wh at he has paid or delivered, if the
public interest will thus be subserved. 48
(3)Payment of money or delivery of property by an

incapacitated person. In such case, the courts may allow such person
to recover what he has paid or delivered, if the interest of justice so
demands. 49
(4)Agreement or contract which is not illegal per se but is

merely prohibited by law, and the prohibition is designed for the
protection of the plaintiff. In such case, such plaintiff, if public policy
is thereby enhanced, may recover what he has paid or delivered. 50
44
Liguez vs. Court of Appeals, supra.
45
46
Ibid.
47
48
49
50
602
(5)Payment of any amount in excess of the maximum price of

any article or commodity fixed by law. In such case, the buyer may
recover the excess. 51
(6)Contract whereby a laborer undertakes to work longer

th an the maximum number of hours fixed by law. In such case, the
laborer may demand for overtime pay. 52
(7)Contract whereby a laborer accepts a wage lower t han the

minimum wage fixed by law. In such case, the laborer may demand
for the deficiency. 53
Art. 1413. Interest paid in excess of the interest allowed

by the usury laws may be recovered by the debtor, with
interest thereon from the date of the payment. 54
Recovery by Debtor of Usurious Interest. — The first

exception to the principle of pari delicto as enunciated in Arts. 1411
and 1412 is given in the above article.
It must be noted, however, t h a t the rule enunciated in this
article, although consistent with the rule enunciated in Art. 1961,
which states t h a t “usurious contracts shall be governed by the
Usury Law and other special laws so far as they are not inconsistent
with this Code,” is inconsistent with the rule enunciated in Art.
1175, which states t h a t “usurious transactions shall be governed
by special laws,” and Art. 1957, which states t h a t “the borrower
may recover in accordance with the laws on usury.’’ Insofar as the
amount recoverable by the debtor from the creditor is concerned, it
is quite evident t h a t there is absolute incompatibility between the
provision of Art. 1961 which upholds the rule stated in Art. 1413,
and the provisions of Arts. 1175 and 1957, which incorporate by
reference the rule stated in Sec. 6 of the Usury Law (Act No. 2655).
Under Art. 1413, the debtor may recover the interest paid in excess
of the interest allowed by the Usury Law, with interest thereon from
the date of payment; under Sec. 6 of the Usury Law, on the other
hand, the debtor may recover the whole interest paid with costs and
51
52
53
54
New provision.
603
Art. 1413 CONTRACTS
attorney’s fees in such sum as may be allowed by the court in an

action against the creditor if such action is brought within two years
after such payment.
The above-stated conflict, however, is more apparent than
real. Thus, in Angel Jose Warehousing Co. vs. Chelda the Supreme 55
Court declared that, in reality, there is no conflict between the Civil

Code and the Usury Law. Under the latter, in Sec. 6, the debtor may
recover the whole interest paid. Under the Civil Code, in Art. 1413,
“interest paid in excess of the interest allowed by the usury laws
may be recovered by the debtor, with interest thereon from the date
of payment.” When the Code speaks of “interest paid in excess of
t h a t allowed by the usury law,’’ it means the whole usurious interest.
Thus, if the loan is P1,000.00, with interest of 20% per ann um or
P200 per year, and the borrower paid P200, the whole P200 is the
usurious interest. The only change effected, therefore, by Art. 1413
of the Civil Code is not to provide for the recovery of the interest
paid in excess of t h a t allowed by law, which the Usury Law already
provided for, but to add t h a t the same can be recovered “with interest
thereon from the date of payment.”
The Angel Jose Warehousing Co. case not only resolved all
doubts with respect to the apparent conflict between Art. 1413 of
the New Civil Code and Sec. 6 of the Usury Law; it also resolved all
doubts with respect to the question as to whether or not the creditor
will be allowed to recover the amount loaned. The factual backdrop
of this case is as follows: The action is one for the recovery of an
unpaid loan, with legal interest from the filing of the complaint,
plus attorney’s fees. Defendants interposed the defense t h a t since
the loan is usurious and therefore void, the principle of pari delicto
as enunciated in Art. 1411 of the New Civil Code is applicable. To
strengthen this defense, they invoked the provisions of Arts. 1413 and
1961 of the Civil Code as well as the case of Sebastian vs. Bautista 56
wherein the Court of Appeals held t h a t in usurious contract,

although the Civil Code in Art. 1413 provides for a n exception to the
rule of pari delicto in the case of the debtor, it does not provide for an
exception in the case of the creditor. Is this correct? According to the
Supreme Court, this is not correct. A contract of loan with usurious
interest consists of principal and accessory stipulation; the principal
55
23 SCRA 119.
56
58 Off. Gaz. 3146. See also People vs. Masangkay, 58 Off. Gaz. 3565.
604
one is to pay the debt; the accessory is to pay interest thereon. These
two stipulations are divisible. According to Art. 1420 of the New
Civil Code, “in case of a divisible contract, if the illegal terms can
be separated from the legal ones, the latter may be enforced.” In a
simple contract of loan with usurious interest, the prestation of the
debtor to pay the principal debt is not illegal; what is illegal is to
pay the stipulated interest. Hence, being separable, the latter only
should be deemed void.
Plaintiff is therefore entitled to the recovery of the principal of
the loan plus legal interest of 6% per ann um from the filing of the
complaint pursuant to Art. 2209 of the New Civil Code. Attorney’s
fees, however, cannot be recovered since there is no showing that
the case falls under any of the exceptions provided for in Art. 2208
of the New Civil Code. Besides, defendants had reasons to resist
the claim since there was yet no definite ruling on the point of law
involved herein in the light of the New Civil Code. 57
The above doctrine was reiterated in Briones vs. Cammayo.

In order t h a t we shall have a complete picture of the case, we are
reproducing the entire decision penned by Justice Dizon, including
the dissenting opinion penned by Justice Castro and the concurring
opinion penned by Justice Barredo.
Briones vs.
Cammayo 41 SCRA
404
DIZON, J.:
On February 22, 1962, Aurelio G. Briones filed a n action
in the Municipal Court of Manila against Primitivo, Nicasio,
Pedro, Hilario and Artemio, all surnamed Cammayo, to recover
from them, jointly and severally, the amount of P1,500.00,
plus damages, attorney’s fees and costs of suit. The defendants
answered the complaint with specific denials and the following
special defenses and compulsory counterclaim:
“x x x;
By way of —
57
Angel Jose Warehousing Co. vs. Chelda Enterprises, supra.
605
Art. 1413 CONTRACTS
SPECIAL DEFENSES
Defendants Allege:
4.Defendants executed the real estate mortgage, Annex ‘A’
of the complaint, as security for the loan of P1,200.00 given to
defendant Primitivo O. Cammayo upon the usurious agreement
th at defendant pays to the plaintiff and t ha t the plaintiff reserve
and secure, as in fact plaintiff reserved and secured himself, out
of the alleged loan of P1,500.00 as interest the sum of P300.00
for one year;
5.That although the mortgage contract, Annex ‘A’ was
executed for securing the payment of P1,500 for a period of
one year, without interest, the tru th and the real fact is that
plaintiff delivered to the defendant Primitivo P. Cammayo only
the su m of P1,200.00 and withheld the sum of P300.00 which
was intended as advance interest for one year;
6.That on account of said loan of P1,200.00, defendant
Primitivo P. Cammayo paid to the plaintiff during the period
from October, 1955 to July, 1956 the total sum of P330.00 which
plaintiff, illegally and unlawfully refuse to acknowledge as part
payment of the account but as in interest of said loan for an
extension of another term of one year;
7.That said contract of loan entered into between
plaintiff and defendant Primitivo P. Cammayo is a usurious
contract and is contrary to law, morals, good customs, public
order or public policy and is, therefore, inexistent and void from
the beginning (Art. 1407, Civil Code);
And as —
COMPULSORY COUNTERCLAIM
Defendants replead all their allegations in the preceding

paragraphs;
8.That plaintiff, by taking and receiving interest in
excess of t hat allowed by law, with full intention to violate the
law, at the expense of the defendants, committed a flagrant
violation of Act 2655, otherwise known as the Usury Law,
causing the defendants damages and attorney’s fees, the amount
of which will be proven at the trial;
9. That this is the second time this same case is filed
before this court, the first having been previously filed and
606
docketed in this court as Civil Case No. 75845 (Branch VII) and
the same was dismissed by the Court of First Instance (Branch
of Manila) on July 13, 1961 in Civil Case No. 43121 (Branch
XVII) and for repeatedly bringing this case to the court,
harassing and persecuting defendants in the manner,
defendants have suffered mental anguish and anxiety for
which they should be compensated for moral damages.’’
On September 7, 1962, Briones filed a n unverified reply
in which he merely denied the allegations of the counterclaim.
Thereupon, the defendants moved for the rendition of a
summary judgment on the ground that, upon the record, there
was no genuine issue of fact between the parties. The Municipal
Court granted the motion and rendered judgment sentencing
the defendants to pay the plaintiff the sum of P1,500.00, with
interests thereon at the legal rate from February 22, 1962, plus
the su m P150.00 as attorney’s fees. From this judgment, the
defendants appealed to the Court of First Instance of Manila
where, according to the appealed decision, “defendant has
asked for summary judgment and plaintiff has agreed to the
same.” (Record on Appeal, p. 21.) Having found the motion for
summary judgment to be in order, the court then proceeded to
render judgment as follows:
“Judgment is, therefore, rendered, ordering defen-
dant to pay plaintiff the sum of P1,180.00 with interest
thereon at the legal rate from October 16, 1962 until
fully paid. This judgment represents defendant’s debts of
P1,500.00 less usurious interest of P120.00 and the addi-
tional sum of P200.00 as attorney’s fees or a total deduc-
tion of P320.00. Plaintiff shall pay the costs.”
In the present appeal defendants claim t h at the trial
court erred in sentencing them to pay the principal of the loan
notwithstanding its finding th at the same was tainted with
usury, and erred likewise in not dismissing the case.
It is now disputed t hat the contract of loan in question was
tainted with usury. The only questions to be resolved, therefore,
are firstly, whether the creditor is entitled to collect from the
debtor the amount representing the principal obligation;
secondly, in the affirmative, if he is entitled to collect interests
thereon, and if so, at what rate.
The Usury Law penalizes any person or corporation who,
for any loan or renewal thereof or forbearance, shall collect or
receive a higher rate or greater su m or value t ha n is allowed
by law, and provides further that, in such case, the debtor may
607
Art. 1413 CONTRACTS
recover the whole interest, commissions, premiums, penalties

and surcharges paid or delivered, with costs and attorney’s fees,
in an appropriate action against his creditor, within two (2)
years after such payment or delivery. (Section 6, Act 2655, as
amended by Acts 3291 and 3998.)
Construing the above provision, We held in Go Chioco
vs. Martinez, 45 Phil. 256, th at even if the contract of loan is
declared usurious the creditor is entitled to collect the money
actually loaned and the legal interest due thereon.
In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this
Court likewise declared that, in any event, the debtor in a
usurious contract of loan should pay the creditor the amount
which he justly owes him, citing in support of this ruling its
previous decisions in Go Chioco, supra, Aguilar vs. Rublato, et
al., 40 Phil. 570, and Delgado vs. Duque Valgona, 44 Phil. 739.
In all the above cited cases it was recognized and held that
under Act 2655 a usurious contract is void; t h at the creditor
has no right of action to recover the interest in excess of the
lawful rate; but th at this did not mean t ha t the debtor may keep
the principal received by him as loan — thus unjustly enriching
himself to the damage of the creditor.
Then in Lopez and Javelona vs. El Hogar Filipino, 47
Phil. 249, We also held th at the standing jurisprudence of
this Court on the question under consideration was clearly to
the effect th at the Usury Law, by its letter and spirit, did not
deprive the lender of his right to recover from the borrower
the money actually loaned to and enjoyed by the latter. This
Court went further to say t hat the Usury Law did not provide
for the forfeiture of the capital in favor of the debtor in usurious
contracts, and th at while the forfeiture might appear to be
convenient as a drastic measure to eradicate the evil of usury,
the legal question involved should not be resolved on the basis
of convenience.
Other cases upholding the same principle are Palileo vs.
Cosio, 97 Phil. 919 and Pascua vs. Perez, L-19554, January 31,
1964, 10 SCRA 199, 200-202. In the latter, We expressly held
th at when a contract is found to be tainted with usury “the only
right of the respondent (creditor) x x x was merely to collect the
amount of the loan, plus interest due thereon.’’
The view has been expressed, however, t h at the ruling
thus consistently adhered to should now be abandoned because
Article 1957 of the new Civil Code — a subsequent law —
608
provides th at contracts and stipulations, under any cloak or

device whatever, intended to circumvent the laws against usury,
shall be void, and t hat in such cases “the borrower may recover
in accordance with the laws on usury.’’ From this the conclusion
is drawn th at the whole contract is void and that, therefore, the
creditor has no right to recover — not even his capital.
The meaning and scope of our ruling in the cases
mentioned heretofore is clearly stated and the view referred to
in the preceding paragraph is adequately answered, in Angel
Jose, etc. vs. Chelda Enterprises, etc. (L-25704, April 24, 1968).
On the question of whether a creditor in a usurious contract
may or may nor recover the principal of the loan, and, in the
affirmative, whether or not he may also recover interest thereon
at the legal rate, We said the following:
“x x x.
The court found th at there remained due from

defendants an unpaid principal amount of P20,287.50;
th at plaintiff charged usurious interests, of which
P1,048.15 has actually been deducted in advance by
plaintiff from the loan; th at said amount of P1,048.15
should therefore be deducted from the unpaid principal of
P20,287.50 leaving a balance of P19,247.35 still payable
to the plaintiff. Said court held t ha t notwithstanding
the usurious interests charged, plaintiff is not barred
from collecting the principal of the loan or its balance
of P19,247.35. Accordingly, it stated in the dispositive
portion of the decision, thus:
“WHEREFORE, judgment is hereby rendered,
ordering the defendant partnership to pay to the plaintiff
the amount of P19,247.35, with legal interest thereon
from May 29, 1964 until paid, plus a n additional sum
of P2,000.00 as damages for attorney’s fee; and, in case
the assets of defendant partnership be insufficient to
satisfy this judgment in full, ordering the defendant
David Syjueco to pay to the plaintiff one-half (1/2) of the
unsatisfied portion on this judgment.
“With costs against the defendants.”
Appealing directly to Us, defendants raise two
questions of law: (1) In a loan with usurious interest, may
the creditor recover the principal of the loan? (2) Should
attorney’s fees be awarded in plaintiff’s favor?
609
Art. 1413 CONTRACTS
“Great reliance is made by appellants on Art. 1411 of

the New Civil Code which states:
“ART. 1411. When the nullity proceeds from the
illegality of the cause or object of the contract, and the
act constitutes a criminal offense, both parties being in
pari delicto, they shall have no action against each other,
and both shall be prosecuted. Moreover, the provisions
of the Penal Code relative to the disposal of effects or
instruments of a crime shall be applicable to the things or
the price of the contract.”
“This rule shall be applicable when only one of the
parties is guilty; but the innocent one may claim what
he has given, and shall not be bound to comply with his
promise.’’
Since, according to the appellants, a usurious loan is void

due to illegality of cause or object, the rule of pari delicto expressed
in Article 1411, supra, applies, so t hat neither party can bring
action against each other. Said rule, however, appellants add,
is modified as to the borrower, by express provision of the law
(Art. 1413, New Civil Code), allowing the borrower to recover
interest paid in excess of the interest allowed by the Usury Law.
As to the lender, no exception is made to the rule; hence, he
cannot recover on the contract. So — they continue — the New
Civil Code provisions must be upheld as against the Usury Law,
under which a loan with usurious interest is not totally void,
because of Article 1961 of the New Civil Code, that: “Usurious
contracts shall be governed by the Usury Law and other special
laws, so far as they are not inconsistent with this Code.’’ (Italics
ours.)
We do not agree with such reasoning. Article 1411 of the
New Civil Code is not new; it is the same as Article 1305 of
the Old Civil Code. Therefore, said provision is no warra n t for
departing from previous interpretation that, as provided in the
Usury Law (Act No. 2655, as amended), a loan with usurious
interest is not totally void only as to the interest.
True, as stated in Article 1411 of the New Civil Code the
rule of pari delicto applies where a contract’s nullity proceeds
from illegality of the cause or object of said contract.
However, appellants fail to consider t h at a contract of
loan with usurious interest consists of principal and accessory
stipulations; the principal one is to pay the debt; the accessory
stipulation is to pay interest thereon.
610
And said two stipulations are divisible in the sense that

the former can still stand without the latter. Article 1273, Civil
Code, attests to this: “The renunciation of the principal debt
shall extinguish the accessory obligations; but the waiver of the
latter shall leave the former in force.’’
The question therefore to resolve is whether the illegal
terms as to payment of interest likewise renders a nullity the
legal terms as to payments of the principal debt. Article 1420
of the New Civil Code provides in this regard: “In case of a
divisible contract, if the illegal terms can be separated from the
legal ones, the latter may be enforced.’’
In simple loan with stipulation of usurious interest the
prestation of the debtor to pay the principal debt, which is the
cause of the contracts (Article 1350, Civil Code), is not illegal.
The illegality lies only as to the prestation to pay the stipulated
interest; hence, being separable, the latter only shouId be
deemed void, since it is the only one th at is illegal.
Neither is there a conflict between the New Civil Code and
the Usury Law. Under the latter, in Sec. 6, any person who for a
loan shall have paid a higher rate or greater sum or value than
is allowed in said law, may recover the whole interest paid. The
New Civil Code, in Article 1413 states: “Interest paid in excess
of the interest allowed by the usury laws may be recovered by
the debtor, with interest thereon from the date of payment.’’
Article 1413, in speaking of “interest paid in excess of the
interest allowed by the usury laws’’ means the whole usurious
interest; th at is, in a loan of P1,000.00, with interest of 20% per
ann u m or P200.00 for one year, if the borrower pays said P200
the whole P200.00 is the usurious interest, not just t h at part
thereof in excess of the interest allowed by law. It is in this case
th at the law does not allow division. The whole stipulation as to
interest void, since payment of said interest is illegal. The only
change effected, therefore, by Article 1413, New Civil Code, is
not to provide for the recovery of the interest paid in excess of
th at allowed by law, which the Usury Law already provided for,
but to add th at the same can be recovered “with interest thereon
from the date of payment.’’
The foregoing interpretation is reached with the philosophy

of usury legislation in mind; to discourage stipulations on
usurious interest, said stipulations are treated as wholly void,
so th at the loan becomes one without stipulation as to payment
of interest. It should not, however, be interpreted to mean
forfeiture even of the principal for this would unjustly enrich
611
Art. 1413 CONTRACTS
the borrower at the expense of the lender. Furthermore, penal

sanctions are available against a usurious lender, as a further
deterrence to usury.
The principal debt remaining without stipulation for
payment of interest can thu s be recovered by judicial action. And
in case of such demand, and the debtor incurs in delay, the debt
earns interest from the date of the demand (in this case from the
filing of the complaint). Such interest is not due to stipulation,
for there was none, the same being void. Rather, it is due to
the general provision of law th at in obligations to pay money,
where the debtor incurs in delay, he h as to pay interest by way
of damages (Art. 2209, Civil Code). The Court a quo therefore,
did not err in ordering defendants to pay the principal debt with
interest thereon at the legal rate, from the date of filing of the
complaint.
In answer to the contention t hat the forefeiture of the
principal of the usurious loan is necessary to punish the usurer.
We say this: Under the Usury Law there is already provision
for adequate punishment for the usurer namely, criminal
prosecution where, if convicted, he may be sentenced to pay a
fine be not less t han P50.00 nor t han P500.00, or imprisonment
of not less th an 30 days nor more th an one year, or both, in
the discretion of the court. He may further be sentenced to
return the entire sum received as interest, with subsidiary
imprisonment in case of non-payment thereof. It is, of course,
to be assumed th at this last penalty may be imposed only if the
return of the entire sum received as interest ha d not yet been
the subject of judgment in a civil action involving the usurious
contract of loan.
In arriving at the above conclusion, We also considered
our decision in Mulet vs. People, but found t h at the same does
not apply to the present case. The facts therein involved were as
follows:
“On July 25, 1929, Alejandra Rubillos and Especta-

cion Rubillos secured from petitioner Miguel Mulet a loan
of P550, payable within 5 years at 30 per cent interest per
annum. In the deed of mortgage executed by the Rubillos
as a security, the sum of P1,375.00 was made to appear as
capital loan of P550.00 and the total interest of P825.00
computed at 30 per cent per an nu m of 5 years. Within four
years following the execution of the mortgage, the debtors
made partial payments aggregating P278.27, on account
of interest. Thereafter, the debtors paid the whole capital
612
of P550.00 due to petitioner’s promise to condone the un-

paid interest upon payment of such capital. But to their
suprise, petitioner informed them th a t they were still in-
debted in the su m of P546.73 which represented the bal-
ance of the usurious interest. And in consideration of this
amount, petitioner pressed upon the debtors to execute
in October, 1933 in his favor, a deed of sale with pacto
de retro of a parcel of land, in substitution of the original
mortgage which was cancelled. From the date of the ex-
ecution of the new deed up to 1936, petitioner received,
as his share of the products of the land the total sum of
P480.00. Prosecuted on November 18, 1936, for the vio-
lation of the Usury Law, petitioner was convicted by the
trial court, and on appeal, the judgment was affirmed by
the Court of Appeals. The instant petition for certiorari
is directed at th at portion of the decision of the appellate
court ordering petitioner to return to the offended parties
the sum of P373.27, representing interests received by
him in excess of th at allowed by law.’’
It was Mulet’s claim that, as the amount of P373.27 had
been paid more t han two years prior to the filing of the complaint
for usury against him, its return could no longer be ordered in
accordance with the prescriptive period provided therefor in
Section 6 of the Usury Law. Said amount was made up of the
usurious interest amounting to P278.27 paid to Mulet, in cash,
and the su m of P480.00 paid to him in kind, from the total of
which two amounts 14% interest allowed by law — amounting
to P385.00 — was deducted. Our decision was t h a t Mulet should
return the amount of P480.00 which represented the value of
the produce of the land sold to him under pacto de retro which,
with the unpaid balance of the usurious interest, was the
consideration of the transaction — meaning the pacto de retro
sale. This Court then said:
“x x x. This last amount is not usurious interest

on the capital of the loan but the value of the produce
of the land sold to petitioner under pacto de retro with
the unpaid balance of the usurious interest (P546.73) as
the consideration of the transaction. This consideration,
because contrary to law, is illicit, and the contract which
results therefrom, is null and void. (Art. 1275, Civil Code).
And under the provisions of Article 1305, in connection
with Article 1303, of the Civil Code, when the nullity of
a contract arises from the illegality of the consideration
which in itself constitutes as felony, the guilty party shall
be subject to criminal proceeding while the innocent party
613
Art. 1413 CONTRACTS
may recover whatever he has given, including the fruits

thereof.’’ (Italics supplied.)
It is clear, therefore, th at in the Mulet case, the principal
of the obligation had been fully paid by the debtor to the
creditor; t hat the latter was not sentenced to pay it back to the
former, and th at what this Court declared recoverable by debtor
were only the usurious interest paid as well as the fruits of the
property sold under pacto de retro.
IN VIEW OF THE FOREGOING, the decision appealed
from is modified in the sense t hat appellee may recover from
appellant the principal of the loan (P1,180.00) only, with interest
thereon at legal rate of 6% per an nu m from the date of the filing
of the complaint. With costs.
Makalintal, Zaldivar, Teehankee, Villamor and Makasiar,
JJ., concur.
Concepcion, C.J., and Fernando, J., concur in the
dissenting opinion of Justice Castro.
Reyes, J.B.L., J., concurs with Justice Barredo.
Castro, J., dissents.
Barredo, Jr., concurs in separate opinion.
Castro J., dissenting:
Beyond the area of debate is the principle t ha t in a contract
of loan of sum of money, the cause, with respect to the lender, is
generally the borrower’s prestation to return the same amount.
It is my view, however, th at in a contract which is tainted with
usury, th at is, with a stipulation (whether written or unwritten)
to pay usurious interest, the prestation to pay such interest
is an integral part of the cause of the contract. 5 8 It is also the
controlling cause, for a usurer lends his money not just to have
it returned but indeed to acquire inordinate gain. Article 1957,
which is a new provision in the Civil Code, provides as follows:
“Contracts and stipulations, under any cloak or device whatever,
intended to circumvent the laws against usury shall be void. The
borrower may recover in accordance with the laws on usury.”
This article which declares the contract itself — not merely the
stipulation to pay usurious interest — void, necessarily regards
the prestation to pay such usurious interest as a n integral part
of the cause, making it illegal.
58
See Articles 1933, 1950 and 1957, New Civil Code.
614
Undoubtedly, the motive of the usurer is his desire to

