Oblicon Reviewer Final D

OBLIGATIONS and CONTRACTS REVIEWER
From the book of Jurado and Tolentino

Atty. Castillo
BOOK IV
OBLIGATIONS AND CONTRACTS
Title. I. - OBLIGATIONS
CHAPTER 1
GENERAL PROVISIONS
Art. 1156. An obligation is a juridical necessity to give, to do or not to do.
Only covers civil obligations
Obligation is a juridical necessity to comply with a prestation Sanchez Romans Classic Definition
Obligation is 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
2 Kinds of Obligation:
o
Civil Obligation - has a binding force in law; gives the obligee or creditor the right of enforcing it against the obligor or
debtor in a court of justice (Art. 1156)
- based on a positive law; enforceable on courts justice
o
Natural Obligation one which can not be enforced by action, but which is binding on the party who makes it in
conscience and according to the natural law.
based on equity and natural law; not enforceable on courts justice
Requisite of Obligations (4):

o
A juridical or legal tie, which binds the parties to the obligation and which may arise from either bilateral or unilateral
acts of persons
o
An active subject known as the oblige or creditor, who can demand the fulfillment of the obligation
o
A passive subject known as the obligor or debtor whom the obligation is juridically demandable
o
The fact, prestation or service which constitutes the object of the obligation
The form sometimes added but not considered essential. (ex. Contracts)
obligations arising from law, quasi-contracts, acts or omissions punished by law and
quasi-delicts don not require any form
Classification of Obligations:
o
Pure and conditional (Arts. 1179 1192)
o
With a period (Arts. 1193 1198)
o
Alternative and Facultative (Arts. 1199 1206)
o
Joint and Solidary (Arts. 1207 1222)
o
Divisible and Indivisible (Arts. 1223 1225)
o
With a Penal Clause (Arts. 1226 1230)
Classification of Obligations according to Sanchez Roman

o
As to juridical quality:
Natural when the obligation is in accordance with natural law.
Civil when the obligation is in accordance with Positive law.
Mixed both natural and positive law

o
As to parties:
Unilateral and Bilateral
Unilateral only one party is bound
Bilateral both parties are mutually and reciprocally bound
Individual and collective
Individual one obligor
Collective several obligors

Joint each obligor is liable only for his proportionate share
Solidary each obligor may be held liable for the entire obligation
o
As to object:
Determinate and Generic
Determinate the object is specific
Generic object is designated by class or genus
Simple and Multiple
Simple only one undertaking
Multiple several undertakings

Conjunctive all undertakings are demandable at the same time
Distributive only one undertaking out of several is demandable
Alternative obligor is allowed to choose out of several obligations which

may be due and demandable
Made by: Roselle Casiguran
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Facultative - obligor is allowed to substitute another obligation for one

which is due and demandable
Positive and negative
Positive obligor is obliged to give or do something
Negative obligor must refrain from giving or doing something
Real and Personal
Real obligation consists in giving something
Personal obligation is doing / not doing
Possible and Impossible
Possible capable of fulfillment
Impossible not
Divisible and indivisible
Divisible obligation is susceptible of partial performance
Indivisible not
Principal and Accessory
Principal main undertaking
Accessory merely an undertaking to guarantee the fulfillment of the principal obligation

As to perfection and extinguishment
Pure when the obligation is not subject to any condition or term and is immediately demandable
Conditional subject to condition
Suspensive the happening or fulfillment of the condition results in the birth of the obligation
Resolutory the h/f results in the extinguishment of the obligation
With a term of period (a plazo)
Suspensive or from a day certain the obligation is demandable only upon the expiration of the
term
Resolutory or to a day certain the obligation terminates upon the expiration of the term
Art. 1157. Obligations arise from:

(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts. (1089a)
Art. 1158. Obligations derived from law are not presumed. Only those expressly determined in this Code or in special laws are demandable, and
shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book. (1090)
According to Manresa, when the law establishes the obligation and the act or condition upon which it is based is nothing more than a
factor for determining the moment it becomes demandable, then the law itself is the source of the obligation; however when the law
merely recognizes the existence of an obligation generated by an 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.
Example of obligations from law: support of spouses with each other; obligations of employers under the Labor Code
Art. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.
(1091a)
Contract meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to
render some service.
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As a rule, contracts are perfected by mere consent. (Consensual Contracts)
Real Contracts - perfected by the delivery of the object of obligation (ex. deposit, pledge, commodatum)
Obligation may either be Reciprocal or unilateral.

o
Reciprocal O. mutually or reciprocally obliged to do or give something
Unilateral O. only one party is obliged
Art. 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII, of this Book. (n)
Quasi-contracts are those juridical relations arising from lawful, voluntary, and unilateral acts, based on the principle that no one
shall be unjustly enriched or benefited at the expense of another.
o
JURIDICAL RELATIONS(JR):
Negotiorum gestio a JR which arises 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. He shall be
obliged to continue such agency or management until the termination of the affair and its incidents.
Solutio indebiti is a JR which arises whenever a person unduly delivers a thing through mistake to another
who has no right to demand it.
Art. 1161. Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions of Article 2177, and of
the pertinent provisions of Chapter 2, Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating damages. (1092a)
Every person liable for a felony is also civilly liable.
2 aspects of crime: criminal and civil
Enforcement of Civil Liability:

o
Institution of criminal and civil actions when criminal action is instituted, the civil action is impliedly instituted with
the criminal action unless the offended party expressly waives the civil action or reserves his right to institute it separately
Independent Civil Action may be brought by the injured party during the pendency of the criminal case that is entirely
separate and distinct from the criminal action provided the right is reserved. It only requires preponderance of evidence
Other civil actions arising from offenses in all cases not included in the preceding section, the following rules shall be
observed:
Criminal and civil arising from the same offense may be instituted separately, but after the criminal action has
been commenced the civil action can not be instituted until the final judgment has been rendered in the criminal
After a criminal action has been commenced, civil will be stopped and suspended until the final
judgment in the criminal has been rendered
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Extinction of the penal action does not carry with it the civil, unless the extinction proceeds from the
final judgment that the civil might arise did not exist.
Judgment in civil action not a bar absolve in civil does not carry with it the criminal
Suspension by reason of pre-judicial question
Effect of Acquittal
o
If acquittal is based on his guilt not proven beyond reasonable doubt civil action to recover damages may be
instituted that requires only preponderance of evidence.
If acquittal is bases on the ground that he did not commit the offense charged civil action no longer possible
Effect of Failure to make Reservation an independent civil 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.
Art. 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws.
(1093a)
Quasi-delicts refers to all of those obligations which do not arise from law, contracts, quasi-contracts, or criminal offense.
It may be defined as the fault or negligence of a person, who, by his acts or omission, connected or unconnected with, but independent
from, any contractual relation, causes damage to another person. (TORT)
PERSONS LIABLE
o
Father, in case of death or incapacity the mother in regards to minor who live in their company
Guardians minors/ incapacitated persons
Owners and managers of an establishment or industry employees in connection with their function
Employer with respect to their employees and household although not engaged in a business or industry
State, when it acts through a special agent; but not when the damage has been caused by the officials to whom the task
done properly pertains
Teachers or heads of establishments of arts and trade pupils/students/apprentices in their custody
DEFENSE: diligence of a good father
Requisites of Liability:
o
The fault or negligence of the defendant
The damage suffered or incurred by the plaintiff
The relation of cause and effect between the fault or negligence of the defendant and the damage incurred by the plaintiff
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o
CRIMES
QUASI-DELICTS
Affect the public interests; wrong against the state
Private concerns; wrong against the individual
Criminal Intent is necessary
Criminal intent not necessary
Penal Code punishes or corrects the criminal act
Civil code, by means of indemnification, reparation
Not as broad as quasi delicts only if there is a law covering them
Includes all acts in which any kind of fault or negligence

intervenes
Guilty beyond reasonable doubt
Preponderance of Evidence
Can never be compromised
Can be compromised
Kinds of Negligence:
o
Culpa Aquiliana or culpa extra-contractual; negligence as a source of obligation; a quasi-delict
Culpa Contractual negligence in the performance of a contract
Culpa Criminal criminal negligence
CULPA AQUILANA
CULPA CONTRACTUAL
Governed by Arts. 2176-2194
Governed by arts. 1179 et sequel
Negligence as a source of obligation
Negligence in the performance of a contract
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Fault or negligence which constitutes an independent source of

obligation between parties not previously bound
Fault or negligence of the debtor as an incident in the fulfillment

of an existing obligation
Negligence of the defendant should be the proximate cause of

damage if liability is attached
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.
Real obligation
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. (1095)
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. (1096)
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. (1097a)
Obligations to give:
o
Determinate object is particularly designated or physically segregated from all others of the same class. (jacks horse)
Indeterminate or Generic designated by class or genus (any horse)
Nature of right of creditor:

o
In case of obligation arising from the law, quasi-contracts, criminal offenses and quasi-delicts, the obligation to deliver
arises fro the time designated by the provisions of the civil or of special laws
Obligation arising from contracts, the obligation to deliver arises as a general rule, from the moment of the perfection of
the contracts
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o
If the obligation is subject to a suspensive condition, the obligation to deliver the thing as well as the fruits shall arise from
the moment of the fulfillment of the condition
If subject to suspensive term or period, the obligation to deliver arises only upon the expiration of the designated term or
period
Personal right 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.
Real right right pertaining to a person over a specific thing without a passive subject individually determined against whom such
right may be personally enforced. Once a thing and the fruits are delivered, he acquires a real right, enforceable against the whole
world.
Rights of creditor in determinate obligations:
To compel specific performance art. 1165
To recover damages for breach of the obligation through delay, fraud, negligence or contravention of the tenor thereof
art. 1170
Rights of creditor in generic obligations:

o
To ask for performance of the obligation
To ask that the obligation be complied with at the expense of the debtor
To recover damages for breach of the obligation art. 1170
Obligations of debtor in derminate obligations:

o
To perform the obligation specifically
To take care of the thing with the proper diligence of a good father of a family
Art. 1163 applies only to determinate obligations
2 exceptions:
The law requires another standard of care
If the parties stipulated another standard of care
To deliver all accessions and accessories of the thing eventhough they may not have been mentioned
Accessions all of those things which are produced by thing which is the object of the obligation as
well as all of those which are naturally or artificially attached thereto.
Accessories 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.
To be liable for damages in case of breach of the obligation by reason of delay, fraud, negligence or contravention of the
tenor thereof.
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Determinate thing only liability does not arise if the breach is due to a fortuitous event. Generic thing never
perish.
Obligations of debtor in generic obligations:

o
To deliver a thing which is neither of superior nor inferior quality.
To be liable for damages in case of breach of the obligation by reason of delay, fraud, negligence or contravention of the
tenor thereof
Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what
has been poorly done be undone. (1098)
Obligations to do the oblige does not possess the power to compel the obligor to comply with his obligations. The law recognizes the
individuals freedom to do or not to do.
The first paragraph granted a remedy to the obligee to have the obligation performed or executed at the expense of the obligor.
If contravention of the tenor, the following rights are available to the obligee:
1.
To have the obligation performed or executed at the expense of the obligor.
2.
To ask what has been poorly done to be undone
3.
to recover damages of breach of the obligation
contravention of the tenor defective performance.
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.
(1099a)
2 remedies:
o
To have it undone at the expense of the obligor in accordance with article 1168
To ask for damages in accordance with art. 1170
There are cases where the remedy is not available:

o
Forbidden
Physically or legally impossible
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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.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare; 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. (1100a)
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. (1101)
Art. 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. (1102a)
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. (1103)
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 circumstances 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.
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. (1104a)
Breach of Obligation:
o
Voluntary Art 1170
Involuntary arises because of fortuitous events
Voluntary Breach Through Default or Mora signifies the idea of delay in the fulfillment of an obligation with respect to time.
o
3 kinds:
Mora Solvendi delay of the obligor or debtor to perform his obligations
Mora Accipiendi delay of the oblige to accept the delivery of the thing which is the object of the obligation
Compensatio Morae delay of the parties or obligors in reciprocal obligations.
Default in Positive Obligations obligation to give or to do
Demand may be judicial or extrajudicial
Judicial if the creditor files a complaint for the fulfillment of the obligation
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When demand is not necessary: (delayed already, no need to demand)
When the obligation or the law expressly so declares
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.
When demand would be useless, as when the obligor has rendered it beyond his power to perform.
Default in Negative Obligations:

o
Extra-Judicial if the creditor demands fulfillment either orally or in writing
No possible delay
Default in Reciprocal Obligations

o
The general rule is that fulfillment by both parties should be simultaneous or at the same time.
One party incurs a delay from the moment the other party fulfills his obligation.
Effect of Default liability for damages, a crime, or a quasi-delict
Voluntary Breach through Fraud or Dolo fraud or dolo consists in the conscious and intentional proposition to evade the normal
fulfillment of an obligation
o
Civil Fraud classification:
Fraud or Dolo in the performance of an obligation
Present only during the performance of a pre-existing obligation
Employed for the purpose of evading the fulfillment of an obligation
Results in the nonfulfillment of the obligation
Give rise to recover damages
Fraud or Dolo in the constitution or establishment of an obligation.
Present only at the time of the birth of the obligation.
Purpose of securing the consent of the other party to enter into the contract.
Reason for the other party upon whom it is employed for entering into the contract, results in the vitiation of his
consent
Give rise to ask for the annulment of the fraud contract
Effect of Fraud liable for damages.
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Non-waiver of Future Fraud (Art. 1171)
Voluntary Breach through Negligence or Culpa negligence is the absence of due care required by the nature of the obligation.
Kinds of Negligence:
Criminal Negligence
Civil Negligence: (Art. 1173)

o
Either be culpa contractual or culpa aquiliana (quasi-delicts)
Culpa Contractual fault or negligence of the obligor by virtue of which he is unable to perform his obligation arising
from a pre-existing contract, 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
Negligence of the defendant is merely an incident in the performance of an obligation
There is always a pre-existing relation
Source of obligation is the breach or non-fulfillment of the contract.
Existence of contract and breach is prima facie evidence
No defense of the diligence of a good father
Culpa Aquiliana fault or negligence of a person, who, because of the omission of the diligence which is required by the
nature of the obligation and which must correspond with the circumstances of the persons, of the time and of the place,
causes damage to another.
Negligence of the defendant is substantive and independent
There may or may not be a pre-existing contractual relation.
Source of obligation is the defendants negligent act or omission
Negligence should be proven
Diligence is a defense
Difference between negligence and fraud INTENT
Test of Negligence Would a prudent man, in the position of the person to whom the negligence is attributed, foresee harm to the
person injured as a reasonable consequence of the course about to pursued.
Effects of Negligence liability
Regulatory Power of the Courts Art. 1172 the court may increase or decrease the liability of the party depending upon the
circumstances. Good/ Bad faith/ Conduct of the oblige
Effect of Good Faith liable only for natural and probable consequences
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Effect of Bad Faith can be held liable for all damages which may be reasonably attributed to the nonperformance of the obligation.
Effect of Contrabutory Negligence the effect is to reduce or mitigate which he can recover from the obligor.
Other circumstances which can mitigate the damages in the following instances:
Plaintiff itself contravened the terms of the contract
Plaintiff has derived some benefit as the result of the contract
In cases where exemplary damages are to be awarded, where the defendant acted upon the advice of the counsel
Where the loss would resulted in any event
Upon the filing of the action, the defendant has lessen the plaintiffs loss or injury.
Voluntary Breach through Contravention of Tenor of Obligation
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. (1105a)
Fortuitous event an event which could not be foreseen or which though foreseen, was inevitable. (acts of God)
Force Majeure events which arise from legitimate or illegitimate acts of persons other than the obligor (commotions, riots, wars)
(acts of Man)
Effect upon obligation - when failure to comply with the obligation due to fortuitous event general rule exempted from liability.
Only to determinate obligations not to generic ones
Essential Conditions:
1.
Event must be independent of the will of the obligor
2.
Event must be unforeseeable or inevitable.
3.
Event must be of such a character as to render it impossible for the obligor to fulfill his obligation in a normal manner
4.
The obligor must be free from any participation in the aggravation of the injury resulting to the obligee or creditor.
If the loss or destruction was caused by an act with negligence of the obligor or debtor mingling with it as an active and cooperative cause,
such obligor or debtor is still responsible.
EXCEPTIONS that the obligor cannot be held liable in cases of fortuitous events:
o
Where such liability is expressly specified by law
Where it is declared by the stipulation of the parties
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o
Where the nature of the obligation requires the assumption of risk
Art. 1175. Usurious transactions shall be governed by special laws. (n)
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 chettells.
USURY LAW or Act. No. 2655
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. (1110a)
If the debt produces interest, payment of the principal shall not be deemed have been made until the interest have been covered.
Art. 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring
all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may
have done to defraud them. (1111)
Remedies of Creditor to Protect Credit

o
To exhaust the property in possession of the debtor
To be subrogated to all of the rights and actions of the debtor save those which are inherent in his person
To impugn all of the acts which the debtor may have done to defraud him
Exhaustion of debtors property the principal remedy of the creditor. The debtor is liable with all his property, present and future
for the fulfillment of his obligation subject to the exemptions provided by law.
Accion Subrogatoria the debtor may defeat the right of the creditor by mere inaction or omission. 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.
o
CONDITIONS to avail of this remedy:
The debtor to whom the right or action properly pertains must be indebted to the creditor
The latter must be prejudiced by the inaction or failure of the debtor to proceed against the 3 rd person
The creditor must have first pursued or exhausted all of the properties of the debtor which are not exempted
from execution
In accion subrogatoria, the creditor merely acts in the name and for the account of the debtor after exhausting all the assets of the
latter.
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Rights which are purely personal in nature cannot be within the scope of this remedy
Accion Pauliana 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. Subsidiary in nature.
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.
(1112)
Exceptions to the transmissibility of rights:

o
Not transmissible by their very nature (purely personal right)
Where there is a stipulation of the parties that they are not transmissible.
They are not transmissible by operation of law.
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.
(1113)
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. (n)
Castan says, the concept is incomplete because it only excludes the condition and not the term.
Pure Obligations one whose effectivity or extinguishment does not depend upon the fulfillment or non-fulfillment 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. (Ex.
Ill pay you P5000 only)
The distinctive characteristic of a pure obligation is its immediate demandability.
Although the oblige or creditor can demand the performance of the obligation immediately, the quality of immediate demandability is
not infringed or violated when a reasonable period is granted for performance.
Conditional Obligations defined as a future and uncertain fact or event upon which an obligation is subordinated or made to
depend. It is one whose effectivity is subordinated to the fulfillment or non-fulfillment of a future and uncertain fact or event.
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The event must not only be future, but it must also be uncertain. The event itself can never constitute a condition because in order that
it can be classified as such, the requisites of futurity and uncertainty must be classified.
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 that it
constitutes a term or period.
If the past event is unknown to the parties as well as to the whole world, so that the proof or ascertainment thereof may or may not
happen or come to pass, it is also clear that it constitutes a condition.
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
The courts shall determine such period as may under the circumstances have been contemplated by the parties. Once fixed by the
courts, the period cannot be changed by them.
If the stipulation by the contracting parties that the debtor shall pay as soon as he has the money, the creditors remedy is to resort to
the courts for the determination of the duration of the period in accordance with the provision of Art. 1197 of the Code.
CLASSIFICATION OF CONDITIONS:
o
SUSPENSIVE/RESOLUTORY
Suspensive when the fulfillment of the condition results in the acquisition of rights arising out of the obligation.
Resolutory when the fulfillment of the condition results in the extinguishment of rights arising out of the obligation
POTESTATIVE/CASUAL/MIXED (CAUSE)
Potestative when the fulfillment of the condition depends upon the will of the party to the obligation.
Casual when the fulfillment of the condition depends upon chance and/or upon the will of a 3rd person.
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 3rd person
POSSIBLE/IMPOSSIBLE
Possible when the condition is capable of realization according to nature, law, public policy or good customs
Impossible when the condition is not capable of realization according to (same as above)
POSITIVE/NEGATIVE
Positive when the condition involves the performance of an act
Negative when the condition involves the omission of an act.
DIVISIBLE/INDIVISIBLE
Divisible when the condition is susceptible of partial realization.
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o
Indivisible when the condition is not susceptible of partial realization
CONJUNCTIVE/ALTERNATIVE
Conjunctive when there are several conditions, all of which must be realized
Alternative when there are several conditions, but only one must be realized.
EXPRESS/IMPLIED
Express when the condition is stated expressly.
Implied when the condition is tacit.
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. (1114)
Suspensive Condition (condition precedent) is a future and uncertain event upon the happening or fulfillment of which rights
arising out of the obligations are acquired.
It signifies a future and uncertain event upon the fulfillment of which the obligation becomes effective.
The birth or effectivity of the obligation is suspended until the happening or fulfillment of the event which constitutes the condition
Its birth or effectivity can take place only if and when the event which constitutes the condition happens or is fulfilled.
The acquisition of rights shall depend upon the happening or fulfillment of the fact or event which constitutes the condition.
What is acquired by the obligee or creditor upon the constitution of the obligation is only a mere hope or expectancy, however, it is
protected by law.
Resolutory Condition (condition subsequent) is a future and uncertain event upon the happening of which rights which are already
acquired by virtue of the obligation are extinguished or lost.
The juridical relation which is established as a result of the obligation is subject to the threat of extinction.
The obligation is demandable immediately after its establishment or constitution. Rights arising out of the obligation are acquired
immediately and vested in the oblige or creditor.
Although rights are immediately vested in the oblige or creditor upon the constitution of the obligation, such rights are always subject
to the threat or danger of extinction.
If the suspensive condition is fulfilled, the obligation arises or becomes effective; if the resolutory condition is fulfilled, the obligation
is extinguished.
If the SC is not fulfilled, no juridical relation is created; if the RC is not fulfilled, the juridical relation is consolidated.
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In the SC, rights are not yet acquired, but there is a hope or expectancy that they will soon be acquired; in the RC, rights are already
acquired, but subject to the threat of extinction.
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. (1115)
Purely Potestative Condition one whose fulfillment depends exclusively upon the will of either one of the parties of the obligation
Casual Condition one whose fulfillment depends exclusively upon chance and/or upon the will of a 3rd person.
Mixed Condition one whose fulfillment depends jointly upon the will of either one of the parties to te obligation and upon chance
and/or the will of a 3rd person
EFFECT OF POTESTATIVE CONDITIONS:
When the condition depends upon the will of the creditor obligation is valid
When the condition depends upon the will of the debtor obligation is void.
If the condition is resolutory and, at the same time, potestative, the obligation, as well as the condition, is valide even though the
fulfillment of the condition is made to depend upon the sole will of the obligor or debtor.
The position of the debtor when the condition is resolutory is exactly the same as the position of the creditor wjem the condition is
suspensive.
The rule that the conditional obligation shall be void is applicable only to an obligation which depends for its perfection upon a
condition which is potestative to the debtor and not to a pre-existing obligation.
EFFECT OF CASUAL CONDITIONS
When the fulfillment of the condition depends upon chance and/or the will of a 3 rd person, the obligation including such condition
shall take effect.
EFFECT OF MIXED CONDITION
The obligation including such condition shall take effect.
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.
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 obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid.
The condition not to do an impossible thing shall be considered as not having been agreed upon. (1116a)
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It is possible when it is capable of realization not only according to its nature, but also according to the law, good customs and public
policy. It is impossible when it s not capable of realization either according to its nature or according to law, good customs or public
policy.
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.
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.
If the obligation is divisible, that part which is not affected by the impossible or unlawful condition shall be valid.
If the condition is not to do an impossible thing, it shall be considered as not having been agreed upon. Consequently, the obligation
becomes pure, and therefore, immediately demandable.
The difference with respect to effect between a condition which is impossible, illegal, inappropriate or illicit when it it attached to an
obligation and the same condition when it is attached to a simple or remuneratory donation or to a testamentary disposition. In the
first, the obligation 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. (1117)
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 contemplated, bearing in mind the
nature of the obligation. (1118)
If it is positive it involves the performance of an act or the fulfillment of an event; if it is negative it involves the nonperformance of
an act or the non-fulfillment of an event
The condition that some event happen at a determinate time shall extinguish the obligation as soon as the time expires or if it becomes
indubitable that the event will not take place.
Attention must be called to the rule stated in the 2 nd paragraph of Art. 1185. The intention of the parties, taking into consideration the
nature 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. (1119)
Constructive Fulfillment of Suspensive Conditions in order that this doctrine can be applied, it is necessary that the obligor must
have actually prevented the oblige from complying with the condition, and that such prevention must have been voluntary or willful in
character.
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It can only be applied to suspensive, and not to resolutory conditions.
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 parties, the fruits and interests during the pendency of the
condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and interests
received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same
was different.
In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with.
(1120)
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. (1121a)
If the obligation depends upon a suspensive condition, the demandability 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 logical; therefore, that during the pendency of the condition, the obligee or creditor has only a mere hope or expectancy.
Inasmuch as the oblige or creditor has an expectant right to the eventual fulfillment or performance of the obligation, it is but just and
proper that the law accords to him the right to avail of all remedies for the protection or preservation of right to avail of all remedies
for the protection or preservation of such right.
In the case of the obligor or debtor, it is also logical that 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.
Effect of Suspensive Conditions after Fulfillment
Once the event which constitutes the condition is fulfilled, the obligation arises or becomes effective.
The obligor or debtor can thereafter be compelled to comply with what is incumbent upon him
Retroactivity of Effect
Once the condition 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.
The principle of retroactivity can only apply to consensual contracts, that must be tempered by principles of justice and practicability
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.
When the obligation is unilateral, the debtor shall appropriate the fruits and interest received, unless from the nature and circumstances
of the obligation it can be inferred that the intention of the person constituting the same was different. The rule is based on justice.
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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 that has been complied with.
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 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. (1122)
These rules are natural consequences of the principle of retroactivity which is embodied in Art. 1187. They refer only to conditional
obligations to give a determinate thing.
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.
Deteriorations without fault of the debtor, the impairments is to be borne by the creditor. However, if it deteriorates through the fault
of the debtor, the creditor may choose between bringing an action for rescission of the obligation with damages and bringing an action
for specific performance with damages.
Improvements nature or by time shall inure to the benefit of the creditor.
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.
Consequently the debtor cannot ask reimbursement for the expenses incurred for useful improvements or for improvements for mere
pleasure, he can , however, ask reimbursement for necessary expenses.
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.
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 the obligations to do and not to do, the provisions of the second paragraph of Article 1187 shall be observed as regards the effect of the
extinguishment of the obligation. (1123)
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Effect of Resolutory Conditions Before Fulfillment because of the fact that in obligation with a resolutory condition, the right
which the oblige 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 that of the oblige or creditor in
obligations with a suspensive condition.
Although apparently this right is available only to the creditor in obligations with a suspensive condition, justice demands that the
rights must also be available to the debtor in obligations with a resolutory condition during pendency of the said condition.
Effect of Resolutory Conditions After Fulfillment a return to the status quo
Retoactivity of effect:
o
no exceptions
the rule is applicable to reciprocal or unilateral obligations
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.
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 3 rd person
in their production, gathering and preservation.
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.
The retroactivity of effects of the resolutory condition shall depend upon the discretion of the courts, as in the case of
suspensive conditions.
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent
upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may
also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388
and the Mortgage Law. (1124)
Reciprocal Obligations those which are created or established at the same time, out of the same cause, and which result in mutual
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.
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The code in the first paragraph of Art. 1191 has established the principle that 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 the obligation. This condition is implied as a
general rule on all reciprocal obligations
The right to rescind or resolve the obligation is a right which belongs to the injured party alone. It is important that it must be invoked
judicially. This is evident on the 3rd paragraph of Art. 1191 which states that the court shall decree the rescission, unless there be a just
cause authorizing the fixing of a period.
The party entitled to rescind must invoke judicial aid by filing the proper action for rescission.
As stated by the SC, it is the judgment of the court and not the mere will of the vendor which produces the rescission of the sale.
It must be noted that where the contract itself contains a resolutory provision by virtue of which the obligation may be cancelled or
extinguished by the injured party in case of breach, judicial permission to cancel or rescind the contract is no longer necessary.
The only limitation on the exercise of the right to terminate a contract is that it must not be contrary to law, morals, good customs,
public order and public policy.
Art. 1191 can be applied only to reciprocal contracts which contained no resolutory conditions.
The right to rescind is implied: only if not expressly granted; no right can be said to be implied if expressly recognized.
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.
Art. 1191 refers to the resolution of reciprocal obligations in general, while 1786 and 1788 refers to contracts of partnership in general.
Art. 1191 cannot be applied to sales of real property or sales of personal property by installments. The first refers to the Recto law (art.
1484 to 1486 Civil Code), while the second is governed by the Maceda Law (RA 6552)
The general rule is that 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.
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; the
injured party cannot seek both.
That 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.
As a matter of fact, even if the plaintiff apparently seeks to avail of both remedies, the presumption is that he is leaving the matter to
the discretion of the court
Whether the injured party chooses specific fulfillment or rescission, the rule is that he can recover damages.
According to the 3rd paragraph of Art. 1191, the court shall decree the rescission claimed, unless there is a just cause authorizing the
fixing of a period. 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.
EFFECT OF RESCISSION: When an 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; The parties must be placed as far as practicable in their original situation.
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EFFECT UPON 3rd PERSONS: Accdg. To the 4th paragraph, the decree of rescission shall be understood to be without prejudice to the
rights of 3rd persons who have acquired the thing in accordance with arts. 1385 and 1388 and the Mortgage Law.
The rescission of a contract can no longer be demanded when he who demands it is no longer in a position to return 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 3rd person who did not act in faith. In such case, the only remedy of the injured party is to proceed against the party responsible
for the transfer or conveyance for damages. However, if the 3 rd person had acquired the thing in bad faith, the injure 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
3rd person who had acted in bad faith for damages.
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.
(n)
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. (1125a)
A term or a period is an interval of time, which exerting an influence on an obligation as a consequence of a juridical act, either
suspends its demandability or produces its extinguishment.
Obligation with a period those whose demandability or extinguishment is subject to the expiration of a term or period
Condition a future and uncertain fact or event upon which an obligation is made to depend
Difference between a term or period and a condition:
Obligation:
A term or period
A condition
As to requisites
Refers to an interval of time which is future