acquire inordinate gain; this motive becomes a n integral and
controlling part of the cause because its realization can be
achieved only by compliance by the borrower with the stipulated
prestation to pay usurious interest.
The law never proscribes a contract merely because of the
immoral motive of a contracting party, for the reason t h a t it
does not concern itself with motive but only with cause. 5 9 An
exception is where such motive becomes a n integral part of the
cause, like the stipulated usurious interest in a contract of loan.
While the old law, according to El Hogar,60 considered the
usurious loan valid as to the loan and void as to the usurious
interest, the new law, in Article 1957 of the new Civil Code,
declares the usurious loan void as to the loan and void as to
the usurious interest. What is the reason for the new law?
In my view, it is none other th an its intention to regard the
usurious interest as an integral p art of the cause, thu s making
it illegal; otherwise, the new law would be devoid of reason.
Any interpretation th at divests the new law of reason, that
declares the usurious contract void and in the same breath
permits recovery of the principal of the loan — which was the
same result under the old law, as well as under El Hogar that
considered the usurious contract valid as to the loan — renders
Article 1957 of the new Civil Code meaningless and pointless.
The prestation to pay usurious interest being a n integral
and controlling part of the cause, making it illegal and the
contract of loan void, Article 1411 of the new Civil Code should
be applied. This article provides:
“When the nullity proceeds from the illegality of the
cause or object of the contract, and the act constitutes a
criminal offense, both parties being in pari delicto, they
shall have no action against each other, and both shall
be prosecuted. Moreover, the provisions of the Penal
Code relative to the disposal of effects or instrument of a
crime shall be applicable to the things or the price of the
contract.
“This rule shall be applicable when only one of the
parties is guilty; but the innocent one may claim what
he h as given, and shall not be bound to comply with his
promise.’’
59
De Jesus vs. Urrutia & Company, 32 Phil. 171.
60
Lopez a nd Javelona vs. El Hogar Pilipino, 47 Phil. 249.
615
Art. 1413 CONTRACTS
An exception is, however, provided in the second sentence

of Article 1957 which states: “The borrower may recover in
accordance with the laws on usury.” As a n exception to the
general rule in Article 1411, the debtor is allowed in accordance
with the Usury Law to recover the amount he h as paid as
usurious interest. Thus, Article 1413 explicitly authorizes that
“Interest paid in excess of the interest allowed by the usury laws
may be recovered by the debtor, with interest thereon from the
date of payment.” But the lender is not allowed to recover the
principal, because no such exception is made; hence, he falls
within the general rule stated in Article 1411.
In Mulet vs. People,61 the Supreme Court, in effect,
reconsidered its opinion in El Hogar. In Mulet, the plaintiff
extended a usurious loan to Rubillos. When the debtor failed to
pay the whole usurious interest, the creditor, in consideration
of the said unpaid interests, made the debtor execute a pacto
de retro sale of certain properties to him. He t hen sought to be
exempt from returning the value of the produce of the lands
so transferred. Mr. Justice Moran, speaking for the Supreme
Court, said:
“* * * We are of the opinion th at the petitioner should

be ordered to return * * * the amount * * * of P480.00.
This last amount is not usurious interest on the capital
of the loan but the value of the produce of the land sold to
petitioner under pacto de retro, with the unpaid balance
of the usurious interest as the consideration, because
contrary to law, is illicit, and the contract which results
therefrom, is null and void.
“If the unpaid usurious interests as the
consideration of the pacto de retro sale render such sale
null and void, a fortiori, the usurious interest as
consideration of the contract of loan, also renders such
loan null and void.”
In Asturias, et al. vs. Court of Appeals,62 the Supreme

Court, speaking through Mr. Justice Jesus Barrera, stressed
that: “A contract designed to hide a usurious agreement not only
violates the law but contravenes public policy. Such a contract
can not be countenanced and is therefore illegal and void from
its inception.”
61
73 Phil. 60.
62
L-17895, promulgated Sept. 30, 1963, 9 SCRA 131.
616
The ruling in El Hogar t hat a usurious loan was valid as

to the principal but void as to the usurious interest was based
upon the laws then in force, namely, the old Civil Code and the
Usury Law, both of which did not contain any specific explicit
provision prescribing the contract itself. I a m fully persuaded
th at in drafting Chapter 2, Title XI of Book IV of the new Civil
Code, the Code Commission knew of the majority opinion in El
Hogar, took note of it, and, to offset any doubt concerning the
intention of the Commission to overrule El Hogar, formulated
Articles 1957 and 1961. And it is of great significance to me
th at when the Commission formulated Article 1957, knowing
th at under El Hogar the usurer may recover the principal of the
loan, it omitted affirmance of the right of the lender to recover
the principal, and instead emphasized t ha t “the borrower may
recover in accordance with the laws on usury.’’
BARREDO, J., concurring:

I concur.
I believe t hat this decision expresses the fair and just
intent of our usury laws and sufficiently effectuates the public
policy th at should be pursued in usury cases.
I consider usury to be unchristian and inhuman,
particularly because it thrives best in the misery of people by
taking advantage of them when they are precisely in urgent need
of money to save themselves from a tight situation. Usury has
always been considered as a scourge everywhere in the world
since the time of the Holy Scriptures. All these notwithstanding,
I do not believe in condoning the whole indebtedness of a person
who borrows money, only because he has been made to agree,
directly or indirectly, to pay more interest t ha n t ha t authorized
by law. It is my considered view t hat what the law proscribes
and declares null and void is not the lending of money, but only
the collection of excessive interest. There is nothing morally
wrong in allowing a money-lender to get back the money he has
loaned because, after all, the borrower has used the same for his
own needs, and it is only fair th at he should not be enriched at
the expense of another. And this, to my mind, is obvious from
the language of Article 1957 of the Civil Code which provides
that:
“Contracts and stipulations, under any cloak or
device whatever, intended to circumvent the laws against
usury be void. The borrower may recover in accordance
with the laws on usury. (n)’’
617
Art. 1413 CONTRACTS
Properly construed, the phrase “contracts and stipulations”

in this provision does not contemplate the totality of the
contract of loan but only the portion thereof t ha t is “intended
to circumvent the laws against usury,” and t ha t necessarily
is no more t han any term, “cloak or device which results in
the collection of interest in excess of the rat e allowed by law.
In fact, the same provision expressly provides t h at in spite of
the nullity it ordains, “the borrower may recover in accordance
with the laws on usury.” In other words, instead of leaving the
consequences of the declared nullity to be in accordance with
general principles, the article itself spells out in black and white
what should be done with the proceeds of the proscribed act, and
it says t hat the special laws on usury shall be followed in that
respect.
To the same effect is Article 1961 of the Civil Code. It
provides that:
“Usurious contracts shall be governed by the

Usury Law and other special laws, so far as they are not
inconsistent with this Code. (n)”
And I see no point of collision between the Civil Code and
the Usury Law for the simple reason t ha t even before Art. 1957
declared usurious contracts and transactions null and void,
Section 7 of the Usury Law already provided thus:
“All covenants and stipulations, constrained in

conveyances, mortgages, bonds, bills, notes and other
contracts or evidences of debts, and all deposits of goods
or other things, whereupon or whereby there shall be
stipulated, charged, demanded, reserved, secured, taken,
or received, directly or indirectly, a higher rate or greater
sum or value for the renewal thereof or forbearance of
money, goods, or credits th an is hereinbefore allowed,
shall be void: Provided, however, T hat no merely clerical
error in the computation of interest, made without intent
to evade any of the provisions of this Act, shall render a
contract void: And provided, further, T hat nothing herein
contained shall be construed to prevent the purchase by
a n innocent purchaser of a negotiable mercantile paper,
usurious or otherwise, for valuable consideration before
maturity, when there has been no intent on the part of
said purchaser to evade the provisions of this Act and
said purchase was not a part of the original usurious
transaction. In any case, however, the maker of said note
shall have the right to recover from said original holder
618
the whole interest paid by him thereon and, in case of

litigation, also the costs and such attorney’s fees as may
be allowed by the Court.”
In this connection, it is to be noted t h at Section 6 of the
Usury Law provides:
“Any person or corporation who, for any such loan

or renewal thereof or forbearance, shall have paid or
delivered a higher rate or greater sum or value t h an is
hereinbefore allowed to be taken or received, may recover
the whole interest, commissions, premiums penalties and
surcharges paid or delivered with costs and attorney’s fees
in such sum as may be allowed by the court in a n action
against the person or corporation who took or received
them if such action is brought within two years after such
payment or delivery: Provided, however, That the creditor
shall not be obliged to return the interest, commissions
and premiums for a period of not more t ha n one year
collected by him in advance when the debtor shall have
paid the obligation before it is due, provided such interest,
and commissions and premiums do not exceed the rates
fixed in this Act.”
As a matter of fact, then, even as the Civil Code yields
to the Usury Law in Articles 1957 and 1413, in reality, there
is no conflict between their corresponding provisions. To say
th at because these laws specify only the remedies in favor of
the borrower, they impliedly deny to the lender any remedy to
recover the principal of the loan is, I submit, a non sequitur. It
appears to me more logical to construe the provisions allowing
the borrower to recover all the interest he ha s paid, as Article
1413 of the Civil Code and Section 6 of the Usury Law have been
construed together to mean in Angel Jose vs. Chelda Enterprises,
cited in the main opinion, as indicating t h at the borrower may
not recover from the lender the amount he has paid as payment
of his principal debt, and conversely, th at the lender may collect
the same if it has not been paid by the borrower.
In brief, my point is t hat while it is t rue t h at Article
1957 of the Civil Code declares th at all usurious contracts and
stipulations are void, this is nothing new, for such has been
the law even under the Usury Law before the Civil Code went
into effect, and, moreover, it is evident t ha t the Civil Code
itself yields to the Usury Law when it comes to the question of
how much of the loan and interests paid by the borrower may
be recovered by him, and the Usury Law is clear t h at he may
619
Art. 1413 CONTRACTS
recover only all the interests, including, of course, the legal part
thereof, with legal interest from the date of judicial demand,
without maintaining th at he can also recover the principal he
has already paid to the lender.
As first discussed under Art. 1175, there is now no longer
any ceiling in interest rates on loans pursuant to Central Bank
Circular No. 224 issued last Dec. 1, 1982.
Problem — On Jan. 15, 1958, D borrowed P10,000
from
C. as evidence of the indebtedness, D executed a
promissory note promising to pay the entire obligation on Jan.
15, 1959, at 24% interest per annum. As security for the
payment of the obligation, he also executed a real estate
mortgage on a house and lot registered in his name in favor
of C. This mortgage was duly registered. When the note
matured, D paid the entire obligation plus interest amounting
to P2,400. Considering that the contract is usurious, if D
institutes a n action against C for the recovery of the usurious
interest which he has paid, how much can he recover? Reason.
Answer — D can recover the entire interest of P2,400
which he has paid plus 6% interest thereon from the date of
payment. This is in accordance with Sec. 6 of the Usury Law
and Art. 1413 of the New Civil Code. It must be observed that
under Sec. 6 of the Usury Law, the debtor may recover the whole
interest paid. Under the New Civil Code , in Art. 1413, “interest
paid in excess of the interest allowed by the usury laws may be
recovered by the debtor, with interest thereon from the date of
payment.” When the Code speaks of “interest paid in excess of
the interest allowed by usury laws,” it means the whole usurious
interest. The two provisions, therefore, are almost identical. The
only change effected by Art. 1413, NCC, is not to provide for the
recovery of the interest paid in excess of t h at allowed by law,
which the Usury Law already provided for, but to add t h at the
same can be recovered “with interest thereon from the date of
payment.” (Angel Jose Warehousing Co. vs. Chelda Enterprises,
23 SCRA 119.)
(Note: Prior to Janu ary 1, 1983 and under the Treasury

Laws, no person shall receive a rate of interest, including
commissions, premiums, fines and penalties, higher t h an 12%
per an nu m or the maximum rate prescribed by the Monetary
Board for a loan secured by a mortgage upon real estate the
title to which is duly registered. Therefore, the 18% interest
rate plus the additional
8%, respectively, interest
are highly and penalty
usurious. charges Bank
[Development of 18%
ofand
the
620
Philippines vs. Perez, G.R. No. 148541, Nov. 11, 2004.] Under
Central Bank (CB) Circular No. 905, which became effective on
Jan. 1, 1983, whereby the Monetary Board is authorized to fix
interest rates, the ceiling rates under the Usury law [Act No.
2655, as amended by P.D. No. 116] have been abolished.
It should be noted th at Circular No. 905 did not repeal
nor in any way amend the Usury Law but simply suspended
the latter’s effectivity. The legislation of usury is wholly the
creature of legislation. A CB Circular cannot repeal a law. Only
a law can repeal another law. Thus, retroactive application of a
CB Circular cannot, and should not, be presumed. (Development
Bank of the Philippines vs. Perez, G.R. No. 148541, Nov. 11,
2004.)
In declaring void the stipulations authorizing excessive
interest and charges, the SC declared th at although the Usury
Law was suspended by CB Circular No. 905 and consequently
the parties are given wide latitude to agree on any interest
rate, nothing in the said Circular grants lenders carte blanche
authority to raise interest rates to levels which will either
enslave their borrowers or lead to a hemorrhaging of their
assets. (Heirs of Zoilo Espiritu and Primitiva Espiritu vs. Sps.
Maximo Landrito and Paz Landrito, etc., G.R. No. 169617, April
3, 2007)
Art. 1414. When money is paid or property delivered for

an illegal purpose, the contract may be repudiated by one
of the parties before the purpose has been accomplished,
or before any damage has been caused to a third person.
In such case, the courts may, if the public interest will thus
be subserved, allow the party repudiating the contract to
recover the money or property. 63
Art. 1415. When one of the parties to an illegal contract

is incapable of giving consent, the courts may, if the interest
of justice so demands, allow recovery of money or property
delivered by the incapacitated person. 64
Art. 1416. When the agreement is not illegal per se but is

merely prohibited, and the prohibition by the law is designed
63
New provision.
64
New provision.
621
for the protection of the plaintiff, he may, if public policy is

thereby enhanced, recover what he has paid or delivered. 65
Article Applied. — The above exception to the principle of

pari delicto is illustrated in the following cases:
Angeles vs. Court of Appeals

102 Phil. 1006
The records show th at on March 12, 1935, a homestead

patent was issued to J u an Angeles. On May 28, 1937, Angeles
sold he homestead to defendants, Gregorio Inez and Anastacia
Divino. This is now a n action commenced by the heirs of Angeles
to recover the homestead from the defendants on the ground
th at the sale is void since it was made within the prohibited
period of five years as enumerated in Sec. 118 of the Public Land
Law. Defendants, however, maintain th a t under the principle
of pari delicto, there can be no recovery. The Supreme Court,
speaking through Justice Labrado, held:
“The principle of in pari delicto is not applicable to a

homestead which h as been illegally sold in violation to the
homestead law. The reason for the rule is t h at the policy of
the law is to give land to a family for home and cultivation;
consequently, the law allows the homesteader to reacquire
the land even if it has been sold; hence, the right may not
be waived. The sale of the homestead in the case a t bar is,
therefore, null and void and petitioners have the right to
recover the homestead illegally disposed of. Consequently,
the action to recover the same does not prescribe.
“While the rule of in pari delicto should not apply to
the sale of the homestead, because such sale is contrary
to the public policy enunciated in the homestead law, the
loss of the products realized by the defendants and the
value of the necessary improvements made by them on the
land should not be excepted from the application of the
said rule because no cause or reason can be cited to justify
an exception. It has been held th at the rule of in pari
delicto is inapplicable only where the same violates a well-
established public policy. The heirs of the homesteader
should, therefore, be declared to have lost and forfeited
the value of the products gathered from the land, and
65
New provision.
622
so should the defendants lose the value of the necessary

improvements th at they have made thereon. With respect
to the price for the land, in view of the rule t ha t no one
should enrich himself at the expense of another, the return
of the price by the plaintiffs should be decreed, before the
plaintiffs may be allowed to recover back the possession of
the homestead.’’66
Philippine Banking Corp. vs. Lui She

21 SCRA 52
Justina Santos and her sister Lorenza were owners in
common of a valuable piece of land located in Manila. In it are
two residential houses with entrance on Florentino Torres street
which were occupied by Justina and Lorenza and the Hen Wah
Restaurant with entrance on Rizal Avenue which was occupied
and operated by Wong Heng, a long time lessee. When Lorenza
died in 1957, Justina became the absolute owner of the property.
Then already well advanced in years, being 90 years old, blind,
crippled, and an invalid, with no other companions except 8
maids and 17 dogs, her dreary existence was brightened only
now and then by the visits of the four children of her friend,
Wong Heng. Wong, on the other hand, who had always been her
trusted man and friend, became closer to her.
On Nov. 15, 1957, “in grateful acknowledgment of the
personal services of the lessee to her,” Just ina executed a
contract of lease in favor of Wong, covering the portion then
already leased to him and another portion fronting Florentino
Torres street. The lease was for 50 years a t a monthly rental of
P3,120.00. Ten days later (Nov. 25), the contract was amended so
as to make it cover the entire property at a n additional monthly
rental of P360.00. For his part, Wong undertook to pay out of
the rental due from him an amount not exceeding P1,000.00 a
month for the salaries of the maids and the food of her dogs. On
Dec. 21, 1957, she executed another contract giving Wong the
option to buy the leased premises for P120,000, payable within
ten years at a monthly installment of P1,000.00. The option
imposed on Wong the obligation to spend P1,800.00 a month for
the salaries of her maids and the food of the dogs. In addition,
it also imposed the condition th at Wong must become a Filipino
citizen. In order th at this condition would be complied with,
66
To the same effect: Santande r vs. Villanueva, 103 Phil. 1; Feliceo vs. Iriola 103
Phil. 125; Ras vs. Sua, 25 SCRA 153.
623
Justina filed a petition to adopt Wong and his children on the

erroneous belief th at adoption would confer on them Philippine
citizenship. The error was discovered and the proceedings were
abandoned. On Nov. 18, 1958, she executed to other contracts,
one extending the term of the lease to 99 years and another
fixing the term of the option at 50 years.
On Aug. 24 and 29, 1959, she executed two wills wherein
she bade her legatees to respect the contracts she had entered
into with Wong, but in a codicil executed on Nov. 4, 1959, she
appears to have undergone a change of heart. Claiming t ha t the
various contracts were made by her because of machinations
and inducements practised by Wong Heng, she now directed her
executor to secure the annulment of the contracts.
On Nov. 18, 1959, the present action was filed in the Court
of First Instance of Manila. The case was heard after which
the court rendered judgment declaring all the above stated
contracts, with the exception of the lease contract of Nov. 15,
1957, null and void. From this judgment both parties appealed
directly to the Supreme Court. After the case was submitted for
decision, both parties died. Wong was substituted by his wife,
Lui She, while Justina Santos was substituted by the Philippine
Banking Corporation.
The only question th at has to be resolved now in this
case is whether or not the above stated contracts are valid. The
Supreme Court, speaking through Justice Castro, held:
“With respect to the lower court’s finding t h a t in all

probability Justin a Santos could not have intended to part
with her property while she was alive nor even to lease
it in its entirety as her house was built in it, suffice it to
quote the testimony of her own witness and lawyer who
prepared the contracts in question, Atty. Alonzo: “The
ambition of the old woman, before her death, according to
her revelation to me, was to see to it t ha t these properties
be enjoyed, even to own them, by Wong Heng because
Doña Justina told me t hat she did not have any relatives
near or far, and she considered Wong Heng as a son and
his children her grandchildren; especially her consolation
in life was when she would hear the children reciting
prayers in Tagalog. She was very emphatic in the care
of the seventeen (17) dogs and of the maids who helped
her much, and she told me to see to it t h at no one would
disturb Wong Heng from those properties. T hat is why we
thought of the ninety-nine (99) years lease, we thought of
624
adoption, believing th at th ru adoption Wong Heng might

acquire Filipino citizenship; being the adopted child of a
Filipino citizen.’
“This not to say, however, that the contracts are valid.
For the testimony just quoted, while dispelling doubt as to
the intention of Justina Santos, at the same time gives
the clue to what we view as a scheme to circumvent the
Constitutional prohibition against the transfer of lands to
aliens. ‘The illicit purpose then becomes the illegal causa67
rendering the contracts void.
“Taken singly, the contracts show nothing t ha t is
necessarily illegal but considered collectively, they reveal
an insidious pattern to subvert by indirection wha t the
Constitution directly prohibits. To be sure, a lease to
an alien for a reasonable period is valid. So is a n option
giving an alien the right to buy real property on condition
th at he is granted Philippine citizenship. As this Court
said in Krivenko vs. Register of Deeds:68 ‘Aliens are not
completely excluded by the Constitution from the use of
lands for residential purposes. Since their residence in the
Philippines is temporary, they may be granted temporary
rights such as a lease contract which is not forbidden
by the Constitution. Should they desire to remain here
forever and share our fortunes and misfortunes, Filipino
citizenship is not impossible to acquire.’
“But a n alien is given not only a lease of, but also
an option to buy, a piece of land, by virtue of which the
Filipino owner cannot sell or otherwise dispose of his
property, this to last for 50 years, then it becomes clear
th at the arrangement is a virtual transfer of ownership
whereby the owner divests himself in stages, not only of
the right to enjoy the land (jus possidendi, jus utendi, jus
fruendi and jus abutendi) but also of the right to dispose
of it (jus disponendi) — rights the sum total of which
make up ownership. It is just as if today the possession
is transferred, tomorrow, the use, the next day, the
disposition, and so on, until ultimately all the rights of
which ownership is made up are consolidated in a n alien.
And yet this is just exactly what the parties in this case did
within the space of one year, with the result t h at Justina
67
Rodriguez vs. Rodriguez, 20 SCRA 908.
68
29 Phil. 480-481 (1947).
625
Santos’ ownership of her property was reduced to a hollow

concept. If this can be done, then the Constitutional ban
against alien landholding in the Philippines, as announced
in Krivenko vs. Register of Deeds, is indeed in grave peril.
“It does not follow from what has been said, however,
th at because the parties are in pari delicto they will be left
where they are, without relief. For one thing, the original
parties who were guilty of a violation of the fundamental
charter have died and have since been substituted by their
administrators to whom it would be unjust to impute their
guilt.69 For another thing, and this is not only cogent but
also important, Article 1416 of the Civil Code provides,
as an exception to the rule on pari delicto, t h a t ‘When the
agreement is not illegal per se but is merely prohibited,
and the prohibition by law is designed for the protection of
the plaintiff, he may, if public policy is thereby enhanced,
recover what he has paid or delivered.’ The Constitutional
provision t hat ‘Save in cases of hereditary succession, no
private agricultural land shall be transferred or assigned
except to individuals, corporations, or associations quali-
fied to acquire or hold lands of the public domain in the
Philippines’70 is an expression of public policy to conserve
lands for the Filipinos.
“That policy would be defeated and its continued
violation sanctioned if, instead of setting the contracts
aside and ordering the restoration of the land to the estate
of the deceased Justina Santos, this Court should apply
the general rule of pari delicto. To the extent t h at our
ruling in this case conflicts with th at laid down in Rellosa
vs. Gaw Chee Hun71 and subsequent similar cases, the
latter must be considered as pro tanto qualified.
“Accordingly, the contracts in question are annulled
and set aside; the land subject-matter of the contracts is
ordered returned to the estate of Just in a Santos as rep-
resented by the Philippine Banking Corporation; Wong
Heng (as substituted by the defendant appellant Lui She)
is ordered to pay the Philippine Banking Corporation the
sum P56,564.35, with legal interest from the date of the
69
Cf. Concurring opinion of Justice Bengzon in Rellosa vs. Gaw Chee Hun, 93
Phil. 827, 836 (1953).
70
Const., Art. XIII, Sec. 5.
71
93 Phil. 827 (1953).
626
filing of the amended complaint; and the amounts con-

signed in court by Wong Heng shall be applied to the pay-
ment of rental from November 15, 1959 until the premises
shall have been vacated by his heirs. Costs against the
defendant-appellant.’’
Fernando, J., concurring:
“With the able and well-written opinion of Justice Castro,

I am in full agreement. The exposition of the facts leaves
nothing to be desired and the statement of the law is notable
for its comprehensiveness and clarity. This concurring opinion
has been written solely to express wha t I consider to be the
unfortunate and deplorable consequences of applying the pari
delicto concept, as was, to my mind, indiscriminately done, to
alien landholding declared illegal under the Krivenko doctrines
in some past decisions.
“It is to be remembered th at in Krivenko vs. The Register
of Deeds of Manila,72 this Court over strong dissents held that
residential and commercial lots may be considered agricultural
within the meaning of the constitutional provision prohibiting
the transfer of any private agricultural land to individuals,
corporations or associations not qualified to acquire or hold
lands of the public domain in the Philippines save in cases of
hereditary succession.
That provision of the Constitution took effect on November
15, 1935 when the Commonwealth Government was established.
The interpretation as set forth in the Krivenko decision was only
handed down on November 15, 1947. Prior to t h at date there
were many who were of the opinion th at the phrase agricultural
land should be construed strictly and not be made to cover
residential and commercial lots. Acting on t h a t belief, several
transactions were entered into transferring such lots to alien-
vendees by Filipino-vendors.
“After the Krivenko decision, some Filipino vendors sought
recovery of the lots in question on the ground t h at the sales were
null and void. No definite ruling was made by this Court until
September of 1953, when on the 20th of said month, Rellosa vs.
71
93 Phil. 827 (1953).
627
Gaw Chee Hun,73 Bautista vs. Uy Isabelo,74 Talento vs. Mckiki,75

Caoile vs. Chiao Peng76 were decided.
“Of the four decisions in September, 1953, the most
estensive discussion of the question is found in Rellosa vs. Gaw
Chee Hun, the opinion being penned by the retired Justice
Bautista Angelo, with the concurrence only of one Justice,
Justice Labrador, also retired. Former Chief Justice Pa ra s as
well as former Justices Tuazon and Montemayor concurred in
the result. The necessary sixth vote for a decision was given
by then Justice Bengzon, who had a two-paragraph concurring
opinion disagreeing with the main opinion as to the force to
be accorded to the two cases 7 7 therein cited. There were two
dissenting opinions by former Justices Pablo and Alex Reyes.
“The doctrine as announced in the Rellosa case is that while
the sale by a Filipino-vendor to an alien-vendee of a residential
or a commercial lot is null and void as held in the Krivenko case,
still the Filipino-vendor has no right to recover under a civil
law doctrine, the parties being in pari delicto. The only remedy
to prevent this continuing violation of the Constitution which
the decision impliedly sanctions by allowing the alien vendees
to retain the lots in question is either escheat or reversion.
Thus: ‘By following either of these remedies, or by approving
an implementary law as above suggested, we can enforce the
fundamental policy of our Constitution regarding our natural
resources without doing violence to the principle of pari delicto.
“Were the parties really in pari delicto? Had the sale by
and between Filipino-vendor and alien-vendee occurred after
the decision in the Krivenko case, then the above view would be
correct th at both Filipino-vendor and alien-vendee could not be
considered as innocent parties within the contemplation of the
law. Both of them should be held equally guilty of evasion of the
Constitution.
“Since, however, the sales in question took place prior to
the Krivenko decision, at a time when the assumption could be
honestly entertained th at there was no constitutional prohibition
73
93 Phil. 827.
74
93 Phil. 843.
75
93 Phil. 855.
76
93 Phil. 861. See also Arambulo vs. Cua So, 95 Phil. 749 (1954); Dinglasan vs.
Lee Bun Ting, 99 Phil. 427 (1955).
77
Bough vs. Cantiveros, 40 Phil. 210 (1919) and Perez vs. Herranz, 7 Phil. 693
(1902).
628
against the sale of commercial or residential lots by Filipino-

vendor to alien-vendee, in the absence of a definite decision by
the Supreme Court, it would not be doing violence to reason to
free them from the imputation of evading the Constitution. For
evidently evasion implies at the very least knowledge of what is
being evaded. The new Civil Code (Art. 526) expressly provides:
‘Mistakes upon a doubtful or difficult question of law may be the
basis of good faith.’
“According to the Rellosa opinion, both parties are equally
guilty of evasion of the Constitution, based on the broader
principle th at ‘both parties are presumed to know the law.’
This statement th at the sales entered into prior to the Krivenko
decision were at t hat time already vitiated by a guilty knowledge
of the parties may be too extreme a view. It appears to ignore
a postulate of a constitutional system, wherein the words of
the Constitution acquire meaning through Supreme Court
adjudication.
“After the Krivenko decision, there is no doubt t h at con-
tinued possession by alien-vendee of property acquired before
its promulgation is violative of the Constitution. It is as if an
act granting aliens the right to acquire residential and commer-
cial lots were annulled by the Supreme Court as contrary to the
provision of the Constitution prohibiting aliens from acquiring
agricultural land.
“The question then as now, therefore, was and is how to
divest the alien of such property rights on terms equitable to
both parties. That question should be justly resolved in
accordance with the mandates of the Constitution not by a
wholesale condemnation of both parties for entering into a
contract at a time when there was no ban as yet arising from
the Krivenko decision, which could not have been anticipated.
Unfortunately, under the Rellosa case, it was assumed t h at the
parties, being in pari delicto, would be left in the situation in
which they were, neither being in a position to seek judicial
redress.
“Would it not have been more in consonance with the
Constitution, if instead the decision compelled the restitution
of the property by the alien-vendee to the Filipino-vendor?
Krivenko decision held in clear, explicit and unambiguous
language that: ‘We are deciding the instant case under Section 5
of Article XIII of the Constitution which is more comprehensive
and more absolute in the sense th at it prohibits the transfer
to aliens of any private agricultural land including residential
land whatever its origin might have been x x x. This prohibition
629
(Rep. Act No. 133) makes no distinction between private

lands th at are strictly agricultural and private lands t ha t are
residential or commercial. The prohibition embraces the sale
of private lands of any kind in favor of aliens, which is again
a clear implementation and a legislative interpretation of the
constitutional prohibition. x x x It is well to note a t this juncture
th at in the present case we have no choice. We are construing
the Constitution as it is and not as we may desire it to be.
Perhaps the effect of our construction is to preclude aliens,
admitted freely into the Philippines, from owning sites where
they may build their homes. But if this is the solemn mandate
of the Constitution, we will not attempt to compromise it even
in the name of amity or equity.78
“Alien-vendee is therefore incapacitated or disqualified
to acquire and hold real estate. That incapacity and that
disqualification should date from the adoption of the
Constitution on November 15, 1935. That incapacity and that
disqualification, however, was made known to Filipino-vendor
and to alien-vendee only upon the promulgation of the Krivenko
decision on November 15, 1947. Alien-vendee, therefore, cannot
be allowed to continue owning and exercising acts of ownership
over said property, when it is clearly included within the
Constitutional prohibition. Alien-vendee should t hus be made to
restore the property with its fruits and rents to Filipino-vendor,
its previous owner, if it could be shown th at in the utmost good
faith, he transferred his title over the same to alien-vendee,
upon restitution of the purchase price of course.
The Constitution bars alien-vendees from owning the
property in question. By dismissing those suits, the lots
remained in alien hands. Notwithstanding the solution of
escheat or reversion offered, they are still a t the moment of
writing, for the most part in alien hands. There have been after
almost twenty years no proceedings for escheat or reversion.
“Yet it is clear th at a n alien-vendee cannot consistently
with the constitutional provision, as interpreted in the Krivenko
decision, continue owning and exercising acts of ownership over
the real estate in question. It ought to follow then, if such a
continuing violation of the fundamental law is to be put a n end
to, th at the Filipino-vendor, who in good faith entered into, a
contract with an incapacitated person, transferring ownership
of a piece of land after the Constitution went into full force
78
79 Phil. 461, 480 (1947).
630
and effect, in the light of the ruling in the Krivenko case, be

restored to the possession and ownership thereof, when he has
filed the appropriate case or proceeding. Any other construction
would defeat the ends and purposes not only of this particular
provision in question but the rest of the Constitution itself.
“The Constitution frowns upon the title remaining in the
alien-vendee. Restoration of the property upon payment of the
price received by Filipino vendor or its reasonable equivalent
as fixed by the court is the answer. To give the constitutional
provision full force and effect, in consonance with the dictates of
equity and justice, the restoration to Filipino-vendor upon the
payment of a price fixed by the court is the better remedy. He
thought he could transfer the property to a n alien and did so.
After the Krivenko case had made clear t ha t he had no right to
sell nor an alien-vendee to purchase the property in question,
the obvious solution would be for him to reacquire the same.
That way the Constitution would be given, as it ought to be
given respect and deference.
“It may be said th at it is too late a t this stage to hope
for such a solution, the Rellosa opinion, although originally
concurred in by only one justice, being too firmly inbedded. The
writer however sees a welcome sign in the adoption by the Court
in this case of the concurring opinion of the t hen Justice, later
Chief Justice Bengzon. Had it been followed then, the problem
would not be still with us now. Fortunately, it is never too late
— not even in constitutional adjudication.’’
Art. 1417. When the price of any article or commodity

is determined by statute, or by authority of law, any person
paying any amount in excess of the maximum price allowed
may recover such excess. 79
Art. 1418. When the law fixes, or authorizes the fixing

of the maximum number of hours of labor, and a contract is
entered into whereby a laborer undertakes to work longer
than the maximum thus fixed, he may demand additional
compensation for service rendered beyond the time limit. 80
Art. 1419. When the law sets, or authorizes the setting of

a minimum wage for laborers, and a contract is agreed upon
79
New provision.
80
New provision.
631
Art. 1420 CONTRACTS
by which a laborer accepts a lower wage, he shall be entitled

to recover the deficiency. 81
Art. 1420. In case of a divisible contract, if the illegal

terms can be separated from the legal ones, the latter may be
enforced. 82
Article Applied. — The above article was applied to usurious

contracts of loan in Angel Jose vs. Chelda (supra) and Briones
vs. Cammayo (supra). The doctrine is illustrated in the following
problem asked in the 1975 Bar Examinations:
Problem — A partnership borrowed P20,000.00 from “A’’

at clearly usurious interest. Can the creditor recover anything
from the debtor? Explain.
Answer — Yes, the creditor can recover from the debtor
the following: the principal, legal interest on the principal from
the date of demand (Art. 2209, CC), legal interest on the legal
interests from the time of judicial demand (Art. 2212, CC), and
attorney’s fees, if proper, under Art. 2208 of the Civil Code.
Th at the creditor can recover the principal from the debtor
is now well settled. (Angel Jose vs. Chelda Enterprises, 23
SCRA 119; Briones vs. Cammayo, 41 SCRA 404.) In a usurious
contract of loan, there are always two stipulations. They are:
first, the principal stipulation whereby the debtor undertakes to
pay the principal; and second, the accessory stipulation whereby
the debtor undertakes to pay a usurious interest. These two
stipulations are divisible. According to Art. 1420 of the Civil
Code, in case of a divisible contract, if the illegal terms can be
separated from the legal ones, the latter may be enforced. It is
clear t hat what is illegal is the prestation to pay the stipulated
interest. Hence, being separable, the latter only should be
deemed void.
(Note: It must be noted th at in Angel Jose vs. Chelda, it
was held t hat attorney’s fees cannot be awarded. The principal
reason is that, at the time when the decision was promulgated,
there was yet no definite ruling on the point of law involved.
Now, it is already well-settled t hat the creditor may recover
the principal. Consequently, plaintiff creditor may recover the
principal plus legal interest under Arts. 2209 and 2212 of the
Civil Code. Hence, attorney’s fees may also be awarded.)
81
New provision.
82
New provision.
632
In a dissenting opinion, however, in Briones vs. Cammayo,

the then Justice Castro (with Chief Justice Concepcion and Justice
Fernando concurring) declared:
“Beyond the area of debate is the principle that in a contract

of loan of a sum of money, the cause, with respect to the lender,
is generally the lender’s prestation to return the same amount.
It is my view, however, th at in a contract which is tainted with
usury, th at is, with a stipulation x x x to pay usurious interest,
the prestation to pay such interest is an integral part of the
cause of the contract. It is also the controlling cause, for a
usurer lends his money not just to have it returned but indeed
to acquire inordinate gain. x x x
“Undoubtedly, the motive of the usurer is his desire to
acquire inordinate gain; this motive becomes a n integral and
controlling part of the cause because its realization can be
achieved only by compliance by the borrower with the stipulated
prestation to pay usurious interest.
“The law never proscribes a contract merely because of
the immoral motive of a contracting party, for the reason that
it does not concern itself with motive but only with cause. An
exception is where such motive becomes a n integral part of the
cause, like the stipulated usurious interest in a contract of loan.
xxx
“The prestation to pay usurious interest being a n integral
part and controlling part of the cause, making it illegal and the
contract of loan void, Article 1411 of the New Civil Code should
be applied. x x x
“An exception is, however, provided in the second sentence
of Article 1957 which states: “The borrower may recover in
accordance with the laws on usury.’ As a n exception to the
general rule in Article 1411, the debtor is allowed in accordance
with the Usury Law to recover the amount he has paid as
usurious interest. Thus, Article 1413 explicitly authorizes that
“Interest paid in excess of the interest allowed by the usury laws
may be recovered by the debtor, with interest thereon from the
date of payment.” But the lender is not allowed to recover the
principal, because no exception is made; hence, he falls within
the general rule stated in Article 1411.’’
We believe t ha t the above pronouncement is the

correct law.
633
Art. 1421. The defense of illegality of contracts is not

available to third persons whose interests are not directly
affected. 83
Art. 1422. A contract which is the direct result of a

previous illegal contract, is also void and inexistent.
84
83
New provision.
84
New provision.
634
TITLE III. — NATURAL
OBLIGATIONS 1
Art. 1423. Obligations are civil or natural. Civil obli-

gations give a right of action to compel their performance.
Natural obligations, not being based on positive law but on
equity and natural law, do not grant a right of action to en-
force their performance, but after voluntary fulfillment by
the obligor, they authorize the retention of what has been
delivered or rendered by reason thereof. Some natural obli-
gations are set forth in the following articles.
Concept of Natural Obligations. — According to the above

article, nat ural obligations are those based on equity and natural
law, which do not grant a right of action to enforce their performance,
but after voluntary fulfillment by the obligor, authorize the
retention of what has been delivered or rendered by reason thereof.
In other words, they refer to those “obligations without a sanction,
susceptible of voluntary performance, but not through compulsion
by legal means.” Examples of such obligations are those regulated
2
by Arts. 1424 to 1430 of the Code.

Idem; Distinguished from civil obligations. — While
it is true t h a t nat ural obligations are now regulated by the New
Civil Code, there are still two essential distinctions between such
obligations and civil obligations. They are: first, n at ural obligations
3
are based on equity and natural law, while civil obligations are based
on positive law; and second, natural obligations are not enforceable
by court action, while civil obligations are enforceable by court
action. 4
1
All provisions in this Title are new.
2
4 Tolentino, Civil Code, 1956 Ed., p. 588, citing Colin & Capitant.
3
See comments under Art. 1156, Civil Code.
4
635
Art. 1423 CONTRACTS
Idem; Distinguished from moral obligations. — Although

the terms “natural obligations’’ and “moral obligations’’ are used
interchangeably in this jurisdiction, strictly speaking, there are two
essential differences between the two. They are: first, in natural
obligations there is a juridical tie between the parties which is
not enforceable by court action, while in moral obligations there
is no juridical tie whatsoever, and second, voluntary fulfillment of
5
natu ral obligations by the obligor produces legal effects which the
courts will recognize and protect, while voluntary fulfillment of
moral obligations, on the other hand, does not produce any legal
effect which courts will recognize and protect. 6
Reasons for Regulation of Natural Obligations. — The

Code Commission explains the reasons for the regulation of natural
obligations in the new Code in the following words:
“In all the specified cases of natural obligation recognized

by the new Civil Code, there is a moral but not a legal duty to
perform or pay, but the person thus performing or paying feels
th at in good conscience he should comply with his undertaking
which is based on moral grounds. Why should the law permit
him to change his mind and recover what he has delivered or
paid? Is it not wiser and more just th at the law should compel
him to abide by his honor and conscience? Equity, morality,
natural justice — these are, after all, the abiding foundations
of all positive law. A broad policy justifies a legal principle that
would encourage persons to fulfill their moral obligations.
Furthermore, when the question is viewed from the side
of the payee, the incorporation of natural obligations into the
legal system becomes imperative. Under the laws in force under
the old Code, the payee is obliged to return the amount received
by him because the payor was not legally bound to make the
payment. But the payee knows th at by all considerations of
right and justice he ought to keep what has been delivered to
him. He is therefore dissatisfied over the law, which deprives
him of t hat which in honor and fair dealing ought to pertain
to him. Is it advisable for the state thus to give grounds to the
citizens to be justly disappointed?
5
See 4 Tolentino, Civil Code, 1956 Ed., p. 589.
6
See Villaroel vs. Estrada, 71 Phil. 140, a nd Fisher vs. Robb, 69 Phil. 101. See
also Art. 1350, Civil Code. Strictly speaking, the obligation referred to the first case
is a natura l obligation, while t h a t referred to the second case is a moral obligation.
636
NATURAL OBLIGATIONS Arts. 1424-1425
To recapitulate: because they rest upon morality and

because they are recognized in some leading civil codes, natural
obligations should again become part and parcel of Philippine
law.’’7
Art. 1424. When a right to sue upon a civil obligation

has lapsed by extinctive prescription, the obligor who vol-
untarily performs the contract cannot recover what he has
delivered or the value of the service he has rendered.
Article Applied. — The application of the above article may
be illustrated by the following:
Problem — A borrowed from B P1,000 which amount B

failed to collect. After the debt has prescribed, A voluntarily
paid B who accepted the payment. After a few months, being
in need of money, A demanded the return of the P1,000 on
the ground th at there was a wrong payment, the debt having
already prescribed, B refused to return the amount paid. May
A succeed in collecting if he sues B in court? Reason out your
answer. (1970 Bar problem)
Answer — A will not succeed in collecting the P1,000 if he
sues B in court. The case is expressly covered by Art. 1424 of the
Civil Code which declares t hat when a right to sue upon a civil
obligation h as 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.
Because of extinction prescriptive, the obligation of A to
pay his debt of P1,000 to B became a na tural obligation. While
it is true th at a natural obligation cannot be enforced by court
action, nevertheless, after voluntary fulfillment by the obligor,
under the law, the obligee is authorized to retain what ha s been
paid by reason thereof. (Art. 1423, Civil Code.)
Art. 1425. When without the knowledge or against

the will of the debtor, a third person pays a debt which the
obligor is not legally bound to pay because the action
thereon has prescribed but the debtor later voluntarily
reimburses the third person, the obligor cannot recover
what he has paid.
7
637
Art. 1426. When a minor between eighteen and twenty-

one years of age who has entered into a contract without
the consent of the parent or guardian, after the annulment
of the contract voluntarily returns the whole thing or price
received, notwithstanding the fact that he has not been
benefited thereby, there is no right to demand the thing or
price thus returned.
Art. 1427. When a minor between eighteen and twenty-
one years of age, who has entered into a contract without the
consent of the parent or guardian, voluntarily pays a sum
of money or delivers a fungible thing in fulfillment of the
obligation, there shall be no right to recover the same from
the obligee who has spent or consumed it in good faith.
Art. 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.
Art. 1429. When a testate or intestate heir voluntarily
pays a debt of the decedent exceeding the value of the
property which he received by will or by the law of intestacy
from the estate of the deceased, the payment is valid and
cannot be rescinded by the payer.
Art. 1430. When a will is declared void because it has not
been executed in accordance with the formalities required
by law, but one of the intestate heirs, after the settlement of
the debts of the deceased, pays a legacy in compliance with
a clause in the defective will, the payment is effective and
irrevocable.
638
TITLE IV. — ESTOPPEL 1
Art. 1431. Through estoppel an admission or representa-

tion is rendered conclusive upon the person making it, and
cannot be denied or disproved as against the person relying
thereon.
Concept of Estoppel. — Using the above article as basis,
estoppel may be defined as a condition or state by virtue of which an
admission or representation is rendered conclusive upon the person
making it and cannot be denied or disproved as against the person
relying thereon.
The reason for the inclusion of a separate chapter in the New
Civil Code on estoppel, according to the Code Commission, is that
the principle of estoppel, which is a n important branch of American
law, will afford solution to many questions which are not foreseen
in our legislation. It is, of course, true t h a t under the old Code there
are some articles whose underlying principle is t h a t of estoppel; but
the fact t h a t it does not definitely recognize estoppel as a separate
and distinct branch of our legal system h as not a t all helped in the
solution of these problems. 2
Art. 1432. The principles of estoppel are hereby adopted

insofar as they are not in conflict with the provisions of this
Code, the Code of Commerce, the Rules of Court and special
laws.
Art. 1433. Estoppel may be in pais or by deed.
Kinds of Estoppel. — The New Civil Code, in Art. 1433,
gives only two kinds of estoppel — estoppel in pais (by conduct)
and estoppel by deed. This classification is based on the common
law classification of estoppels into equitable and technical estoppel.
1
2
639
This classification, however, is too broad. Hence, in a recent case,

the Supreme Court classified estoppels into: (1) estoppel in pais, (2)
estoppel by deed or by record, and (3) estoppel by laches. 3
Idem; Estoppel in pais. — Estoppel in pais or by conduct

is t h a t which arises when one by his acts, representations, or
admissions, or by his silence when he ought to speak out,
intentionally or through culpable negligence, induces another to
believe certain facts to exist and such other rightfully relies and acts
on such belief, as a consequence of which he would be prejudiced if
the former is permitted to deny the existence of such facts. 4
Idem; id. — Estoppel by silence. — Estoppel by silence or

inaction refers to a type of estoppel in pais which arises when a
party, who has a right and opportunity to speak or act as well as
a duty to do so under the circumstances, intentionally or through
culpable negligence, induces another to believe certain facts to exist
and such other relies and acts on such belief, as a consequence of
which he would be prejudiced if the former is permitted to deny
the existence of such facts. A good example of this type of estoppel
5
would be t h a t which is contemplated in Art. 1437 of the New Civil

Code.
Idem; id. — Estoppel by acceptance of benefits. — Es-
toppel by acceptance of benefits refers to a type of estoppel in pais
which arises when a party by accepting benefits derived from a cer-
tain act or transaction, intentionally or through culpable negligence,
induces another to believe certain facts to exist and such other re-
lies and acts on such belief, as a consequence of which he would be
prejudiced if the former is permitted to deny the existence of such
facts. A good example of this type of estoppel would be t h a t which is
6
contemplated in Art. 1438 of the New Civil Code.