and certain
Refers to a fact or event which is future and

uncertain
As to fulfillment
An interval of time which must necessarily

come, although it may not be known when
A future and uncertain fact or event which

may or may not happen
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Atty. Castillo
As to influence on obligation:
Merely exerts an influence upon the time of

the demandability or extinguishment of an
obligation
Exerts an influence upon the very existence of

the obligation itself
As to retroactivity of effects
Does not have a retroactive effect unless there

is an agreement to thee contrary
Has retroactive effects
As to effects of will of debtor
Left exclusively to the will of the debtor, the

existence of the obligation is not affected
When left exclusively to the will of the

debtor, the very existence of the obligation is
affected
Classification of term or period:

o
Suspensive or Resolutory
Suspensive when the obligation becomes demandable only upon the arrival of a day certain
Resolutory when the obligation is demandable at once, although it is terminated upon the arrival of a day certain
Legal, Conventional or Juridical
Legal when it is granted by law
Conventional when it is stipulated
Judicial when it is fixed by the courts
Definite or Indefinite
Definite when the date or time is known beforehand
Indefinite when it can only be determined by an event which must necessarily come to pass, although it may not be
known
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
If the uncertainty consists whether the event will happen or come to pass, such event constitutes a condition;
hence, the obligation is conditional
i.e. if the obligor or debtor binds himself to perform his obligation as soon as he has obtained a loan from a
bank, it is clear that the granting of such loan is not definite the obligation is conditional.
Effects of Term or Period
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Suspensive the fulfillment or performance of the obligation is demandable only upon the arrival of the day certain or
expiration of the term. What is suspended by the term is not the acquisition of the right or the effectivity of the obligation
but merely its demandability
Resolutory the fulfillment or performance of the obligation is demandable at once, but it is extinguished or terminated
upon the arrival of the day certain or the expiration of the term
Effects of Fortuitous Event

o
The only effect is to relieve the contracting parties from the fulfillment of their respective obligation during the term or
period.
Art. 1194. In case of loss, deterioration or improvement of the thing before the arrival of the day certain, the rules in Article 1189 shall be
observed. (n)
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. (1126a)
If the obligor, being unaware of the period or believing that 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.
It can only apply to obligations to give.
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 that the obligation had become due and demandable
If the payment or delivery was made voluntarily or with knowledge of the period or of the fact that 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 the
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. (1127)
Benefit of Term or Period

o
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.
General Rule: the 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
REASONS WHY THE CREDITOR CANNOT BE COMPELLED TO ACCEPT PAYMENT:
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Payment of interest.
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 thus able to protect himself against sudden decline in the purchasing power of the
currency loaned especially at a time when there are many factors that influence the fluctuation of the currency
Under the Usury Law, there is a special prohibition of payment of interest in advance for more than one year
Exception:
If it can be proved either from the tenor of the obligation or from other circumstances that the period or term has
been established in favor of the creditor or of the debtor, the general rule or presumption will not apply.
BENEFIT OF THE CREDITOR he may demand the fulfillment or performance of the obligation at any time,
but the obligor r debtor, cannot compel him to accept payment before the expiration of the period
BENEFIT OF THE 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.
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 shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed
by the courts, the period cannot be changed by them. (1128a)
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
When court may fix term term:

1.
If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended by
the parties.
2.
If the duration of the period depends upon the will of the debtor.
3.
If the debtor binds himself to pay when his means permit him to do so.
The mere silence of the obligation with regard to the term or period for its fulfillment does not necessarily mean that the courts are
empowered to fix the duration thereof.
1st, the remedy cannot be applied to contracts for services in which no period was fixed by the parties
2nd, cannot be applied to pure obligations
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The effect of a potestative term or period is very different from that of a potestative condition
Nature of Action:
o
An action to ask the court to fix the duration of the term or period
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 that this point was never raised before the trial court, the creditor
cannot be allowed to raise it for the first time on appeal.
To be alleged in the complaint:

1.
facts showing that a contract was entered into imposing on one of the parties an obligation in favor of the other
2.
facts showing that the performance of the obligation was left to the will of the obligor, or clearly showing or from
which an inference can be reasonably drawn that a period was intended
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 gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the guaranties or securities which he has promised;
(3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they
disappear, unless he immediately gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period;
(5) When the debtor attempts to abscond. (1129a)
(1) Insolvent includes any case in which it would not be possible financially for the debtor to comply with his obligation. 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.
(2) The former obligation became pure and without any condition, and consequently, the loan became due and immediately
demandable
(3) RULES:
o
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
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SECTION 3. - Alternative Obligations
When an obligation comprehends several objects or prestations it may be either conjunctive or distributive.
Conjunctive when all of the objects or prestations are demandable at the same time
Distributive when only one is demandable
DISTRIBUTIVE: Alternative or Facultative
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
o
Characteristic feature is that various objects being ue, 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.
Facultative when it comprehends only one object or prestation which is due, but it may be complied with b the delivery of another
object or the performance of another prestation in substitution.
o
Characteristic feature is that only one object or prestation is due, but the obligor or debtor may deliver another object or
perform another prestation in substitution.
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. (1131)
Art. 1200. The right of choice belongs to the debtor, unless it has been expressly granted to the creditor.
The debtor shall have no right to choose those prestations which are impossible, unlawful or which could not have been the object of the
obligation. (1132)
In alternative obligations, the general rule is that the right f choice belongs or pertains to the debtor
2 exceptions:
1.
When the right of choice has been expressly granted to the creditor
2.
When it has been expressly granted to a 3rd person
Limitations upon right of choice:
The debtor cannot choose those prestation or undertakings which are impossible, unlawful or which cold not have been the object of
the obligation
Prestations which could not have been the object of the obligation those undertakings which are not included among those from
which the obligor may select, or to those which are not yet due and demandable at 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 that contemplated by the parties when
the obligation was constituted.
Art. 1201. The choice shall produce no effect except from the time it has been communicated. (1133)
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
that matter.
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Effect upon obligation:
Once the choice is made b 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
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 therewith.
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 at first opened to him
Art. 1202. The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is practicable. (1134)
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.
Article 1202
Art 1200, 2nd paragraph
There is only one prestation which can be performed.
There are still two or more which can be performed
The obligation is converted into a simple one because the debtor loses
his right of election
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. (n)
Since the debtors right of choice is rendered ineffective through the creditors fault, his only possible recourse will be to bring an
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.
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Damages other than the value of the last thing or service may also be awarded. (1135a)
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 creditor should
choose from among the remainder, or that which remains if only one subsists;
(2) If the loss of one of the things occurs through the fault of the debtor, the creditor may claim any of those subsisting, or the price of
that which, through the fault of the former, has disappeared, with a right to damages;
(3) If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon the price of any one of them, also
with indemnity for damages.
The same rules shall be applied to obligations to do or not to do in case one, some or all of the prestations should become impossible. (1136a)
Art. 1204 applies only to a case where the right of choice belongs to the debtor.
Art. 1205 applies to a case where the right belongs to the creditor.
The first article is the general rule, while the second is the exception.
The effect of loss of objects of obligation is 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.
If right of choice belongs to the debtor and the loss or impossibility is due to a fortuitous event, then the provisions of Art. 1174,
1262 and 1266 of the Code are applicable. The debtor cannot be held liable for damages.
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 that 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 that 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.
If the loss or impossibility is due to the fault of the debtor, then the provisions of Art. 1204 are applicable. 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 that of the
service which last became impossible.
If right of choice belongs to 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
If the loss or impossibility is due to the fault of the debtor, the creditor may claim the price or value of any one of them with indemnity
for damages.
The creditor may claim any of the substituting 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.
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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 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
Facultative Obligation an 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.
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
Facultative Obligations
Alternative Obligations
As to objects due
Only one object is due
Several objects are due
As to compliance
May be complied with by the delivery of

another object or by the performance of
another prestation in substitution of that
which is due
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
As to choice
The right of choice pertains only to the debtor
The right of choice may pertain even to the

creditor or to a third person
As to effect of fortuitous loss
The loss or impossibility of the object or

prestaton which is due without any fault of
the debtor is sufficient to extinguish the
obligation
The loss or impossibility of all the objects or

prestations which are due without any fault of
the debtor is necessary to extinguish the
obligation
As to effects of culpable loss
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
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
When substitution takes effect In order that the creditor will be bond by the substitution, however, it is necessary that he must
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.
Effects of loss of substitute An implication that if the loss or deterioration is through the bad faith or fraud of the obligor, then
he is liable
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Once the substitution has been made the debtor shall be liable for the loss or deterioration of the substitute on account of his
delay, negligence or fraud. 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
When there is concurrence of two or more creditors or of two or more debtors in one and the same obligation, the obligation may be
either joint (obligacion mancomunada) or solidary (obligacion solidaria)
Joint Obligation 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 part of the prestation which constitutes the object of the obligation
Each of the creditors is entitled to demand the payment of only a proportionate part of the credit, while each of the debtors is liable for
the payment of only a proportionate part of the debt
Solidary Obligation 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
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.
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. (1137a)
Where the obligation is silent with respect to the nature or character of the right of the creditors 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
Presumption that an obligation is joint and not solidary
Exceptions:
1. When the obligation expressly states that there is solidarity
2. When the law requires solidarity example is Art. 110 of the RPC regarding the liability of principals, accomplices and accessories
of a felony
3. When the nature of the obligations requires solidarity. example Art. 110 of the RPC
Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear, the
credit or debt shall be presumed to be divided into as many shares as there are creditors or debtors, the credits or debts being considered distinct
from one another, subject to the Rules of Court governing the multiplicity of suits. (1138a)
The most fundamental effect of joint divisible obligations is that 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
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 share 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 suit
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It follows that a joint creditor cannot act in representation of the others; neither can a joint debtor be compelled to answer for the
liability of the others.
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. Similarly, if there is any defense which is purely personal to one of the debtors, he alone can avail himself of such defense.
According to Manresa the interruption of prescription by the claim of a creditor addressed to a single debtor or by an
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.
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. (1139)
Joint Indivisible Obligations 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, that no creditor can act in representation of the others, and second, the no
debtor can be compelled to answer for the liability of the others.
Characteristics:
(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
(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 because the obligation is joint and indivisible.
Effect of Breach: It follows that if one of the joint debtors fails to comply with his undertaking, the obligation can no longer be
fulfilled or performed. 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 obligation consists
Effect of Insolvency of a Debtor: If one of the joint debtors should be insolvent, the others shall not be liable for his share.
Interruption of period of Prescription: 2 views
First View: The act of joint creditor be per se beneficial to the others, as for the instance the interruption of the period of prescription,
the act of one would be sufficient
Second 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. ------ more logical!
Art. 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. (n)
Difference between indivisibility and solidarity
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Indivisibility
Solidarity
As to nature:
Refers to the prestation which constitutes the object of

the obligation.
Refers to the legal tie or vinculum, and consequently,

to the subjects or parties of the obligation.
As to requisites:
Plurality of subjects is not required
Plurality of subjects is indispensable
As to effect of breach:
When the obligation is converted into one of indemnity

for damages because of breach, indivisibility of the
obligation is terminated
When there is liability on the part of the debtors

because of breach, the solidarity among the debtors
remains.
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. (1140)
Kinds of Solidarity:
Solidarity of creditors (active solidarity) 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 creditors.
Solidarity of debtors (passive solidarity) 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
share in the obligation, but in relation to the common creditor or creditors, represents all of the other debtors.
Solidarity among creditors and debtors (mixed solidarity)
Effects of Active solidarity in general 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 an accounting of his acts to such creditors.
It is this relationship of mutual agency which is the basis of the different rules stated in Arts. 1212 to 1215 of the Code.
Effect of Passive solidarity in general 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. 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
Passive Solidarity distinguished from suretyship a solidary guarantor or surety (fiador in solidum) is a person who binds himself
solitarily with the principal debtor
Solidary Debtor
Surety
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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
Liable only for the payment of the debt of another
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
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
that he has paid
The rights of a solidary debtor are more limited than those of a surety
In suretyship such an extension granted to the principal debtor would

release the surety from the obligation
In passive solidarity an 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
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 manner and by the same conditions or periods or not.
Consequently, the relationship of solidarity is not destroyed by the fact that 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.
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.
(1141a)
Effect of Beneficial and Prejudicial Acts as a consequence of the relationship of mutual agency existing among the solidary
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.
Hence, each solidary creditor may demand the payment or performance of the entire obligation from one, some or all of the debtors.
Such a demand will have the effect of benefiting not only the solidary creditor who made it, but also the other solidary creditors.
There is 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 tot the effect upon the entirely different relationship of the creditors with the debtor or
debtors.
According to Art. 1215, the novation, compensation, confusion or remission of the debt shall result in the extinguishment of the
obligation, 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. (n)
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Effect if a solidary creditor assigns his rights without the consent of the other solidary creditors?
The answer should be qualified if the assignment is made to anyone of the other solidary creditors, it is clear that 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 3rd 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.
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. (1142a)
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 of the rule stated in Art. 1212 that 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.
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 than to the one who made the demand. The 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 than to
the creditor who made the demand.
Art. 1215. Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any of the solidary debtors,
shall extinguish the obligation, without prejudice to the provisions of Article 1219.
The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the
obligation corresponding to them. (1143)
Novation change or substitution of an 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 3rd person in the right of the creditor.
It extinguishes the obligation, it creates a new one in lieu of the old.
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. The new obligation which is created may be either prejudicial or beneficial to the other solidary
creditors.
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 3rd 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.
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If the novation is effected by subrogating a 3rd 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
General Rule extension of time for the payment of the obligation given by the creditor to a solidary debtor does not constitutes a
novation with respect to the other solidary debtors, because in order that an obligation may be extinguished by another which
substitutes it, it is necessary that it should be so expressly declared or that the old and the new obligation are incompatible with each
other on every point.
In suretyship the rule is that an extension of time granted to the principal debtor by the creditor without the consent of the surety
extinguishes the latters liability, but where a surety is liable for different payments, such as installments or rents, or upon a series of
promissory notes, an extension of time as to one or more will not affect the liability of the surety for the others.
Effect of Compensation and Confusion
Compensation a figurative operation of weighing two obligations simultaneously in order to extinguish them to the extent that the
amount of one is covered by the amount of the other.
Confusion refers to the merger of the qualities of creditor and debtor in one an the same person with respect to one and the same
obligation.
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 that 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.
Remission an 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 part or aspect thereof to
which the remission refers.
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 that part or aspect thereof to which the remission refers,
giving rise to a liability on the part of the creditor or creditors responsible for the remission to reimburse the others for the share in the
obligation corresponding to them.
The effects of remission:
(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. This
rule is based on the character of remission as an act of pure liberty. 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
(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 for 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
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Whether the remission covers the entire share of 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.
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. Otherwise, there would be the possibility that 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.
Effect or payment to a creditor if one of the solidary creditor is able to collect the entire amount of the debt from one or some or
all of the solidary debtors, the obligation is totally extinguishe, although there arises a consequent obligation on his part to render an
account to his co-creditors.
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.
(1144a)
Effect of Demand upon a debtor
Where the guarantor binds himself solidarily with the principal debtor to pay the latters debt, he cannot and should not complain that
the creditor should thereafter proceed against him to collect his credit
It cannot be contended that 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 an action against the principal debtor to enforce
the payment of the obligation is not inconsistent with, an does not preclude, the bringing of another to compel the surety to fulfill his
obligation under the surety agreemend
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 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. (1145a)
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. (n)
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 amoun of the debt is paid or only a part 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. This right is not
available to a debtor who makes the payment after the obligation has prescribed or has become illegal.
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As a rule, the interest shall be computed from the time payment was made. The interest shall be computed not from the time payment
was made, but from the time the debt became due.
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 3rd paragraph of Art. 1217, such care shall be borne by al his co-debtors, in proportion to the debt of each.
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 no real case of subrogation.
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. (1146a)
Art. 1220. The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to reimbursement from his codebtors. (n)
Art. 1221. If the thing has been lost or if the prestation has become impossible without the fault of the solidary debtors, the obligation shall be
extinguished.
If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price and the payment of damages and interest,
without prejudice to their action against the guilty or negligent debtor.
If through a fortuitous event, the thing is lost or the performance has become impossible after one of the solidary debtors has incurred in delay
through the judicial or extrajudicial demand upon him by the creditor, the provisions of the preceding paragraph shall apply. (1147a)
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 an 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
(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 an 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 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. (1148a)
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Defenses Available to a Solidary Debtor the creditor/s 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:
(1) defenses derived from the very nature of the obligation examples: payment of performance, res judicata, prescription, those
which invalidate the contract such as mistake, violence, intimidation, undue influence, fraud, and others of a similar nature
(2) defenses personal to him or pertaining to his own share examples: minority, insanity, and other defenses which are purely
personal to the debtor
(3) defenses personal to the others, but only as regards that part of the debt for which the latter are responsible a patial defense
example: mother and 2 minor children minority the defense of minority of her-cosigners, but such defense will benefit her only
with regard to that part of the debt for which the minors are responsible
SECTION 5. - Divisible and Indivisible Obligations
Divisible Obligations those which have as their object a prestation which is susceptible of partial performance without the essence
of the obligation being changed
Indivisible Obligations 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.
Relation to Divisibility or Indivisibility of Things
Divisibility of the obligation refers to the performance of the prestation which constitutes the object of the obligation
Divisibility of the thing or prestation refers to the prestation itself
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
A thing is indivisible if separated into parts, its essence is changed or its value is decreased disproportionately
A thing is divisible if separated 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. It must be possible to
reconstruct the thing itself into its condition prior to the division by uniting the different parts into which it had been divided.
3 kinds of Division
(1) Quantitative when the thing can be materially divided 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 movable, or when the limits of the parts are fixed by metes and bounds as
in the case of immovables.
(2) Qualitative when the thing can be materially divided, but the parts are not exactly homogenous, such as in the partition of an
inheritance.
(3) Ideal or Intellectual when the thing can only be separated into ideal or undivided parts, not material parts, as in the case of coownership.
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. (1149)
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. (1150)
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; neither may
be debtor be required to make partial payments
3 Exceptions:
(1) when the obligation expressly stipulates the contrary
(2) when the different prestation constituting the objects of the obligation are subject to different terms and conditions
(3) when the obligation is in part liquidated and in part unliquidated.
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Where there is 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 provision of Art 1211 to 1222 shall apply
If it is joint and at the same time divisible Art. 1208 is applicable
If it is joint and at the same time indivisible the provisions of Arts. 1209 and 1224 are applicable
Breach of Joint Indivisible Obligation in joint indivisible obligations, the obligation can be enforced only by proceeding against
all of the debtors. If anyone of the debtors should fail or refuse to comply with the obligation, it is converted into one of indemnity for
damages. 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 non fulfillment of the obligation.
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.
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.
Determination of Divisibility or Indivisibility the true test of divisibility is whether the obligation is susceptible of partial
performance. The pivotal fact is the possibility or impossibility of partial prestation.
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
In obligations to give the divisible or the indivisible nature of the thing which constitutes 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
If the obligation is to give something which is definite or which by its very nature is indivisible, it is evident that it is not susceptible
of partial compliance. Hence, it shall be deemed to be indivisible
If the obligation is to give something which by its nature is divisible, the general rule is that the obligation is also divisible since it is
evidently susceptible of partial compliance. The 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.
(1) from the fact that, although the object of the obligation can be separated into parts, yet each part 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.
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. 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 that it is divisible.
The obligation shall be considered divisible when it has for its object:
(1) the execution of a certain number of days of work
(2) the accomplishment of work by metrical units
(3) the accomplishment of analogous things which by their nature are susceptible of partial performance
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. 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
Obligations with a Penal Clause one to which an 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
Penal clause or penalty is an 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.
Purpose of Penalty (3-fold purpose)
(1) function coercitiva o de garantia to insure the performance of the obligation; the general purpose regardless of whether the
penalty is compensatory or punitive
(2) function liquidatoria to liquidate the amount of damages to be awarded to the injured party in case of breach of the principal
obligation; compensatory
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(3) function estrictamente penal in certain exception cases, to punish the obligor in case of breach of the principal obligation;
punitive
Kinds of Penalty
(1) As to origin:
Legal constituted by law
Conventional constituted by agreement of the parties
(2) As to purpose
Compensatory when it is established for the purpose of indemnifying the damages suffered by the oblige or creditor in case of
breach of the obligation
Punitive when it is established for the purpose of punishing the obligor or debtor in case of breach of the obligation
(3) As to effect
Subsidiary when only the penalty may be demanded in case of breach of the obligation
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. (1152a)
Effect of Penalty; General Rule the penal clause may be considered either as reparation or substitute for damages or as a
punishment in case of breach of the obligation
The proof of actual damages is not necessary in order that the stipulated penalty may be demanded.
However, if the injured party desires to recover the damages actually suffered by him in addition to the penalty, he must prove such
damages.
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.
The penalty in its compensatory aspect is the general rule, while the penalty in its strictly penal aspect is the exception.
Exceptions that the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance with
the principal obligation. These are:
(1) when there is stipulation to the contrary
(2) when the obligor is sued for refusal to pay the agreed penalty
(3) when the obligor is guilty of fraud
--- it is evident that the purpose of the penalty in all these cases is to punish the obligor
Consequently, the oblige can recover from him not only the penalty, but also the damages or interests resulting from the breach of the
principal obligation.
Enforcement of Penalty the penalty may be enforced only when it is demandable in accordance with the provisions of the Civil
Code. Consequently, upon the breach or non fulfillment of the principal obligation by the obligor or debtor, the penalty stipulated
becomes demandable, provided that it is not contrary to law, morals, good customs, public order or public policy.
However, where both parties was 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.
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. (1153a)
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, an exception to this rule and that is when the right has been expressly reserved for him.
Limitation upon Right of Creditor the creditor cannot demand the fulfillment of the principal obligation and the satisfaction of the
stipulated penalty at the same time, unless the right has been clearly granted to him
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 impossible without his fault, he may still demand the satisfaction of the
penalty.
In order that the debtor can exempt himself from the performance of the obligation by paying the penalty, the right must be expressly
reserved for him.
In order that the creditor can demand the fulfillment of the obligation and the satisfaction of the penalty at the same time, the right
must be clearly granted to him.
Art. 1228. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded. (n)
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Proof of Actual Damages the above provision is applicable only to the general rule stated in Art. 1226 and not to the exceptions.
The penalty is exactly identical with what is known as liquidated damages under Art. 1226 of the Civil Code.
However, if there is a stipulation to the contrary, or if the obligor or debtor us sued for refusal to pay the agreed penalty, or if the
obligor or debtor is guilty of fraud, then the oblige or creditor can demand not only the satisfaction of the agreed penalty, but even
damages.
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. (1154a)
When penalty may be reduced:

(1) if the principal obligation is partly complied with
(2) if the principal obligation has been irregularly complied with
(3) 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
The first refers to the quantity or quality of the performance, while the second refers to the form
The third contemplates a case in which the only question raised is whether the amount of the stipulated penalty is reasonable or
unconscionable.
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.
(1155)
Nature of Obligation or Penalty; Effect if the principal obligation is void, it necessarily follows that the penal clause shall also be void.
This rule is, of course, logical considering the fact that the penalty is merely an accessory obligation.
However, if the penal clause is void, the validity of the principal obligation is not affected, since the efficacy of such obligation is not
dependent upon the efficacy of the penal clause.
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. (1156a)
Modes of Extinguishing Obligations there are 10 modes which are enumerated above
There are others such as:
1.
Renunciation or waiver by the oblige or creditor
2.
Compromise
3.
Expiration of the resolutory term or period
4.
death of one of the contracting parties in purely personal obligations
5.
will of one of the contracting parties in certain contracts
6.
the agreement of both contracting parties or what is sometimes known as mutual assent or dissent
SECTION 1. - Payment or Performance
Art. 1232. Payment means not only the delivery of money but also the performance, in any other manner, of an obligation. (n)
Concept of Payment or Performance 3 different acceptations
Broadest sense it consists in the fulfillment of the obligation either voluntarily or involuntarily, including its extinguishment by any
means or mode whatsoever
Limited sense it consists in the normal and voluntary fulfillment of the obligation by the realization of the purpose for which it was
constituted.
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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 payment means not only the delivery of money but also the performance in any other manner
of an obligation.
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. (1157)
Art. 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete
fulfillment, less damages suffered by the obligee. (n)
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. (n)
1.
2.
Obligation to give understood to have been paid when the debtor or obligor has completely delivered the thing which he had
obligated himself to deliver
Obligation to do to have been performed when the obligor has completely rendered the service which he had obligated himself to
render
Obligation not to do complied with when the obligor has completely refrained from doing which he had obligated himself not to
do.
EXCEPTIONS:
When the obligation has been substantially performed in good faith. There is less damages that has been suffered by the obligee. This
condition affords a just compensation for the relative breach committed by the obligor.
When the obligee accepts the performance, knowing in its incompleteness or irregularity and without expressing any protest or
objection. This rule is based on the principle of estoppel
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 a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the
debtor, he can recover only insofar as the payment has been beneficial to the debtor. (1158a)
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. (1159a)
Art. 1238. Payment made by a third person who does not intend to be reimbursed by the debtor is deemed to be a donation, which requires the
debtor's consent. But the payment is in any case valid as to the creditor who has accepted it. (n)
Persons who may pay obligation:

(1) the debtor himself or his legal representative
(2) 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.
Payment by a 3rd person, whether he has an 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.
These rules, however, cannot be applied to the case of a 3 rd 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.
The creditor is not bound as a general rule to accept payment or performance by a 3rd person. REASONS: creditor should have a right
to insist on the liability of the debtor, or he may dislike or distrust a 3 rd person, the creditor may not desire to have any business
dealings with a 3rd person etc.
Exceptions:
1. When it is made by a 3rd person who has an interest in the fulfillment of the obligation, such a joint debtor, guarantor or surety.
2. When there is a stipulation to the contrary. In this case, the creditor is deemed to have waived his right to refuse to deal with
strangers to the obligation.
Rights of 3rd persons if a 3rd person pays the obligation with the knowledge and consent of the debtor, there are 2 rights available to
him:
1. he can recover from the debtor the entire amount which he has paid.
2. he is subrogated to all of the rights of the creditor.
However, if the payment is made WITHOUT the knowledge 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.
Right of reimbursement whether the payment is effect with or without the knowledge and consent of the debtor, the 3 rd 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 3 rd person can recover from the latter the entire amount
which he has paid.
If the payment was effected without the knowledge or even against the will of the debtor, the 3 rd person can recover only insofar as the
payment has been beneficial to the latter. (much more limited)
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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 3 rd 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 3 rd person would be able to recover only that 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
that extent that the payment has been beneficial to the debtor.
In both cases, the remedy of a 3rd person would be to proceed, not against the debtor who has not been benefited by the payment, but
against the creditor who has unduly paid applying the principle that no person can unjustly enrich himself at the expense of another.
Right of subrogation if the payment was effected with the knowledge and consent of the debtor, the 3 rd 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
3rd persons.
If the payment, however, was effected without the knowledge or against the will of the debtor, the 3 rd 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.
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 3rd 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 3 rd persons, such as those
arising from a mortgage, a guaranty or a penalty.
Reimbursement is merely a simple personal action available to the 3 rd 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.
Gratuitous Payments if the payment is made by a 3 rd person who does not intend to be reimbursed by the debtor, the presumption
arises that such payment is a donation. Therefore, the debtors consent is necessary, as in the case of the donee in ordinary donations.
Once the debtors consent is secured, then the rules on ordinary donations will apply.
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 to the provisions of Article 1427 under the Title on "Natural Obligations." (1160a)
It is essential that the person who pays the obligation should have the necessary legal capacity to effect such payment.
It is essential for the validity of the payment that 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.
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 an insane person, such payment is not valid. (however, a certain qualification must be made)
If an incapacitated person offers to pay the obligation and the creditor refuses to accept the payment because he is aware of the payors
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. (1162a)
To whom payment must be made (GENERAL RULE):

1. The person in whose favor the obligation has been constituted includes not only the person who was the creditor at the time of the
constitution of the obligation, but also the person who is the creditor at the time of payment.
2. His successor in interest
3. Any person authorized to receive it. refers to any person expressly or impliedly authorized by the creditor himself or by law.
Persons authorized to receive 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
Payment to unauthorized persons if the payment is made to a person other than those enumerated in Art. 1240, it shall not be
valid. The conclusion is strengthened by the fact that in agency, an assumption of authority to act as agent for another of itself
challenges inquiry.
2 exceptions to the rule that payment made to a person other than those enumerated in Art. 1240 is not valid
1. payment made to a third person, provided that it has redounded to the benefit of the creditor.
2. payment made to the possessor of the credit, provided that it was made in good faith.
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. (1163a)
Payment to Incapacitated persons considered valid
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1. if he has kept the amount or thing paid or delivered

2. insofar as the payment has been beneficial to him.
The rule is applicable only to obligations to give.
Payment to 3rd persons considered valid if it redounded to the benefit of the creditor. An exception to the general rule stated in
Art. 1240.
It cannot be presumed except in the three cases specified in the second paragraph of Art. 1241.
Art. 1242. Payment made in good faith to any person in possession of the credit shall release the debtor. (1164)
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.
The rule stated in the article under discussion is another exception to the general rule stated in Art. 1240 and that 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. (1165)
Payment After Judicial Order of Retention 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 officer of the court issuing the writ of attachment or garnishment in conformity with the provisions of the Rules of
Court.
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. (1166a)
Art. 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of
sales. (n)
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
obligation and other circumstances shall be taken into consideration. (1167a)
Art. 1244 In obligations to give a determinate thing or an act or forbearance which is specific or determinate, the obligor cannot
substitute. In both cases, the creditor or oblige cannot be compelled to accept the delivery of the thing or 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
Effect of dation in payment if the creditor and debtor enter into an 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 that dacion en pago or dation in payment constitutes an exception to the rule stated in Art. 1244
Dation in payment (dacion en pago) transmission of the ownership of a thing by the debtor to the creditor as an accepted
equivalent of the performance of the obligation;
According to the modern doctrine, in dacion en pago there is in reality an objective novation of the previous obligation effected by a
change of the object thereof.
The civil code has adopted the traditional concept of dacion en pago as a special form of payment which is most analogous to a
contract of sales.
Once there is an agreement 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.
Effect if object is generic The obligation can only be fulfilled by the delivery of a thing which is neither of superior nor inferior
quality. If there is disagreement between the parties, the law steps in an declares whether the obligation has been complied with or not,
depending upon the purpose of such obligation and other circumstances.
Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall be for the account of the debtor. With regard
to judicial costs, the Rules of Court shall govern. (1168a)
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. (1169a)
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
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They are:
1. Identity refers to the rule that only the prestation agreed upon and no other must be complied with
2. Completeness refers to the rule that the thing or service in which the obligation consists must be completely delivered or rendered.
3. Indivisibility refers to the rule that the payment or performance must be indivisible.
Art. 1248 is applicable only to an obligation where there is only one debtor and one creditor; it is not applicable to one where there is
plurality of debtors and creditors.
3 exceptions:
1. when the obligation expressly stipulates the contrary
2. when the different prestations which constitute the object of the obligation are subject to different terms and conditions
3. when the obligation is in part liquidated and in part unliquidated.
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 the abeyance. (1170)
If there is no stipulation regarding the currency in which the payment shall be made, the payment shall still be made in legal tender of
the Philippines.
RA No. 529: An act to assure the Uniform Value of Philippine Coins and Currency JUNE 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
Sec.1 of this act provides: 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 at the time the obligation was
incurred except in case of a loan made in a foreign currency stipulated to be payable in the same currency in which case the rate of
exchange prevailing at the time of the stipulated date of payment shall prevail.
RA No. 4100 amending the above act took effect on June 19, 1964
According to this Act, the law prohibiting stipulations in domestic monetary obligations purporting to give to the oblige the right to
required payment in currency other than 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 instrumentalities, and international financial and banking
institutions so long as the funds are identifiable, as having emanated from the sources enumerated above;
B. ) transactions affecting high-priority economic projects for agricultural, industrial and power development as may be determined by
the National Economic Council which are financed by or through foreign funds
C.) foreign exchange transactions entered into between banks or between banks and individuals or juridical persons
D.) import-export and international banking, financial investment and industrial transactions
Legal tender refers to such currency which may be used for the payment of all debts, whether public or private. Under our law, the
legal tender of the Philippines would be all notes and coins issued by the Central Bank.
Payments with Japanese Military Notes 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 formers obligation
The validity of such payment is based on the fact that such military notes were legal tender in the Philippines at the time such
payments were made
Payment with negotiable paper or mercantile documents, such as promissory notes payable to order or bills of exchange, are not
legal tender, it is logical that 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, even if the refusal of the creditor is
followed by consignation whether the check is an ordinary check or a managers check.
Exceptions 2 cases when the delivery produces the effect of a valid payment:
1. when the document has been cashed
2. when it had been impaired through the fault of the creditor
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. (n)
Extraordinary inflation or deflation that which is unusual or beyond the common fluctuation in the value of the currency, which
the parties could not have reasonably foreseen or which the parties could not have reasonably foreseen or which was manifestly
beyond their contemplation at the time when the obligation was established;
It is understood to be any uncommon decrease or increase in the purchasing power of the currency which could not have been
reasonably foreseen.
Requisites of extraordinary inflation or deflation:
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Atty. Castillo
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
2. Such decrease or increase could not have been reasonably foreseen or was manifestly beyond the contemplation of the parties at the
time of the establishment of the obligation
It must be noted that the rule enunciated in Art. 1250 is applicable only to contractual obligations; consequently, it cannot be applied to
obligations arising from torts.
Note that the law does not say that the value of the currency at the time of the establishment of the obligation shall be the amount to be
paid; it merely says that 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 at the time when the obligation was established or constituted as basis, unless of course there is an agreement to the contrary.
The Ballantyne Schedule 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.
(Commonwealth Government)
The Ballantyne S. was not applied because it assumes that there was only one rate of equivalence throughout the islands, when it is a
well-known fact that the conversion rate changed from place to place.
Application of the BS: (requisites)
1. the obligation should have been contracted during the Japanese occupation
2. it could have been paid during the Japanese occupation
3. it could have been paid with Japanese military notes.
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.
(1171a)
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 at the place where the thing might be at the time the
obligation was constituted
2. If any other case, the payment shall be made at the domicile of the debtor. This rule is intended to govern unilateral obligations.
Reciprocal obligations are governed by special rules. As a corollary, if the debtor changes his domicile in bad faith or after he has
incurred in delay, it is logical that additional expenses shall be borne by him.
SUBSECTION 1. - Application of Payments
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. (1172a)
Application of payment defined as the designation of the debt to which the payment must be applied when the debtor has several
obligations of the same king in favor of the same creditor.
Requisites:
1. There must be only one debtor and only one creditor the requirement that there must be only one debtor does not militate
against the possibility of extending the rules on application of payment to solidary obligations, because the solidary debtor who paid
may have obligations other than the solidary obligation in favor of the creditor to whom payment is made. Neither does the
requirement that there must be only one creditor militate against extending the rules on application of payment to a case in which a
person is indebted at the same time in separate and demandable sums to a partnership and to the managing partner of the partnership
It is apparent that the rule stated in the second paragraph of the above article constitutes an exception to the rule that in applications of
payment it is essential that there must be only one creditor, since it is a well-known principle that a partnership has a juridical
personality which is separate and distinct from that of each of the partners.
2. There must be two or more debts of the same king the rules on application of payment cannot apply to a guarantor or surety
whose liability is extended or confined only to a particular obligation
It is also essential that each of the debt must be identical or homogenous specie
There is a case in which even if some of the obligations are not of identical specie at the time of their constitution, yet application of
payment is possible if, at 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
3. All the debts must be due there are 2 exceptions to this rule:
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Atty. Castillo
1. when there is a stipulation to the contrary
2. the application of payment is made by the party for whose benefit the term or period has been constituted
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 that the term or period is for the benefit of the debtor (or the
creditor in a proper case) and there 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.
4. The amount paid by the debtor must not be sufficient to cover the total amount of all the debts the requirement that 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 designation the debt or debts to which the payment shall be applied.
Right of Debtor to Make Application the right to designate the debt to which the payment shall be applied belongs primarily to the
debtor. It must be noted, however, that the right is available to him only at the time when payment was made
Exceptions 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 an 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 general rule, while
application of payment by the creditor is the exception.
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, intimidation, undue influence or fraud, which
will invalidate the application.
Time when right is exercised the right to make an application of payment must be exercised at the time payment is made. If he fails
to exercise the right, the initiative 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, that such application is approved by the
debtor.
Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered.
(1173)
The court held that 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
Art. 1254. When the payment cannot be applied in accordance with the preceding rules, or if application can not be inferred from other
circumstances, the debt which is most onerous to the debtor, among those due, shall be deemed to have been satisfied.
If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately. (1174a)
These 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
When debts are not of same burden when the debts due are not of the same burden, the rule is that the debt which is most onerous
to the debtor shall be deemed to have been satisfied. The following rules may be stated:
1. When there are various debts which are due and they were incurred at different dates, the oldest are more onerous to the debtor than
the most recent ones
2. When one debt bears interest and the other does not even if the latter was incurred at an earlier date, the first is more onerous to the
debtor. As between two debts which bear interest, the debt with a higher rate of interest is more onerous to the debtor
3. When one debt is secured and the other is not, the first is more onerous to the debtor. However, where in a bond the debtor and
surety have bound themselves solidarily, but limiting the liability of the surety to a lesser amount than 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.
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
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
When debts are of same burden if the debts which are due are of the same nature and burden, the rule is that the payment shall be
applied to all of them pro rata or proportionately.
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.
Cession or assignment a special form of payment whereby the debtor abandons all of his property for the benefit of his creditors in
order that from the proceeds thereof the latter may obtain payment of their credits.
Requisites:
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Atty. Castillo
1. plurality of debts
2. partial or relative insolvency of the debtor
3. acceptance of the cession by the creditors
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.
Kinds:
1. Contractual cession referred to in Art. 1255
2. Judicial cession which is regulated by the Insolvency Law, and which may be voluntary or involuntary.
DISTINGUISHED FROM DATION IN PAYMENT
Dacion en pago
Cession
As to number of parties
There may be only one creditor
Plurality of creditors is essential
As to financial condition of parties
The debtor s not necessarily in state of financial The debtor is in a state of partial or relative
difficulty
insolvency.
As to object
What is delivered by the debtor is merely a thing to What is ceded by the debtor is the universality
be considered as the equivalent of the performance of all of his property
of the obligation
As to effect
The payment extinguishes the obligation to the The effect is merely to release the debtor for
extent of the value of the thing delivered either as the net proceeds of the things ceded or
agreed upon or as may be proved, unless the silence assigned, unless there is a contrary intention
of the parties signifies that they consider the
delivery of the thing as the equivalent of the
performance of the obligation
Effect in the absence of a contrary stipulation, the assignment or abandonment by the debtor of all of 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 that 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 that they can proceed with the sale and from the
proceeds thereof their respective credits are then paid
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:
(1) When the creditor is absent or unknown, or does not appear at the place of payment;
(2) When he is incapacitated to receive the payment at the time it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost. (1176a)
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. (1177)
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. (1178)
Tender of payment consists in the manifestation made by the debtor to the creditor of his decision to comply immediately with his
obligation
Consignation 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
Distinctions:
1. Tender of Payment is the antecedent of consignation; in other words, while the first is the preparatory act, the second is the principal
act which will produce the effect of payment of the obligation.
o
Tender of payment, even if valid, does not by itself produce legal payment, unless it is completed by consignation
o
Tender of payment alone is not a mode of extinguishing obligations.
o
Art. 1258 provides that after a valid tender of payment, the debtor shall be released from responsibility by the consignation
of the thing due
2. Tender of payment is by its very nature extrajudicial in character, while consignation is judicial.
General Requisites of Consignation distinguish between the general requisites of a valid consignation, or those relative to
payment, and the special requisites, or those arising from the very nature of consignation.
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Atty. Castillo
General Requisites refers to those requisites which we have already taken up in connection with payment in general (Arts. 12321251), such as the 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.
Special Requisites refers to the five requirements which are prescribed by Arts. 1256 to Art. 1258 of the Civil Code. Since
consignation is a special form of payment, it is but logical, in order that it will produce all the effects of payment, that it must conform
not only with all of the special requirements prescribed by law, but also with all of the requisites of Art. 1258
The consignation shall be ineffectual if it is not made in consonance with the provisions which regulate payment.
Special Requisites of Consignation:
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 ---- in order that the consignation will be effective, the general rule is that there must have been a tender of payment made by
the debtor to the creditor.
o
Requirements:
o
1. That the tender of payment must have been made prior to the consignation
o
2. That it must have been unconditional
o
3. That the creditor must have refused to accept the payment without just cause. it is not necessary for the court where the
thing or the amount is deposited to determine whether the refusal of the creditor to accept the same was with or without a
just cause. The mere refusal of the creditor to accept the tender of payment will be sufficient.
o
Exceptions there are five exceptions to the rule that in order that the consignation shall produce the effects of payment, it
is essential that there must be a previous tender of payment.
o
They are:
o
1. When the creditor is absent or unknown, or does not appear at the place of payment
o
2. When he is incapacitated to receive the payment at the time it is due
o
3. When, without just cause, he refuses to give a receipt
o
4. When two or more persons claim the right to collect
o
5. When the title of the obligation has been lost
o
Effect of Valid Tender of Payment when a valid tender of payment is made, the obligation is not extinguished, unless it
is complete by consignation. However, it has the effect of exempting the debtor from payment of interest and/or damages.
3. That previous notice of the consignation had been given to the persons interested in the fulfillment of the obligation the
requirement is separate and distinct from tender of payment which precedes it.
o
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
o
Previous notice 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
o
It is necessary that 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
4. That the thing or amount due had been placed at the disposal of judicial authority. 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
5. That after the consignation had been made, the persons interested in the fulfillment of the obligation had been notified thereof.
There should be notice to the creditor prior and after consignation as required by the Civil Code. The reason for this is 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.
o
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 that the other parties interested in the fulfillment of
the obligation are furnished copies thereof.
o
Consequently, upon compliance with all of the requisites, either of two possible situations may arise. There is the
possibility that the creditor may finally accept the thing or amount deposited.
o
In such case, the question of payment is settled altogether.
o
There is also the possibility that he refuses to accept the thing or amount deposited or that he is not interested, or that he is
not known or that he is absent. In such case, a litigation will arise.
Subject Matter of Consignation not only movable, but even immovables may be the subject matter thereof.
Art. 1259. The expenses of consignation, when properly made, shall be charged against the creditor. (1178)
Expenses of Consignation before the creditor can be charged with the expenses of consignation, it is essential that such
consignation must have been properly made.
Consignations 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 efficacy or validity
of the consignation
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Atty. Castillo
Second: when the creditor contests the efficacy or validity of the consignation and the court finally decides that it has been properly
made or cancels the obligation at 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. (1180)
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 thing. The co-debtors, guarantors and sureties shall be released. (1181a)
Effect of Consignation:
1. If the creditor accepts the thing or amount deposited without contesting the validity or efficacy of the consignation, it is logical that
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 that all of the requisites of a valid and effective consignation had been complied with, the obligation is extinguished
or cancelled.
Effect of Withdrawal
Effect of a withdrawal by the debtor of the object or amount deposited when made before the creditor has accepted the consignation or
before a judicial declaration that the consignation has been properly made --- the obligation remains in force
Effect of a withdrawal made with the consent of the creditor the creditor loses every preference which he may have over the thing.
Solidary co-debtors, guarantors and sureties, however, shall be released.
SECTION 2. - Loss of the Thing Due
Loss of the thing due that 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.
It means, impossibility of compliance with the obligation through any cause
impossibility of performance
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. (1182a)
An 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
Following requisites:
1. The thing which is lost must be determinate
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 an obligation to indemnify the creditor for damages
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, the rule is
that such debtor can still be held liable for indemnity for damages
Effect of 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. The obligation is extinguished.
Exceptions to the rule that the debtor cannot be held liable if the thing which constitutes the object of the obligation is lost or
destroyed through 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 nature of the obligation requires the assumption of risk
4.
When the loss of the thing is due partly to the fault of the debtor
5.
When the loss of the thing 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
8.
When the obligation is generic
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. (n)
Effect of Loss in Generic Obligation to Give the loss or destruction of anything of same kin even without the debtors fault and
before he has incurred in delay will not have the effect of extinguishing the obligation.
Genus of a thing can never perish
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Atty. Castillo
There is 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
determine qualities, such as the cattle or horses of a certain ranch or the sugar in a certain warehouse
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. (n)
Effect of Partial Loss 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. (1183a)
Rule if thing is in Debtors Possession 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 3rd paragraph of Art. 1165 to the effect that 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 effect the delivery
The presumption does not apply in case of earthquake, flood, storm, or other natural calamity
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. (1184a)
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.
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 it was present before the
obligation was constituted, there would be an obligation which would be ineffective from its inception
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.
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 direct, 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) arises principally from the death of the obligor, when the act to be performed requires his
personal qualifications, or from the death of the oblige, when the act can be of possible benefit only to him
In both the obligation and the right are intransmissable and are extinguished by the mere fact of death
Effect the obligor is released from the obligation.
Effect in obligation not to do the code only speaks of legal and physical impossibility with respect to obligation to do because it is
very seldom that impossibility of performance may arise in obligations not to do
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. (n)
Effect of relative Impossibility 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.
Art. 1268. When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be exempted from the payment
of its price, whatever may be the cause for the loss, unless the thing having been offered by him to the person who should receive it, the latter
refused without justification to accept it. (1185)
Rule if obligation arises from criminal offense the rule stated in Art. 1268 is applicable not only to the case where there is an
obligation of restitution of a certain and determinate thing on the part 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.
The rule is applicable not only to the persons who are principally liable, but also to those who are subsidiarily liable.
The only case where he is relieved of the severity of the precept is when he had offered the thing to the oblige and the latter had
refused to accept it without justification
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; it is essential that the creditor should refuse to accept the thing without
justification in order that the debtor may be released from liability in case of loss through a fortuitous event.
When the offer is made by the debtor and the creditor refuses to accept it without justification, he may choose either of two courses:
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(1) he may make a consignation of the thing and thereby completely relieve himself of further liability
(2) he may keep the thing in his possession the obligation shall still subsist but with this difference that if the thing is lost through a
fortuitous event, Arts. 1262 and 1265 and not Art. 1268, shall govern
Art. 1268 can have no application to those cases where an offer is not possible, since such offer by the debtor is an essential requisite.
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 third persons by reason of the loss. (1186)
Effect of Extinguishment of Obligation the obligation is extinguished by the loss of the thing, all of the rights of action which the
debtor may have against 3rd person by reason of the loss are transmitted by operation of law to the creditor.
Such transmission is made from the moment of the extinguishment of the obligation.
SECTION 3. - Condonation or Remission of the Debt
Remission an act of liberty by virtue of which the oblige, 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 that part or aspect of the same to which the remission refers; it
is the gratuitous abandonment by the creditor of his right
It is an essential characteristic of remission that it be gratuitous, that there is no equivalent received for the benefit given; once such
equivalent exists, the nature of the act changes. It may become dation in payment when the creditor receives a thing different from the
stipulated; or novation, when the object or principal conditions of the obligation should be changed; or compromise, when the matter
renounced is in litigation or dispute and in exchange of some concession which the creditor receives.
Requisities:
1.
it must be gratuitous
2.
it must be accepted by the obligor
3.
the obligation must be demandable
Kinds:
AS TO FORM
Express when it is made in accordance with Implied when, although it is not made in
the formalities prescribed by law for accordance with the formalities prescribed by
donations
law for donations, it can be deduced from the
acts of the oblige or creditor
AS TO EXTENT
Total when the entire obligation is Partial - when it refers only to the principal
extinguished
or to the accessory obligation or to an aspect
thereof which affects the debtor as for
instance solidarity
AS TO CONSTITUTION
Inter vivos refers to that which is Mortis causa refers to that which is
constituted by agreement of the oblige and the constituted by last will and testament in chich
obligor in which case it partakes of the nature case it partakes of the nature of a donation
of a donation inter vivos.
mortis causa
Art. 1270. Condonation or remission is essentially gratuitous, and requires the acceptance by the obligor. It may be made expressly or impliedly.
One and the other kind shall be subject to the rules which govern inofficious donations. Express condonation shall, furthermore, comply with the
forms of donation. (1187)
The most essential characteristic of remission is that it is gratuitous.