Idem; Estoppel by deed or by record. — Strictly speaking,
estoppel by deed and estoppel by record are two distinct types of
technical estoppel. Thus, estoppel by deed is defined as a type of
technical estoppel by virtue of which a party to a deed and his privies
are precluded from asserting as against the other party and his
3
Tijam vs. Sibonghanoy, 23 SCRA 29.
4
31 C.J.S. 237.
5
Ibid.
6
Ibid.
640
ESTOPPEL Arts. 1431-1433
privies any right or title in derogation of the deed, or from denying

any material fact asserted therein. On the other hand, estoppel by
7
record is defined as a type or technical estoppel by virtue of which

a party and his privies are precluded from denying the t r u t h of
matters set forth in a record whether judicial or legislative. 8
Idem; id. — Estoppel by judgment. — Estoppel by judgment

refers to a type of estoppel by virtue of which the party to a case is
precluded from denying the facts adjudicated by a court of competent
jurisdiction. Actually, estoppel by judgment is merely a type of
estoppel by record. It may be defined as the preclusion of a party to
a case from denying the facts adjudicated by a court of competent
jurisdiction. It must not, however, be confused with res judicata.
9
Estoppel by judgment bars the parties from raising any question

that might have been put in issue and decided in the previous
litigation, whereas res judicata makes a judgment conclusive
between the same parties as to the ma tter directly adjudged. 10
Idem; Estoppel by laches. — Laches, in a general sense, is

failure or neglect, for a n unreasonable and unexplained length of
time, to do t h a t which, by exercising due diligence, could or should
have been done earlier; it is negligence or omission to assert a right
within a reasonable time, warranting a presumption t h a t the party
entitled to assert it either has abandoned it or declined to assert
it. It is, therefore, a type of equitable estoppel which arises when
11
a party, knowing his rights as against another, takes no step or

delays in enforcing them until the condition of the latter, who has
no knowledge or notice t h a t the former would assert such rights, has
become so changed t h a t he cannot without injury or prejudice, be
restored to his former state.
Idem; id. — Basis. — The doctrine of laches or of “stale
demands” is based upon grounds of public policy which requires,
for the peace of society, the discouragement of stale claims and,
unlike the statute of limitations, is not a mere question of time but
Ibid.
7
19 Am. Jur. 601.

8
9
Ibid.
10
Phil. National Bank vs. Barretto, 52 Phil. 818; Namarco vs. Macadaeg, 52 Off.
Gaz. 182.
11
Tijam vs. Sibonghanoy, supra.
641
is principally a question of the inequity or unfairness of permitting

a right or claim to be enforced or asserted. 12
Idem; id. — Elements. — In order to apply the doctrine of

laches, four essential elements must be present. These elements
are: (1) conduct on the part of the defendant, or of one under whom
he claims, giving rise to the situation of which complaint is made
and for which the complaint seeks a remedy; (2) delay in asserting
the complainant’s rights, the complainant having had knowledge
or notice, of the defendant’s conduct and having been afforded an
opportunity to institute a suit; (3) lack of knowledge or notice on the
part of the defendant t h a t the complainant would assert the right on
which he bases his suit; and (4) injury or prejudice to the defendant
in the event relief is accorded to the complainant, or the suit is not
held to be barred. 13
Idem; id. id. — Application. — The doctrine of laches has

been applied several times in actions based on void contracts
practically rendering the doctrine of imprescriptibility of such
actions useless. Thus, in Rodriguez vs. Rodriguez, where the 14
plaintiff, in 1934, sold two fishponds to a daughter by a previous

marriage, and the latter, in tur n , sold the same fishponds to her
mother and stepfather for the purpose of circumventing the legal
prohibition against donations between spouses t hus converting
the said fishponds into conjugal properties, in an action
commenced by said plaintiff to revindicate the conveyed
properties twenty-eight years later, it was held tha t the doctrine
of laches is applicable.
The case of Miguel vs. Catalino is even more illustrative. The
15
factual setting of this case is as follows: The father of the plaintiffs,

a non-Christian, sold a parcel of land to the father of the defendant
in 1928 without executive approval as required by Sec. 145 of the
Administrative Code. Despite the invalidity of the sale, the former
allowed the latter to enter, possess and enjoy the land in question
without protest, from 1928 to 1943, when the former died. The
plaintiffs, who succeeded the deceased in turn, remained inactive,
without taking any step to revindicate the property from 1943 to
1962, when the present suit was finally commenced in court. Is this
12
Ibid.
13
Miguel vs. Catalino, 26 SCRA 234, and cases cited therein.
14
24 SCRA 908.
15
Supra.
642
suit now barred by laches? According to the Supreme Court, the suit
is now barred by laches. Even granting plaintiff’s proposition t ha t no
prescription lies against their father’s recorded title, their passivity
and inaction for more th an thirty-four years justifies the defendant
in setting up the equitable defense of laches. All of the four elements
of laches are present. As a result, the action of plaintiffs must be
considered barred. 16
Heirs of Lacamen vs. Heirs of Laruan

65 SCRA 605
Petition for review by certiorari of a decision of the Hon-
orable Court of Appeals affirming the judgment of the Court
of First Instance of Baguio City in Civil Case No. 738 entitled
“Heirs of Batiog Lacamen vs. Heirs of Laruan’’ . . . declaring the
contract of sale between Lacamen and Laruan null and void for
[lack of approval of the Director of the Bureau of Non-Christian
Tribes] . . .’’
Petitioners-appellants are the surviving heirs of Batiog
Lacamen, while respondents-appellants are the heirs of Laruan.
Sometime on Jan u ary 28, 1928, Laruan executed a Deed of
Sale in favor of Batiog Lacamen conveying for the sum of P300.00
his parcel of land situated in the sitio of La Trinidad, Benguet,
Mountain Province, comprising 86 acres and 16 centares and
covered by Certificate of Title No. 420 of the Registry of Benguet.
The deed was acknowledged before Antonio Rimando, a notary
public in the City of Baguio.
Immediately after the sale, Laruan delivered the certificate
of title to Lacamen. Thereupon, Lacamen entered in possession
and occupancy of the land without securing the corresponding
transfer certificate of title in his name. He introduced various
improvements and paid the proper taxes. His possession was
open, continuous, peaceful, and adverse. After his death in 1942,
his heirs remained in and continued possession and occupancy
of the land. They too paid the taxes.
After the last Global War, Lacamen’s heirs “started fixing
up the papers of all properties” left by him. In or about June,
1957, they discovered th at Laruan’s heirs, respondents-appel-
16
To the same effect — Lucas vs. Compania, 100 Phil. 277; Lotho vs. Ice and Cold
Storage of the Phil., 113 Phil. 713; Heirs of Lacamen vs. Heirs of L aruan, 65 SCRA
605.
643
lants, were able to procure a new owner’s copy of Certificate of

Title No. 420 by a petition filed in court alleging t h a t their copy
has been lost or destroyed. Through this owner’s copy, respon-
dents-appellants caused the transfer of the title on the lot in
their names. Transfer Certificate of Title No. T-775 was issued
to them by the Registry of Deeds of Benguet.
Refused of their demands for reconveyance of the title,
petitioners-appellants sued respondents-appellants in the Court
of First Instance of Baguio City on December 9, 1957, praying
among other things, th at they be declared owners of the subject
property; th at respondents-appellants be ordered to convey to
them by proper instruments or documents the land in question;
and t hat the Register of Deeds of Benguet be ordered to cancel
Transfer Certificate of Title No. T-775 and issue in lieu thereof
a new certificate of title in their names.
In answer, respondents-appellants traversed the aver-
ments in the complaint and claim absolute ownership over the
land. They asserted th at their deceased father, Laruan, never
sold the property and th at the Deed of Sale was not thumb-
marked by him.
On 5 April 1962, the Court of First Instance of Baguio
City found for respondents-appellants and against petitioners-
appellants. Forthwith, petitioners-appellants appealed to the
Court of Appeals.
On 7 December 1966, the Court of Appeals sustained the
trial court.
The Supreme Court, speaking through Justice R.
Martin,
held:
In this review, petitioners-appellants press t h at the
Court of Appeals erred —
I
“. . . IN DECLARING THE SALE BETWEEN
LACAMEN AND LARUAN TO BE NULL AND VOID.
II
“. . . IN APPLYING STRICTLY THE
PROVISIONS OF SECTIONS 118 AND 122 OF ACT
NO. 2874 AND SECTIONS 145 AND 146 OF THE
MINDANAO AND SULU.
644
ESTOPPEL
Arts. 1431-1433
III
“. . . IN AFFIRMING THE DECISION OF THE COURT
OF FIRST INSTANCE OF BAGUIO CITY.’’
which assignments could be whittled down into the pervading

issue of whether the deceased Batiog Lacamen and/or his heirs,
herein petitioners-appellants, have validly acquired ownership
over the disputed parcel of land.
“The 1917 Administrative Code of Mindanao and Sulu
declares in its Section 145 th at no contract or agreement relating
to real property shall be made by any person with any non-
Christian inhabitant of the Department of Mindanao and Sulu,
unless such contract shall bear the approval of the provincial
governor of the province wherein the contract was executed, or
his representative duly authorized for such purpose in writing
endorsed upon it. Any contract or agreement in violation of this
section is “null and void’’ under the succeeding Section 146.
“On 24 February 1919, Act No. 2798 was approved by
the Philippine Legislature extending to the Mountain Province
and the Province of Nueva Vizcaya the laws and other legal
provisions pertaining to the provinces and minor political
subdivisions of the Department of Mindanao and Sulu, with the
specific proviso th at the approval of the land transaction shall be
by the Director of the Bureau of Non-Christian Tribes.
“Then on 29 November 1919, came Act No. 2874 otherwise
known as “The Public Land Act.’’ It provided in Section 118
thereof t hat “Conveyances and encumbrances made by persons
belonging to the so-called ‘non-Christian tribes,’ when proper
shall not be valid unless duly approved by the Director of the
Bureau of Non-Christian Tribes.” Any violation of this injunction
would result in the nullity and avoidance of the transaction
under the following Section 122.
“During the regime of the Commonwealth, C.A. 141 oth-
erwise known as “The Public Land Act” was passed — Novem-
ber 7, 1936 — amending Act No. 2874. However, it contained a
similar provision in its Section 120 th at “Conveyances and en-
cumbrances made by illiterate non-Christians shall not be valid
unless duly approved by the Commissioner of Mindanao and
Sulu.’’
“The contracting parties, Lacamen and Laruan, are
bound by the foregoing laws, since both of them are illiterate
Igorots, belonging to the “non-Christian Tribes” of the Mountain
645
Province and the Controverted land was derived from a Free

Paten t or acquired from the public domain.
“The trial court did show cordiality to judicial pronounce-
ments when it avoided the realty sale between Lacamen and
Laruan for wan t of approval of the Director of the Bureau of
Non-Christian Tribes. For jurisprudence decrees t h at non-ap-
proved conveyances and encumbrances of realty by illiterate
non-Christians are not valid, i.e., not binding or obligatory.
“Nevertheless, the thrust of the facts in the case before
us weakens the gathered strength of the cited rule. The facts
summon the equity of laches.
“Laches” has been defined as “such neglect or omission
to assert a right, taken in conjunction with lapse of time and
other circumstances causing prejudice to a n adverse party, as
will operate as a bar in equity.” It is a delay in the assertion of
a right “which works disadvantage to another” because of the
“inequity founded on some change in the condition or relations
of the property or parties.” It is based on public policy which,
for the peace of society, ordains th at relief will be denied to
a stale demand which otherwise could be a valid claim. It is
different from and applies independently of prescription.
While prescription is concerned with the fact of delay, laches
is concerned with the effect of delay. Prescription is a mat t er of
time; laches is principally a question of inequity of permitting
a claim to be enforced. This inequity being founded on some
change in the condition of the property or the relation of the
parties. Prescription is statutory; laches is not. Laches applies
in equity, whereas prescription applies a t law. Prescription is
based on a fixed time, laches is not.
“Laruan’s sale of the subject lot to Lacamen could have
been valid were it not for the sole fact th at it lacked the approval
of the Director of the Bureau of Non-Christian Tribes. There
was impressed upon its face full faith and credit after it was
notarized by the notary public. The non-approval was the only
“drawback” of which the trial court has found the respondents-
appellants to “have taken advantage as their lever to deprive
[petitioner-appellants] of this land and t h a t their motive is
out and out greed.” As between Laru an and Lacamen, the sale
was regular, not infected with any flaw. Laruan’s delivery of
his certificate of title to Lacamen just after the sale symbolizes
nothing more th an a bared recognition and acceptance on his
part th at Lacamen is the new owner of the property. Thus,
not any antagonistic show of ownership was ever exhibited by
Laruan after t h at sale and until his death in May 1938.
646
“From the transfer of the land on Ja n ua ry 28, 1928,

Lacamen possessed and occupied the ceded land in concepto
de dueno until his death in April 1942. Thereafter, his heirs,
petitioners-appellants herein, took over and exercised dominion
over the property, likewise unmolested for nearly 30 years
(1928-1957) until the heirs of Laruan, respondents-appellants,
claimed ownership over the property and secured registration
of the same in their names. At the trial, petitioners-appellants
have been found to have introduced improvements on the land
consisting of houses, barns, greenhouses, walls, roads, etc., and
trees valued at P38,920.00.
“At this state, therefore, respondents-appellants’ claim of
absolute ownership over the land cannot be countenanced. It
has been held th at while a person may not acquire title to the
registered property through continuous adverse possession, in
derogation of the title of the original registered owner, the heir
of the latter, however, may lose his right to recover back the
possession of such property and the title thereto, by reason of
laches. 1 7 Much more should it be in the inst ant case where the
possession of nearly 30 years or almost half a century now is in
pursuance of sale which regrettably did not bear the approval of
the executive authority but which the vendor never questioned
during his lifetime. Laruan’s laches extends to his heirs, the
respondents-appellants herein, since they st and in privity with
him.
“Indeed, in a like case,18 it was ruled t h a t —
“Courts can not look with favor a t parties who, by

their silence, delay and inaction, knowingly induce another
to spend time, effort and expense in cultivating the land,
paying taxes and making improvements thereon for 30
long years, only to spring from ambush and claim title
when the possessor’s efforts and the rise of land values
offer an opportunity to make easy profit at his expense.”
“For notwithstanding the invalidity of the sale, the vendor

Laruan suffered the vendee Lacamen to enter, possess and
occupy the property in concepto de dueno without demurrer and
molestation, from 1928 until the former’s death in 1938; and
when respondents-appellants succeeded to the estate of their
17
De Lucas vs. Gamponia, 100 Phil. 277; Wright, Jr. vs. Lepanto Consolidated
Mining Co., L-18904, July 11, 1964, 11 SCRA 508.
18
Miguel vs. Catalino, L-23072, November 29, 1968, 26 SCRA 234.
647
father, they too kept si1ent, never claiming t ha t the lot is their
own until in 1957 or after almost 30 years they took “advantage
of the [non-approval of the sale] as their lever to deprive
[petitioners-appellants] of this land’’ with a motive t ha t was “out
and out greed.’’ Even granting, therefore, t ha t no prescription
lies against their father’s recorded title, their quiescence and
inaction for almost 30 years now commands the imposition of
laches against their adverse claim. (Miguel, footnote 27)
“It results th at as against Laruan and his heirs,
respondents-appellants herein, the late Batiog Lacamen and his
heirs, petitioners-appellants herein, have superior right and,
hence, have validly acquired ownership of the litigated land.
Vigilantibus non dormientibus sequitas subvenit.
“IN VIEW OF THE FOREGOING, the judgment of the
Court of Appeals affirming t hat of the trial court is hereby
reversed and set aside.
“The petitioners-appellants are hereby declared the lawful
owners of the land in question. Accordingly, Transfer Certificate
of Title No. T-775 in the name of respondents-appellants is
hereby cancelled and in lieu thereof the Register of Deeds of
Benguet is ordered to issue a new transfer certificate of title in
the n ame of petitioners-appellants.’’
As a m att er of fact, the doctrine has even been applied to

actions for reconveyance of property held in constructive or implied
trust. Thus, where some of the co-heirs were able, through fraud,
to register a large tract of land in their nam es in 1937, while it is
very true t h a t the principle is t h a t if property is acquired through
fraud, the person obtaining it is considered a trustee of a n implied
trust for the benefit of the person from whom the property comes or
to whom it belongs, nevertheless, since the action by the beneficiary
for reconveyance of the property was commenced only in 1960, it is
clear t h a t the doctrine of laches is applicable. In other words, the
action is already barred. 19
Idem; id. — Laches distinguished from prescription. —

Laches is different from prescription. Thus —
(1)Laches is concerned with the effect of delay; prescription is
concerned with the fact of delay.
19
Fabian vs. Fabian, 22 SCRA 231.
648
ESTOPPEL Art. 1434
(2)Laches is principally a question of inequity of permitting a

claim to be enforced, this inequity being founded on some changes
in the condition of the property or the relation of the parties;
prescription is a question or m atter of time;
(3) Laches is not statutory, whereas prescription is statutory.
(4) Laches applies in equity, whereas prescription applies at
law.
(5)Laches is not based on fixed time, whereas prescription is
based on fixed time. 20
Art. 1434. When a person who is not the owner of a

thing sells or alienates and delivers it, and later the seller or
grantor acquires title thereto, such title passes by operation
of law to the buyer or grantee.
Article Applied. — The above article is illustrated in the
following case:
Bucton vs.
Gabar 55 SCRA
499
Appeal from the decision of

the Court of Appeals in CA-
G.R. No. 49091-R, dated Ja nu a ry 10, 1973,
reversing the judgment of the trial court and dismissing the
complaint filed by herein petitioners, and from said appellate
court’s resolution dated February 5, 1973, denying
petitioners’ motion for reconsideration.
The facts of the case, as found by the trial court, which
have not been disturbed by respondent Court of Appeals, are as
follows:
“Plaintiff Nicanora Gabar Bucton (wife of her co-
plaintiff Felix Bucton) is the sister of defendant Zosimo
Gabar, husband of his co-defendant Josefina Llamoso
Gabar.
“This action for specific performance prays, inter-
alia, th at defendants-spouses be ordered to execute in
20
Miguel vs. Catalino, supra; Nielsen vs. Lepanto Consolidated Mining Co., 18
SCRA 1040.
649
Art. 1434 CONTRACTS
favor of plaintiffs a deed of sale of the western half of a

parcel of land having an area of 728 sq.m. covered by TCT
No. II (from OCT No. 6337) of the office of the Register of
Deeds of Misamis Oriental.
“Plaintiff’s evidence tends to show t h a t sometime in
1946 defendant Josefina Llamoso Gabar bought the above-
mentioned land from the spouses Villarin on installment
basis, to wit, P500.00 down, the balance payable in
installments. Josefina entered into a verbal agreement
with her sister-in-law, plaintiff Nicanora Gabar Bucton,
th at the latter would pay one-half of the price (P3,000)
and would then own one-half of the land. Pu rsu an t to this
understanding Nicanora on Janu a ry 19, 1946 gave her
sister-in-law Josefina the initial amount of P1,000, for
which the latter signed a receipt marked as Exhibit A.
“Subsequently, on May 2, 1948, Nicanora gave
Josefina P400. She later signed a receipt marked as
Exhibit B.
“On July 30, 1951 plaintiffs gave defendants
P1,000.00 in concept of loan, for which defendant Zosimo
Gabar signed a receipt marked as Exhibit E.
“Meanwhile, after Josefina had received in January,
1946 the initial amount of P1,000.00 as above stated,
plaintiffs took possession of the portion of the land
indicated to them by defendants and built a modest
nipa house therein. About two years later plaintiffs
built behind the nipa house another house for rent. And,
subsequently, plaintiffs demolished the nipa house and
in its place constructed a house of strong materials with
three apartments in the lower portion for rental purposes.
Plaintiffs occupied the upper portion of this house as their
residence, until July, 1969 when they moved to another
house, converting and leasing the upper portion as a
dormitory.
“In January, 1947, the spouses Villarin executed
the deed of sale of the land abovementioned in favor of
defendant Josefina Llamoso Gabar, Exhibit I, to whom
was issued on Ju n e 20, 1947 TCT No. II, cancelling OCT
No. 6337 (Exhibit D).
“Plaintiffs then sought to obtain a separate title
for their portion of the land in question. Defendants
repeatedly declined to accommodate plaintiffs. Their
excuse: the entire land was still mortgaged with the
650
ESTOPPEL Art. 1434
Philippine National Bank as guarantee for defendants’

loan of P3,500 contracted on J u n e 16, 1947 (Exhibit D-1).
“Plaintiffs continued enjoying their portion of the
land, planting fruit trees and receiving the rentals of their
buildings. In 1953, with the consent of defendants (who
were living on their portion), plaintiffs ha d the entire land
surveyed and subdivided preparatory to obtaining their
separate title to their portion. After the survey and the
planting of the concrete monuments defendants erected a
fence from point 2 to point 4 of the plan, Exhibit I, which
is the dividing line between the portion pertaining to
defendants, Exhibit I-1, and th at pertaining to plaintiffs,
Exhibit I-2.
“In the meantime, plaintiffs continued to insist
on obtaining their separate title. Defendants remained
unmoved, giving the same excuse. Frustrated, plaintiffs
were compelled to employ Atty. Bonifacio Regalado to
intercede; counsel tried but failed. Plaintiffs persevered,
this time employing Atty. Aquilino Pimentel, Jr. to
persuade defendants to comply with their obligation to
plaintiffs; this, too, failed. Hence, this case, which ha s cost
plaintiff’s P1,500.00 in attorney’s fees.
“Defendants’ evidence — based only on the
testimony of defendant Josefin a Llamoso Gabar — denies
agreement to sell to plaintiffs one-half of the land in
litigation. She declared t h a t the amounts she h ad
received from plaintiff Nicanora Gabar Bucton — first,
P1,000 then P400 — were loans, not payment of one-
half of the price of the land (which was P3,000.00).
This defense is devoid of merit.
“When Josefina received the first amount of P1,000
the receipt she signed, Exhibit A, reads:
‘Cagayan, Mis. Or.

Ja nu a ry 19, 1946
‘Received from Mrs. Nicanora Gabar the su m of one
thousand (P1,000) pesos, victory currency, as part payment of
the one thousand five hundred (P1,500.00) pesos, which sum is
one-half of the purchase value of Lot No. 337, under Torrens
Certificate of Title No. 6337, sold to me by Mrs. Carmen Roa
Villarin.
‘(Sgd.) Josefina Ll. Gabar.’’’

651
Art. 1434 CONTRACTS
On the basis of the facts quoted above the trial court on

February 14, 1970, rendered judgment the dispositive portion of
which reads:
“WHEREFORE, judgment is hereby rendered for

plaintiffs:
“1) Ordering defendants within thirty days from
receipt hereof to execute a deed of conveyance in favor of
plaintiffs of the portion of the land covered by OCT No. II,
indicated as Lot 337-B in the Subdivision Plan, Exhibit I,
and described in the Technical Description, Exhibit I-2;
should defendants for any reason fail to do so, the deed
shall be executed in their behalf by the Provincial Sheriff
of Misamis Oriental, or his Deputy;
“2) Ordering the Register of Deeds of Cagayan de
Oro, upon presentation to him of the above-mentioned deed
of conveyance, to cancel TCT No. II and in its stead to issue
two Transfer Certificates of Title, to wit, one to plaintiffs
and another to defendants, based on the subdivision Plan
and Technical Description above-mentioned; and ordering
defendants to present and surrender to the Register of
Deeds their TCT No. II so th at the same maybe cancelled;
and
“3) Ordering defendants to pay unto plaintiffs
attorney’s fees in the amount of P1,500.00 and to pay the
costs.
“SO ORDERED.”
Appeal was interposed by private respondents with the
Court of Appeals, which reversed the judgment of the trial court
and ordered petitioners’ complaint dismissed, on the following
legal disquisition:
“Appellees’’ alleged right of action was based on the
receipt (Exh. A) which was executed way back on January
19, 1946. An action arising from a written contract does
not prescribe until after the lapse of ten (10) years from
the date of action accrued. This period of ten (10) years is
expressly provided for in Article 1144 of the Civil Code.
“From Jan uary 19, 1946 to February 15, 1968, when
the complaint was filed in this case, twenty-two (22) years
and twenty-six (26) days h ad elapsed. Therefore, the
plaintiffs’ action to enforce the alleged written contract
(Exh. A) was not brought within the prescriptive period of
ten (10) years from the time the cause of action accrued.
652
ESTOPPEL Art. 1434
“The land in question is admittedly covered by a

torrens title in the name of Josefina Llamoso Gabar so that
the alleged possession of the land by the plaintiffs since
1947 is immaterial because ownership over registered
realty may not be acquired by prescription or adverse
possession (Section 40 of Act 496).
“It is not without reluctance t ha t in this case we are
constrained to sustain the defense of prescription, for we
think t hat plaintiffs really paid for a portion of the lot in
question pursuant to their agreement with the defendants
th at they would then own one-half of the land. But we
cannot apply ethical principles in lieu of express statutory
provisions. It is by law provided that:
‘ART. 1144. The following actions must be brought within
ten years from the time the right of action accrues:
1. Upon a written contract;

2. Upon an obligation created by law;
3. Upon a judgment.’
“If eternal vigilance is the price of safety, one cannot
sleep on one’s right and expect it to be preserved in its
pristine purity.’’
Petitioners appeal is predicated on the proposition t h at as
owners of the property by purchase from private respondents,
and being in actual, continuous and physical possession thereof
since the date of its purchase, their action to compel the vendors
to execute a formal deed of conveyance so t ha t the fact of their
ownership may be inscribed in the corresponding certificate of
title, h ad not yet prescribed when they filed the present action.
The Supreme Court, speaking through Justice
Antonio,
held:
“We hold th at the present appeal is
meritorious.
“1. There is no question t ha t petitioner Nicanora
Gabar Bucton paid P1,500.00 to respondent Josefina Ga-
bar as purchase price of one-half of the lot now covered
by TCT No. II, for respondent Court of Appeals found as
a fact “that plaintiffs really paid for a portion of the lot in
question pursuant to their agreement with the defendants
th at they would own one-half (1/2) of the land.” T hat sale,
tioners andnot
although private respondents,
consigned for the
in a public time-honored
instrument rule
or formal
writing, is nevertheless valid and binding between peti-
653
Art. 1434 CONTRACTS
is th at even a verbal contract of sale or real estate pro-

duces legal effects between the parties. 2 1 Although a t the
time said petitioner paid P1,000.00 as part payment of the
purchase price on Jan uary 19, 1946, private respondents
were not yet the owners of the lot, they became such own-
ers on Jan u ary 24, 1947, when a deed of sale was executed
in their favor by the Villarin spouses. In the premises, Ar-
ticle 1434 of the Civil Code, which provides t ha t “[w]hen
a person who is not the owner of a thing sells or alienates
and delivers it, and later the seller or grantor acquires
title thereto, such title passes by operation of law to the
buyer or grantee,” is applicable.22 Thus, the payment by
petitioner Nicanora Gabar Bucton of P1,000.00, on Janu-
ary 19, 1946, her second payment of P400.00 on May 2,
1948, and the compensation, up to amount of P100.00 (out
of the P1,000.00 loan obtained by private respondents
from petitioners on July 30, 1951), resulted in the full pay-
ment of the purchase price and the consequential acquisi-
tion by petitioners of ownership over one-half of the lot.
Petitioners therefore became owners of the one-half por-
tion of the lot in question by virtue of a sale which, though
not evidenced by a formal deed, was nevertheless proved
by both documentary and parole evidence.
2. The error of respondent Court of Appeals in
holding th at petitioners’ right of action had already
prescribed stems from its belief t h at the action of
petitioners is based on the receipt Exh. “A’’ which was
executed way back on Janu ary 19, 1946, and, therefore, in
the view of said appellate court, since petitioners’ action
was filed on February 15, 1968, or after the lapse of twenty-
two (22) years and twenty-six (26) days from the date
of said document, the same is already barred according
to the provisions of Article 1144 of the new Civil Code.
The aforecited document (Exh. “A’’), as well as the other
documents of similar import (Exh. “B” and Exh. “E”), are
the receipts issued by private respondents to petitioners,
evidencing payments by the latter of the purchase price of
one-half of the lot.
21
Couto vs. Cortes, 8 Phil. 459, 460 (1907); Guerrero vs. Miguel, 10 Phil. 52, 53
(1908).
22
Llacer vs. Muñoz de Bustillo, et al., 12 Phil. 328, 334; Inquimboy vs. Paez Vda.
de Cruz, 108 Phil. 1054, 1057; Castrillo, et al. vs. Court of Appeals, et al., March 31,
1964, 10 SCRA 549, 553; Estoque vs. Pajimula, L-24419, July 15, 1968, 24 SCRA 59,
62.
654
ESTOPPEL Art. 1434
“The real and ultimate basis of petitioners’ action is their

ownership of one-half of the lot coupled with their possession
thereof, which entitles them to a conveyance of the property.
In Sapto, et al. vs. Fabiana,23 this Court, speaking t hru Mr.
Justice J.B.L. Reyes, explained th at under the circumstances
no enforcement of the contract is needed, since the delivery
of possession of the land sold had consummated the sale and
transferred title to the purchaser, and that , actually, the action
for conveyance is one to quiet title, i.e., to remove the cloud
upon the appelee’s ownership by the refusal of the appellants to
recognize the sale made by their predecessors. We held therein
th at “* * * it is an established rule of American Jurisprudence
(made applicable in this jurisdiction by Art. 480 of the New Civil
Code) th at actions to quiet title to property in the possession of
the plaintiff are imprescriptible. (44 Am. Jur., p. 47; Cooper vs.
Rhea, 20 L.R.A. 930; Inland Empire Land Co. vs. Gra n t County,
138 Wash. 439, 245 Pac. 14.)
“The prevailing rule is th at the right of a plaintiff to
have his title to land quieted, as against one who is asserting
some adverse claim or lien thereon, is not barred while the
plaintiff or his grantors remain in actual possession of the
land, claiming to be owners thereof, the reason for this
rule being th at while the owner in fee continues liable to
an action, proceeding, or suit upon the adverse claim he
has a continuing right to the aid of a court of equity to
ascertain and determine the nature of such claim and its
effect on his title, or to assert any superior equity in his
favor. He may wait until his possession is disturbed or his
title in attacked before taking step to vindicate his right.
But the rule th at the statute of limitations is not available
as a defense to an action to remove a cloud from title can
only invoked by a complainant when he is in possession.
One who claims property which is in the possession of
another must, it seems, invoke his remedy within the
statutory period.’ (44 Am. Jur., p. 47)’’
The doctrine was reiterated recently in Gallar vs. Husain,
et al., where we ruled th at by the delivery of the possession of
the land, the sale was consummated and title was transferred
to the appellee, th at the action is actually not for specific
performance, since all it seeks is to quiet title, to remove the
cloud cast upon appellee’s ownership as a result of appellant’s
refusal to recognize the sale made by his predecessor, and that
as plaintiff-appellee is in possession of the land, and the action
23
103 Phil. 683, 686-687.
655
is imprescriptible. Considering t hat the foregoing circumstances

obtain in the present case, we hold th at petitioner’s action has
not prescribed.
“WHEREFORE, the decision and resolution of respondent
Court of Appeals appealed from are hereby reversed, and the
judgment of the Court of First Instance of Misamis Oriental,
Branch IV, in its Civil Case No. 004, is revived. Costs against
private respondents.’’
Art. 1435. If a person in representation of another sells

or alienates a thing, the former cannot subsequently set up
his own title as against the buyer or grantee.
Art. 1436. A lessee or a bailee is estopped from asserting
title to the thing leased or received, as against the lessor or
bailor.
Art. 1437. When in a contract between third persons
concerning immovable property, one of them is misled by a
person with respect to the ownership or real right over the
real estate, the latter is precluded from asserting his legal
title or interest therein, provided all these requisites are
present:
(1)There must be fraudulent representation or wrong-
ful concealment of facts known to the party estopped;
(2)The party precluded must intend that the other
should act upon the facts as misrepresented;
(3)The party misled must have been unaware of the
true facts; and
(4)The party defrauded must have acted in accordance
with the misrepresentation.
Art. 1438. One who has allowed another to assume ap-
parent ownership of personal property for the purpose of
making any transfer of it, cannot, if he received the sum for
which a pledge has been constituted, set up his own title to
defeat the pledge of the property, made by the other to a
pledgee who received the same in good faith and for value.
Art. 1439. Estoppel is effective only as between the
parties thereto or their successors in interest.
656
TITLE V. — TRUST 1
CHAPTER 1
GENERAL PROVISIONS
Art. 1440. A person who establishes a trust is called

the trustor; one in whom confidence is reposed as regards
property for the benefit of another person is known as the
trustee; and the person for whose benefit the trust has been
created is referred to as the beneficiary.
Concept of Trusts. — Trust is the legal relationship between
one person having a n equitable ownership in a certain property and
another person owning the legal title to such property. 2
There are always three persons involved in the creation of a

trust, whether created by intention of the parties or by operation of
law. They are: first, the trustor, or the person who establishes the
trust; second, the trustee, or the one in whom confidence is reposed
as regards property for the benefit of another person; and third,
the beneficiary, or the person for whose benefit the tr ust h as been
created. 3
The object of the trust, on the other hand, is known as the trust
res. The tr ust res must consist of property, actually in existence, in
which the trustor has a transferable interest or title, although as a
rule, it consists of any kind of transferable property, either realty
or personalty, including undivided, future, or contingent interest
therein. 4
1
2
54 Am. Jur., Sec. 4, p. 21.
3
4
54 Am. Jur., Sec. 32, p. 44.
657
Art. 1441 CONTRACTS
Art. 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.
Kinds of Trust. — Trusts are either express or implied.
Express trusts are those created by the intention of the trustor or
of the parties. Implied trusts come into being by operation of law. 5
Implied trusts may be either resulting or constructive.

In Ramos vs. Ramos (61 SCRA 284), the Supreme Court
adopted the following definitions:
“Implied trusts are those which, without being expressed,

are deducible from the nature of the transaction as matters
of intent, or which are superinduced on the transaction by
operation of law as matters of equity, independently of the
particular intention of the parties.” (89 C.J.S. 724.) They are
ordinarily subdivided into resulting and constructive trusts. (89
C.J.S. 722.)
“A resulting trust is broadly defined as a trust which is
raised or created by the act or construction of law, but in its
more restricted sense it is a trust raised by implication of law
and presumed always to have been contemplated by the parties,
the intention as to which is to be found in the nature of their
transaction, but not expressed in the deed or instrument of
conveyance.” (89 C.J.S. 725.) Examples of resulting trusts are
found in Articles 1448 to 1455 of the Civil Code.
“On the other hand, a constructive t rust is a t rust “raised
by construction of law, or arising by operation of law.” In a more
restricted sense and as contradistinguished from a resulting
trust, a constructive trust is “a trust not created by any words,
either expressly or impliedly evincing a direct intention to create
a trust, but by the construction of equity in order to satisfy the
demands of justice. It does not arise by agreement or intention
but by operation of law.” (89 C.J.S. 726-727.) “If a person obtains
legal title to property by fraud or concealment, courts of equity
will impress upon the title a so-called constructive t rust in favor
of the defrauded party.” A constructive trust is not a t rust in the
technical sense. (See Art. 1456, Civil Code.)”
5
658
TRUST Art. 1442
Idem; Express and implied trusts distinguished. —

Express and implied trusts may be distinguished from each other as
follows:
(1)Express t rust is one created by the intention of the trustor or
of the parties, whereas a n implied tr ust is one t h a t comes into
being by operation of law.
(2)Express trusts are those created by the direct and positive
acts of the parties, by some writing or deed or will or by words
evidencing a n intention to create a trust, whereas implied trusts
are those which, without being expressed, are deducible from the
natu re of the transaction by operation of law as matters of equity,
independently of the particular intention of the parties.
(3)Thus, if the intention to establish a tr ust is clear, the
tr ust is express; if the intent to establish a trust is to be taken from
circumstances or other matters indicative of such intent, then the
tr ust is implied.
(4)An express t rust concerning a n immovable or any interest
therein cannot be proved by parole evidence, whereas a n implied
tr ust concerning a n immovable or any interest therein may be
proved by parole evidence.
(5)An action to enforce a n express trust, so long as there is no
express repudiation of the t rust by the trustee and made known to
the beneficiary, cannot be barred by laches or by extinctive
prescription, whereas a n action to enforce a n implied trust, even
when there is no express repudiation of the tr ust by the trustee
and made known to the beneficiary, may be barred by laches or by
extinctive prescription. 6
Art. 1442. The principles of the general law of trusts,

insofar as they are not in conflict with the Code, the Code of
Commerce, the Rules of Court and special laws are hereby
adopted.
6
See Cuaycong vs. Cuaycong, 21 SCRA 1192; Fabian vs. Fabian, 22 SCRA 231.
See also Arts. 1443, 1457, Civil Code.
659
CONTRACTS
CHAPTER 2
EXPRESS TRUSTS
Art. 1443. No express trusts concerning an immovable

or any interest therein may be proved by parole evidence.
Art. 1444. No particular words are required for the
creation of an express trust, it being sufficient that a trust is
clearly intended.
Art. 1445. No trust shall fail because the trustee appoint-
ed declines the designation, unless the contrary should ap-
pear in the instrument constituting the trust.
Art. 1446. Acceptance by the beneficiary is necessary.
Nevertheless, if the trust imposes no onerous condition upon
the beneficiary, his acceptance shall be presumed, if there is
no proof to the contrary.
660
CHAPTER 3
IMPLIED TRUSTS
Art. 1447. The enumeration of the following cases of

implied trust does not exclude others established by the
general law of trust, but the limitation laid down in Article
1442 shall be applicable.
Art. 1448. There is an implied trust when property is
sold, and the legal estate is granted to one party but the
price is by another for the purpose of having the beneficial
interest of the property. The former is the trustee, while the
latter is the beneficiary. However, if the person to whom the
title is conveyed is a child, legitimate or illegitimate, of the
one paying the price of the sale, no trust is implied by law, it
being disputably presumed that there is a gift in favor of the
child.
Art. 1449. There is also an implied trust when a donation
is made to a person but it appears that although the legal
estate is transmitted to the donee, he nevertheless is either
to have no beneficial interest or only a part thereof.
Art. 1450. If the price of a sale of property is loaned or
paid by one person for the benefit of another and the
conveyance is made to the lender or payor to secure the
payment of the debt, a trust arises by operation of law in
favor of the person to whom the money is loaned or for
whom it is paid. The latter may redeem the property and
compel a conveyance thereof to him.
Article Applied. — The above article is illustrated in the

following problem asked in the 1959 Bar Examinations:
Problem — “X’’ being unable to pay the purchase price

of a house and lot for his residence has requested “Y,’’ and “Y’’
agreed to lend him the money under one condition, t h at the
661
Certificate of Title be transferred to him, in Y’s own name for his

protection and as security of the loan. Later on “Y’’ mortgaged
the property to the bank without the knowledge of “X.’’ When
the mortgage became due, “Y’’ did not redeem the mortgage and
the property was advertised for sale. “X’’ retained you as his
lawyer. What advise would you give your client and what legal
ground provided by the Code would you assert to defend his
rights? Give reasons. (1959 Bar Problem)
Answer — It is clear th at in the i nstant problem, the
provision of Art. 1450 of the Civil Code is applicable. This article
provides: “If the price of the sale of property is loaned or paid
by one person for the benefit of another and the conveyance
is made to the lender or payor to secure the payment of the
debt, a trust arises by operation of law in favor of the person
to whom the money is loaned or for whom it is paid. The latter
may redeem the property and compel a conveyance thereof to
him.” It must be observed, however, t hat the mortgage of the
property by “Y’’ to the bank is perfectly valid inasmuch as the
bank was not aware of any flaw or defect in the title or mode of
acquisition of “Y’’ since the right of “X’’ h as not been annotated
in the Certificate of Title; in other words, the bank ha d acted
in good faith. Consequently, the only way by which I would be
able to help “X’’ would be to advice him to redeem the mortgaged
property from the bank. After this is done, “X’’ can then institute
a n action to compel “Y’’ to reconvey the property to him pursuant
to the provision of Art. 1450 of the Civil Code. In this action for
reconveyance, the amount paid by “X’’ to the bank in redeeming
the property can then be applied to the payment of his debt to
“Y.’’ If there is a n excess, he can recover the amount from “Y.’’
Art. 1451. When land passes by succession to any person

and he causes the legal title to be put in the name of another,
a trust is established by implication of law for the benefit of
the true owner.
Art. 1452. If two or more persons agree to purchase
property and by common consent the legal title is taken
in the name of one of them for the benefit of all, a trust is
created by force of law in favor of the others in proportion to
the interest of each.
Art. 1453. When property is conveyed to a person in
reliance upon his declared intention to hold it for, or transfer
it to another or the grantor, there is an implied trust in favor
of the person whose benefit contemplated.
662
IMPLIED TRUSTS Arts. 1454-1456
Art. 1454. If an absolute conveyance or property is

made in order to secure the performance of an obligation
of the grantor toward the grantee, a trust by virtue of law
is established. If the fulfillment of the obligation is offered
by the grantor when it becomes due, he may demand the
reconveyance of the property to him.
Art. 1455. When any trustee, guardian or other person
holding a fiduciary relationship uses trust funds for the
purchase of property and causes the conveyance to be made
to him or to a third person, a trust is established by operation
of law in favor of the person to whom the funds belong.
Art. 1456. If property is acquired through mistake or
fraud, the person obtaining it is, by force of law, considered
a trustee of an implied trust for the benefit of the person
from whom the property comes.
Article Applied. — The most common application of the above
article would be those cases where after the death of the decedent,
some of the co-heirs will enter into a n extrajudicial settlement or
partition of the hereditary estate with preterition of the other co-
heirs, and subsequently, will secure original or transfer certificates
of title in their names. In such a case, such co-heirs are considered
trustees of a n implied or constructive trust for the benefit of the
other co-heirs who were omitted in the settlement or partition. 1
Idem; Prescriptibility of actions to enforce trust. — Prior

1964, the question as to whether or not a n action for reconveyance of
real property based upon a n implied trust resulting from fraud may
be barred by the st at ute of limitations was unsettled. The majority
of cases, however, supported the view t h a t the action cannot be
barred. Thus, where a brother, as administrator of the estate of his
parents, took advantage of the absence of his sister and registered
the properties adjudicated to his sister in his own name, in a n action
commenced by the sister twenty-nine years afterwards, it was held
t ha t the defense of prescription is clearly untenable. Public policy
demands t h a t a person guilty of fraud, or, a t least, of breach of trust,
should not be allowed to use a Torrens Title as a shield against the
consequences of his wrongdoing. 2
1
See Fabian vs. Fabian, 22 SCRA 231, and cases cited therein.
2
Jacinto vs. Jacinto, 115 Phil. 363. To the same effect: J u a n vs. Zuñiga,
1163;114
Villaluz
Phil. vs. Neme, 117 Phil. 25, and cases cited therein.
663
Finally, on May 29, 1964, the Supreme Court in Gerona vs. De

Guzman, in a n excellently phrased decision penned by then Justice
3
Concepcion, unequivocally reaffirmed the rule, overruling previous

decisions, t ha t “an action for reconveyance of real property based
upon a n implied tr ust resulting from fraud, may not be barred by the
statu te of limitations,” and further t h a t “the action therefore may be
filed x x x from the discovery of the fraud,’’ the discovery in t h a t case
being deemed to have taken place when new certificates of title were
issued exclusively in the names of the defendants therein. This rule
was subsequently reiterated in a long line of notable decisions.
Idem; id. — Period of prescription. — What is the period
of prescription for bringing a n action for reconveyance based on the
implied or constructive trust which is created in Article 1456 of the
New Civil Code? It depends. Thus —
1.If the action for reconveyance involves the annulment of
the voidable contract which became the basis for the fraudulent
registration of the subject property, then the period of prescription
is four years from the discovery of the fraud. This finds codal support
in Art. 1391, par. 4, of the Civil Code, which declares t h a t the action
for annulment of contracts which are voidable by reason of mistake
or fraud shall be brought within four years from the time of the
discovery of the mistake or fraud. It also finds support in the cases
of Gerona vs. De Guzman (11 SCRA 153), Fabian vs. Fabian (22
SCRA 231), Carantes vs. Court of Appeals (76 SCRA 514), Alarcon
vs. Bidin (120 SCRA 390), and other cases.
2.If the action involves the declaration of the nullity or
inexistence of a void or inexistent contract which became the basis
for the fraudulent registration of the subject property, then the
action is imprescriptible. This finds codal support in Art. 1410 of
the Civil Code, which declares t h a t the action or defense for the
declaration of the inexistence of a contract does not prescribe. It also
finds support in the case of Tongoy vs. Court of Appeals (123 SCRA
99).
3.If the action does not involve the annulment of a contract, but
there was fraud in the registration of the subject property, then the
period of prescription is ten years from the discovery of the fraud.
3
11 SCRA 153.
664
This finds codal support in No. (2) of Art. 1144 of the Civil Code,
which declares t h a t a n action based upon a n obligation created by
law must be brought within ten years from the time the right of
action accrues. It also finds support in the cases of Bueno vs. Reyes
(27 SCRA 1179), Varsity Hills, Inc. vs. Navarro (43 SCRA 503), Escay
vs. Court of Appeals (61 SCRA 369), Jaramil vs. Court of Appeals (78
SCRA 420), Vda. de Nacalaban vs. Court of Appeals (80 SCRA 428),
Duque vs. Domingo (80 SCRA 654), and cases.
4. If the legitimate owner of the subject property which was
fraudulently registered in the nam e of another h ad always been in
possession thereof so that, as a consequence, the constructive notice
rule cannot be applied, in reality the action for reconveyance is an
action to quiet title; therefore, the action is imprescriptible. This
finds support in the case of Caragay Layno vs. Court of Appeals (133
SCRA 718).
Idem; Laches may bar action. — In Fabian vs. Fabian, the 4
Supreme Court reiterated the rule laid down in Diaz vs. Goricho 5
t h a t laches may bar a n action to enforce a constructive trust. In

the latter case, the Court, speaking through Justice J.B.L. Reyes,
declared:
“Article 1456 of the new Civil Code, while not retroactive

in character, merely expresses a rule already recognized by
our courts prior to the Code’s promulgation. (see Gayondato
vs. Insular Treasurer, 49 Phil. 244.) Appellants are, however,
in error in believing t hat like express trust, such constructive
trusts may not be barred by lapse of time. The American law
on trusts has always maintained a distinction between express
trusts created by the intention of the parties, and the implied
or constructive trusts th at are exclusively created by law, the
latter not being trusts in their technical sense. (Gayondato vs.
Insular Treasurer, supra.) The express trusts disable the trustee
from acquiring for his own benefit the property committed to
his management or custody, at least while he does not openly
repudiate the trust, and makes such repudiation known to the
beneficiary or cestui que trust. For this reason, the old Code of
Civil Procedure (Act 190) declared t hat the rules on adverse
4
22 SCRA 231.
5
103 Phil. 264-265.
665
possession does not apply to ‘continuing and subsisting’ (i.e.,

unrepudiated) trusts.
But in constructive trusts, x x x the rule is t h at laches
constitutes a bar to actions to enforce the trust, and repudiation
is not required, unless there is a concealment of the facts giving
rise to the trust (54 Am. Jur., Secs. 580, 581; 65 C.J., Secs. 956,
957; American Law Institute, Restatement of Trusts, Section
219; on Restitution, Section 179; Stianson vs. Stianson, 6 ALR
287; Claridad vs. Beñares, 97 Phil. 973.)’’
Idem; Acquisition of property by trustee through pre-

scription. — In this jurisdiction, it is now settled t h a t in construc-
tive trusts, the trustee may acquire absolute ownership over the
trust res by acquisitive prescription. Thus, where two of the four
co-owners of a certain parcel of land which they had inherited from
their parents, had been in adverse possession of the property since
1928 in the concept of owners, declaring the property for taxation
purposes in their names in 1929, and in 1945, they subdivided the
property into two equal parts, and two transfer certificates of title
were issued separately in their names, in a n action for reconveyance
commenced by the preterited co-heirs in 1960, it was held t ha t such
action is not only barred by extinctive prescription and by laches,
but a valid, full and complete title over the property has already
vested in the defendants by acquisitive prescription. 6
It must be observed t h a t although acquisitive prescription in

favor of the trustee is possible in both express and implied trusts,
nevertheless, in the former, before absolute title can be vested in
the trustee, the following requisites must concur: (1) The trustee
must expressly repudiate the right of the beneficiary; (2) such act of
repudiation must be brought to the knowledge of the beneficiary; (3)
the evidence thereon must be clear and conclusive; and (4) expiration
of the period prescribed by law. In implied trusts, however, express
7
repudiation of the tr ust by the trustee is not required. All t h a t is

required is t h a t he must set up a title which is adverse to t h a t of the
beneficiary. In other words, the normal requisites for extraordinary
acquisitive prescription must be present.
6
Fabian vs. Fabian, supra.
7
See L agura vs. Levantino, 71 Phil. 566; Salinas vs. Tunson, 55 Phil. 729; Ramos
vs. Ramos, 61 SCRA 284.
666
Idem; Illustrative cases. — The following digests of recent

cases decided by the Supreme Court will serve to clarify some of the
above-stated principles:
Fabian vs.
Fabian 22 SCRA
231
The land in question was acquired by Pablo Fabian in

1909. In 1928, Pablo died survived by four children, Esperanza,
Benita I, Benita II, and Silvina. Later, in 1937, through a
series of fraudulent acts, Silvina Fabian and Teodora Fabian,
a niece of Pablo, were able to secure a n original certificate of
title in their name. In 1945, they subdivided the lot into two
equal parts and as a result, two new transfer certificates of title
were issued in their names. On July 18, 1960, the other heirs of
Pablo Fabian brought an action against them for reconveyance
on the ground of the existence of a n implied or constructive
trust. Defendants, however, interposed the defenses of laches,
extinctive prescription, and acquisition of absolute ownership
of the property by acquisitive prescription. From a n order of
dismissal of the complaint, plaintiffs have appealed.
Held: As far as the defense of laches is concerned, appel-
lants are in error in believing t hat like express trust, construc-
tive trust may not be barred by lapse of time. The express trusts
disable the trustee from acquiring for his own benefit the prop-
erty committed to his management or custody, a t least while he
does not openly repudiate the trust, and make such repudiation
known to the beneficiary. But in constructive trusts, the rule is
t hat laches constitutes a bar to actions to enforce the trust, and
repudiation is not required, unless there is a concealment of the
facts giving rise to the trust.
As far as defense of extinctive prescription is concerned, it
is well-settled in this jurisdiction t hat a n action for reconveyance
of real property based upon a constructive or implied trust
resulting from fraud may be barred by the st at ute of limitations.
Upon the undisputed facts in the case at bar, not only h ad laches
set when the appellants instituted their action for reconveyance
in 1960, but their right to enforce the constructive t ru st had
already prescribed.
It logically follows from the above disquisition that
acquisitive prescription h as likewise operated to vest absolute
title in the appellees, pursuant to the provisions of Section 41 of
Act 190 which was then the law in force.
667
Bueno, et al. vs. Reyes, et al.