It is essential that it must be an 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 expressly declared in the first paragraph of Art. 1270; it can be also be clearly from the
provision of the second paragraph of the said article which states that it shall be subject to the rules which govern inofficious
donations.
The question arises as to whether remission is a unilateral or a bilateral act. Planiol and Valverde believes that it is by its very
nature a bilateral act because our Code requires its acceptance by the debtor, and besides, this vies is in conformity with the rule which
subjects express remission to the forms of donations
Applicability of Rules on Donations there are other rules which are equally applicable, such as those governing the forms of
donations if the remission is express, those governing the extent or amount of the donation, and those governing the revocation of
donations. This is not only deducible from the very nature of remission as an act of pure liberality; it is also expressly declared by the
2nd paragraph of Art. 1270
In relation to remission, the rules on donation should be read so that donor refers to the creditor, donee to the debtor, and
donation to the remission or condonation
o
Art. 745. The donee must accept the donation personally, or through an authorized person with a special power for the
purpose, or with a general and sufficient power; otherwise, the donation shall be void. (630)
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o
Art. 746. Acceptance must be made during the lifetime of the donor and of the donee. (n)
Extent of Remission shall be governed by the rules regarding inofficious donations:
o
Art. 750. The donations may comprehend all the present property of the donor, or part thereof, provided he reserves, in full
ownership or in usufruct, sufficient means for the support of himself, and of all relatives who, at the time of the acceptance
of the donation, are by law entitled to be supported by the donor. Without such reservation, the donation shall be reduced
in petition of any person affected. (634a)
o
Art. 751. Donations cannot comprehend future property.
By future property is understood anything which the donor cannot dispose of at the time of the donation.
o
Art. 752. The provisions of Article 750 notwithstanding, no person may give or receive, by way of donation, more than he
may give or receive by will.
The donation shall be inofficious in all that it may exceed this limitation. (636)
o
Art. 771. 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 consist of creditors, and there is a remission or condonation of all of such credits, it is
evident that 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 that 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 that 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.
Form of Express Remission must comply with the forms of donations. This rule is, of course, logical considering the fact that the
remission or condonation of a debt is in reality a donation
o
Art. 748. The donation of a movable may be made orally or in writing.
An oral donation requires the simultaneous delivery of the thing or of the document representing the right donated.
If the value of the personal property donated exceeds five thousand pesos, the donation and the acceptance shall be made
in writing, otherwise, the donation shall be void. (632a)
o
Art. 749. In order that the donation of an immovable may be valid, it must be made in a public document, specifying
therein the property donated and the value of the charges which the donee must satisfy.
The acceptance may be made in the same deed of donation or in a separate public document, but it shall not take effect
unless it is done during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this step
shall be noted in both instruments. (633)
It must also be noted that with respect to express remission of an obligation to give personal property, acceptance by the debtor may be
implied or tacit, provided that the value of the debt which is condoned is not more than 5000.
It must also be noted that the fact that the obligation which is condoned appears in a public document does not necessarily mean that
the remission must also be embodied in a document of the same character.
Form of implied remission examples are those regulated by Arts. 1271 to 1274 of the Code
Assuming that the remission is expressly made, but it failed to comply with the forms prescribed by Art. 748 or 749, it cannot properly
take effect as an express remission. It cannot be enforced as tacit remission because the purpose of the last sentence of Art. 1270
would be defeated. Hence, an 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.
TOLENTINO: Act of Creditor to condone is an act of liberality by virtue of which the creditor renounces the right to enforce the
obligation contracted in his favor. To condone is to forgive, or remit a debt
The court cannot waive the payment of interest agreed upon by the parties. The arguments of a debtor may appeal to the sentiments of
generosity of the creditor for him to condone the payment of interest; but they are not sufficient to authorize the courts to exempt the
debtor from the obligation of paying them. There is no law which condones payment of interest. There is no law which condones
payment of interest.
Republic Act. No. 201 condones the payment of interest of obligations contracted in favor of the government and of corporations
capitalized by it, only indicated that the party who can condone is the creditor (the Govt in this case) and not the courts of justice.
Unilateral Renunciation remission requires acceptance by the obligor. But there is nothing that can prevent a creditor from making
a unilateral renunciation of his right, abandoning his credit, and thereby extinguishing it.
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. (1188)
Art. 1272. Whenever the private document in which the debt appears is found in the possession of the debtor, it shall be presumed that the
creditor delivered it voluntarily, unless the contrary is proved. (1189)
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Effect of delivery of evidence of credit to debtor presumption is that he renounce his right of action against the latter for the
collection of the said credit
Requisites in order that the presumption will arise:
1.
that the document evidencing the credit must have been delivered by the creditor to the debtor
2.
that the document must be a private document
3.
that the delivery must be voluntary
Where the promissory note evidencing the credit is already in the possession of the debtor, there arises a disputable presumption to the
effect that the creditor must have delivered it voluntarily to him; consequently, in the absence of proof to the contrary, an implied or
tacit renunciation of the debt may be presumed
The heirs may try to impugn or nullify the condonation by establishing that it is in inofficious in conformity with the remedy which is
available to them under Art. 771 of the Code. In such case, the 2 nd paragraph of Art. 1271, the debtor or his heirs may uphold it by
proving that the delivery of the private document was made because the debt had already been paid. This is ridiculous because under
this rule, we would witness the absurd spectacle of a debtor or his heirs trying to uphold a presumption of remission, when it is
claimed that such remission is inofficious, by proving that the debt had already been paid when as a matter of fact it is not.
Plurality of Subjects when the obligation is joint, and the private document evidencing a debt is found in the possession of one of
the debtors, the presumption of remission can refer only to the portion of the debtor who is in possession of the instrument; and if the
delivery was made by only one joint creditor, only the share pertaining to him shall be deemed remitted.
Art. 1273. The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall leave the former in
force. (1190)
Art. 1274. 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.
(1191a)
Effect of Remission in General extinguish the obligation in its entirety or in the part or aspect thereof
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 shares as there are creditors or debtors, the credits or debts being considered distinct from one
another
Effect upon accessory obligation 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. If the remission refers to the accessory
obligation, the principal obligation continues to subsist.
Rule in pledge Accdg. To 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 3 rd person who owns the thing.
TOLENTINO Effect of remission of Pledge the remission of the pledge extinguishes only the security; it does not affect the
principal obligation, which remains subsisting.
EX: if A pledged his watch to B as security for an 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 is not affected. B may disprove the
remission by proving that he gave the watch temporarily to the debtor to be repaired or that 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.
Confusion the merger of the characters of credit and debtor in one and the same person by virtue of which the obligation is
extinguished; it may also 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
It will necessarily 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 person.
It erases the plurality of subjects of the obligation, and extinguishes the obligation because it is absurd that a person should enforce an
obligation against himself
TOLENTINO Real rights Real rights, which do not involve the relation of debtor and creditor, may be extinguished by the
merger of the real right with the right of ownership
TOLENTINO Revocation of Merger When the act which occasions the merger is susceptible of termination or revocation, the
merger that has taken place is also terminated or revoked, and the obligation is recreated in the same condition that it had when the
merger took place.
Requisites:
1.
that the merger of the characters of creditor and debtor must be in the same person
2.
that it must take in the person of either the principal creditor or the principal debtor
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3.
that it must be complete and definite ---- does not mean that the extinguishment of the obligation should be complete or total in
character; it merely means that whether the merger refers to the entire or only a part, it must be of such character that there will be a
complete and definite meeting of all the qualities of creditor and debtor in the obligation or in the part or aspect thereof which is
affected by the merger
Kinds:
As to cause or constitution
Inter vivos when it is constituted by Mortis causa when it is constituted by
agreement of the parties.
succession
As to extent or effect
Total result to the extinguishment of the Partial results in the extinguishment of
entire obligation
only a part of the obligation
2 cases where the extinguishment is merely
partial:
1. when the confusion or merger refers only to
a part of the obligation
2. when the obligation is joint
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. (1193)
Effect upon Accessory Obligations if the confusion 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
If 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
that there is no extinguishment of the principal obligation, there will be only a substitution of creditor or debtor
If the characters of debtor and guarantor are merged, the creditor can demand the performance of the obligation directly from the
guarantor
TOLENTINO:
Release of Guarantors because the obligation of the guarantor is merely accessory
Merger in Guarantor When the merger takes place in the person of a guarantor, the obligation is not extinguished. Thus if the
guarantor acquires the credit, his obligation as a guarantor is extinguished, but the principal obligation subsists and can be enforced by
him against the debtor and the other co-guarantors
Mortgaged Property Where the mortgaged property belongs to a third person --- Where the mortgage acquires ownership of the
entire mortgaged property, the mortgage is extinguished; but this does not necessarily mean the extinguishment of the obligation
secured thereby, which may become an unsecured obligation
Art. 1277. Confusion does not extinguish a joint obligation except as regards the share corresponding to the creditor or debtor in whom the two
characters concur. (1194)
Effect upon Collective Obligation this presumption of division is the most essential characteristic of joint obligations. It is but
logical that the confusion which takes place 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
With regard to solidary obligation Art. 1215 shall apply. 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 that 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 causes such as
redemption.
If it is constituted by inheritance, it may be revoked by the nullity of the will, or by subsequent appearance of an 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.
SECTION 5. - Compensation
Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. (1195)
Compensation a mode of extinguishing in their concurrent amount those obligations of persons who in their own right are creditors
and debtors of each other; it may be defined as a figurative operation of weighing 2 obligations simultaneously in order to extinguish
them to the extent in which the amount of one is covered by the amount of the other.
TOLENTINO Compensation is a sort of balancing between two obligations.
It is very similar to payment, both from the theoretical and the practical point of view. In both cases, the obligations 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 name of simplified payment (pago abreviado)
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Double Advantage over payment:
1.
Facility of payment because it takes effect by operation of law
2.
guaranty 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.
Compensation
Payment
The requisites prescribed by law for compensation are different from those prescribed by law for payment
Takes effect by operation of law
Takes effect by act of the parties
Capacity to give and to acquire is not necessary
Capacity to give and to acquire is essential in payment
Compensation is, as a rule, partial
Payment is, as a rule, complete and indivisible
Compensation
As to number of persons, there must be two persons, who in their own
right, are creditors and debtors of each other
As to number of obligations, there must be at least two
Confusion
In confusion there is only one person in whom is merged the qualities
of creditor and debtor
In confusion there is only one
Compensation
Requires that the two debts must consist in money, or if the things due
are fungibles, they must be of the same king and quality
As a general rule, requires that the debts must be liquidated
Need not be pleaded
Counterclaim or setoff
Not necessary
Does not require
Must be pleaded to be effectual
Kinds of Compensation:
As to cause:
1.
Legal when it takes effect by operation of law from the moment all of the requisites are present
2.
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.
3.
Judicial when it takes effect by judicial decree; where one of the parties to a suit over an obligation 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
As to effect:
1.
Total when the debts to be compensated are equal in amoun
2.
Partial when the debts to be compensated are not equal in amounts
TOLENTINO: Facultative Compensation this is compensation which can be set up only at the option of a creditor, when legal
compensation cannot take place because of the want of some legal requisites for the benefit of the creditor. The latter can renounces
his right to oppose the compensation, and he himself can set it up
EX: A owes B an Arabian hose and B owes A a horse (generic). There can be no legal compensation here, because of lack of identity
in the quality of the things due. But since B can deliver any horse to A, so long as it is not of poor quality, B can set up compensation;
this would have the same effect as if B demanded the Arabian horse from A and then delivered it back to A in the performance of Bs
obligation
The facultative compensation, is distinguished from conventional compensation, in that the former is unilateral, while the latter
depends upon the agreement of both parties
Conventional Compensation this is compensation by agreement of the parties, even if some requisite provided by law should be
wanting. It is intended to eliminate or overcome obstacles which prevent ipso jure extinguishment of their obligations.
Requisites of Conventional Compensation:
1. that each of the parties can dispose of the credit he seeks to compensate
2. that they agree to the mutual extinguishment of their credits
Art. 1279. In order that compensation may be proper, it is necessary: (REQUISITES)
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same
quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the
debtor. (1196)
As to parties:
1. that the parties be mutually creditors and debtors in their own right
2. that they must be bound as principals
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There can be no compensation between the obligations of a legal representative, guardian or administrator incurred in his personal
capacity and the obligations of 3rd persons to the person represented, ward or estate under administration, although such obligations
may have been incurred by such 3rd persons with the said representative, guardian or administrator acting in his legal capacity
There can be no compensation when only one party is a principal creditor in one obligation but is only a surety or guarantor in the
other
PROBLEM: B borrowed from C P1,000 payable in one year. When C was in the province, Cs 17-year owld son borrowed
P500 from B for his school tuition. However, the son spent it instead nightclubbing. When the debt to C fell due, B tendered
only P500, claiming compensation on the P500 borrowed by Cs son.
ANSWER: There is no legal compensation. Under the Civil Code, in order there will be a valid and effective compensation, it is
essential that there must be 2 parties, who in their own right, are principal creditors and principal debtors of each other. In the instant
case, C cannot be considered as a party to the act of his 17year old son in borrowing P500 from B; neither did B become a
principal creditor of C. Therefore, there can be no partial compensation of the P1000 borrowed by B from C
Even if the son actually used the money for school tuition there can be no difference in the answer because there can still be no legal
compensation. The fact that Cs son actually used the P500 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
Bound as principals the relation between the parties must be that of principal creditor and principal debtor
As to objects the second requisite in order that legal compensation shall take place is that both debts must consist in a sum of
money, or if 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 that this requisite contemplates only obligations to give. The reason is that compensation is as a general rule not possible in
obligations to do because of the difference in the respective capacities of the obligors.
Consummable but what is actually contemplated is the word fungible
Consummables those movables which cannot be used in a manner appropriate to their nature without being consumed
Fungibles those which may be exchanged or compensated by another of the same kind and quality
TOLENTINO: Fungible all that is necessary is that the specie of the things is determined. But when the obligations refer to
determinate or specific things, there can be no compensation
As to maturity both debts must be due. Consequently, natural 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
TOLENTINO: Prescription to determine whether compensation is barred by prescription of one of the obligations, the moment
when the two credits co-existed, and not when the compensation is set up should be considered. If at the time two debts co-exist,
neither has prescribed, the prescription of one afterwards will not prevent compensation. If the requisites for compensation have coexisted, even if it be only for one day before the prescription of one of the obligations, there will be mutual extinguishment, because
this takes place ipso jure.
TOLENTINO: Rescissible or Voidable Debts before a judicial decree of rescission, a rescissible or voidable debt is valid and
demandable; hence, it can be compensated(Art. 1284). But the moment it is rescinded or annulled, the decree of rescission or nullity is
retroactive, and compensation can no longer take place
As to liquidation and demandability 4th requisite. Liquidated debts are those the amount of which may be determined by a simple
arithmetic operation. Hence, if 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.
It is evident that in order that the debts to be compensated may be considered demandable, it is necessary that such debts must be due
and, at the same time, liquidated.
As to claims of 3rd persons the 5th requisited is that there must be no retention or controversy, commenced by 3 rd 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 3 rd person. It is evident
that in such a case there can be no compensation. However, if there is an excess or balance remaining after the application of the
credit, compensation will still take place, but only to the extent that the credit is not affected by the retention
Controversy refers to a case in which a 3rd person claims to be the creditor. The party interested in the compensation and the 3 rd
person each claims that 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.
TOLENTINO: Plurality of prestation when one obligation is simple, such as to deliver P500 and the other is alternative, such as
to pay P500 or deliver a horse, there can be no legal compensation. Neither can such compensation take place if one of the obligation
is facultative. But the mere fact that one obligation has a penal clause, while the other has none, will not prevent legal compensation,
because the penal clause is a mere guaranty of fulfillment and does not affect the object of the obligation.
Art. 1280. Notwithstanding the provisions of the preceding article, the guarantor may set up compensation as regards what the creditor may owe
the principal debtor. (1197)
Constitues an exception to the rule started in Art. 1279, No. 1 in relation to Art. 1278
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 that 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
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This rule is based on the fact that the bond of the guarantor cannot be resorted to so long as the debtor can play although it may be in
the abbreviated form of compensation and also on the fact that if the principal obligation is extinguished, the accessory obligation of
the guarantor is also extinguished since it is subordinated thereto.
Art. 1281. Compensation may be total or partial. When the two debts are of the same amount, there is a total compensation. (n)
Art. 1282. The parties may agree upon the compensation of debts which are not yet due. (n)
Voluntary Compensation Art. 1282
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 that there
can be no compensation because Bs 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. (n)
Judicial Compensation
A counterclaim must be pleaded to be effectual; whereas a compensation takes place by mere operation of law
The counterclaim defined by the Rules of Court is not the legal compensation contemplated by the Code. This is so, because by its
very nature a setoff or counterclaim can have no effect unless it is pleaded. In addition, the claim is not liquidated; consequently,
compensation cannot take place
When the defendant who has an unliquidated claim for damages against the plaintiff sets if off by proving his right to said damages
and the amount thereof, it is converted into a liquidated claim by court decree, in which case compensation shall take effect from the
moment the judgment liquidating the claim has become final
Art. 1284. When one or both debts are rescissible or voidable, they may be compensated against each other before they are judicially rescinded or
avoided. (n)
Rules in Case of Rescissible or Voidable Debts exception to the general rule of demandability in order that compensation shall
take place.
This exception is justified by the fact that 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.
Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third person, cannot set up against the
assignee the compensation which would pertain to him against the assignor, unless the assignor was notified by the debtor at the time he gave his
consent, that he reserved his right to the compensation.
If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up the compensation of debts previous to
the cession, but not of subsequent ones.
If the assignment is made without the knowledge of the debtor, he may set up the compensation of all credits prior to the same and also later ones
until he had knowledge of the assignment. (1198a)
Effect of assignment of rights if a creditor assigns his credit to a 3 rd person, what is the effect of such assignment upon the debtors
right to set up the defense of compensation in case the assignee tries to enforce the credit against him? --- a distinction must be made
between the effects of the assignment when compensation has already taken place and the effects when compensation has already
taken place and the effects when compensation has not yet taken place
When compensation has taken place inasmuch as compensation takes place ipso jure without any intervention on the part of the
interested parties and, as a consequence, one or the other obligation is extinguished, it follows that the subsequent assignment of rights
by a creditor to a 3 rd 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 the fact that 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 that had already taken place.
When compensation has not taken place effect 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
With consent of debtor if the creditor assigned his right or credit to a 3 rd 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, at the time he gave his consent, that he is reserving his right to the compensation, he can still set up the defense of
compensation against the assignee in case the latter demands the payment of the assigned credit
With knowledge, but without the consent, of debtor 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
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1.
2.
3.
defense of compensation of debts prior to the assignment, but not of subsequent ones. Evidently, the purpose of this rule is to prevent
fraud.
It is clear that the assignment cannot take effect as far as the debtor is concerned unless he is properly notified thereof.
Different rules may be restated as follows
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.
If the notification and the assignment are made simultaneously, 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
If the notification is given after the assignment had already been made, it is evident that 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/
Without knowledge of debtor if the debtor is not aware of the assignment and the assignor 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 remedy of the assignee is a personal action for indemnification
against the assignor.
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. (1199a)
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. (1200a)
Art. 1288. Neither shall there be compensation if one of the debts consists in civil liability arising from a penal offense. (n)
1.
Debts which cannot be compensated:

Debts arising from contracts of depositum --- the word deposit is not used for the purpose of preventing confusion with bank deposit
in which a relationship of creditor and debtor is created between the depositors and the bank
2.
Debts arising from contracts of commodatum
3.
Claims for support due by gratuitous title --- 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.
4.
Obligations arising from criminal offenses
5.
Certain obligations in favor of the government, such as taxes, fees, duties and others of a similar nature
---- all these prohibitions are based on justice. Some are based on trust and confidence; others on self-preservation. Justice and humanity
demand that they must be performed
TOLENTINO: Reason for Article it is believed that if one of the debts consists in civil liability arising from a penal offense,
compensation would be improper and inadvisable because the satisfaction of such obligation is imperative.
- a debt arising from crime cannot be compensated by the offender by setting up a credit against the plaintiff. Thus, only the offender cannot
escape liability by setting up compensation; the offended or injured party can set up compensation
TOLENTINO: Obligation in favor of the Government when the debt is in favor of the government and is purely contractual, there is
no reason why compensation cannot take place
Art. 1289. If a person should have against him several debts which are susceptible of compensation, the rules on the application of payments shall
apply to the order of the compensation. (1201)
Art. 1290. 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.
TOLENTINO: Effectivity of Compensation Legal compensation takes effect from the moment that the requisites of Art. 1278 and
1279 co-exist, since this compensation takes place ipso jure, its effects arise on the very day on which all its requisites concur, so that
when it is used as a defense or when a judgment declares it to exist, it retroacts to the date when it is requisites are fulfilled
Voluntary or conventional compensation takes effect upon the agreement of the parties
Facultative compensation takes place when the creditor declares his option to set it up.
Effect of Compensation it extinguishes both debts to the extent that the amount of one is covered by the amount of the other.
If the compensation is total because the amounts of both debts are equal --- both debts are totally extinguished
Partial because the amounts are different --- that the extinguishment would be total with respect to one and partial with respect to the
other
TOLENTINO: Effects of Compensation
1.
Both debts are extinguished to the concurrent amount
2.
Interests stop accruing on the extinguished obligation or the part extinguished
3.
The period of prescription stops with respect to the obligation or part extinguished
4.
All accessory obligations of the principal obligations which has been extinguished are also extinguished
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Accessory obligation since the principal obligation to which they are subordinated are extinguished, it follows that such accessory
obligations are also extinguished. Such extinguishment may be total or partial depending upon whether the compensation is total or
partial
When compensation takes effect since compensation takes effect by operation of law, it is clear that 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. This
rule is applicable only to legal compensation
Nevertheless, it is equally clear that voluntary compensation will take effect from the moment agreed upon by the parties, while
judicial compensation will take effect from the moment that the judgment becomes final and executory.
TOLENTINO: Renunciation of Compensation Compensation can be renounced either at the time an obligation is contracted or
afterwards. Compensation rests upon a potestive right, and a unilateral declaration of the debtor would be sufficient renunciation.
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. (1203)
Novation is the substitution or change of an obligation by another, resulting in its extinguishment or modification, either by
changing its object or principal conditions, or by substituting its object or principal conditions, or by substituting another in place of
the debtor, or by subrogating a 3rd person in the rights of the creditor
It is one of the modes of extinguishing obligations through the creation of a new one effected by the change or substitution of an
obligatory relation by another with the intention of substantially extinguishing or modifying the same.
Distinctive Feature it is a juridical act which extinguishes the obligation, and also gives birth to another obligation
2-Fold Purpose that of extinguishing the old obligation, and that of giving birth to a new obligation to take the place of the old
It is relative in character, not absolute
Requisites:
1.
A previous valid obligation
2.
Agreement of the parties to the new obligation
3.
Extinguishment of the old obligation
4.
Validity of the new obligation
Kinds of Novation:
As to its essence:
Objective or Real Novation refers to the change either in the cause, object or principal conditions of the obligations
Subjective or Personal Novation refers to the substitution of the person of the debtor or to the subrogation of a 3 rd
person in the rights of the creditor. When 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
As to its form or constitution

Express when it is declared in unequivocal terms that the old obligation is extinguished by a new one which substitutes
the same
Tacit or Implied when the old and the new obligations are incompatible with each other on every point.
As to its extent or effect
Total when there is an absolute extinguishment of the old obligation
Partial merely a modification
Objective Novation novation referred to in No. 1 of Art. 1291, may be effected by:
1) changing the cause of the obligation;
2) changing the object of the obligation; or
3) changing the principal or essential conditions of the obligation
Change of Cause i.e. contract of loan converted into a contract of deposit
Change of Object i.e. 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 an obligation to render a personal service would constitute a novation.
Change of principal conditions the change or modification must refer to a principal, not incidental, condition resulting in the
alteration or modification of the essence of the obligation
Only those changes of an essential, not accidental, character can affect a novation of the previous or original obligation.
TOLENTINO: Original existing obligation it means that the old obligation must not only be valid, but also that it has not been
extinguishing by any cause.
Art. 1292. In order that an obligation may be extinguished by another which substitute 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. (1204)
Form of extinguishment express or implied
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The rule is settled that novation by presumption has never been favored. To be sustained it must be established that the old and new
contracts are incompatible in all points, or that the will to novate appears by express agreement of the parties or in acts of similar
impost, in other words, the animus novandi or the intent to substitute a new obligation for the old one must be clearly established
before we can say that there is a novation resulting in the extinguishment of the old obligation and in the creation of a new one
Novation by the substitution of a new debtor can take place without the consent of the debtor but the delegation does not operate a
novation, unless the creditor has expressly declared that he intends to discharge with delegating debtor, and the delegating debtor was
not in open failure or insolvency at the time.
Express Novation it is declared in unequivocal terms.
Express Novation 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 obligation;
It can only take place when the contracting parties disclose that 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.
Implied Novation 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 obligation is to determine whether or not both of them can stand together,
each having its own independent existence. If they can stand together, there is no incompatibility; consequently, there is no novation.
If they cannot stand together, there is incompatibility, consequently, there is a novation.
TOLENTINO: In order that there may be an implied novation arising from incompatibility of the old and the new obligations, the
change must refer to the object, the cause, or the principal conditions of the obligation. In other words, there must be an essential
change.
TOLENTINO: Accidental modifications in an existing obligation do not extinguish it by novation. Mere modifications of the debt,
agreed upon between the parties, do not constitute novation. When the changer refer to secondary agreements, and not to the object or
principal conditions of the contract, there is no novation; such changes will produce modifications of incidental facts, but will not
extinguish the original obligations
But where there is a clear case of incompatibility between the two contracts in the sense that 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 there is a novation.
TOLENTINO: i.e. where the sums of P500 and P3000 owing upon two overdue promissory notes, were included, with an addition of
P300 in a new instrument under which the defendant bound himself to pay the P3,800 on a specific future date, it was held that the
later obligation was a perfect novation of the former debts, both being merged into a new obligation with the increase of the loan,
under new terms and conditions. The former obligation cannot legally exist at the same time as the latter, since they are incompatible;
the later note extinguishes the obligations arising from the two earlier ones.
TOLENTINO: i.e. where in an original sale with right to repurchase, the title was in the vendor and the repurchase price was P20,000
and in a subsequent contract the title was already in the vendee, who gave an option to buy to the vendor at P60,000, it was held that
there was such incompatibility as to bring about a novation
The substitution of the 3rd person as debtor by virtue of his agreement with the creditor essentially and entirely wiped out the original
obligation.
If there is an increase of the term or period, such as when there is a postponement of the date of payment, or an extension of the period
of payment, there is certainly no novation 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 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.
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 by the new debtor gives him the rights mentioned in Articles
1236 and 1237. (1205a)
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 at the instance of either the new debtor or the old
debtor
Two forms substitution by expromision and substitution by delegacion
Expromision substitution of debtors is effected with the consent of the creditor at the instance of the new debtor even without the
knowledge or against the will of the old debtor.
Requisites of Expromision
1.) the initiative for the substitution must emanate from the new debtor
2.) consent of the creditor to the substitution
2 Kinds of Substitution by Expromision
1.) substitution with the knowledge and consent of the old debtor
2.) substitution without the knowledge or against the will of the old debtor
Delegacion if the substitution of debtors is effected with the consent of the creditor at the instance of the old debtor with the
concurrence of the new debtor; refers to the substitution of debtors effected when the original debtor offers and the creditor accepts a
3rd person who consents to the substitution.
Requisites of Delegacion:
1.) the initiative for the substitution must emanate from the old debtor
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2.) consent of the new debtor

3.) acceptance by the creditor
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 3rd person assuming his obligation
In delegacion, the debtor offers and the creditor accepts a 3 rd person who consents to the substitution so that the intervention and the
consent of there three persons are necessary and they are respectively known as delegante, delegatorio and delegado. It must be
noted that the consent need not be given simultaneously and that it may be given afterwards, as for example, that of the creditor
delegatorio to the proposition of the debtor accepted by the delegado
Delegacion notably differs from the mere indication made by the debtor that a 3 rd 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 3rd person are regulated by the rules of agency.
Check examples/problems in the book p333
TOLENTINO: Release of Old Debtor in this kind of novation, it is not enough to extend the juridical relation to a 3 rd person; it is
necessary that the old debtor be released from the obligation, and the third person or new debtor take his place in the relation. Without
such release, there is no novation; the 3 rd person who has assumed the obligation of the debtor merely becomes a co-debtor or a surety.
If there is no agreement as to solidarity, the first and the new debtors are considered obligated jointly.
Necessity of creditors consent - the reason for this requirement is the substation 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.
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.
TOLENTINO: The consent of the creditor, however, cannot be presumed from his acceptance of payments by a 3 rd party for the
benefit of the debtor, without further acts; there can be no novation from such acceptance of payments, because there is no consent to
the transfer of the debt itself.
TOLENTINO: Consent of Debtors in case of expromision, the consent of the old debtor is not necessary, and the substitution may
be made even without his knowledge. In delegacion, the old debtor always consents to the substitution, because the initiative comes
from him. But in both cases, the consent of the new debtor is necessary, because he is to assume the obligation.
Effect of payment by new debtor justice demands that the original debtor shall reimburse to the new debtor whatever benefits he
may have derived therefrom.
Substitution effected by expromision 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 3 rd 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
Substitution effected by delegacion 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 an agreement, the relationship shall
be regulated by the rules regarding payment of a debt by a 3rd person with the debtors consent, since in delegacion the original debtor
himself is the one who initiates the substitution.
In expromision --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 has paid, and, at the same time, be subrogated in all of the rights of the creditor
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 creditor.
However if payment is made with the knowledge and 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 amount
which he has paid, and, at the same time, be subrogated in all of the rights of the creditor
In delegacion 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 (delegatorio)
to subrogate him in all of his rights
Art. 1294. If the substitution is without the knowledge or against the will of the debtor, the new debtor's insolvency or non-fulfillment of the
obligations shall not give rise to any liability on the part of the original debtor. (n)
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 the delegated his debt. (1206a)
Effect of Nonpayment by new debtor:
Art. 1294 expromision
Art. 1295 delegacion
If substitution is by expromision According to Art. 1294, if the substitution was effected without the knowledge or against the will
of the original debtor, the new debtors insolvency or nonfulfillment of the obligation shall not revive the original debtors liability to
the creditor. From this it can be inferred that if the substitution was effected with the knowledge and consent of the original debtor, the
new debtors insolvency or nonfulfillment of the obligation shall revive the original debtors liability to the creditor.
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If substitution is by delegacion According to Art. 1295, the right of action of the creditor can no longer be revived except in the
following cases:
o
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
o
Second, when such insolvency was already existing and known to the original debtor (delegante) when he delegated his
debt.
o
It is evident that the purpose of these two exceptions is to prevent the commission of fraud
o
TOLENTINO: There are other cases in which the old debtor will be liable:
1.
If the new debtor is only secondarily liable
2.
If the third person is only an agent of the debtor
3.
Where the new debtor is bound solidarily with the old debtor
It is obvious that the old debtor is liable in these cases, because there is no novation; the debtor has not
been released from the obligation in any of these cases.
Art. 1296. When the principal obligation is extinguished in consequence of a novation, accessory obligations may subsist only insofar as they
may benefit third persons who did not give their consent. (1207)
Effect Upon Accessory Obligations 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 3 rd person in the rights of the creditor
because the effects of such novations are regulated by Arts. 1303 and 1304 of the NCC.
TOLENTINO: The extinguishing of the principal obligation by novation extinguishes the obligation to pay interests, unless
otherwise stipulated. It releases pledges and mortgages as well as guarantors and sureties, unless the latter agree to be bound under the
new obligation.
The exception refers to a case in which there is a stipulation constituted in favor of a 3 rd person, which may be demanded separately
from the principal obligations, although subordinated to the latter.
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. (n)
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. (1208a)
Effect If New and/or Old Obligations Are Void in order to effect the novation, it is, therefore, essential that both the old and the
new obligation must be valid.
If the old obligation is void, then there is nothing to novate. The new obligation, therefore, cannot produce any effect.
If the new obligation is void, then 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 that the former relation should be extinguished in any
event.
TOLENTINO: New obligation voidable if the new obligation is not entirely void, but only voidable, the novation becomes
effective. But if the action to annul is brought, an the obligation is set aside, it will be deemed as if there had been no novation, and the
original obligation subsists, unless the parties intended to definitely extinguish it at all events
TOLENTINO: Conditional New Obligation the original obligation may be pure, and the new obligation subject to suspensive
condition. If the intention is merely to attach the condition to the original obligation, there is no novation. But if the new conditional
obligation is intended to substitute the original pure obligation, the novation itself, and the consequent extinguishment of the original
obligation, is subject to the condition. Therefore, pending the happening of the condition, the old obligation cannot be considered as
extinguished, nor can its performance be enforced; it is as much in a state of suspense as the new one. If the condition is not fulfilled
before one of the parties withdraws from the proposed conditional contract, there is no novation at all.
Rule if old obligation is voidable According to Art. 1298, where the annulment of the obligation may be claimed only be the
debtor, or when there is a ratification of the obligation, the rule that 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.
If the debtor concurs in the novaton, 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 expromision. 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 at the time when he assumed its payment,
cannot avail himself of the right to invoke its voidable characters against any claim of the creditor.
TOLENTINO: Extinguishment of New Obligation After a novation has taken place, by the change of the object of the obligation,
the old obligation can no longer be enforced. Hence, if the new obligation is extinguished by the loss of its object, the creditor cannot
demand the object of the original obligation
TOLENTINO: Original Obligation is void When the original obligation is void, that is, wanting in some essential requisite or
otherwise inexistent, there can be no novation, because one of the requisites for novation would be lacking.
TOLENTINO: Prescription When a debt is already barred by prescription, it cannot be enforced by the creditor. But a new
contract, recognizing and assuming the prescribed debt, would be valid and enforceable. The prescription, being available only to the
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debtor, can be waived by him; and he does so by voluntarily promising to pay the prescribed debt. The novation of a prescribed debt is
thus valid.
Art. 1299. If the original obligation was subject to a suspensive or resolutory condition, the new obligation shall be under the same condition,
unless it is otherwise stipulated. (n)
Effect if old obligation is conditional since the fulfillment of the event which constitutes the condition has the effect of either
rendering an obligation effective or extinguishing it depending upon whether the condition is suspensive or resolutory. If the original
obligation is condition, 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.
If the previous obligation is conditional, the fulfillment or nonfulfillment of the conditions affects the subsequent obligation whether
suspensive or resolutory in character. The reason is that the subsequent obligation was contracted on the basis of the efficacy of the
previous obligation as its equivalent.
If the previous obligation does not arise because of the nonfulfillment of the suspensive condition, or if it ceases to be effective
because of the fulfillment of the resolutoy condition, then the previous obligation is placed in the same category as a void obligation or
an obligation which has already been extinguished. Hence, if the suspensive condition is not fulfilled, the novation is valid; otherwise,
it is not.
TOLENTINO: If the intention is merely to suppress the condition, there would be no novation; but if it is to extinguish the original
obligation itself by the creation of a new obligation, the latter does not arise except from the fulfillment of the condition of the
original obligation. The reason is, if the suspensive condition of the original obligation is not performed, that obligation does not come
into existence, and the cause for the new obligation would then be wanting. On the other hand, if the condition of the old obligation is
resolutory, its happening would resolve the old obligation and place it in the same catefory as a voud obligation or one which has been
extinguished. In either case, therefore, one requisite of every novation a pre-existing valid obligation would be lacking.
TOLENTINO: The parties may by their express will substitute a pure obligation for a conditional one.
Cases may arise in which the new, as well as the previous, obligation is subject to different conditions.
If the conditions affecting both obligation can stand together, and they are all fulfilled, the effect is that 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 that there is no novation since the requisite
of a previous valid 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 that only one obligation remains the new obligation whose demandability or effectivity
shall depend upon the fulfillment or nonfulfillment of the condition affecting it.
TOLENTINO: Both obligation Conditional It may happen that both the old and the new obligations are conditional. If the
conditions in the two obligations are not incompatible with each other, and they can stand together, they must all be fulfilled in order
that the novation may become effective and the new obligation be enforceable. If only the conditions affecting the old obligation are
fulfilled, and those affecting the new obligation are not, then there is no novation, and the old obligation subsists, because the requisite
of a new valid obligation would be lacking. Likewise, if only the conditions affecting the new obligation are fulfilled, but the
conditions of the old obligation are not, there will be no novation, since the requisite of a previous existing obligation would be
wanting.
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. (1209a)
TOLENTINO: Subrogation is the transfer of all the rights of the creditor to a 3rd person, who substitutes him in all his rights.
Novation By Subrogation 2 Kinds:
Conventional Subrogation is that which takes place by the agreement of the original creditor, the third person substituting the
original creditor, and the debtor.
Legal Subrogation is that 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. (n)
Conventional Subrogation essential that there must be an agreement of all the parties with respect to the subrogation
There is 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 an assignment of rights.
TOLENTINO: Consent of all Parties The consent of the original creditor is necessary, because his right is extinguished; that of the
new creditor is needed, because he becomes a party to a new relation; and the consent of the debtor is necessary, because the old
obligation is extinguished, and he becomes liable under a new obligation.
Distinguishment between Conventional subrogation and Assignment of rights

Conventional Subrogation
Assignment of Rights
As to rules which govern:
Governed by Art. 1300-1304 Civil Code
Governed by Art. 1624-1627 Civil Code
As to necessity of debtors consent:
Required
Not
As to effect upon obligation:
Has the effect of extinguishing the obligation Has the effect of transmitting the rights of the
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and giving rise to a new one.
As to effect upon vices:
As to time of effectivity:
Defect or vices in the original obligation are

cured
The effect arises from the moment of
novation or subrogation.
creditor to another person without modifying

or extinguishing the obligation.
Not
As far as the debtor is concerned, arises from
the moment of notification
Art. 1302. It is presumed that there is legal subrogation:

(1) When a creditor pays another creditor who is preferred, even without the debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, without prejudice to
the effects of confusion as to the latter's share. (1210a)
Legal Subrogation As a general rule, legal subrogation is not presumed. There are however, 3 exceptions to this rule. These
exceptions are enumerated in Art. 1302
In Legal Subrogation, the subrogation may be effected even without the debtors knowledge.
i.e.: if A has a credit of P20,000 against D which is secured 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 entire indebtedness of D without the knowledge and consent of the latter, it is
clear that 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.
With respect to the 2nd exception, it is evident that 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 without the knowledge or against the will of the debtor, although he is entitled to demand reimbursement to the
extent that the latter has been benefited by the payment, he is not subrogated in the rights of the creditor.
With respect to the 3rd exception, it is also evident that a person interested in the fulfillment of the obligation can only refer to a codebtor, 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 that
if it is a solidary debtor 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.
The co-debtors 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
Art. 1303. Subrogation transfers to the persons subrogated the credit with all the rights thereto appertaining, either against the debtor or against
third person, be they guarantors or possessors of mortgages, subject to stipulation in a conventional subrogation.
Art. 1304. A creditor, to whom partial payment has been made, may exercise his right for the remainder, and he shall be preferred to the person
who has been subrogated in his place in virtue of the partial payment of the same credit. (1213)
Effect of Total Subrogation effect of the other forms of novation are governed by the provisions of Art. 1296.
TOLENTINO: Effect of Subrogation Subrogation transfers to the 3rd person or new creditor the entire credit, with all the
corresponding rights, either against the debtor or against 3rd person. If a suspensive condition is attached to the credit so transferred,
that condition must be fulfilled in order that the new creditor may exercise his right; but prestations which could not have been
required of the original creditor cannot be demanded of the new one.
TOLENTINO: Subrogation in Insurance Upon payment of the loss, the insurer is entitled to be subrogated pro tanto to any right
of action which the insured may have against the 3rd person whose negligence or wrongful act caused the loss.
The effects of novation by subrogating a 3rd person in the rights of the creditor, on the other hand, are governed by the provisions of
Arts. 1303 and 1304
Accessory obligations are not extinguished because in such obligations the person subrogated also acquires all of the rights which the
original creditor had against 3rd 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 Art. 1304
i.e. P, a 3rd 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. Cs 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.
Title II. - CONTRACTS
CHAPTER 1
GENERAL PROVISIONS
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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. --- it is imperfect because it excludes cases of reciprocal prestations.
Contract cum traho simply means an agreement or convention.

TOLENTINO: A contract is an agreement on the declaration of a common will
TOLENTINO: It has been defined in other codes as a bilateral legal transaction to create, modify or terminate a legal tie between the
parties
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.
Convention is the genus; while contract is the specie.