27 SCRA 1179
The lot which is the subject mat t er of this litigation

originally belonged to Jorge Bueno. When he died, the property
descended by intestate succession to his three children, Brigida,
Eugenia and Rufino. Subsequently, Brigida and Eugenia died. In
1936, by agreement among the heirs, Francisco Reyes, Eugenia’s
husband, was entrusted with the job of filing the answer in the
cadastral proceedings and in obtaining title to the property for
and in behalf of the heirs of Jorge Bueno. Reyes filed the answer,
claiming the lot as property belonging to himself and to his two
brothers, J u a n and Mateo. Subsequently, the lot was adjudicated
in favor of the claimants, in whose names a n original certificate
of title was issued in 1939. In 1962, the heirs of Jorge Bueno,
who had always been in possession of the property, discovered
the fraud committed by Francisco Reyes. As a consequence,
they brought this action for reconveyance of the lot to them.
Defendants, however, interposed the defense or prescription of
action which was reiterated in a motion to dismiss. The trial
court a quo held t hat the action is predicated on the existence
of an implied trust and t hat such action prescribes in ten years.
Consequently, the case was dismissed. Plaintiffs appealed. The
question now is — h as the action prescribed?
Held: While there are some decisions which hold t h at an

action based upon a trust is imprescriptible, with better rule, as
laid down by this Court in other decisions, is t h at prescription
does supervene where the trust is merely a n implied one.
Upon the general proposition th at a n action for reconvey-
ance such as the present is subject to prescription in ten years
to the appellees and the court a quo are correct. The question
here, however, is: from what time should the prescriptive pe-
riod be counted? It should be remembered t h at the constructive
trust arose by reason of the bad faith of Francisco Reyes, com-
pounded by the connivance of his brothers. Consequently, the
cause of action upon such trust must be deemed to have accrued
only upon the discovery of such bad faith, or to put it more spe-
cifically, upon the discovery by the appellants that. Francisco
Reyes, in violation of their agreement with him, had obtained
registration of the disputed property in his own na me and in the
names of his brothers? It would not do to say t h at the cadastral
proceeding itself, by virtue of its n ature as a proceeding in rem,
was constructive notice to the appellants, for as far as they were
concerned the cadastral answer they had authorized Francisco
668
Reyes to file was not adverse to them; and neither he nor the
appellees may invoke the constructive notice rule on the basis of
their own breach of the authority thus given. On top of all these,
it was the appellants and not the appellees who were in posses-
sion of the property as owners, continuously up to 1962, when
for the first time the latter appeared upon the scene and tried
to get such possession, thereby revealing to them the fact of the
fraudulent registration.
It would be more in keeping with justice, therefore, to
afford the plaintiffs as well as the defendants the opportunity
to lay their respective claims and defenses before the court in a
full-blown litigation. Wherefore, the order appealed from is set
aside and the case is remanded for further proceedings.
De la Cerna, et al. vs. De la Cerna, et al.

72 SCRA 514
This is a direct appeal from an order of the lower court

dismissing the complaint of plaintiffs for partition and
reconveyance of property with damages on the ground t h a t the
action has already prescribed. The factual backdrop of the case
is as follows: Narciso de la Cerna died in 1945. His widow and
their two legitimate children subsequently executed a deed of
extrajudicial partition, which they registered on September 14,
1946 in the Office of the Register of Deeds, wherein they stated
th at they are the only owners of the subject property and that
one-half thereof is the share of the widow and the other one-
half is the share of the children. On the basis of such deed, a
transfer certificate of title was issued to them. Twenty years
later, plaintiffs, children of Narciso by a prior marriage, brought
the instan t action against defendants. Has their right of action
prescribed?
Held: His Honor committed no error in ruling t h at the
action has already prescribed. It is idle to bother as to whether
the action here is one founded exclusively on fraud which
prescribed in four years or one based on constructive trust
which is barred after ten years, there being no question t h at the
appellees secured their title more t han twenty years before the
filing of the complaint, and it is from the date of the issuance of
such title t hat the effective assertion of adverse title for purposes
of the statute of limitations is counted. (Gerona vs. De Guzman,
1 1 SCRA 153.)
669
Caragay-Layno vs. Court of Appeals

133 SCRA 718
Respondent Appellate Court, then the Court of Appeals,

affirmed in toto the judgment of the former Court of First
Instance of Pangasinan, Branch III, at Dagupan adjudging
private respondent entitled to recover possession of a parcel of
land and ordering petitioners, as defendants below, to vacate
the premises. Petitioners, as paupers, now seek a reversal of
th at judgment.
It was established by a relocation survey t ha t the Disputed
Portion is a 3,732 square-meter-area of a bigger parcel of sugar
and coconut land (Lot No. 1, Psu-24206 [Case No. 44, GLRO Rec.
No. 117]), with a total area of 8,752 square meters, situated at
Calasiao, Pangasinan. The entire parcel is covered by Original
Certificate of Title No. 63, and includes the adjoining Lots 2
and 3, issued on 11 September 1947 in the name of Mariano M.
de Vera, who died in 1951 without issue. His intestate estate
was administered first by his widow and later by her nephew,
respondent Salvador Estrada.
Petitioner, Juliana Caragay, and the decedent, Mariano
de Vera, were first cousins, “both orphans, who lived together
under one roof in the care of a common aunt.’’
As administrator, DE VERA’s widow filed in Special
Proceedings No. 4058 of the former Court of First Instance of
Pangasinan, Branch III, an inventory of all properties of deceased
which included “a parcel of land in the poblacion of Calasiao,
Pangasinan, containing a n area of 5,417 square meters, more or
less, and covered by Tax Declaration No. 12664.’’
Because of the discrepancy in area mentioned in the
Inventory as 5,147 square meters (as filed by the widow) and
th at in the title as 8,752 square meters, ESTRADA to the
Disputed Property and found th at the northwestern portion,
subsequently surveyed to be 3,732 square meters, was occupied
by petitioners-spouses Juliana Caragay Layno and Benito
Layno. ESTRADA demanded t hat they vacate the Disputed
Portion since titles in the name of the deceased DE VERA, but
petitioners refused claiming t hat the land belonged to them,
and, before them, to JULIANA’s father J u a n Caragay.
ESTRADA then instituted suit against JULIANA for the
recovery of the Disputed Portion (Civil Case No. D-2007), which
she resisted, mainly on the ground th at the Disputed Portion
had been fraudulently or mistakenly included in OCT No. 63,
670
so th at an implied or constructive trust existed in her favor. She

then counterclaimed for reconveyance of property in the sense
th at title be issued in her favor.
After hearing, the Trial Court rendered judgment ordering
JULIANA to vacate the Disputed Portion.
On appeal, respondent Appellate Court affirmed the
Decision in toto.
Before us, JULIANA takes issue with the following finding
of respondent Court:
“Although Section 102 of Act 496 allows a Petition to

compel a trustee to reconvey a registered land to the cestui
que trust (Severino vs. Severino, 44 Phil. 343; Escobar
vs. Locsin 74 Phil. 86) this remedy is no longer available
to Juliana Caragay. Mariano de Vera’s land Lot I, Psu-
24206, was registered on September 11, 1947 (Exhibit ‘C’)
and it was only on March 28, 1967 when the defendants
filed their original answer th at Caragay sought the
reconveyance to her of the 3,732 square meters. Thus, her
claim for reconveyance based on implied or constructive
trust has prescribed after 10 years. (Banaga vs. Soler,
L-15717, J u n e 30, 1961; JM Tuason and Co. vs. Mag-
dangal, L-15539, Jan. 30, 1962; Alzona vs. Capunitan, 4
SCRA 450.) In other words, Mariano de Vera’s original
Certificate of Title No. 63 (Exhibit ‘C’) has become
indefeasible.”
We are constrained to reverse.
The evidence discloses th at the Disputed Portion was
originally possessed openly, continuously and uninterruptedly
in the concept of an owner by J u a n Caragay, the deceased father
of JULIANA, and had been declared in his name under Tax
Declaration No. 28694 beginning with the year 1921 (Exhibit “2-
C’’), later revised by Tax Declaration No. 2298 in 1951 (Exhibit
“2-C’’). Upon the demise of her father in 1914, JULIANA
adjudicated the property to herself as his sole heir in 1958
(Exhibit “4’’), and declared it in her name under Tax Declaration
No. 22522 beginning with the year 1959 (Exhibit “2-A’’), later
cancelled by TD No. 3539 in 1966 (Exhibit “2’’). Realty taxes
were also religiously paid from 1938 to 1972 (Exhibit “3-A’’ to
“3-H’’). Taking the previous possession of her father to her own,
they had been in actual open, continuous and uninterrupted
possession in the concept of owner for about forty-five (45) years,
until said possession was distributed in 1966 when ESTRADA
671
informed JULIANA th at the Disputed Portion was registered in

Mariano DE VERA’s name.
To substantiate her claim of fraud in the inclusion of
the Disputed Portion in OCT No. 63, JULIANA, a n unlettered
woman, declared th at during his lifetime, DE VERA, her first
cousin, and whom she regarded as a father as he was much older
borrowed from her the Tax Declaration of her land purportedly
to be used as collateral for his loan and sugar quota application;
th at relying on her cousin’s assurances, she acceded to his
request and was made to sign some documents the contents of
which she did not even know because of her ignorance, t h a t she
discovered the fraudulent inclusion of the Disputed Portion in
OCT No. 63 only in 1966 when ESTRADA so informed her and
sought to eject them.
Of significance is the fact, disclosed by the evidence, that
for twenty (20) years from the date of registration of title in
1947 up to 1967 when this suit for recovery of possession was
instituted, neither the deceased DE VERA up to the time of his
death in 1951, not his successors-in-interest, had taken steps to
possess or lay adverse claim to the Disputed Portion. They may,
therefore be said to be guilty of laches as would effectively detail
their cause of action. Administrator ESTRADA took interest in
recovering the said portion only when he noticed the discrepancy
in areas in the inventory of property and in the title.
Inasmuch as DE VERA has failed to assert any rights over
the Disputed Portion during his lifetime, nor did his successors-
in-interest possess it for a single moment; but that, JULIANA
has been in actual, continuous and open possession thereof to
the exclusion of all and sundry, the inescapable inference is,
fraud having been unsubstantiated, th at had been erroneously
included in OCT No. 63. The mistake was confirmed by the
fact t hat deducting 3,732 sq. ms., the area of the Disputed
Portion from 8,752 sq.ms., the area of Lot 1 in OCT No. 63, the
difference is 5,020 sq.ms., which closely approximates the area
of 5,147 sq.ms., indicated in the Inventory of Property of DE
VERA. In fact, the widow by limiting the area in said Inventory
to only 5,147 sq.ms. the effect, recognized and admitted that
the Disputed Portion of 3,132 sq.ms. did not form part of the
decedent’s estate.
The foregoing conclusion does not necessarily wreak havoc

on the indefeasibility of a Torrens title. For, mere possession of
a certificate of title under the Torrens System is not conclusive
as to the holder’s true ownership of all the property described
672
therein for however does not by virtue of said certificate

alone become the owner of the land illegally included. A land
Registration Court has no jurisdiction to decree a lot to persons
who have never asserted any right of ownership over it.
“x x x Obviously then, the inclusion of said area in the title
of Lot No. 8151 is void and of no effect for a land registration
Court has no jurisdiction to decree a lot to persons who have
put no claim in it and who have never asserted any right of
ownership over it. The Land Registration Act as well as the
Cadastral Act protects only the holders of a title in good faith
and does not permit its provisions to be used as a shield for the
commission of fraud, or t hat one should enrich himself a t the
expense of another.
JULIANA, whose property has been wrongfully registered
in the name of another, but which had not yet passed into the
hands of third parties, can properly seek its reconveyance.
“The remedy of the landowner whose property has been
wrongfully or erroneously registered in another’s n ame is, after
one year from the date of the decree, not to set aside the decree,
but respecting the decree as incontrovertible and no longer open
to review, to bring an ordinary action in the ordinary court of
justice for reconveyance or, if the property has passed into the
hands of an innocent purchaser for value, for damages.
Prescription cannot be invoked against JULIANA for
the reason t hat as lawful possessor and owner of the Disputed
Portion, her cause of action for reconveyance which, in
effect, seeks to quiet title to the property, fall within settled
jurisprudence t hat an action to quiet title to property in one’s
possession is imprescriptible, her undisturbed possession over
a period of fifty-two (52) years gave her a continuing right to
seek the aid of a Court of equity to determine the n ature of the
adverse claim of a third party and the effect of her own title.
Besides, under the circumstances, JULIANA’s right to
quiet title, to seek reconveyance, and to annul OCT No. 63
accrued only in 1966 when she was made aware of a claim
adverse to her own. It was only then th at the statutory period
of prescription may be said to have commenced to ru n against
her, following the pronouncement in Faja vs. Court of Appeals,
supra, a case almost identical to this one.
“x x x Inasmuch as it is alleged in paragraph 3 of Frial’s
complaint, th at Felipe Faja has been in possession of the
property since 1845 up to present for the period of 30 years,
673
her cause of action for reconveyance, which in effect seeks to

quiet her title to the property, falls within t ha t rule. If at all,
the period of prescription began to ru n against Felipe Faja only
from the time she was served with copy of the complaint in 1975
giving her notice th at the property she was occupying was titled
in the name of Indalecio Frial. There is settled jurisprudence
t hat one who is in actual possession of a piece of land claiming
to be owner thereof may wait until his possession is disturbed
or his title is attacked before taking steps to vindicate his right,
the reason for the rule being, th at his disturbed possession gives
him a continuing right to seek the aid of a court of equity to
ascertain and determine the nature of the adverse claim of a
third party and its effect on his own title, which right can be
claimed only by one who is in possession. No better situation
can be conceived at the moment so as to apply this rule on equity
t han t hat of herein petitioners whose mother, Felipa Faja, was
in possession of the litigated property for no less t h an 30 years
and was suddenly confronted with a claim t h at the land she had
been occupying and cultivating all these years, was titled in the
name of a third person. We hold th at in such a situation the right
to quiet title to the property, to seek its reconveyance and annul
any certificate of title covering it accrued only from the time
the one in possession was made aware of a claim adverse to his
own, and it is only then t hat the statutory period of prescription
commences to r u n against such possessor.”
WHEREFORE, the judgment under review is hereby
REVERSED AND SET ASIDE, and another one entered
ordering private respondent Salvador Estrada, as Administrator
of the Estate of the Deceased, Mariano de Vera, because the
segregation of the disputed portion of 3,732 square meters
forming part of Lot No. 1, PSU-24206, Case No. 44, GLRO Rec.
No. 117, presently occupied by petitioner Jul iana Caragay-
Layno, and to reconvey the same to said petitioner. After the
segregation shall have been accomplished, the Register of Deeds
of Pangasinan is hereby ordered to issue a new certificate of
title covering said 3,732 sq.m. portion in favor of petitioner, and
another certificate of title in favor of the Estate of the deceased,
Mariano de Vera covering the remaining portion of 5,052 square
meters. No costs.
SO ORDERED.
Even in the Bar Examinations, the subject of constructive

trust ha s become popular. Thus, in 1972, the following problem was
asked:
674
Problem — “X,’’ “Y’’ and “Z,’’ falsely representing that

they were the only heirs of their deceased father J u a n Reyes,
executed a n extrajudicial partition of the property of their
deceased parent. The extrajudicial partition was registered
and as a result thereof, the original certificate of title of their
deceased parent was cancelled and a transfer certificate of title
was issued to them. They subsequently sold 1/2 of the land to
Pedro who registered the deed of conveyance, and secured a
transfer certificate of title in his name. Fourteen years later,
“A,’’ as a legitimate heir of the deceased J u a n Reyes, upon
discovering these acts of his brothers, filed a n action to recover
from “X,’’ “Y,’’ “Z’’ and Pedro his 1/4 pro indiviso share in said
property. Can “A’’ recover? Decide with reasons.
Answer — “A’’ cannot recover. It must be observed t h at “X,’’
“Y’’ and “Z’’ are actually trustees of a n implied or constructive
trust for the benefit of their co-heir “A” who was omitted in the
extrajudicial settlement. This is so, because according to Art.
1456 of the Civil Code, if property is acquired through mistake
or fraud, the person obtaining it is, by force of law, considered
a trustee of an implied trust for the benefit of the person from
whom the property comes.
In the instan t case, “A,’’ as a legitimate heir of the
deceased J u a n Reyes, had a perfect right to bring a n action
against his co-heirs for reconveyance of his 1/4 pro indiviso
share in the property owned in common. It is different in the
case of Pedro. The sale of 1/2 of the land to him by “X,’’ “Y’’ and
“Z’’ is certainly valid because he is a purchaser in good faith
and for value and because co-owners are given the right to sell
their individual shares in the thing owned in common. (Art. 493,
Civil Code.) However, the effect thereof is limited to the portion
which may be alloted to the vendors upon the termination of the
co-ownership. (Art 493, Civil Code.) Hence, such sale shall be
respected.
However, “A’s’’ right of action against “X,’’ “Y’’ and “Z’’ is
now barred:
(1) By extinctive prescription. Well-settled is the
rule in this jurisdiction th at an action for reconveyance
of real property based upon a constructive t ru st resulting
from fraud may be barred by prescription after ten years.
The period is counted from the date the trustee set up
a title adverse to th at of the beneficiary. Normally, this
would take place at the time the deed of extrajudicial
settlement is registered and a new certificate of title is
675
issued in the n ame of the trustee or trustees. The basis

for this is t hat such registration constitutes a constructive
notice to the whole world.
(2) By laches, in constructive trusts, the rule is
likewise settled th at laches constitutes a bar to enforce
the trust. All of the elements are present. There is conduct
of the defendant giving rise to the situation of which com-
plaint is made and for which the complaint seeks a rem-
edy; the plaintiff, with knowledge or notice of such con-
duct, slept on his rights; the defendants had no knowledge
or notice t hat the plaintiff would assert his right against
them; and finally, defendants will suffer damage or injury
if the complaint is not barred.
Problem — “HH,’’ “II,’’ “JJ’’ inherited from their parents
a large parcel of land. “HH’’ and “II’’ went abroad to reside in
Canada. In their absence, “JJ’’ applied for the registration of
the whole land in his name only. In due time, “JJ’’ obtained a
Torrens Title for the land.
When “HH’’ and “II’’ returned from Canada after seven
years, they found out what “JJ’’ did and sued him for their
respective shares. “JJ’’ contended th at the decree of title can no
longer be reviewed or changed because of the lapse of more than
one year from its issuance.
In whose favor would you decide? (1980 Bar
Problem)
Answer — My decision will be in favor of “HH’’ and “II.’’
In reality, the action commenced by plaintiffs against defendant
is an action for reconveyance of their respective shares in the
subject property based on the constructive t rust recognized
through mistake or fraud, the person obtaining it is, by force of
law, considered a trustee of a n implied trust for the benefit of
the person from whom the property comes. Since the obligation
is created by law, the action commenced by the beneficiaries
against him shall be counted from the time of the discovery of
the fraud. When did the plaintiffs discover the fraud. Under the
constructive notice rule, they are deemed to have discovered the
fraud as of the date the trustee set up in himself a title adverse
to the title of the beneficiaries. Normally, this would be the date
the trustee (“JJ’’) obtained his Torrens Title. Since the instant
action was commenced seven years after the issuance of said
Title, it is obvious t hat it was commenced in time.
Problem — Explain the following concept of t rust de
son tort or otherwise known as constructive t rust (2007 Bar
Problem)
676
IMPLIED TRUSTS Art. 1457
Answer — A constructive trust is a form of implied trust

created by equity to meet the demands of justice. It arises
contrary to intention against one who, by fraud, duress or
mistake or breach of fiduciary duty or wrongful disposition of
another’s property, obtains or holds the legal right to property
which he is not entitled to under the law. (Huang vs. CA, G.R.
No.108525, Sept. 13,1994). An example of constructive trust
is when a property is acquired through mistake or fraud, the
person obtaining it is by force of law, considered a trustee of
a n implied trust for the benefit of the person from whom the
property comes (Art.1456,NCC).
Art. 1457. An implied trust may be proved by oral

evidence.
— oOo —
677
COMMENTS and JURISPRUDENCE
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By
DESIDERIO P. JURADO†
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Ateneo de Manila University, Far Eastern University,
University of Santo Tomas, University of Manila,
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PREFACE TO THE 2010 EDITION
True to its categorization by Dr. Jovito Salonga more tha n for-

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as put by Dr. Salonga : “ xxx the living law is not t h a t simple, that
above the array of words and phrases, there is a n area of study that
is real and fascinating, as involved as life, and as complicated as the
social process of which the law is the chief agency of control.”
This 2009 Revised Edition, again, is a testament to the living
law; a law t h a t continues to evolve and grow with life itself. It is a
law t h a t continues to thrive and flourish with life’s complexities.
Indeed, there is wisdom in Dr. Salonga’s conclusion t h a t “xxx law
assumes stability only when it has not lost its capacity for growth.”
This capacity for growth is possessed by the law on Obligations and
Contracts.
In closing this Preface, we again express our eternal and deep-
est gratitude to Dr. Salonga for the inspiring and beautiful
Fore- word, and to Mr. Juanito F. Fontelera, owner an d publisher
of the REX BOOK STORE, without whose support, this edition
would not have been made possible.
QUEZON CITY ,
Philippines August 23, 2008
v
JUSTICE ROLAND B. JURADO
Associate Justice, Sandiganbayan, Chairman, 5th Division;
Former RTC Judge Branch 76, Malolos, Bulacan;
Former MTC Judge, Branch 2, Malolos, Bulacan;
Former Fourth Assistant City Prosecutor,
Caloocan City; Former Professor of Law – FEU, UE, MLQU and
SSC; BSC; Ll.B. (FEU)
ATTY. ROSARIO JURADO-BENEDICTO