Contract 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.
TOLENTINO: As a consensual relation, a contract must be shown to exist as a fact, clearly and convincingly.
Distinguished from other terms contracts must not be confused with other juridical conventions such as marriage, adoption and
succession.
Contracts
Other juridical conventions
Principal source of the rights and obligations of the parties in Principal source is the law itself
contracts is their agreement
Rights and obligations arising from contracts are concrete, Rights and obligations are more or less elastic, absolute and
limited and transitory.
permanent.
Ordinary Contract
The parties may be two or more persons of the same or of
different sexes
The nature, consequences and incidents of the contracts are
governed primarily by the agreement of the parties
Once the contract is executed, the result is a contract
Can be terminated or dissolved by the mere agreement of the
parties
In case of breach, the usual remedy is for the injured party to
institute an action against the other party for damages
Marriage Contract
Necessary that the parties must be one man and one woman
Nature, consequences and incidents of the marriage are governed
by law
Once the marriage is celebrated, the result is a status
Cannot
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

o
Perfected Promise merely tends to insure and pave the way for the celebration of a future contract
o
Imperfect Promise (policitacion) is a mere unaccepted offer
Nor must contracts be confused with either pacts or stipulations
o
Pact incidental part of a contract which can be separated from the principal agreement
o
Stipulation an essential and dispositive part which cannot be separated from such principal agreement
Elements of Contracts
o
Essential Elements are those without which there can be no contract. These are subdivided:
Common (Comunes) are those which are present in all contracts such as consent, object certain and cause.
Special (especiales) are present only in certain contracts, such as delivery in real contracts or form in solemn
ones.
Extraordinary or peculiar (especialisimos) those which are peculiar to a specific contract, such as the price
in a contract of sale
o
Natural Elements are those which are derived from the nature 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. (warranty against
eviction is implied in a contract of sale, although the contracting parties may increase, diminish or even suppress it
o
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 (i.e. conditions, terms and modes)
Parties to a contract evident that the existence of two parties is also another essential element which is common to all contracts and
must be added to the requirements of consent, object certain and cause.
A person cannot enter into a contract with himself.
Auto-contract a juridical relation that is created wherein there is only one party involved, but in reality, said party merely acts in the
name and for the account of two distinct contracting parties.
This may take place (1) when a 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 himself, unless there is a
conflict of interest or when the law expressly prohibits it in specific cases.
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TOLENTINO: A contract requires, not two persons, but two parties; not two wills, but two declarations of will. In auto-contract,
there are two declaration, although made by the same person.
TOLENTINO: Contracts of adhesion one party has already a prepared form of a contract, containing the stipulations he desires,
and he simply asks the other party to agree to them if he wants to enter into the contract. The other party is in reality free to reject it
entirely; if he adheres, he gives his consent
Characteristics of Contracts:
o
1. The obligatory force or character of contracts (obligatoriedad del contrato) that once the contract is perfected, it
shall be of obligatory force upon both of the contracting parties
o
2. The autonomy of contracts 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 guaranteed by
Sec.1, Art. 3 of the Constitution
o
3. The mutuality of contracts, or what amounts to the same thing, the essential equality of the contracting parties
Art. 1308 position of essential equality that 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
o
4. The relativity of contracts (relatividad del contrato) first paragraph of Art. 1311. Contracts take effect only between
the parties, their assigns and heirs. They cannot, as a general rule, produce any effect upon 3 rd persons in conformity with
the principle of res inter alios acta aliis negue nocet prodest
Life of Contracts 3 phases or stages
o
Generation comprehends the preliminary or preparatory process for the formation of the contract
o
Perfection the birth of the contract
o
Consummation the fulfillment of the purpose for which the contract was constituted
Classification of Contracts:
According to their relation to other contracts:
o
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 subsequent contract. (i.e. partnership agency)
o
Principal those which can subsist independently from other contracts and whose purpose can be fulfilled by themselves.
(i.e. sale, lease)
o
Accessory those which can exist only as a consequence of, or in relation with, another prior contract. (i.e. pledge,
mortgage)
According to their perfection:
o
Consensual those which are perfected by the mere agreement of the parties (i.e. sale, lease)
o
Real 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. (i.e. commodatum, deposit, pledge)
According to their form:
o
Common or informal those which require no particular form (i.e. loan)
o
Special or formal those which require some particular form (i.e. donations, chattel mortgage)
According to their purpose:
o
Transfer of ownership i.e. sale
o
Conveyance of use i.e. commodatum
o
Rendition of services i.e. agency
According to their subject matter:
o
Things i.e. sale, deposit, pledge
o
Services i.e. agency, lease of services
According to their nature of the vinculum which they produce:
o
Unilateral those which give rise to an obligation for only one of the parties (i.e. commodatum, gratuitous deposit)
o
Bilateral those which give rise to reciprocal obligations for both parties (i.e. sale, lease)
According to their cause:
o
Onerous those in which each of the parties aspires to procure for himself a benefit through the giving of an equivalent or
compensation (i.e. sale)
o
Gratuitous those in which one of the parties proposes to give to the other a benefit without any equivalent or
compensation (i.e. commodatum)
According to the risk involved:
o
Commutative those where each of the parties acquires an equivalent of his prestation and such equivalent is pecuniarily
appreciable and already determined from the moment of the celebration of the contract (i.e. lease)
o
Aleatory those where each of the parties has to his account the acquisition of an equivalent of his prestation, but such
equivalent, although pecuniarily appreciable, is not yet determined at the moment of the celebration of the contract, since it
depends upon the happening of an uncertain event, thus charging the parties with the risk of loss or gain. (i.e. insurance)
According to their names or norms regulating them:
o
Nominate those which have their own individuality and are regulated by special provisions of law (i.e. sale, lease)
o
Innominate those which lack individuality and are not regulated by special provisions of law
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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. (1255a)
Right to contract the right of the contracting parties to establish any stipulation, clause, term or condition as they may deem
convenient. 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
Limitations not be contrary to (1) law, (2) morals, (3) good customs, (4) public order, or (5) public policy.
Must not be contrary to law the laws referred to are:
o
First, those which are mandatory or prohibitive in character
o
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.
o
Third, those which impose essential requisites without which the contract cannot exist
o
Example where the parties stipulated in their contract that all juridical and extrajudicial acts necessary under the terms
thereof should take place in a certain municipality, it is clear that such a stipulation is contrary to law since right to fix the
jurisdiction of courts can only be exercised by the legislative branch and not by the private individuals.
o
TOLENTINO: The statutes takes precedence. Statutes generally have no retroactive effect and only the laws existing at
the time of the execution of the contract are applicable to the transactions.
Morals those principals which are incontrovertible and are universally admitted and which have received social and practical
recognition.
o
Example: where the parties stipulated in their contract that the A shall be obliged to render services to the B as a domestic
servant without any remuneration whatsoever because of a certain loan obtained by the former from the latter, because the
agreement is void on the ground that is contrary to morals, unless it be admitted that slavery may be established in this
country
o
TOLENTINO: The following would be without legal effect: 1) a promise to marry or not to marry, to secure legal
separation, or to adopt a child; 2) a promise to change citizenship, profession, religion or domicile; 3) promise not to hold
public office or which limits the performance of official duties; 4) a promise to enter a particular political party or separate
from it.
Good Customs that 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.
Public Order can only refer to the safety, as well as to the peace and order, of the country or of any particular community.
Public Policy a principle of law which holds that 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
TOLENTINO: In order to declare a contract void as against public policy, a court must find that the contract as to the consideration
or the thing to be done, contravenes some established interest of society, or is inconsistent with sound policy and good morals, or tends
clearly to undermine the security of individual rights.
EXAMPLES:
o
Where the owner of stolen goods and the person responsible for the theft entered into an agreement by which the former
agreed to stifle the criminal prosecution of the latter for a pecuniary consideration, it is clear that such an agreement is
manifestly contrary to public policy and the due administration of justice; consequently, it is void.
o
With regard to contracts which tend to restrain business trade, the rule is now established that a
contract in restraint of
trade is valid provided that there is a limitation upon either time or place.
o
CUI vs. Arellano University Scholarship grants are awarded in recognition of merit and not to attract and keep brilliant
students in school for their propaganda value. It is not a business scheme.
TOLENTINO: Other stipulation escalation clauses (advancing maturity under certain conditions) are valid stipulations.
TOLENTINO: Compromises the whole essence is that by making reciprocal concessions, the parties avoid litigation or put an end
to one already commenced. Such agreement must not be contrary to law, good morals, public policy or public interest.
TOLENTINO: Attorneys Fees a client has the right to dismiss his lawyer at any time, even if there is a contract for professional
services with a stipulated compensation; when this right is exercised by a client, the attorney is entitled to recover upon a quantum
meruit to the extent of the value of the services rendered.
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. (n)
Nominate Contracts those which have their own distinctive individuality and are regulated by special provisions of law
o
Sales, barter or exchange, lease, partnership, agency, loan, deposit, aleatory contracts such as insurance, gambling and life
annuity, compromise and arbitration, and pledge, mortgage and antichresis
Innominate Contracts those which lack individuality and are not regulated by special provisions of law.
o
4 Kinds of Innominate Contracts
Do ut des I give that you give
Do ut facias I give that you do
Facio ut des I do that you give
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Facio ut facias I do that you do

Innominate Contracts states that 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
Perez vs. Pomar interpreter during a certain period. The defendant Pomar, on various occasions, consented to accept an
interpreters services, rendered in his behalf and not gratuitously, it is but just that he should pay a reasonable remuneration therefore,
because it is a well-known principle of law that 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. (1256a)
Art. 1309. The determination of the performance may be left to a third person, whose decision shall not be binding until it has been made known
to both contracting parties. (n)
Art. 1310. The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall decide what is equitable under the
circumstances. (n)
TOLENTINO: Mutuality of Contracts - The binding effect of the contract on both parties is based on the principles:
That obligations arising from contracts have the force of law between the contracting parties
That there must be mutuality between the parties based on their essential equality, to which is repugnant to have one party bound by the
contract leaving the other free therefrom.
Mutuality of Contracts essential equality of the contracting parties

1.
The validity or fulfillment of a contract cannot be left to the will of one of the contracting parties Art. 1308. What s 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 3 rd person Art. 1309. It is an indispensable requisite that the determination
made by the 3rd person should not be evidently inequitable. If it is evidently inequitable, it shall not have any obligatory effect upon
the contracting parties
3.
The validity or fulfillment can be left to chance. deduced a sensu contrario from the text of Art. 1308
According to Manresa, considering the text of 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.
TOLENTINO: Unilateral Cancellation a general principle of law that no one may be permitted to change his mind or disavow and
go back upon his own acts, or to proceed contrary thereto, to the prejudice of the other party. The fact that a party may not have fully
understood legal effect of the contract is no ground for setting it aside. The unilateral act of one party is terminating the contract
without legal justification, makes it liable for damages.
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. (1257a)
TOLENTINO: Contracts produce effect as between the parties who execute them. Even when the contract is ostensibly in the name of one
person, if the other party knew that the person named did not have any legal existence or any real interest in the contract, but that
another person had the interest in and was the real party to the contract, such contract will produce effect with respect to the latter.
Relativity of Contracts 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 3 rd 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 evidenced by the provision of the 1st paragraph of Art. 1311
Persons bound by contract it has been held that 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, that such
fact was known to the other party.
It has been held that an assignment or transfer by a contracting party has the effect of subrogating the assignee to all of the rights and
obligations of the assignor.
Monetary obligations which the decedent might have incurred during his lifetime cannot be transmitted to hs heirs through succession.
The estate, rather than the heir, which must be considered as the constitution of the decedents personality.
The estate, represented by the executor or administrator, is a juridical person. This does not mean that the heirs can no longer be bound
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 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.
Exceptions According to the first paragraph of Art. 1311, 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 qualification of the obligor constitutes one of the principal motives for the
establishment of the contract
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2.
By stipulation of the parties, as when the contract expressly provides that the obligor shall perform an act by himself and not
through another
3.
By provision of law, as in the case of those arising from a contract of partnership or of agency
Effect of contract on 3rd persons since a contract can take effect only between the contracting parties, as well as their assigns and
heirs, it follows, as a general rule, that it cannot produce any effect whatsoever as far as 3 rd persons are concerned.
o
Even if it is admitted that a contract is voidable, nevertheless, its voidable character cannot be asserted by one who is not a
party to the transaction or his representative.
o
TOLENTINO: Third persons affected (examples): 1) a contract creating a real right affects 3 rd persons who may have
some right over the thing (Art. 1312); 2) a contract may reduce the properties of a debtor and thus diminish the available
security for the claims of creditors (Art. 1313); 3) in some cases, as in composition in insolvency and in suspension of
payments, certain agreements are made binding by law on creditors who may not have agreed thereto.
o
Four exceptional instances under the Civil Code where a contract may produce effect either directly or indirectly on 3 rd
persons. They are:
1.
Where the contract contains a stipulation in favor of a 3rd person
2.
Where the 3rd person comes into possession of the object of a contract creating a real right
3.
Where the contract is entered into in order to defraud a 3rd person
4.
Where the third person induces a contracting party to violate his contract.
Stipulation in favor of 3rd persons according to this exception, if a contract should contain some stipulation in favor of a 3 rd person,
he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation.
TOLENTINO: Since a contract is binding only upon the parties thereto, a 3 rd person cannot ask for its annulment, although he may
ask for its rescission if it is in fraud of his rights. A party who is not a party obliged principally or subsidiarily in a contract may
exercise an action for nullity of the contract if he is prejudiced in his rights with respect to one of the contracting parties, and can show
the detriment which would positively result to him from the contract in which he had no intervention.
Manresa says that this exception corresponds almost always to the juridical conception of a gift or donation.
But where a transfer of property is coupled with the purchasers promise to pay a debt owing from the seller to a 3 rd person, it can
scarely be said that the stipulation is in favor of a 3rd person.
TOLENTINO: As a general rule, rights and obligations under a contract are transmitted to the heirs of the parties. The heirs cannot
be considered as 3rd parties, because there is privity of interest between them and their predecessor.
TOLENTINO: Intransmissible contracts those which are purely personal, either by provision of law, such as in cases of partnership
and agency, or by the very nature of the obligations arising therefrom, such as those requiring special personal qualifications of the
obligor.
Beneficial Stipuation (stipulation pour autrui) a stipulation in a contract, clearly and deliberately conferred by the contracting
parties as a favor upon a 3rd person, who must have accepted it before it could be revoked.
o
Kinds:
1.
Those where the stipulation is intended for the sole benefit of the 3rd person
2.
Those where an obligation is due from the promise to the 3 rd person which the former seeks to discharge by means of
such stipulation
o
Requisites:
1.
That the stipulation in favor of the 3rd person should be a part, not the whole of the contract
2.
That the favorable stipulation should not be conditioned or compensated by any kind of obligation whatsoever
3.
Neither of the contracting parties bears the legal representation or authorization of the 3 rd person
4.
That there must be acceptance by the 3rd person communicated to the obligor before the latter could revoke it
The acceptance by the 3 rd person or beneficiary doe not have to be done in any particular form. It may be done
expressly or impliedly.
If the 3rd party is represented, then the principles of agency apply.

Test of Beneficial Stipulation the fairest test whereby we can determine whether the interest of a 3 rd person is 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.
o
Did they deliberately insert terms in their agreement with the avowed purpose of conferring a favor upon such 3 rd person?
TOLENTINO: A stipulation in favor of a 3 rd person has no binding effect in itself before its acceptance by the party favored. Before
such acceptance is legally no obligor. The acceptance is optional to the 3 rd person, be cannot be obliged to accept a right against his
will. Such acceptance does not necessarily determine the moment when rights are acquired by the 3 rd person; this moment depends
upon the terms of the stipulation and the acceptance retroacts to the moment intended by the parties to the contract. The acceptance
does not have to be in any particular form, even when the stipulation is for the 3 rd person an act of liberality or generosity on the part
of the promissory or promise.
TOLENTINO: Thus where a trust was constituted between two persons for the benefit of a 3 rd person, the beneficiary may demand
performance of the obligation without having formally accepted the benefit of the trust in a public document, upon mere acquiescence
in the formation of the trust and acceptance thereof.
TOLENTINO: Before acceptance by the 3rd person, the contracting parties by mutual agreement may modify the contract or revoke
it. After the acceptance of the stipulation by the 3rd person and there is failure of performance, he can sue either for specific
performance or restitution, with indemnity for damages, as authorized by Article 1191.
TOLENTINO: Collective Contracts there are cases where the law authorizes the will of the majority to bind a minority to an
agreement notwithstanding the opposition of the latter, when all have a common interest in the juridical act. the rule of the required
majority is imposed on the minority
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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. (n)
Contracts creating Real Rights

Real Right is a right belonging to a person over a specific thing, without a passive subject individually determined, against whom
such right may personally enforced.
A 3rd person who might come into 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
TOLENTINO: Example A mortgages his land to B, and then sells it to C. The mortgage contract creates a real right over the
property and if duly registered, is binding upon C, although the latter is not a party to such mortgage contract; C has to respect the
mortgage in favor of B
Art. 1313. Creditors are protected in cases of contracts intended to defraud them. (n)
He may ark for its rescission. This rule must be read always in relation to the provisions of Art. 1380 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. (n)
1.
2.
3.
Interferences with Contractual Relations the theory of this doctrine is that the right to perform a contract and to reap the profits
resulting from such performance, and also the right to performance by the other party, are property rights which entitle each party to
protection, and to seek compensation by an action in tort for any interference therewith
Requisites before the 3rd person who induces another to violate his contract can be held liable for damages, it is essential:
The existence of a valid contract
Knowledge on the part of the 3rd person of the existence of the contract
Interferences by the 3rd person without legal justification or excuse.
Malice is generally implied from the act of interference with contractual relations, and is declared to be an essential ingredient in such
cases.
Malice 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 harm irrespective of the presence or absence of ill-will.
Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. (1258)
Art. 1316. Real contracts, such as deposit, pledge and Commodatum, are not perfected until the delivery of the object of the obligation. (n)
Perfection of Contracts refers to that 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 an the cause of the contract.
It signifies the birth or appearance of the contract as an obligatory tie, resulting from the concurrence of the wills of the contracting
parties manresa
TOLENTINO: The perfection of a contract is the moment from which it exists; the juridical tie between the parties arises from that
time.
As a general rule, the perfection of a contract is produced by mere consent. There are, however, certain contracts, such as deposit,
pledge and commodatum, which cannot be perfected until after the delivery of the object by one contracting party to the order.
TOLENTINO: The binding force of a contract is not limited to what is expressly stipulated, but extends to all consequences which
are the natural effect of the contract, considering its true purpose, the stipulations it contains and the object involved.
TOLENTINO: Real Contract is not perfected by mere consent; delivery of the thing is also required.
Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him.
A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other
contracting party. (1259a)
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.
TOLENTINO: The mere lapse of time cannot give efficacy to such contract.
The term unenforceable is used, as distinguished from voidable
The latter are binding, unless annulled by proper action in court, while the former cannot be sued ipon or enforced, unless they are
ratified.
Although the contract is unenforceable, it is, however, susceptible of either express or implied ratification by the person in whose
behalf it has been executed before it is revoked by the other contracting party.
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TOLENTINO: The ratification of a contract by the person in whose name it has been entered into without authority, validates the act
from the moment of its celebration and not merely from the time of its ratification, for the ratification operates upon or applies to the
act already performed.
TOLENTINO: If the contract is not ratified by the person represented, the representative becomes liable in damages to the other
party, if he did not give notice of the absence or deficiency of his power.
CHAPTER 2
ESSENTIAL REQUISITES OF CONTRACTS
GENERAL PROVISIONS
Art. 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (1261)
Thus, in the descending order, the law imposes the essential elements, presumes the natural and authorizes the accidental; conversely,
the will of the contracting parties conforms to the first, accepts or repudiates the second and establishes the third.
TOLENTINO: There must be at least two parties to every contract, and their capacity and consent are essential to its existence. The
number of parties should not be confused with the number of persons. A single person can represent two parties, and one party can be
composed of two or more persons.
TOLENTINO: The legal capacity of the parties is an essential element for the existence of the contract
TOLENTINO: Consent is essential for the existence of a contract, and where it is wanting, the contract is non-existent.
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. (1262a)
1.
2.
3.
4.
5.
1.
2.
3.
Concept of Consent the most important element is the consent of the contracting parties.
TOLENTINO: The essence of consent is the conformity of the parties on the terms of the contract, the acceptance by one of the offer
made by the other; it is the concurrence of the minds of the parties on the object and the cause which shall constitute the contract.
TOLENTINO: Elements of Consent:
Plurality of subjects
Capacity
Intelligent and free will
Express or tacit manifestation of the will
Conformity of the internal will and its manifestation
TOLENTINO: Consent may either be express or implied
Consent (cum sentire) the agreement of wills.
As applied to contracts, CONSENT is the concurrence of the wills of the contracting parties with respect to the object and the cause
which shall constitute the contract.
Requisites of Consent
The consent must be manifested by the concurrence of the offer and the acceptance expressly stated in the Code
The contracting parties must possess the necessary legal capacity - implied
The consent must be intelligent, free, spontaneous and real implied
Manifestation of Consent before there is consent, 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.
The contract, if consensual, is finally perfected.
Character of offer and acceptance:
TOLENTINO: Offer is a unilateral proposition which one party makes to the other for the celebration of a contract. It must be
definite, complete and intentional
Offer a proposal to make a contract; it must be certain or definite.
in a position and is willing to entertain no perfected contract does not mean the resolution to perform said act, but simply a
position to deliberate 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 thing but simply to deliberate whether or not he would purchase the thing.
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1.
2.
3.
TOLENTINO: Mental reservations when a party makes a declaration but secretly does not desire the effects of such declaration. It
exists when the manifestation of the will is made by one party for the purpose of inducing the other to believe that the former intends
to be bound, when in fact he does not. Under the German law and our law, the act is valid, unless the other party knows of the mental
reservation.
The acceptance must be absolute in character it must be plain and unconditional; if it involves any new proposal or if it is
qualified, it constitutes a counter-offer in which case that there must be a definite and absolute acceptance by the original offeror of
such counter-offer.
TOLENTINO: There is no acceptance sufficient to produce consent, when a condition in the offer is removed, or a pure offer is
accepted with a condition, or when a term is established or changed, in the acceptance, or when a simple obligation is converted by the
acceptance into an alternative one; in other words, when something is desired which is not exactly what is proposed in the offer.
Where the defendant offered to the plaintiff an option for 3-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
specified in the proposal, it is clear that there is no perfected contract because there is no concurrence between the offer and the
acceptance.
TOLENTINO: Amplified acceptance a mere amplification on the offer must be understood as an acceptance of the original offer,
plus a new offer which is contained in the amplification
Example: A offers to sell 100 sacks of rice P30 a sack to Y, and the latter answers by saying he accepts the offer and is willing to buy
150 sacks at the price offered. The contract is perfected for 100 sacks, and there is a new offer to buy 50 sacks. The intent of the
offeree controls. If he indicated that he will not buy less than 150 sacks then the answer is entirely a counter-offer.
Acceptance of Complex offers if he offeror proposes to leave 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 that the acceptance of
one would not at all result in a perfected contract. Thus, in an 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.
Acceptance by letter or telegram: (4 different theories)
o
Manifestation theory (manifestacion) the contract is perfected from the moment the acceptance is declared or made.
theory of the Code of Commerce
o
Expedition theory (expedicion) contact is perfected from the moment the offeree transmits the notification of
acceptance to the offeror, as when the letter is placed in the mailbox followed by a majority of American Courts
o
Reception theory (recepcion) contract is perfected from the moment that the notification of acceptance is in the hand of
the offeror in such a manner that 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 followed by the German
Civil Code
o
Cognition theory (cognicion) contract is perfected from the moment the acceptance comes to the knowledge of the
offeror Spanish Civil Code
Acceptance made by letter or telegram does not bind the offeror except from the time it came to his knowledge. The contract is
presumed to have been entered into in the place where the offer was made.
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. This is premised upon
the fact that he is not acting through an agent.
Effect of Constructive Knowledge since the Code says that 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 that such offeror must have read the contents of the letter or
telegram accepting his offer. In other words what is required by the law is actual knowledge of the acceptance. The better rule would
be to say that since the offeror has already a constructive knowledge of the contents of the letter or telegram, it is but logical that he
shall be bound by the acceptance made by the offeree.
Withdrawal of offer he may still withdraw his offer or proposal so long as he still has no knowledge of the acceptance by the
offeree 2nd paragraph of Art. 1319
Withdrawal of Acceptance Dr. Tolentino maintains that the acceptance may be revoked before it comes to the knowledge of the
offeror because in 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. At any time before the moment, the offeror is not bound by his offer; neither should the offeree
be bound by his acceptance.
There are 2 moments hen a consensual contract is perfected: (1) when the offeree transmits his acceptance to the offeror, and (2) whten
the offeror has knowledge of the acceptance.
TOLENTINO: A contract entered into by telephone is deemed to have been made between persons present. It is considered as
entered into at the place where the offer was made.
TOLENTINO: In order that silence produce the effect of tacit acceptance:
That there is a duty or the possibility to express oneself
That the manifestation of the will cannot be interpreted in any other way
That there is a clear identity in the effect of the silence and the undisclosed will.
Art. 1320. An acceptance may be express or implied. (n)
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TOLENTINO: Implied acceptance may arise from acts or facts which reveal the intent to accept, such as the consumption of the
things sent to the offeree, or the fact of immediately carrying out the contract offered. If the offeror asks for immediate performance of
the contract and does not ask for a previous answer, the contract is perfected as soon as the other party begins to carry it out.
Art. 1321. The person making the offer may fix the time, place, and manner of acceptance, all of which must be complied with. (n)
Art. 1322. An offer made through an agent is accepted from the time acceptance is communicated to him. (n)
Art. 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed.
(n)
The owner of the property offered for sale at auction has the right to prescribe the manner, conditions and terms of sale, and where
these are reasonable and are made known to the buyer, they are binding upon him, and he cannot acquire a title in opposition to them
and against the consent of the owner
An acceptance made beyond the time fixed in the offer is not legally an acceptance, but constitutes a new offer, and may be accepted
or rejected by the original offeror.
Effect of death, Civil Interdiction, Insanity or Insolvency an 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.
Conveyed refers to that moment when the offeror has knowledge of the acceptance by the offeree
Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised. (n)
1.
2.
3.
Period for acceptance: Option there is a great difference between the effect of an option which is without a consideration and the
effect of one which is founded ipon 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 communication such withdrawal to the offeree at
anytime before acceptance; if it is founded upon a consideration, the offeror cannot withdraw his offer.
2nd paragraph of Art. 1479 of the Civil Code under the law on sales an unaccepted 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 prince
Accepted refers to the option, not to the offer, to buy or to sell;
TOLENTINO: To determine the period, three points must be considered:
Under normal circumstance, how long will it take the letter of the offeror to reach the offeree?
How long will a person of ordinary prudence take to answer such an offer?
How long will the answer normally reach the offeror?
Art. 1325. Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer. (n)
TOLENTINO: A business advertisement of things for sale may or may not constitute a definite offer. It is not a definite offer when
the object is not determinate.
Art. 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest
bidder, unless the contrary appears. (n)
This provision is not applicable to bids in judicial sales, where the highest bid must necessarily be accepted.
Art. 1327. The following cannot give consent to a contract:

(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to write. (1263a)
Legal Capacity of Contracting Parties an essential element of a contract; it is an indispensable requisite of consent.
TOLENTINO: By way of exception it is provided by the Code that where the necessaries are sold and delivered to a minor or other
person without capacity to act, he must pay a reasonable price therefore. Necessaries include everything that is indispensable for
sustenance, dwelling, clothing and medical attendance.
Incapacitated Persons:
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1.
Unemancipated minors 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
5 exceptional cases where a contract entered into by an unemancipated minor may have all of the effects of a valid
contract
2.
1.
When it is entered into by a minor who misrepresents his age
2.
When it involves the sale and delivery of necessaries to the minor
3.
When it involves a natural obligation and such obligation is fulfilled voluntarily by the minor, provided that such minor
is between 18 and 21 years of age
4.
When it is a marriage settlement or donation propter nuptias, provided that the minor is between 20 and 21 years of age,
if male or between 18 and 21 years of age, if female
5.
When it is a life, health or accident insurance taken on the life of the minor, provided that the minor is 18 years old or
more and the beneficiary appointed is the minors estate or minors father, mother, husband, wife, child, brother or sister
Effect of misrepresentation it is now well settled that misrepresentation by unemancipated minors with regard to
their age when entering into a contract shall bind them in the sense that they are estopped subsequently from impugning
the validity of the contract on the ground of minority. It is necessary that the misrepresentation must be active, not
merely constructive.
Insane or demented persons cover all cases where one or both of the contracting parties are unable to understand the nature and
consequence of the contract at the time of its execution, such as those in a state of drunkenness or under a hypnotic spell or who are
suffering from any king of mental incapacity whatsoever.
Includes somnambulism
Insane or demented persons include any person, who, at 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 provides that a contract entered into during a lucid interval is valid.
Mental incapacity to enter into a contract is a question of fact which must be decided by the courts. There is a presumption
that every person of legal age possesses the necessary capacity to execute a contract, but the presumption is prima facie
and may be rebutted by proper evidence.
TOLENTINO: The mere fact that a person, nine days after the execution of a contract, was declared mentally
incapacitated by a competent court, does not mean that she was incapacitated at the time of the execution of the contract.
3.
Deaf-mutes who do not know how to write. if the deaf-mute knows how to write valid; if he does not know how to write either
voidable or unenforceable, depending upon whether one or both of the parties are incapacitated. Deaf-mutes who do not know how to
write cannot give their consent to a contract.
If they act through a parent or guardian they can enter a contract. If this requirement is not complied with, the result is a defective
contract.
If only one of the contracting parties is incapacitated to give his consent, the contract is voidable. If both of them are incapacitated to
give their consent, the contract is unenforceable.
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Other incapacitated persons married women of age in cases specified by law, persons suffering from civil interdiction and
incompetents who are under guardianship
Acquisition by a wife of property by gratuitous title, the husbands consent is necessary, unless the property is acquired from her
ascendants, descendants, parents-in-law and relatives within he 4th degree.
Incompetent includes:
1.
Persons suffering from civil interdiction
2.
Hospitalized lepers before they are placed under guardianship are not incapacitated. But once an incompetent is placed upon
guardianship, such incompetent can enter into a contract only through his guardian; otherwise, the contract is voidable.
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
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 an easy prey for deceit and exploitation.
Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness or during a hypnotic spell are
voidable. (n)
Art. 1329. The incapacity declared in Article 1327 is subject to the modifications determined by law, and is understood to be without prejudice to
special disqualifications established in the laws. (1264)
Disqualifications to Contract 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.
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 or property under Article 191. (1458a)
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 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 intrusted to them; this provision shall apply to judges and
government experts who, in any manner 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 an 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
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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. (1459a)
Art. 1782. Persons who are prohibited from giving each other any donation or advantage cannot enter into universal partnership.
(1677)
Disqualification to Contract
Incapacity to Contract
Restrains the very right itself; absolutely disqualified from Incapacity restrains the exercise of the right to contract; a person
entering into that contract
who is incapacitated can still enter into a contract, but he must do
so through his parent or guardian
Which has been improperly called special incapacity by certain Incapacity is based upon subjective circumstances of certain
authors, is based upon public policy and morality
persons which compel the law to suspend for a definite or
indefinite period their right to contract
Entered into by one against whom a prohibition is directed is A contract entered into by an incapacitated person is merely
void in accordance with Arts. 5 and 1409, No. 7 of the CC
voidable in accordance with Art. 1390 of the CC
TOLENTINO: Disqualification to contract (example): the incapacity of a person declared insolvent or bankrupt and the incapacity
of the husband and the wife to sell property to each other.
Art. 1330. A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable. (1265a)
1.
2.
Vices of Consent also include simulation of contracts.

2 distinct group of Vices of Consent:
Vices of the will (vicios de la formacion de la voluntad)
Vices of declaration (vicios de la declaracion)
Requisites are that the consent must be intelligent, free and spontaneous.
Because of the inclusion of simulation of contracts as one of the vices which vitiate consent, we might add a 4 th requisite that the
consent must be real
In the absence of any of the 1 st 3 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 4 th requisite because the contract is simulated, it may be either void
ab initio or valid as far as the real agreement is concerned depending upon whether the simulation is absolute or relative.
Art. 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those
conditions which have principally moved one or both parties to enter into the contract.
Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been the
principal cause of the contract.
A simple mistake of account shall give rise to its correction. (1266a)
1.
2.
1.
Mistake defined not only as the wrong conception of a thing, but also as the lack of knowledge with respect to a thing
TOLENTINO: Ignorance means the complete absence of any notion about a particular matter, while error or mistake means a
wrong or false notion about such matter, a belief in the existence of some circumstance, fact or event, which in reality does not exist.
TOLENTINO: Juridically, ignorance and mistake produce the same effect
2 general kinds of mistakes:
Mistake of Fact when one or both of the contracting parties believe that a fact exists when in reality it does not, or that such fact
does not exist when in reality it does.
Mistake of Law when one or both of the contracting parties arrive at 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 thus rendering the contract voidable; a mistake of law does not
render the contract voidable because of the well-known principle that ignorance of the law does not excuse anyone from compliance
therewith.
Different mistakes of fact which vitiate consent into the following classes:
Mistake as to object (error in re) 1st paragraph of Art. 1331
a) Mistake as to the identity of the thing (error in corpore) 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
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.
Necessary that 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 that it is made of gold.
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If the mistake refers only to accidental or secondary qualities (error in qualitate), the contract is not rendered voidable.
In case of mistake regarding the quantity of the thing (error in quantitate), it is important that 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 an apparent mistake, a mere mistake in mathematical computation. As a
consequence, in the first, the contract is voidable; in the 2nd, it is not.
Mistake as to person (error in persona) may refer either to the name or to the identity or to the qualification of a person. Mistake
with regard to the name of one or both of the contracting parties will not invalidate the contract
Requisites:
1.
The mistake must be either with regard to the identity or with regard to the qualification of one of the contracting parties
2.
Such identity or qualification must have been the principal consideration for the celebration of the contract.
Generally, this kind of mistake occurs in obligations to do which require special qualifications of the parties or which are based
on confidence.
Examples: remuneratory contracts, partnership, agency, deposit, commodatum and lease of sercives.
TOLENTINO: The error may refer to the very nature of the contract, in which case it is an essential mistake, because it is one which
as a determining influence upon the will of the party.
Example: A promises to lend B a particular thing, and B agrees in the belief that it is donated to him. In this case, there is no contract
2.
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. (n)
Art. 1333. There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract. (n)
Art. 1334. Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated, may vitiate consent. (n)
1.
2.
3.
Mistake of Law as a rule will not vitiate consent. There is an exception to this rule. According to Art. 1334, mutual error as to the
effect of an agreement when the real purpose of the parties is frustrated, may vitiate consent.
3 requisite that the mistake will vitiate consent:
The mistake must be with respect to the legal effect of an agreement
The mistake must be mutual
The real purpose of the parties must have been frustrated.
TOLENTINO: To invalidate consent, the error must be excusable. It must be a real error and not one that could have been avoided by
the party alleging it. The error must arise from facts unknown to him.
Art. 1335. There is violence when in order to wrest consent, serious or irresistible force is employed.
There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of an imminent and grave evil
upon his person or property, or upon the person or property of his spouse, descendants or ascendants, to give his consent.
To determine the degree of intimidation, the age, sex and condition of the person shall be borne in mind.
A threat to enforce one's claim through competent authority, if the claim is just or legal, does not vitiate consent.
Violence and Intimidation known as duress; Duress is that degree of constraint or danger either actually inflicted (violence) or
threatened and impending (intimidation), sufficient to overcome the mind and will of a person of ornidary firmness
Violence
Intimidation
External
Internal
Prevents the expression of the will substituting it with a material Influences the operation of the will, inhibiting it in such a way
act dictated by another
that the expression thereof is apparently that of a person who has
freely given his consent
Is physical compulsion
Is moral compulsion
Requisite of Violence:
1.
The force employed to wrest consent must be serious or irresistible
2.
It must be the determining cause for the party upon whom it is employed in entering into the contract
Requisites of Intimidation
1.
One of the contracting parties is compelled to give his consent by a reasonable and well-grounded fear of an evil
2.
The evil must be imminent and grave
3.
The evil must be unjust
4.
The evil must be the determining cause for the party upon whom it is employed in entering into the contract
Character of intimidation requires that one of the contracting parties should be 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.
The threat or intimidation must be actual, serious and possible of realization and that the actor can and still will carry out his threat.
Distinguished from reluctant consent There must be a distinction to be made between a case where a person give his consent
reluctantly and even against his good sense and judgments and where he, in reality, gives no consent at all, as where he executes a
contract against his will under a pressure which he cannot resist. It is clear that 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. Between the 2 acts there is no
difference in law
Determination of degree of intimidation the age, sex and condition of the person shall be borne in mind.
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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 an 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
When the evil which threatens is directed not against the contracting party but against his spouse, descendants or ascendants, it may
have a different effect upon a weak woman, an aged father, or a defenseless child.
Effect of just or legal threat does not vitiate consent. If it can be established that 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.
TOLENTINO: One who uses illegal means to attain a legal objective, by infusing fear, is guilty of intimidation. It is not always easy
to determine when intimidation exists, where a legal right is sought to be enforced; but, generally, it can be said that there is
intimidation when a party goes beyond legal channels, or takes the law into his own hands, or by abuse of his rights obtains a greater
advantage than is due him.
TOLENTINO: The manager of a business firm wants to buy a piece of land belonging to one of the employees, but the latter does not
want to sell; the manager threatens to dismiss the employee if he does not sell, so the latter sells the property. Hence, there is
intimidation, and the fear of displeasing the manager, to whom respect is due, may be considered by the court as an aggravating
circumstances.
TOLENTINO: If such force or intimidation is not the cause of such consent, the contract cannot be annulled. ( if A is threatened with
future violence and because of this he purchases a firearm for his protection, he cannot ask for the annulment of this purchase)
TOLENTINO: Moral coercion when a person is in grave danger and he is made to promise to pay a certain amount if he is saved
by the person to whom the promise is made, the contract is not avoided, because there is no intimidation which causes consent to be
given, but the modern law does not favor strict enforcement of the agreement. If found excessive, the amount promised may be
reduced by the court to a reasonable amount.
Art. 1336. Violence or intimidation shall annul the obligation, although it may have been employed by a third person who did not take part in the
contract. (1268)
Art. 1337. There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a
reasonable freedom of choice. The following circumstances shall be considered: the confidential, family, spiritual and other relations between the
parties, or the fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or in financial
distress. (n)
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; Undue influence invalidating is that which substitutes the wishes of another for those of a party to the contract or
that which deprives the latter of his free agency
TOLENTINO: Undue influence any means employed upon a party, under the circumstances, he could not well resist, and which
controlled his volition and induced him to give his consent to the contract, which otherwise he would not have entered into.
Undue influence employed by a 3rd person may annul the contract
TOLENTINO: Undue influence must be distinguished from intimidation, in that in intimidation there must be an unlawful or unjust
act which is threatened and which causes consent to be given, while in undue influence there need not be an unjust or unlawful act.
But in both cases, there is moral coercion
Undue influence which vitiates consent undue influence influence which deprives a person of his free agency. Consequently,
even if it can be established that 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.
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
The test is to determine whether or not the influence exerted has so over-powered or subjugated the mind of a contracting party as to
destroy his free agency, making him express the will of another rather than his own.
The following circumstances shall be considered if there is undue influence: the confidential, family, spiritual and other relations
between the parties, or the fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was
ignorant or in financial distress
TOLENTINO: A contract of adhesion is strictly against the one who drew the same. Public policy protects the other party against
oppressive and onerous conditions.
Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a
contract which, without them, he would not have agreed to. (1269)
Fraud which will render a contract voidable refers to those 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
TOLENTINO: Fraud is every kind of deception whether in the form of insidious machinations, manipulations, concealments or
misrepresentation, for the purpose of leading another party into error and thus execute a particular act. It must have a determining
influence on the consent of the victim
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Insidious words or machinations constituting deceit, includes false promises, exaggeration of hopes or benefits, abuse of
confidence, fictitious names, qualifications or authority; in short all the thousand and one forms of deception which may influence the
consent of a contracting party, without necessarily constituting estafa or some offense under the penal laws.
Kinds of Fraud:
1.
Fraud in the perfection of a contract (Art. 1338) fraud which is employed by a party to the contract in securing the consent of the
other party
2.
Fraud in the performance of an obligation (Art. 1170) fraud which is employed by the obligor in the performance of a pre-existing
obligation.
Fraud or Dolo which is present or employed at the time of the birth or perfection of a contract may be subdivided into dolo causante
and dolo incidente
Dolo causante or casual 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. A. 1338
Dolo incidente or incidental fraud refers to those deceptions or misrepresentations which are not serious in character and without
which the other party would still have entered into the contract A. 1344
Dolo Causante
Dolo Incidente
Refer to a fraud which is serious in character
Not serious
Cause which induces the party upon whom it is employed in Second is not the cause
entering into the contract
The effect is to render the contract voidable
The effect is to render the party who employed it liable for
damages
Requisites:
1.
Fraud or insidious words or machinations must have been employed by one of the contracting parties
2.
Fraud or insidious words or machinations must have been serious
3.
The fraud or insidious words or machinations must have induced the other party to enter into the contract
4.
The fraud should not have been employed by both of the contracting parties or by 3rd persons
Nature of Fraud essence of this class of fraud lies in the deception or misrepresentation employed by one of the contracting parties
to secure the consent of the other.
Insidious words and machinations comprehend any kind of deception, such as false promises, fictitious names, fictitious
qualifications, or fictitious authority.
Before a contract can be invalidated because of fraud, it is essential that there must be proof of concreter 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 essential that such insidious words or
machinations must be prior to or contemporaneous with the birth or perfection of the contract.
TOLENTINO: Error will vitiate consent only when it refers to the matters mentioned in Article 1331; while a mistake induced by
fraud will always vitiate consent, when the fraud had a decisive influence on such consent
Example: If a person induced me to buy a horse from him by misrepresenting that my horse has died, I can ask for the annulment of
the sale. But if I ha the mistaken belief that my horse has died, without any fraud having been exercised on me, I cannot ask for
annulment
TOLENTINO: Effect of dolo causante:

1.
nullity of the contract
2.
indemnification of damages
Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud.
(n)
The 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 the agreement.
Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent. (n)
TOLENTINO: Tolerated Fraud which include minimizing the defects of the thing, exaggeration of its good qualities and giving it
qualities that it does not have. This is lawful misrepresentation known as dolus bonus
One who contracts for the purchase of real estate in reliance on the representation and statements of the vendor as to its character and
value, but after he has visited and examined it for himself, and has had the means and opportunity of verifying such statements, cannot
avoid the contract on the graud that such statements were false or exaggerated
Art. 1341. A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has relied on the former's special
knowledge. (n)
TOLENTINO: An opinion of an expert is like a statement of a fact and if false, may be considered a fraud giving rise to annulment.
Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the
same is mutual. (n)
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1.
2.
The fraud must be employed only by one of the contracting parties.

The precept would not be applicable if the 3 rd person makes the misrepresentation with the complicity or, atleast, with the knowledge,
but without any objection, of the contracting party who is favored. Neither is it applicable if the misrepresentation has created
substantial mistake and the same is unilateral.
TOLENTINO: As a general rule, the fraud employed by a 3 rd person upon one of the parties does not vitiate consent and cause the
nullity of a contract; it merely gives rise to an action for damages by the party injured against such 3 rd person.
Complicity makes the 3rd person and the party who knew of the fraud liable solidarily. A party becomes an accomplice to the fraud,
and the contract is annullable, if the fraud by a 3 rd person is known to and tolerated by the contracting party favored; that is, if the
latter knows it and makes no protest.
TOLENTINO: Deceit by a 3rd person, without connivance or complicity with one of the contracting parties, may lead to error on the
part of the parties to the contract; in this case, consent is vitiated, and the contract may be annulled.
TOLENTINO: In the case of violence or intimidation, the contract is annulled, even if such violence or intimidation is exercised by a
3rd person (art. 1336). In fraud, the act of a 3 rd person does not annul the contract, unless it produces a substantial mutual mistake on
the part of both contracting parties
Two reasons advanced to justify the difference between fraud and intimidation when employed by a 3 rd person:
That the party has nothing to do with fraud by a 3rd person and cannot be blamed for it
Intimidation can be more easily resisted than fraud.
Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute error. (n)
Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages. (1270)
Magnitude of Fraud in order that the fraud will vitiate the consent of the other is that it should be serious in character.
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 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.
TOLENTINO: The fraud must be the determining cause of the contract.
Relation between fraud and consent the 3rd indispensable requisite in order that the fraud employed by one of the contracting
parties will vitiate consent is that it should have induced the other party to enter into the contract. The fraud must be the principal or
casual inducement or consideration for the consent of the party who is deceived in the sense that he would never have given such
consent were it not for the fraud. (dolo causante)
If the fraud is merely incidental in the sense that 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 at all affected. (dolo incidente)
TOLENTINO: Mutual fraud when both parties used fraud reciprocally, neither one has an action against the other; the fraud of one
compensates that of the other, and neither party can ask for the annulment of the contract
Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at all; the
latter, when the parties conceal their true agreement. (n)
Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third person and is not
intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement. (n)
Simulation of Contracts which Castan calls vices of declaration, may be either absolute or relative.
TOLENTINO: Stimulation it is declaration of a fictitious will, deliberately made by agreement of the parties, in order to produce,
for the purposes of deception, the appearance of a juridical act which does not exist or is different from that which was really
executed. Simulation of contract involves a defect in declaration
Absolute Simulated Contracts (simulados) when the contracting parties do not intend to be bound by the contract at all, as when a
debtor simulates the sale of his properties to a friend in order to prevent their possible attachment by creditors.
Basic characteristic of this type of stimulation is the fact that the apparent contract is not really desired or intended to produce legal
effects or in any way alter the juridical stipulation of the parties.
Example: a deed of absolute sale of a piece of land, stating that possession has been transferred and the price paid, when in reality
there has been no agreement of sale between the parties.
Relative when the contracting parties conceal their true agreement, as when a person conceals a donation by simulating a sale of the
property to the beneficiary for fictitious consideration
TOLENTINO: There are two juridical acts involved in relative simulation:
1.
The ostensible act also called apparent or fictitious, which is the contract that the parties pretend to have executed
2.
The hidden act also called real, which is the true agreement between the parties
If the concealed or hidden act is lawful, it is enforceable if the essential requisites are present, such as when the true
consideration was not stated.
Effects: Other vices of consent render the contract voidable, simulation of contracts affects the contract in an entirely different manner
Absolute simulated contract void
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Relative simulated contract binds the parties to their real agreement, when it does not prejudice a 3rd person and is not intended for
any purpose contrary to law, morals, good customs, public order or public policy.
TOLENTINO:
Absolute simulation the nullity is based on the want of true consent; there is no intent to be bound. The contract does not legally
exist; it is illusory, a mere phantom. It is generally fraudulent and for the purpose of injuring 3rd persons.
If the absolute simulation does not have an illicit purpose, the parties to the contract may prove the simulation in order to recover
whatever hay have been given under such simulated act. But if the simulated contract has an illegal object, the provisions of articles
1411 and 1412 will apply.
Absolute Simulation
Fraudulent Alienation
Implies that there is no existing contract, no real act executed
Means that there is a true and existing transfer or contract
Can be attacked by any creditor, including one subsequent to the
Can be assailed only be the creditors before the alienation
contract
The insolvency of the debtor making the simulated transfer is not
The action to rescind, or accion pauliana, requires that the
a prerequisite to the nullity of the contract
creditor cannot recover in any other manner what is due him
The action to declare a contract absolutely simulated does not
The accion pauliana to rescind a fraudulent alienation prescribes
prescribe
in 4 years
TOLENTINO: The relatively stimulated contract is valid, except when it prejudices 3 rd persons or has an illicit purpose. Its validity is
based on the freedom of contract.
If the concealed contract is lawful, it is absolutely enforceable. However, such concealed contracts must have all the essential
requisites, such as consent, object and cause. ( if a donation on account of marriage is made in the form of a contract of sale, it will be
ineffective if the marriage does not take place, and will be revoked by reason of ingratitude.
When the purpose of the simulation is illicit, or to prejudice a 3rd person, the true contract of the parties cannot be enforced. It would
be void and inexistent, under the provisions of Article 1409; and neither party can have an action against the other because of the
provisions of articles 1411 and 1412.
Effect as to 3rd person a 3rd person may avail himself of the conduct of the parties to the simulated contract which is most favorable
to himself. But a 3rd person, if he is prejudiced, may invoke the nullity of a simulated contract.
SECTION 2. - Object of Contracts