Vice-President and Head, Bank of the
Philippine Islands, Legal Services Division
Partner, Benedicto, Verzosa, Burkley &
Associate;
Former Corporate Secretary/Assistant
Corporate Secretary
and Legal Officer of the Filinvest Group
of Companies, and the Francisco
V. del Rosario Group of Companies; Private Practitioner, Dizon, Paculdo,
Jurado, Jurado, Vitug and Associates;
Former Professor, F.E.U. School of Business; Former Professor
of San Sebastian College of Law; A.B. and Ll.B. (U.P. Diliman)
ATTY. RUDOLF PHILIP B. JURADO

Private Practitioner, The Law Firm of R.P.B. Jurado; Former
Partner, Culvera, Waytan & Jurado Law Offices; Former Trial Lawyer,
Coronel Law Office; Professor, MLQU School of Law; Former Professor
U.E. College of Law and Lyceum College of Law; B.S.C.,
Ll.B. (U.E.)
ATTY. ROBERT B. JURADO

Consultant, Housing and Urban Development
and Coordinating Council (HUDCC); Private Practitioner;
Former Director, Legislative Bills and Index Services,
Senate of the Republic of the Philippines and HUDCC;
Former Consultant to the Office of the Vice President of the
Philippines; Former Trial Lawyer, Marbibi Law Office, Electrical Engi-
neering (N.U.); Ll.B. (F.EU)
and
ATTY. LEONARD PEEJAY V. JURADO

Junior Associate
Angara Abello Concepcion
Regala and Cruz Law
Officers
BSC LLBvi — San Beda
College
We cannot help but read once again the Foreword that
Dr. Jovito R. Salonga has written way back in 1959. Yes, it was
written almost forty three years ago, but as we read it, we only
realize too well how true and accurate every word he has written,
more particularly when he said that:
“x x x life is complex and real, t h a t the law which essays
to support and maintain a regime of ordered liberty, upholding
basic values and reconciling demands and interests t h a t over-
lap and conflict, should cope with its increasing complexities,
t h a t it cannot be inert but t h a t it must thrive and flourish,
since history has shown t h a t law assumes stability only when
it has not lost its capacity for growth.
x x x The subject of Obligations and Contracts pervades
the entire social structure. It has been recognized t h a t no
society can long endure without a workable, realistic system
of liabilities. The field of contracts alone illustrates the vital
function of law in a free society, where respect for the worth
and dignity of the h u m a n personality demands t h a t individual
volition be afforded a wide area of latitude consistent with the
demands of the social order. x x x’’
And as we write this Preface, the law on Obligations and
Contracts continue to expand and pervade even our advancing
technology, including electronic commerce. Yes, indeed, this is a
living law. It is neither simple nor easy but is r at her real and as
involved as life.
We are glad t h a t as observed by Dr. Salonga this “book sup-
plies a n acute need for a manual t h a t is well-grounded, comprehen-
sive and balanced in treatment.’’
Thus, once again, we wish to extend our increasing gratitude
to Dr. Salonga, to the Professors of Obligations and Contracts who
have been prescribing this book as their official text, to our brother,
RICHARD B. JURADO of the Philippine Senate who assisted us in
the preparation of this book and to Rex Book Store. To all of you,
th ank you so much!!!
vii
JUDGE ROLAND B. JURADO
Judge, Regional Trial Court, Branch 76, Malolos, Bulacan;
Former Judge, Municipal Trial Court, Branch 2, Malolos, Bulacan;
Former Fourth Assistant City Prosecutor, Caloocan
City; Former Legal Consultant, Metro Manila
Commission Former Professor, San Sebastian College of
Law;
U.E. College of Law and
M.L.Q.U. College of Law; — B.S.C., Ll.B. (F.E.U.)
ATTY. ROSARIO B. JURADO-BENEDICTO

Assistant Vice-President and Head,
Documentation and Intellectual Property Rights,
Department,
Legal Services Division of the Bank of the Philippine Islands;
Partner, Benedicto, Verzosa, Gealogo, Burkley and Associates;
Former Corporate Secretary and Legal Officer of the Filinvest
Group of Companies and the Francisco V. del Rosario
Group of Companies;
Former Professor, F.E.U. School of Business;
Former Professor, San Sebastian College of Law; —
A.B., Ll.B., (U.P. Diliman)

Partner, Rudolf Philip B. Jurado Law Office, Legal Practitioner
Former Partner, Cabrera, Waytan & Jurado Law Office;
Former Trial Lawyer, Antonio P. Coronel Law Office;
Professor, MLQU College of Law;
Former Professor, University of the East
College of Law; and Lyceum of the Philippines, College of Law;
Former Executive Assistant, Court of Appeals; —
B.S.C., Ll.B. (U.E.)
and
ATTY. ROBERT B. JURADO

Chief Legal, Office of Senator Noli de Castro, Legal Practitioner
Former Director, Legislative Bills and Index Services,
Senate of the Republic of the Philippines;
Trial Lawyer, Marbibi Law Office — B.S.E.E., Ll.B. (F.E.U.)
viii
The recent decisions of the Supreme Court as well as the other

developments in the field of Obligations and Contracts have truly
supported the need to come out with a revised edition of this text.
Thus, inspired with the memory of our father, the late JUSTICE
DESIDERIO P. JURADO who so loved the study of law without
question, coupled with the unceasing care of NENA (as was affec-
tionately called by Papa) we humbly bring out this revised edition.
We dare not end this Preface without expressing or reiterating
our deepest gratitude to Dr. JOVITO R. SALONGA who wrote the
beautiful foreword for this text, to the many Professors of Obliga-
tions and Contracts who continue to prescribe this book as their of-
ficial text in the various law schools and universities, and finally to
Mr. and Mrs. FONTELERA of Rex Book Store.
Quezon City,
Philippines December,
1992
JUDGE ROLAND B. JURADO

(Judge, Municipal Trial Court, Branch 2, Malolos, Bulacan;
Former Fourth Assistant City Prosecutor, Caloocan City;
Former Legal Consultant, Metro Manila Commission
Professor, San Sebastian College of Law;
B.S.C., Ll.B. (F.E.U.)
ATTY. ROSARIO B. JURADO-BENEDICTO

(Manager, Legal Services Division,
Bank of the Philippine Island;
Partner, Ramirez, Bargas, Benedicto and Associates;
Former Corporate Secretary and Legal
Officer of the Filinvest Group of Companies and the
Francisco V. del Rosario Group of Companies;
ix
Former Professor, F.E.U. School of Business;
A.B, Ll.B., U.P.)
and

(Trial Lawyer, CORONEL LAW OFFICE;
Professor, Philippine School of Business Administration,
Manila; Former Executive Assistant, Court of Appeals;
LI.B., U.E.)
x
PREFACE
It is with a sense of pride t h a t we are bringing out once again a

revised edition of this text on Obligations and Contracts.
We would like to take advantage of this occasion to extend our
gratitude to Dr. Jovito R. Salonga, who wrote the beautiful foreword
more t ha n twenty years ago, to Dean Florenz D. Regalado of the Col-
lege of Law of San Beda, to former Dean Emilio dela Paz of Lyceum,
to the many Professors of Obligations and Contracts who had been
prescribing this work as their official text for almost thirty years,
and, of course, to Rex Book Store without whose help and encourage-
ment, material or otherwise, this book would not be a reality.
D. P. JURADO
Manila
July 20, 1987
xi
xii
FOREWORD
For a number of years, there has been going on some kind of a

debate as to the proper method of teaching and expounding a sub-
ject for students of law. To be sure, no concrete proposition h as been
drafted, no physical stage has been set. But the debate has been
raging in colleges and universities in full, though quiet, intensity.
On one side of this debate are those whose avowed mission it
is to make law simple and simplified, reducing it to a set of easy,
neat and elemental propositions, in the manner of one who promises
health and beauty in six easy lessons; on the other side are those
who would confront the student with the state of the law anywhere
— simple in form but sometimes unmanageable in essence, in
other respects involved in both style and content, assuming, when
interrelated, uncertain dimensions.
The consequence of this debate is easily recognizable: law stu-
dents in the Philippines may be divided roughly into two classes,
with some allowances for fence-sitters — those who desire and are
satisfied with the easy method of teaching, uncomplicated and en-
gagingly simple, dispensing nothing but settled principles of law
as applied to safe and settled instances, and those students who,
informed by the spirit of inquiry, see through this illusion of cer-
tainty, perceiving t h a t the living law is not t h a t simple, t h a t above
the array of words and phrases there is a n area of study t h a t is real
and fascinating, as involved as life, and as complicated as the social
process of which law is the chief agency of control.
Text-writers of law books have been busy aligning themselves
with one or the other side. On one side, we have books t h a t have
reduced the law to a simple mat ter of definitions, distinctions, and
enumerations, with a convenient set of examples thrown in for good
measure; on the other side, we have books t h a t contain these and
more, reminding us t h a t life is complex and real, t h a t the law which
essays to support and maintain a regime of ordered liberty, uphold-
ing basic social values and reconciling demands and interests that
overlap and conflict, should cope with its increasing complexities,
xiii
t h a t it cannot be inert but t h a t it must thrive and flourish, since his-
tory has shown t h a t law assumes stability only when it has not lost
its capacity for growth.
The book of Professor Desiderio P. Jurado is now involved in
this debate, and it is well t h a t it h as made its appearance. The sub-
ject of Obligations and Contracts pervades the entire social struc-
ture. It h as been recognized t h a t no society can long endure without
a workable, realistic system of liabilities. The field of contracts alone
illustrates the vital function of law in a free society, where respect
for the worth and dignity of the h um a n demands t h a t individual
volition be afforded a wide area of latitude consistent with the de-
mands of the social order. There is therefore more th an enough room
for works such as this, and in particular, Professor Jurado’s book
supplies a n acute need for a manual t h a t is well-grounded, compre-
hensive, and balanced in treatment. It does not belong to the “easy’’
school.
Professor Jurado has brought to this book the wealth of expe-
rience he has gained as a respected scholar and teacher of law; his
years of courtroom practice are also visible all throughout. Undoubt-
edly many of his former students, now practicising lawyers in vari-
ous places of the country, will find in these pages rich opportunities
for looking back to those hours of earnest discussion in the class-
room, where honest disagreement is honored and debate on tenuous
points of law skilfully handled by the master.
We who study and teach law may not agree with all the con-
clusions set forth in this book; Professor Jurado does not expect un-
questioning assent from us on all points. But before we register our
dissent it may be well for us to consider the validity and weight of
his premises, for, indeed, this book deserves more th an just a re-
reading. It is the product of a hard discipline — the discipline of fine,
unselfish scholarship.
JOVITO R. SALONGA
Dean, Institute of Law, Far Eastern
University
Manila, Oct. 1, 1959
xiv
CONTENTS
BOOK IV
OBLIGATIONS AND CONTRACTS
Title I. — OBLIGATIONS
Chapter 1
GENERAL PROVISIONS
Page
Article 1156 ................................................................................ 1

Concept of Obligations ...................................................... 1
Requisites of Obligations .................................................. 2
Classification of Obligations ............................................. 3
Art. 1157 ................................................................................... 6
Sources of Obligations....................................................... 6
Art. 1158 ................................................................................... 7
Obligations Arising from Law .......................................... 7
Art. 1159 ................................................................................... 8
Obligations Arising from Contracts ................................. 8
Art. 1160 ................................................................................... 9
Obligations Arising from Quasi-Contracts ...................... 9
Art. 1161 ................................................................................... 10
Obligations Arising from Criminal Offenses ................... 11
Idem; Enforcement of civil liability ......................... 11
Idem; id. Effect of acquittal ...................................... 14
Idem; id. Effect of independent civil actions ........... 15
Idem; id., id. Effect of failure to make
reservation........................................................ 17
Removal of Reservation Requirement for
Independent Civil Actions ............................... 19
Art. 19
1162 .................................................................... 19
...............
Obligations
xv Arising from Quasi-
Delicts ...........................
Idem; Persons liable ................................................. 20
Idem; Requisites of liability ..................................... 21
Idem; Quasi-delicts and crimes................................ 21
Idem; Scope of quasi-delicts ..................................... 21
Idem; Character of remedy....................................... 23
Chapter 2
NATURE AND EFFECT OF OBLIGATIONS
Art.1163 ................................................................................... 42
Art.1164 ................................................................................... 42
Art.1165 ................................................................................... 42
Art.1166 ................................................................................... 42
Obligations to Give ............................................................ 43
Idem; Natur e of right of creditor.............................. 43
Idem; Rights of creditor in determinate
obligations ........................................................ 45
Idem; Rights of creditor in generic obligations ....... 46
Idem; Obligations of debtor in determinate
obligations ........................................................ 47
Idem; Obligations of debtor in generic
obligations ........................................................ 50
Art. 1167 ................................................................................... 52
Obligations to Do; Effects of Breach................................. 52
Art. 1168 ................................................................................... 54
Obligations Not to Do; Effects of Breach.......................... 54
Art. 1169 ................................................................................... 55
Art. 56
1170 ................................................................................... 56
Art. 56
1171 ................................................................................... 56
Art. 57
1172 ................................................................................... 57
Art. 1173 ................................................................................... 58
Breach of Obligations ........................................................ 59
Voluntary Breach Through Default or Mora ................... 61
Idem; Default in positive obligations....................... 61
Idem; id. When demand is not necessary ................ 62
Idem; Default in negative obligations ..................... 62
Idem; Default in reciprocal obligations ................... Idem; 64
id. Effect of default ......................................... 64
Voluntary Breach Through Fra ud or Dolo....................... 65
Idem; Effect of fraud ................................................. 67
Voluntary Breach Through Negligence or Culpa ............
Idem; Kinds of negligence ........................................
xvi
Idem; Negligence distinguished from fraud ............
Idem; Test or negligence........................................... 68
Idem; Effects of negligence....................................... 70
Idem; id. Regulatory power of the courts ................ 71
Idem; id.; id. Effect of good faith .............................. 71
Idem; id.; id. Effect of bad faith................................ 72
Idem; id.; id. Effect of contributory negligence ....... 72
Idem; id.; id. Other circumstances........................... 74
Voluntary Breach Through Contravention of Tenor
of Obligation..............................................................
74
Art. 1174 ................................................................................... 74
Concept of Fortuitous Event ............................................. 74
Classification ..................................................................... 75
Effect Upon Obligation...................................................... 76
Idem; Essential conditions ....................................... 88
Idem; Exceptions....................................................... 96
Art. 1175 ................................................................................... 101
Usurious Transactions ...................................................... 101
Art. 1176 ...................................................................................
102
Extinguishment of Interests and Prior Installments ...... 102
Art. 1177 ................................................................................... 103
Remedies of Creditor to Protect Credit ............................ 103
Idem; Exhaustion of debtor’s property ....................
103 Idem; Accion subrogatoria........................................

Chapter 3
104
DIFFERENT KINDS OF OBLIGATIONS
Idem; Accion pauliana ..............................................
105 Art.1.1178
Section — Pure ...................................................................................
and Conditional Obligations
105 Transmissibility of
Rights.................................................105
Art. 1179 ................................................................................... 107
Art. 1180 ................................................................................... 107
Pure Obligations................................................................ 107
Conditional Obligations .................................................... 108
Idem; Classification of conditions ..................................... 109
Art. 1181 ................................................................................... 111
Suspensive and Resolutory Conditions ............................
111 Idem; Effects .............................................................
112
Art. 1182 ...................................................................................
115
Potestative, Casual and Mixed Conditions ......................
xvii
115
Idem; Effect of potestative conditions...................... 115
Idem; Effect of casual conditions ............................. 118
Idem; Effect of mixed conditions.............................. 118
Art. 1183 ................................................................................... 122
Possible and Impossible Conditions .................................
122 Idem; Effects .............................................................
123
Art. 1184 ...................................................................................
124
Art. 1185 ...................................................................................
124
Positive and Negative Conditions ....................................
124 Idem; Effects .............................................................
124
Art. 1186 ...................................................................................
125
Constructive Fulfillment of Suspensive Conditions ........ 125
Art. 1187 ................................................................................... 126
Art. 1188 ................................................................................... 126
Effect of Suspensive Conditions Before Fulfillment........
126
Effect of Suspensive Conditions After Fulfillment .......... 128
Idem; Retroactivity of effect ..................................... 128
Idem; id. In obligations to give.................................
129 Idem; id. In obligations to do or not to do................
130
Art.
1189 ...................................................................................
130
Effect of Loss, Deterioration or Improvement .................
131 Idem; Losses..............................................................
131
Idem; Deteriorations................................................. 132
Idem; Improvements................................................. 132
Art. 1190 ...................................................................................
133
Effect of Resolutory Conditions Before Fulfillment.........
134
Effect of Resolutory Conditions After Fulfillment...........
xviii 134
Idem; Retroactivity of effect ..................................... 134
Idem; Effect of loss, deterioration
or improvement ................................................ 135
Art. 1191 ................................................................................... 136
Section 2. — Obligations With a Period
Art. 1193 ................................................................................... 146
Concept of Term or Period ................................................ 146
Idem; Distinguished from condition ........................ 147
Classification of Term or Period ....................................... 147
Effects of Term or Period .................................................. 149
Idem; Effect of fortuitous event ............................... 150
Art. 1194 ................................................................................... 151
Art. 1195 ...................................................................................
151
Effect of Advanced Payment or Delivery .........................
152 Art. 1196 ...................................................................................
152 Benefit of Term or
Period.................................................. 152
Idem; Exception ........................................................
154 Art. 1197 ...................................................................................
154 Judicial Term or
Period .................................................... 155
Idem; When court may fix
term ...............................
155 Idem; Na ture of action..............................................
160
Idem; Effect of judicial period .................................. 160
Art. 1198 ................................................................................... 163
Extinguishment of Debtor’s Right to Period....................
164
Section 3. — Alternative and

Facultative Obligations
Concept
...........................................................................
167
Art.
1199 ...................................................................................
168
Art.
1200 ...................................................................................
168
Right of Choice in Alternative
Obligations ......................
xix
168
Idem; Limitations upon right of choice....................
168 Art. 1201 ...................................................................................
169 When Choice Takes
Idem; Distinguished from alternative obligations .. 174
Idem; When substitution takes effect ...................... 175
Idem; Effect of loss of substitute.............................. 175
Section 4. — Joint and Solidary Obligations
Concept ...........................................................................
176
Idem; Comparative jurisprudence ........................... 176
Art. 1207 ................................................................................... 178
Nature of Collective Obligations in General....................
178 Idem; Exceptions.......................................................
179
Art. 1208 ................................................................................... 181
Joint Divisible Obligations ............................................... 181
Art. 1209 ...................................................................................
184
Joint Indivisible Obligations ............................................ 184
Idem; Effect of breach............................................... 185
Idem; Effect of insolvency of a debtor ......................
185 Idem; Interruption of period of prescription ...........
186
Art. 1210 ...................................................................................
187
Indivisibility and Solidarity.............................................. 187
Art. 1211 ................................................................................... 187
Kinds of Solidarity............................................................. 187
Idem; Effect of active solidarity in general .............
188 Idem; Effect of passive solidarity in general ...........
188 Idem; id. Distinguished from suretyship.................
188 Idem; Effect of varied conditions or periods ............
190
Art.
1212 ...................................................................................
195
Effect of Beneficial and Prejudicial Acts .......................... 195
Art. 1213 ................................................................................... 196
Effect of Assignment of Rights ......................................... 196
Art. 1214 ................................................................................... 196
Effect of Demand By a Creditor........................................ 196
Art. 1215 ...................................................................................
xx 197
Effect of Novation .............................................................. 197
Effect of Compensation and Confusion ............................
199 Effect of Remission ............................................................

Art. 1219 ................................................................................... 208
Art. 1220 ................................................................................... 208
Art. 1221 ................................................................................... 209
Effect of Loss or Impossibility of Performance ................ 209
Art. 1222 ................................................................................... 210
Defenses Available to a Solidary Debtor.......................... 210
Section 5. — Divisible and Indivisible Obligations
Concept
........................................................................... 212
Relation to Divisibility or Indivisibility of Things........... 212
Art. 1223 ................................................................................... 213
Art. 1224 ................................................................................... 213
Effect of Divisible or Indivisible Obligations ...................
213 Idem; Breach of joint indivisible obligations...........
214
Art. 1225 ...................................................................................
214
Determination of Divisibility or Indivisibility .................
215 Idem; In obligations to give ......................................
215
Idem; In obligations to do......................................... 216
Idem; In obligations not to do .................................. 217
Section 6. — Obligations With a Penal Clause
Concept ...........................................................................
217
Purpose of Penalty.............................................................
217
Kinds of Penalty ................................................................
218
Art. 1226 ...................................................................................
218
Effect of Penalty, General Rule ........................................
219
Idem; Exceptions....................................................... 221
Idem; Enforceability of penalty................................ 223
Art. 1227 ................................................................................... 224
Limitation Upon xxi Right of Debtor .....................................
224
Limitation Upon Right of Creditor ...................................
224 Art. 1228 ...................................................................................
225 Proof of Actual
Chapter 4
General Provisions
Art.
1231 ...................................................................................
230
Modes of Extinguishing
Obligations ................................
230
Section 1. — Payment or Performance
Art.
1232 ...................................................................................
231
Concept of Payment or Performance ................................ 231
Art. 1233 ................................................................................... 231
Art. 1234 ................................................................................... 231
Art. 1235 ................................................................................... 231
When Obligation is Understood Paid or Performed ........ 231
Art. 1236 ................................................................................... 232
Art. 1237 ................................................................................... 233
Art. 1238 ................................................................................... 233
Persons Who May Pay Obligation .................................... 233
Idem; Payment by a third person ............................
233 Idem; id. Right of creditor ........................................
234
Idem; id. Rights of third person ............................... 235
Idem; id.; id. Right of reimbursement .....................
235
Idem; id.; id. Right of subrogation ........................... 237
Idem; id.; Gratuitous payments ...............................
238 Art. 1239 ...................................................................................
238 Capacity to Make
Payment............................................... 239
Art. 1240 ................................................................................... 239 To
Whom Payment Must Be Made................................... 239
Idem; Persons authorized to receive payment ........ 240
xxii
Idem; id. Payment to unauthorized persons ........... 241
Idem; id. Exceptions ................................................. 242
Art. 1241 ...................................................................................
What Must Be Paid ........................................................... 245
Idem; Effect of dation in payment ........................... 246
Idem; Effect if object is generic ................................
246 Art. 1247 ...................................................................................
247 Expenses of
Payment ........................................................ 247
Art. 1248 ................................................................................... 247
Character of Payment ....................................................... 247
Art. 1249 ...................................................................................
248
Rule in Monetary Obligations........................................... 248
Idem; Effect of Rep. Act Nos. 529 and 4100 ............ 249
Idem; Meaning of legal tender ................................. 251
Idem; Payments with Japanese military notes....... 251
Idem; Payments with emergency notes ................... 253
Idem; Payments with negotiable paper ................... 253
Art. 1250 ................................................................................... 261
Effect of Extraordinary Inflation or Deflation ................. 261
Idem; War-time obligations...................................... 263
Idem; id. The Ballantyne Schedule.......................... 264
Idem; id.; id. Application .......................................... 265
Art. 1251 ...................................................................................
267
Place of Payment ...............................................................
267
Subsection 1. — Application of Payment
Art. 1252 ...................................................................................
268
Concept ...........................................................................
268
Requisites .......................................................................... 268 Idem;
First requisite................................................. 268
Idem; Second requisite ............................................. 269
Idem; Third requisite................................................ 270
Idem; Fourth requisite ............................................. 270
Right of Debtor to Make Application................................ 270 Idem;
Exception ........................................................ 271
Idem; Time when right is exercised......................... 271
Art. 1253 ...................................................................................
xxiii 272
Limitation Upon Right to Apply Payment ....................... 272
Art. 1254 ................................................................................... 272
Legal Application of Payment........................................... 272 Idem;
When debts are not of same burden.............. 273
Subsection 2. — Payment of Cession
Art. 1255 ................................................................................... 275

Concept ........................................................................... 275
Requisites .......................................................................... 275
Kinds ........................................................................... 275
Distinguished from Dation in Payment ........................... 275
Effect ........................................................................... 276
Subsection 3. — Tender of Payment and Consignation
Art. 1256 ................................................................................... 276

Art. 1257 ................................................................................... 277
Art. 1258 ................................................................................... 277
Concept ........................................................................... 277
Distinctions........................................................................ 277
General Requisites of Consignation ................................. 278
Special Requisites of Consignation ..................................
279 Idem; First requisite.................................................
280
Idem; Second requisite ............................................. 280
Idem; id. Effect or valid tender of payment.............
282 Idem; Third requisite................................................
283
Idem; Fourth requisite ............................................. 283
Idem; Fifth requisite................................................. 283
Subject m atter of Consignation ........................................
286 Art. 1259 ...................................................................................
286 Expenses of
Consignation ................................................. 286
Art. 1260 ................................................................................... 286
Art. 1261 ................................................................................... 286
Effects of Consignation ..................................................... 287
Idem; Effect of withdrawal....................................... 287
Section 2. — Loss of the Thing Due
Concept ........................................................................... 287

Art. 1262 ...................................................................................
288
Effect of Loss in Determinate Obligations to Give .......... 288
Idem; Effect of fortuitous xxiv event ............................... 289
Art. 1263 ...................................................................................
290
Art. 1265 ................................................................................... 291
Rule If Thing is in Debtor’s Possession ............................ 291
Art. 1266 ................................................................................... 292
Effect of Impossibility of Performance
in Obligations to do................................................... 292
Idem; Effect ............................................................... 293
Idem; Effect in obligations not to do ........................ 295
Art. 1267 ................................................................................... 295
Effect of Relative Impossibility......................................... 295
Art. 1268 ................................................................................... 296
Rule If Obligation Arises from Criminal Offense ............ 296
Art. 1269 ................................................................................... 297
Effect of Extinguishment of Obligation............................ 297
Section 3. — Condonation or Remission of the Debt
Concept ........................................................................... 298

Requisites .......................................................................... 298
Kinds ........................................................................... 298
Art. 1270 ................................................................................... 299
Gratuitous Character of Remission.................................. 299
Necessity of Acceptance By Debtor .................................. 299
Applicability of Rules on Donations ................................. 300
Idem; Extent of remission ........................................ 300
Idem; Form of express remission ............................. 301
Idem; Form of implied remission ............................. 303
Art. 1271 ................................................................................... 303
Art. 303
1272 ................................................................................... 304
Effect of Delivery of Evidence of Credit to Debtor........... 305
Art. 1273 ................................................................................... 305
Art. 305
1274 ................................................................................... 305
Effect of Remission in General ......................................... 305
Idem; Effect upon accessory obligations..................
Idem; id.4. Rule
Section — Confusionin pledge............................................
or Merger of Rights
Art. 1275 ................................................................................... 306

Concept of Confusion......................................................... 306
Requisites .......................................................................... 306
Kinds ........................................................................... 306
Art. 1276 ................................................................................... 307
Effect Upon Accessory Obligations................................... 308
Art. 1277 ................................................................................... 308
xxv
Effect Upon Collective Obligations...................................
308
Effect of Revocation of Confusion .....................................
309
Section 5. — Compensation
Art. 1278 ................................................................................... 309

Concept of Compensation.................................................. 309
Idem; Distinguished from payment ......................... 310
Idem; Distinguished from confusion........................ 310
Idem; Distinguished from counterclaim .................. 311
Kinds of Compensation ..................................................... 311
Art. 1279 ...................................................................................
312
Requisites of Compensation.............................................. 312
Idem; As to parties.................................................... 313
Idem; id. Bound as principals ..................................
315 Idem; As to objects ....................................................
316
Idem; As to maturity ................................................ 317
Idem; As to liquidation and demandability.............
317 Idem; As to claims of third persons .........................
318
Art.
1280 ...................................................................................
318
Right of Guarantor to Set Up Compensation................... 318
Art. 1281 ................................................................................... 319
Art. 1282 ................................................................................... 319
Voluntary Compensation .................................................. 319
Art. 1283 ...................................................................................
319
Judicial Compensation...................................................... 319
Art. 1284 ...................................................................................
xxvi 320
Rules in Case of Rescissible or Voidable Debts ............... 320
Art. 1285 ................................................................................... 320
Effect of Assignment of Rights ......................................... 320
Idem; When compensation has taken place ............ 321
Section 6. — Novation
Art. 1291 ................................................................................... 325

Concept of Novation .......................................................... 325
Requisites .......................................................................... 326
Kinds ........................................................................... 327
Idem; Objective novation.......................................... 328
Idem; id. Change of cause......................................... 328
Idem; id. Change of object ........................................ 328
Idem; id. Change of principal conditions ................. 329
Art. 1292 ................................................................................... 330
Form of Extinguishment ................................................... 330
Idem; Express novation ............................................ 333
Idem; Implied novation ............................................ 333
Art. 1293 ................................................................................... 338
Novation By Substitution of 338
Debtor ................................. 341
Idem; Necessity of creditor’s consent....................... 342
Idem; Effect of payment by new debtor ................... 344
Art. 1294 ................................................................................... 344
Art. 344
1295 ................................................................................... 345
Effect of Nonpayment By New Debtor ............................. 345
Idem; If substitution is by expromision................... 345
Idem; If substitution is by delegacion...................... 346
Art. 1296 ................................................................................... 346
Effect Upon Accessory Obligations................................... 346
Art. 1297 ................................................................................... 346
Art. 347
1298 ................................................................................... 348
Effect If New and/or Old Obligations Are Void ............... 348
Idem; Rule if old obligation is voidable ................... 349
Art. 349
1299 .............................................................................. 349
..... 349
Effect If Old Obligation is Conditional............................. 350
Art. 1300
Legal ...................................................................................
Subrogation ............................................................. 351
Art. Novation
1303 By Subrogation..................................................
................................................................................... 352
1301 ...................................................................................
Art. 1304 352
Conventional
Effect of Total Subrogation Subrogation ................................................
............................................... 352
Art. Effect
1302 of Partial...................................................................................
Subrogation ............................................ 353
xxvii
Title II. — CONTRACTS
Chapter 1
GENERAL PROVISIONS
Art. 1305 ................................................................................... 354

Concept of Contracts ......................................................... 354
Idem; Distinguished from other terms .................... 354 The
Basic Duties of Persons when entering
into Contracts ...........................................................
356
The duty of the Courts in Interpreting Contracts ...........
356 Elements of Contracts .......................................................
357
Idem; Parties to a contract .......................................
357
Characteristics of Contracts .............................................
358
Life of Contracts ................................................................
359
Classification of Contracts ................................................ 359
Art. 1306 ................................................................................... 361
Right to Contract ............................................................... 361
Idem; Limitations ..................................................... 362
Idem; id. First limitation.......................................... 362
Idem; id. Second limitation ...................................... 363
Idem; id. Third limitation......................................... 363
Idem; id. Fourth limitation ...................................... 364
Idem; id. Fifth limitation.......................................... 364
Compromise; Compromise Agreements; Effects..............
370 Art. 1307 ...................................................................................
371 Nominate
Contracts .......................................................... 372
Innominate Contracts ....................................................... 372
Art. 1308 ................................................................................... 373
Art. 1309 ................................................................................... 374
Art. 1310 ................................................................................... 374
Mutuality of Contracts ...................................................... 374
Art. 1311 ................................................................................... 378
Relativity of Contractsxxviii ...................................................... 379
Idem; Persons bound by contract.............................
379 Idem; id. Exceptions .................................................

Contracts In Fr au d of Creditors ....................................... 389
Art. 1314 ................................................................................... 389
Interferences With Contractual Relations .......................
389 Idem; Requisites .......................................................
390
Art. 1315 ...................................................................................
391
Art. 1316 ................................................................................... 392
Perfection of Contracts...................................................... 392
Art. 1317 ...................................................................................
393
Contracts in Name of Another.......................................... 393
Chapter 2
ESSENTIAL REQUISITES OF CONTRACTS
General Provisions
Art. 1318 ...................................................................................
396
Requisites of Contracts in General................................... 396
Section 1. — Consent
Art. 1319 ...................................................................................
397
Concept of Consent............................................................ 397
Requisites of Consent ........................................................ 397
When Conracts are Perfected ........................................... 398
Manifestation of Consent .................................................. 398
Idem; Character of offer and acceptance ................. 400
Idem; id. Acceptance of complex offers .................... 401
Idem; id. Acceptance by letter or telegram.............. 402
Idem; id. Effect of constructive knowledge.............. 405
Idem; id. Withdrawal of offer ................................... 405
Idem; id. Withdrawal of acceptance......................... 407
Art. 1320 ................................................................................... 408
Form of Acceptance ........................................................... 408
Art. 1321 ...................................................................................
Legal Capacity of Contracting Parties ............................. 417
410
Art. 1322 ...................................................................................
xxix 410
Art. 1323 ...................................................................................
410
Effect of Death, Civil Interdiction, Insanity,
or Insolvency .............................................................
Idem; Incapacitated persons .................................... 417
Idem; id. Unemancipated minors............................. 418
Idem; id. Effect of misrepresentation ...................... 418
Idem; id. Insane or demented persons.....................
421 Idem; id. Deaf-mutes ................................................
423
Idem; id. Other incapacitated persons..................... 423
Art. 1328 ................................................................................... 425
Art. 1329 ...................................................................................
425
Disqualifications to Contract ............................................
425 Idem; Distinguished from incapacity to contract....
425
Art. 1330 ...................................................................................
428
Vices of Consent ................................................................
428
Art. 1331 ...................................................................................
429
Mistake ...........................................................................
429
Idem; Mistakes which vitiate consent .....................
429 Idem; id. Mistake of fact...........................................
430
Art. 1332 ...................................................................................
432
Rule Where a Party is Illiterate ....................................... 432
Art. 1333
Fraud ...................................................................................
........................................................................... 434
Art. 1334 ...................................................................................
Idem; Kinds of fraud................................................. 434
MistakeRequisites
Idem; of Law ..................................................................
....................................................... 434
Art. 1335
Idem; ...................................................................................
id. Na ture of fraud.......................................... 435
Art. 1339
Art. 1336 ...................................................................................
................................................................................... 436
Violence
Effect and Intimidation
of Failure to Disclose ................................................
Facts .................................... 436
Idem;
Art. 1340 Requisites of violence .....................................
................................................................................... 436
Idem;
EffectRequisites
of Exaggerations of intimidation..............................
in Trade ...................................... 436
Idem; id. Character of intimidation ......................... 436
Idem; id. Distinguished from reluctant consent ..... 437
xxx
Idem; id. Determination of degree
of intimidation.................................................. 441
Idem; id. Effect of just or legal threat...................... 442
Art. 1337 ................................................................................... 442
Art. 1341 ................................................................................... 448
Effect of Expression of Opinion ........................................ 448
Art. 1342 ................................................................................... 449
Effect of Misrepresentation By Third Persons ................ 449
Art. 1343 ................................................................................... 450
Art. 1344 ................................................................................... 450
Magnitude of Fraud........................................................... 451
Relation Between F rau d and Consent ............................. 451
Art. 1345 ................................................................................... 454
Art. 1346 ................................................................................... 454
Simulation of Contracts .................................................... 454
Idem; Effects ............................................................. 454
Contracts of Adhesion ....................................................... 455
Section 2. — Object of Contracts
Concept of Object...............................................................
456
Art. 1347 ...................................................................................
456
Art. 1348 ...................................................................................
456
Art. 1349 ...................................................................................
457
What May Be the Object of Contracts.............................. 457
Idem; Appropriability and transmissibility ............ 457
Idem; Existence of object .......................................... 457
Idem; id. Things which have perished..................... 457
Idem; id. Fu tu re things ............................................ 457
Idem; id. Rule with respect to future inheritance... 457
Idem; id. Impossible things or services ................... 461
Idem; Licitness of object ........................................... 462
Idem; Determinability of object ............................... 462
Section 3. — Cause of Contracts
Art. 1350 ...................................................................................
463
Art. 1351 ...................................................................................
xxxi
463
Concept of Cause ...............................................................
463
Art. 1352 ................................................................................... 472
Art. 1353 ................................................................................... 472
Art. 1354 ................................................................................... 472
Art. 1355 ................................................................................... 472
Essential Requisites of Cause........................................... 472
Idem; Effect of lack of cause..................................... 472
Idem; Effect of unlawful cause................................. 475
Idem; Effect of false cause ........................................ 478
Chapter 3
FORMS OF CONTRACTS
Art.
1356 ................................................................................
...
479
Form of Contracts; General Rule...................................... 479 Idem;
Exceptions....................................................... 480
Idem; id. Formalities for validity .............................
480 Idem; id. Formalities for enforceability ................... 481
Form of Contracts Required By Law................................
481
Art. 1357 ...................................................................................
482
Art. 1358 ................................................................................... 483
Formalities for Efficacy ..................................................... 483
Chapter 4
REFORMATION OF INSTRUMENTS
Art.
1359 ...................................................................................
487
Doctrine of Reformation of Instruments .......................... 487
Idem; Rationale of doctrine ...................................... 488
Idem; Distinguished from annulment
of contracts ....................................................... 488
Art. 1360 ................................................................................... 489
Art.
1361 ................................................................................... 489
Art.
1362 ................................................................................... 489
xxxii Art.
1363 ................................................................................... 489
Art.
1364 ................................................................................... 489
Art.
Chapter 5
INTERPRETATION OF CONTRACTS
Art.
1370 ...................................................................................
495
Art.
1371 ...................................................................................
495
Primacy of Intention of
Parties ........................................
495
Idem; How to judge intention................................... 497
Art. 1372 ................................................................................... 498
Art. 1373 ...................................................................................
498
Art. 1374 ...................................................................................
498
Art. 1375 ...................................................................................
498
Art. 1376 ...................................................................................
498
Art. 1377 ...................................................................................
498
Art. 1378 ...................................................................................
499
Art. 1379 ...................................................................................
499
Chapter 6
Classes of Defective
Contracts..........................................
500
Idem; Essential features .......................................... 501
Art. 1380 ................................................................................... 502
Rescissible Contracts in General...................................... 502
Idem; Characteristics ............................................... 503
Idem; Concept of
rescission ......................................
xxxiii 503 Idem; id.
Distinguished from resolution.................. 503 Idem; id.
Distinguished from rescission
by mutual consent ............................................ 503
Art. 1381 ................................................................................... 505
Effect of Rescission Upon Third Persons ......................... 513
Art. 1386 ................................................................................... 517
Art. 1387 ................................................................................... 517
Art. 1388 ................................................................................... 517
Proof of Fra ud .................................................................... 517
Idem; Presumptions of fraud.................................... 518
Idem; Badges of fraud............................................... 526
Idem; id. Acquisition by third person
in good faith......................................................
528
Idem; id. Acquisition by third person in
bad faith............................................................ 529
Art.
1389 ...................................................................................
529
Prescriptive Period ............................................................
529
Chapter 7
VOIDABLE CONTRACTS
Voidable Contracts in
General .........................................
531
Idem;
Characteristics ...............................................
531
Idem; Distinguished from rescissible contracts ...... 532
Art. 1390 ................................................................................... 533
Contracts Which Are Voidable ......................................... 533
Art. 1391 ................................................................................... 539
Prescriptive Period ............................................................ 539
Art. 1392 ................................................................................... 546
Art. 1393 ................................................................................... 546
Art. 1394 ................................................................................... 546
Art. 1395 ................................................................................... 546
Art. 1396 ................................................................................... 547
Concept of Ratification ...................................................... 547
Requisites of Ratification .................................................. 547
Forms of Ratification.........................................................
xxxiv
548
Effects of Ratification ........................................................
548 Art. 1397 ...................................................................................
548 Who May Institute
Action................................................. 548
Effect of Failure to Make Restitution............................... 555
Idem; Where loss is due to fault of defendant......... 555
Idem; Where loss is due to fault of plaintiff ............ 556
Idem; Where loss is due to fortuitous event ............ 556
Chapter 8
Unenforceable Contracts in General ................................

558 Idem; Classes ............................................................
558
Idem; Characteristics ............................................... 559
Idem; Distinguished from rescissible contracts ......
559 Idem; Distinguished from voidable contracts .........
559
Art. 1403 ...................................................................................
560
Contracts Without or in Excess of Authority...................
561
Contracts Infringing Sta tute of Frauds ...........................
562 Idem; Purpose of Statute..........................................
562
Idem; Form required by Statute .............................. 562
Idem; Effect of noncompliance with Statute ........... 563
Idem; Contracts Covered by Stat ute ....................... 563
Idem; Effect of Performance of Contract ................. 569
Idem; Ratification ..................................................... 570
Contracts Where Both Parties Are Incapacitated ........... 572
Art. 1404 ................................................................................... 572
Art. 1405 ................................................................................... 572
Art. 1406 ................................................................................... 572
Art. 1407 ................................................................................... 572
Art. 1408 ................................................................................... 573
Chapter 9
Void and Inexistent Contracts in General ....................... 574

Idem; Distinguished from rescissible contracts ...... 575
Idem; Distinguished from xxxv voidable contracts ......... 576
Idem; Distinguished from unenforceable
contracts ........................................................... 576
Art. 1409 ...................................................................................
Art. 1410 ................................................................................... 584
Imprescriptibility of Action or Defense ............................ 584
Art. 1411 ................................................................................... 591
Art. 1412 ................................................................................... 591
Principle of In Pari Delicto ............................................... 592
Idem; Effect if only one party is a t fault..................
601 Idem; Exceptions.......................................................
602
Art. 1413 ...................................................................................
603
Recovery By Debtor of Usurious Interest ........................ 603
Art. 1414 ................................................................................... 621
Art. 1415 ................................................................................... 621
Art. 1416 ................................................................................... 621
Article Applied................................................................... 622
Art. 1417 ................................................................................... 631
Art. 1418 ................................................................................... 631
Art. 1419 ................................................................................... 631
Art. 1420 ................................................................................... 632
Article Applied................................................................... 632
Art. 1421 ................................................................................... 634
Art. 1422 ................................................................................... 634
Title III. — NATURAL OBLIGATIONS
Art. 1423 ................................................................................... 635

Concept of Natural Obligations ........................................
635 Idem; Distinguished from civil obligations .............

635 Idem; Distinguished from moral obligations........... 636
Reasons for Regulations of Natural Obligations ............. 636
Art. 1424 ...................................................................................
637
Article Applied................................................................... 637
Art. 1425 ...................................................................................
637
Art. 1426 ...................................................................................
638
Art. 1427 ...................................................................................
xxxvi
638
Art. 1428 ...................................................................................
638
Idem; Estoppel in pais .............................................. 640
Idem; id. Estoppel by silence.................................... 640
Idem; id. Estoppel by acceptance of benefits ........... 640
Idem; Estoppel by deed or by record........................ 640
Idem; id. Estoppel by judgment ............................... 640
Idem; Estoppel by laches .......................................... 641
Idem; id. Basis .......................................................... 641
Idem; id. Elements.................................................... 642
Idem; id. Application ................................................ 642
Idem; id. Laches distinguished from
prescription....................................................... 648
Art. 1434 ...................................................................................
649
Article Applied...................................................................
649
Art. 1435 ...................................................................................
656
Art. 1436 ...................................................................................
656
Art. 1437 ...................................................................................
656
Art. 1438 ...................................................................................
656
Art. 1439 ...................................................................................
656
Title V. — TRUSTS
Art. 1443 ...................................................................................
Chapter 1 660
Art. 1444 ................................................................................... 660
Art. 1445 GENERAL PROVISIONS
................................................................................... 660
Art. 1446 ................................................................................... 660
Art.
1440 ...............................................................................
Chapter 3
....
IMPLIED TRUSTS
657
Art. Concept of
1447 ............................
Trusts...............................................................
........................................
xxxvii
............... 657
Art.
661
1441 ...............................................................................
....
Art. 1448 ................................................................................... 661
Art. 1449 ................................................................................... 661
Art. 1450 ................................................................................... 661
Article Applied................................................................... 661
Art. 1451 ................................................................................... 662
Art. 1452 ................................................................................... 662
Art. 1453 ................................................................................... 662
Art. 1454 ................................................................................... 663
Art. 1455 ................................................................................... 663
Art. 1456 ................................................................................... 663
Article Applied................................................................... 663
Idem; Prescriptibility of actions to enforce trust ....
663 Idem; id. Period of prescription................................
664
Idem; Laches may bar action ...................................
665 Idem; Acquisition of property by trustee

through prescription ........................................ 666
Idem; Illustrative cases ............................................ 667
Art. 1457 ................................................................................... 677
xxxviii

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BOOK IV

OBLIGATIONS AND CONTRACTS

Article 1156. An obligation is a juridical necessity to

Concept of Obligations. — Evidently, the above definition of

Manresa, on the other hand, defines it as a “legal relation established

It must be observed, however, t h a t obligations may be either

the n at ural law. Thus, when a n action has prescribed in accordance

the obligation in accordance with the statut e of limitations, he is

therefore, clear t h a t a civil obligation and a n at ural obligation may

Requisites of Obligations. — An obligation h as four

The form in which the obligation is manifested is sometimes

ing their validity or binding force. It is only in obligations arising

any interest therein through a n agent, the law requires t h a t the

loan or mutuum, the law requires t h a t any agreement with respect

antichresis, the law requires t h a t the amount of the principal and

a donation of immovable property, the law requires t h a t the dona-

the personal property which is the subject m atter of the contract

would have the effect of rendering the contract or agreement void or

Classification of Obligations. — The following is the primary

(4) Joint and solidary (Arts. 1207-1222).

(8) Real and personal; 19

(9) Determinate and generic; 20

(10) Positive and negative; 21

(11) Unilateral and bilateral; 22

(12) Individual and collective; 23

(13) Accessory and principal. 24

The following, on the other hand, is the classification of

(14) As to juridical quality:

(g) Principal and accessory — principal, when it is the

Art. 1157. Obligations arise from:

Sources of Obligations. — In Roman law, the sources of

Code with the addition of law or lege. The addition of lege as an

independent source of obligations, however, has been criticized as

“This enumeration of the sources of obligations supposes that

Art. 1158. Obligations derived from law are not pre-

Obligations Arising from Law. — Unlike other obligations,

How can we determine whether a n obligation arises from

the obligation of the spouses to support each other, the obligations 34

of employers under the Labor Code, the obligations of the owners of

the dominant and servient estates in legal easements, and others 36

scattered in the Civil Code and in special laws.

Art. 1159. Obligations arising from contracts have the

Obligations Arising from Contracts. — A contract is a

As a rule, contracts are perfected by mere consent, and from that

8 Manresa, 5th Ed., Bk. 1, p. 48.

Leung Ben vs. O’Brien, 38 Phil. 182.

contracts, however, called real contracts, such as deposit, pledge

the rule is t h a t from the moment it is perfected, obligations which

Art. 1160. Obligations derived from quasi-contracts

Obligations Arising from Quasi-Contracts. — Quasi-

and unilateral acts, by virtue of which the parties become bound

important of these juridical relations which are recognized and

indebiti. Negotiorum gestio is the juridical relation which arises

whenever a person voluntarily takes charge of the agency or

once the gestor or officious manager has assumed the agency or

such obligations as provided for in the Code. Solutio indebiti, on

the other hand, is the juridical relation which arises whenever a

The Civil Code provides other instances of quasi-contract.

Art. 1161. Civil obligations arising from offenses shall

Preliminary Title, on Human Relations, and of Title XVIII of

Obligations Arising from Criminal Offenses. — As a rule,

(3)Other civil actions arising from offenses. — In all cases

be instituted separately or whose proceeding has been suspended