Of all the requisites of a contract, the object is, if not the most fundamental, the most indispensable in order to have at least the shadow
of a contract. Without a cause an agreement is possible, although inexplicable; without a consent it is possible at least to have the
appearance of a contract; but without an object there is nothing.
TOLENTINO: Under the Code, the object of the contract and the object of the obligation created thereby are identical
Object of a contract may be defined as the thing, right or service which is the subject matter of the obligation which is created or
established.
Art. 1347. All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights which are not
intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except in cases expressly authorized by law.
All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a contract. (1271a)
Art. 1348. Impossible things or services cannot be the object of contracts. (1272)
Art. 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an obstacle to
the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties. (1273)
1.
2.
3.
4.
1.
2.
3.
4.
5.
6.
Objects of the contract as a general rule, all things, rights or services may be the object of the contracts.
Essential requisites must concur:
The object should be within the commence of men; in other words, it should be susceptible of appropriation and transmissible from
one person to another.
The object should be real or possible; in other words, it should exist at the moment of the celebration of the contract, or at least, it can
exist subsequently or in the future.
The object should be licit; in other words, it should not be contrary to law, morals, good customs, public order or public policy.
The object should be determinate, or at least, possible of determination, as to its kind
The following cannot be the object of contracts:
Things which are outside the commerce of men all kinds of things and interests whose alienation or free exchange is restricted by
law or stipulation, which parties cannot modify at will
Intransmissible rights
future inheritance, except in cases expressly authorized by law
services which are contrary to law, morals, good customs, public order, or public policy
Impossible things or services
objects which are not possible of determination as to their kind
In order that a thing, right or service may be the object of a contract, it is essential that it must be within the commerce of men. Two
conditions must concur:
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Atty. Castillo
1.
2.
3.
1.
2.
3.
1.
2.
1. The thing, right or service should be susceptible of appropriation

2. It should be transmissible from one person to another.
Those things, rights or services which do not possess these conditions are outside the commerce of men and cannot be the object of the
contracts.
These include:
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
Those which are made such by special prohibitions established by law, such as poisonous substance, drugs, arms, explosives, and
contrabands
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 hol a public office and the right of suffrage.
Thus communal things, such as public plaza, sidewalks, streets, rivers, fountains and other things for public use cannot be sold or
leased because they are by their very nature outside the commerce of men.
Existence of object The object of a contract should be in existence at the moment of the celebration of the contract, or at least, it can
exist subsequently or in the future. Hence, according to the 1st sentence of Art. 1347, even future things may be the object of contracts.
Things which have perished cannot be the object of contracts. Art. 1493 CC if at 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
Future things Art. 1347 future thing may be the object of a contract. According to Manrese, may be interpreted in two ways:
It may be interpreted as a (1) conditional contract if its efficacy should depend upon the future existence of the thing, or as an
(2) aleatory contract if one of the contracting parties should bear the risk that the thing will never come into existence. In case
of doubt about the nature of the contract, it must be deemed to be conditional because of the principle stated in Art. 1378 that
the doubt shall be resolved in favor of the greatest reciprocity of interests.
TOLENTINO: Future things are understood those which do not belong to the obligor at the time the contract is made; they may be
made, raised, or acquired by the obligor after the perfection of the contract. Not only material objects but also future rights.
TOLENTINO: Example a contractor can assign in advance the price which he expects to receive under a construction contract; an
author can sell to a publisher a work he intends to write; and a mortgage can be execute to secure a future debt.
Rule with respect to future inheritance This exception is found in the 2nd paragraph of Art. 1347 which states that no contract may
be entered into with respect to future inheritance.
TOLENTINO: Future Inheritance the succession must not have been opened at the time of the contract
TOLENTINO: In order that a contract may fall within the prohibition of this article, the following requisites are necessary:
That the succession has not yet been opened
That the object of the contract forms part of the inheritance
That the promissory has, with respect to the object, an expectancy of a right which is purely hereditary in nature
TOLENTINO: Example An agreement for the partition of the estate of a living person, made between those who, in case of death,
would be in a position to inherit from him, is void. And a contract renouncing the right to inherit from one who is still alive, is also
void.
There are several reasons for this exception: there would be the possibility that one of the contracting parties may be tempted to
instigate the death of the other in order that the inheritance will become his. There would also be the possibility that 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
An 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.
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 at all be affected by the conveyance, since his interest in the property of
his mother at the time of the execution of the deed of sale was a future inheritance and could not be the subject matter of a valid
contract, pursuant to the 2nd paragraph of Art. 1347. But 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 that the rights to the succession are transmitted at the moment of the death of the decedent.
Exception in the second paragraph of Art. 1347:
Under Art. 130 of the Code, with 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
Under Art. 1080 of the Code, which allows a person to make a partition of his estate by an act inter vivos, provided that the legitime of
compulsory heirs is not prejudiced
TOLENTINO: When the object of the contract is not a part of the inheritance, the prohibition does not apply, even if delivery of
such object is dependent upon the death of one of the contracting parties
TOLENTINO: The contract is void if at the time it is entered into, the object is contrary to law or morals. The law violated need not
be penal in nature; it is enough that it be mandatory or prohibitive
TOLENTINO: The prestation promised in the contract must be personal to the party. A person can obligate only himself; he cannot
obligate a 3rd person. Third does not mean that a contract in which the prestation of a 3rd person is promised, is void; it is valid. The 3rd
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person, however, is not bound; only the promissory is boun by the contract to use all means so that the 3 rd person may perform the
prestation
Impossible things or services mythical birds, trip to some distant planet or galaxy.
TOLENTINO: Things are impossible when they are not susceptible of existing, or they are outside the commerce of men. Personal
services are impossible when they are beyond the ordinary strength or power of man. The impossibility must be actual and
contemporaneous with the making of the contract, and not subsequent thereto
IMPOSSIBILITY MAYBE:
Absolute impossibility arises from the very nature or essence of the act or service itself, renders the contract void. When nobody
can perform it.
Relative impossibility 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.
TOLENTINO: The impossibility must be absolute, not relative, and must be determined objectively, and not in relation to the debtor
personally, with rare exceptions.
Thus in a contract of partnership where one of the partners obligates himself to contribute to the common fund an amount which is
beyond his means, the contract is not void because the impossibility may disappear. When the impossibility is permanent 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.
TOLENTINO: When the object is impossible, the contract is void and inexistent; hence, it cannot give rise to any juridical relation. If
the creditor relying on the contract has incurred expenses, rejected other offers and suffered damages, is he entitled to recover these?
The view of modern writers is that it depends upon the good or bad faith of the obligor. If he knew of the impossibility, or could have
known it, his bad faith or negligence makes him liable for damages. The amount of damages, however, will be limited in this case to
the losses the creditor may have suffered by having relied on the contract; he cannot recover all the damages arising from nonperformance of the contract
TOLENTINO: But if the debtor is also ignorant of the impossibility, and his ignorance thereof is justifiable, or unavoidable, the
reason for his responsibility ceases, and he cannot be held liable for the damages suffered by the creditor. There is no liability for
damages if both parties have knowledge of the impossibility
TOLENTINO: If the thing is partly possible and partly impossible, the effect will depend upon the divisibility of the thing. If it is
indivisible, by its nature or by the intention of the parties, there is no contract. But if the thing is divisible, then the contract is valid to
the extent that it is possible.
TOLENTINO: Impossibility of performance should not be confused with mere difficulty. It is elemental that the law requires parties
to do what they have agreed to do. But if the obstacles to the performance of the prestation are so great that they can only be overcome
with sacrifices which are absolutely disproportionate, the prestation must be considered impossible, taking into account the rational,
ethical, and economic considerations in the light of the presumed intention of the parties and of good faith.
Thus one may not obligate himself to do something which when accomplished, will prove to be dangerous to life and property. It is
contrary to law and public policy to force the performance of a contract that is undesirable and harmful
Licitness of object Art. 1347
Determinability of object: Art 1349 says that the object must be determined as to its kind, it simply means that the genus of the
object should be expressed although there might be no determination of the individual specie. There need not be any specification of
the qualities and circumstances of the thing 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 obligation and other circumstances shall be taken into consideration
TOLENTINO: The object of a contract need not be individualized; but must be determinate as to its kind or species. Thus the object
may be a horse, a carabao, a book; the kind is determined in this case, although the particular horse, carabao, or book is not
indicated. But if the object is merely something or an animal the species is not determined and the contract would be void. The
thing must have definite limits, not uncertain or arbitrary.
TOLENTINO: The quantity of the object may be indeterminate, so long as the right of the creditor is not rendered illusory.
A and B enter into an agreement by virtue of which the former binds himself to deliver 10 horses to the latter, the contract is
perfectly valid since the law merely requires that the object must be determinate, or at least, determinable, as to its kind
Even though there is no specification of the quality, although there is a specification of the class or genus to which the object belongs,
the contract is valid Art. 1349, the fact that quality is not determinate shall not be an obstacle to the existence of the contract,
provided it is possible to determinate the same, without the need of a new contract between the parties.
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.
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. (1274)
Art. 1351. The particular motives of the parties in entering into a contract are different from the cause thereof. (n)
Cause is the why of the contract or the essential reason which moves the contracting parties to enter into the contract
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Cause immediate, direct or proximate reason which explains and justifies the creation of an obligation through the will of the
contracting parties.
TOLENTINO: Requisites of Cause:
1.
It must exist
2.
It must be true
3.
It must be licit
In onerous contract the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the
other
In remuratory contracts it is the service or benefit which is remunerated; and in contract of pure beneficience, it is the liberality
of the benefactor.
Distinguished from consideration cause and consideration are used interchangeably. Causa is merely the civil law term, while
consideration is the common law term.
TOLENTINO: As applied to contracts, cause represents the why of the contracts, the essential reason which impels the contracting
parties to celebrate the contract. A consideration in its widest sense is the reason, motive, or inducement, by which a man is moved to
bind himself by an agreement. The concept of consideration is narrower than that of cause.
TOLENTINO: Unlike the principle consideration, the principle of cause never rejects any cause as insufficient. Consideration
requires a legal detriment to the promise which must be more than a moral duty, cause need not be material at all, and may consist in a
moral satisfaction for the promissory.
There can be no question about the difference between the 2 in cases of remuneratory and gratuitous contracts, 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, 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.
In 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, stated in another way, the cause of the obligation of the vendor is 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 are the thing which is sold and the price which is paid
If A sells, an automobile to B for P20,000, delivery and payment to be made at 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 object of the contract are the automobile and the purchase price of P20000.
Dr. Tolentino while concurring with the opinion of Manresa and Castan- that 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 that 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 an onerous contract is the same as to both parties, although the cause is different
Dr. Padilla contends that in bilateral contracts like sale, the thing sold is the object, while the price paid is the cause. We believe that
the view of Dr. Tolentino is the most logical
Distinguished from motives the motive 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 an 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 passed
As Castan says: In the case of a contract of sale, the cause 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.
Cause
Motive
Is the direct or most proximate reason of a contract
Indirect or remote reason
Is the objective or judicial reason of a contract
Psychological or purely personal reasons
While the cause is always the same
The motives differ for each contracting party
While the legality or illegality of the cause will affect the Legality or illegality of the motives will not affect the existence
existence or validity of the contract
of the contract.
TOLENTINO: As a general principle, the motives of a party does not affect the validity or existence of a contract. However, there are
exceptional cases where the motives of a party may affect the juridical act:
1.
When the motive of a debtor in alienating property is to defraud his creditors, the alienation is rescissible
2.
When the motive of a person in giving his consent is to avoid a threatened injury, as in case of intimidation, the contract is voidable
3.
When the motive of a person induced him to act on the basis of fraud or misrepresentation by the other party, the contract is likewise
voidable.
o
The general rule is that the cause of a contract should not be confused with the motives of the parties, the motive may be
regarded as cause when it predetermines the purpose of the contract.
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There are times 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, motives becomes causa when
it predetermines the purpose of the contract
Examples page 458 where a mother sold 2 fish ponds to a daughter and the latter, in turn, resold the same fishponds to her and her
stepfather, as a consequence of which said fishponds to her and her stepfather, as a consequence of which said fishponds were
converted into conjugal properties, it is clear that the motive or purpose is to circumvent the law against donations between spouses.
This motive or purpose is the illegal causa rendering the contract void. Consequently in Art. 1412 of the NCC, is applicable.
Cause in Onerous Contracts it necessarily follows that a promise made by one party may be a sufficient cause for a promise made
by another party. It is not necessary that the cause or consideration should pass from one party to the other at the time of the execution
of the contract.
TOLENTINO: In onerous contracts, the cause need not be adequate or an exact equivalent in point of actual value, especially in
dealing with objects which have a rapidly fluctuating price. Thus a consideration of one peso is just as effectual and valuable
consideration, if stipulated in good faith, and in the absence of fraud, as a larger sum
Thus a conveyance of part of an estate, made by the heirs to save it from a possible litigation, has a valid and valuable consideration. A
debt that has already prescribed is thus a sufficient cause or consideration for a promise to pay.
TOLENTINO: Mutual promises a promise made by one party if made in accordance with the forms required by law, maybe a good
cause or consideration for a promise made by the other party. In other words, the consideration or cause need not pass from one to the
other at the time the contract is entered into. For example, A promises to sell a certain parcel of land to B for the sum of P10,000 by
virtue of the promise on the part of B to pay the said amount for the land. The contract in such case is complete.
Accessory Contracts the rule is that the cause of the accessory contract is identical with that of the principal contract.
i.e. as a mortgage is an 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.
In other words of Supreme Court, the consideration which supports the promise of the accommodation maker is that parted with by
the person taking the note and received by the person accommodated
TOLENTINO: Accomodation parties where one of the signers of a joint and several promissory note affixes his signature thereto
for the accomodation of a co-maker and a 3rd person advances the face value of the note to the accommodated party at the time of the
creation of the note, the consideration for the note, as regards both makers, is the money so advanced to the accommodated party; and
it cannot be said that the note is lacking in consideration as to the accommodating party because he himself received none of the
money. It is enough that value was given for the note at the time of its creation
Moral obligations may a moral or natural obligation constitute a sufficient cause or consideration to support an onerous contract?
The jurisprudence with respect to this question in this jurisdiction is MEAGER. It is clear that where the moral obligation arises
wholly from ethical considerations, unconnected with any civil obligation and 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 upon a
previous civil obligation which has already been barred by the statute of limitations at the time when the contract is entered into, it
constitutes a sufficient cause or consideration to support the said contract.
Cause is Remuneratory Contracts according to Art. 1350, the cause in remuneratory contract is the service or benefit which is
remunerated.
Remuneratory contract 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.
TOLENTINO: Remuneratory Contracts is one where a party gives something to another because of some service or benefit
given or rendered by the latter to the former where such service or benefit was not due as a legal obligation.
i.e. 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 be the legal services rendered by B, although such services do not constitute demandable debts.
Cause in Contracts of Pure Beneficence - is the mere liberality of the benefactor
i.e. 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.
Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals,
good customs, public order or public policy. (1275a)
Art. 1353. The statement of a false cause in contracts shall render them void, if it should not be proved that they were founded upon another cause
which is true and lawful. (1276)
Art. 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary. (1277)
Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or
undue influence. (n)
1.
2.
3.
Essential requisite of cause:

The cause should be in existence at the time of the celebration of the contract
The cause should be licit or lawful
The cause should be true.
If the contract has no cause, or the cause is illicit or unlawful or the cause stated in the contract is false it shall produce no effect.
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1.
2.
Effect of lack of cause Art. 1352. 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 at the time of the transaction
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 cause or consideration.
The rule is not applicable where the purchaser or vendee failed to fully pay for the property, even if there is a stipulation in the
contract of sale that full payment shall be made at the time of the celebration thereof. As a matter of fact, even where the contract itself
expressly states that the consideration for the sale of a piece of land is only one peso, it does not follow that the contract of 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.
The cause need not be stated in the contract in order to be considered as existing according to Art. 1354. This is true even where the
contract falls within the purview of the State if Frauds.
Lesion or inadequacy of cause shall not invalidate the contract. in accordance with the provision of Art. 1355. However, if it can be
established that the lesion or inadequacy of the cause was due to fraud, mistake or undue influence, such fact will render the contract
voidable.
TOLENTINO: In case of lesion or inadequacy of cause, the general rule is that the contract is not subject to annulment; in cases
provided by law, however, such as those mentioned in Article 1381, the lesion is a ground for rescission of the contract
Despite the fact that lesion or inadequacy of cause, in itself, cannot 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 that the
contract may be rescissible in accordance with the provisions of Art. 131 of the Code, in which case he can file an action for
rescission.
Effect of unlawful cause Accdg. To Art. 1353, the statement of a false cause in contracts shall render them void, if it should not be
proven that they were founded upon another cause which is true and lawful.
i.e. where the deed of sale expressly states that the purchase price has been paid when in fact it has never paid, it is evident that 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.
TOLENTINO: These have been held to be void because of illicit cause:
An agreement to resume a state of concubinage which had been interrupted by quarrels
A contract in which the breaking or termination of immoral and illicit relations is made to depend upon the payment of a certain
amount.
TOLENTINO: Where the cause stated in the contract is false, the latter may nevertheless be sustained by proof of another licit cause.
But where the true consideration is partly legal and partly illegal, a party cannot recover upon the contract if he fails to prove what part
of the contract is supported by a legal cause
Simulation of Contract: Absolute and relative
It is clear that if a contract is simulated, it does not necessarily follow that it is inexistent or void, provided that it can be established
that it is, in reality, founded upon another cause which is true and lawful. it can be an annullable contract
TOLENTINO: Unless the contrary is proven, a contract is presumed to have a good and sufficient consideration. Even when the
contract falls under the Statute of Frauds, it is not necessary that the consideration for the agreement be stated in writing, because it is
presumed.
The presumption applies when no cause is stated in the contract. But if a cause is stated in the contract, and it is shown to be false, the
burden of proving the legality of the cause is upon the party enforcing the contract.
CHAPTER 3
FORM 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 article cannot
be exercised. (1278a)
1.
Spiritual system providing for the validity of the contract whatever form it may have.
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.
Contracts of partnership, of agency, and of lease of services, although executed verbally, are obligatory as far as the contracting parties
are concerned.
A verbal extrajudicial partition of property is valid and binding among the parties thereto. In such a case 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 allotted to him or to his predecessor in interest is personal, and, as a consequence, is
enforceable only against the other partitioners, provided that no innocent purchasers for value are prejudiced.
Exceptions to the general rule:
When the law requires that the contract must be in a certain form in order to be valid i.e. donations of an immovable (Art. 749) and
of a movable worth more than P5000 (Art. 748)
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2.
1.
2.
3.
1.
2.
3.
1.
2.
3.
4.
1.
2.
1.
2.
1.
2.
3.
When the law requires that the contract must be in a certain form in order to be enforceable. i.e. those embodied in the Statute of
Frauds as formulated in Art. 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 an
unqualified manner.
TOLENTINO: Classification of formalities required by law for particular contracts:
Those which are required for the validity of the contract ad essential, ad solemnitatem
Those required to make the contract effective as against 3rd parties, such as those mentioned in Art. 1357-58
Those required for the purpose of proving the existence of the contract, or formalities ad probationem, such as those provided in the
Statute of Frauds in Art. 1308
Classification of contracts for which the law prescribes certain forms for their validity:
Those which must appear in writing
Those which must appear in a public document
Those which must be registered
Contracts which must appear in writing are as follows:
Donations of personal property whose value exceeds 5000. According to Art. 748 of the Code, the donation and the acceptance shall
be made in writing; otherwise, it shall be void
Sale of a piece of land or any interest therein through an agent. Accdg. To Art. 1874 of the Code, the authority of the latter shall be in
writing; otherwise, the sale shall be void
Agreements regarding payment of interest in contracts of loan. Accdg. 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 is not affected.
Antichresis. Accdg. to Art. 2134 CC, 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
Donations of immovable property Art. 749 of the Code, the donation must be made in a public document. The acceptance may be
made in the same deed of donation or in a separate public document. If the acceptance is made in a separate document, the donor shall
be notified thereof in an authentic form, and this step shall be noted in both instruments. Noncompliance with any of these formalities
shall render the donation void
Partnerships where immovable property or real rights are contributed to the common fund. Accdg. to Arts. 1771 and 1773 of the Code,
in a contract of partnership immovable property or real rights are contributed to the common fund, it is necessary that the contract
must appear in a public instrument and that there must be an inventory of the immovable property or real rights, signed by the
partners, and attached to the public instrument,; otherwise, the contract is void.
Contracts which must be registered are as follows:
Chattel mortgages. Accdg. 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 an obligation. If the movable, instead of being recorded, is delivered to the creditor or a
3rd person, the contract is a pledge and not a chattel mortgage.
Sales or transfers of large cattle. Accdg. 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
There are 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 Statute of
Frauds.
Other than the 2 exceptions, 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 is not to validate or to enforce the contract, but to insure its efficacy; the form
required is neither for validity nor enforceability but for the convenience of the contracting parties.
Forms required by law for the execution of certain contracts may be divided into:
Those which are necessary for the convenience of the contracting parties or for the efficacy of the contract governed by Arts. 1356 to
1358
Those which are necessary for the validity of the contract scattered provisions of the Code and by special laws
Those which are necessary for the enforceability of the contract Statute 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 each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously with the
action upon the contract. (1279a)
Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over
immovable property; sales of real property or of an interest therein a governed by Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains;
(3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public
document, or should prejudice a third person;
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(4) The cession of actions or rights proceeding from an act appearing in a public document.
All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels
or
things
in
action
are
governed
by
Articles,
1403,
No.
2
and
1405.
(1280a)
1.
2.
3.
4.
5.
Although, as a general rule, contracts shall be obligatory in whatever form they may have been entered into, yet there are certain
contracts failing 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 that of 3 rd persons
The Civil Code enumerates in Art. 1358 the different classes of contract 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 which they can reciprocally compel the observance of the
required form.
TOLENTINO: When a party to a contract dies and is survived by his heirs, the latter may be compelled to execute the proper
documents. They are not 3rd parties, and they succeed to whatever interest their predecessor may have in the property covered by the
contract. All of the heirs must be made parties to such an action.
The following principles are clearly deducible from an examination of the cases decided by the SC in which these provisions were
applied:
Arts. 1357 and 1358 do not required 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 that after its existence has been admitted, the party bound may be compelled to execute the
necessary document
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 presupposes the existence of a contract which is valid and enforceable
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.
Art. 1357 does not require that the action to compel the execution of the necessary document must precede the action upon the
contract. As a matter of fact, both actions may be exercised simultaneously.
However, although the provisions of Art. 1357, in connection 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 that under them the execution of the required document must precede the
determination of the other obligations derived from the contract
CHAPTER 4
REFORMATION OF INSTRUMENTS (n)
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.
2.
3.
Doctrine of Reformation of Instruments when the true intention of the parties to a perfected and valid contract are not expressed
in the instrument 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 instrument so that such true intention may be expressed
TOLENTINO: Equity dictates the reformation of an instrument in order that the true intention of the contracting parties may be
expressed. The rationale of the doctrine is that it would be unjust and inequitable to allow the enforcement of a written instrument
which does not reflect or disclose the real meeting of the minds of the parties.
Requisites for a Reformation of the Instrument:
There must be a meeting of the minds of the contracting parties
Their true intention is not expressed in the instrument
Such failure to express their true intention is due to mistake, fraud, inequitable conduct or accident
Where the complaint fails to allege that the instrument to be reformed does not express the real agreement or intention of the parties, it
is clear that no cause of action is stated therein since such allegation is essential considering the fact that the object of an action for
reformation is to make the instrument conform to the real agreement or intention of the parties
TOLENTINO: The error may consist in that the parties did not intend to express their agreement in the form that it took. For instance
they used kilo instead of pound or dollar instead of peso
The doctrine of reformation of instruments is based on justice and equality.
Distinction of Reformation of an Instrument from Annulment of Contracts:
Reformation presupposes a perfectly valid contract in which there has already been a meeting of the minds of the contracting
parties
Annulment 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.
TOLENTINO: Annulment involves a complete nullification of the contract, while reformation gives life to it upon certain
corrections.
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If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the proper remedy is not a
reformation of the instrument but annulment of the contract
EX. Where the vendee has been led to enter into a contract of sale through fraud or misrepresentation 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 that the proper remedy is
not reformation of the deed of sale but annulment of the contract.
TOLENTINO: According to the weight of authority, the statute of frauds is no impediment to the reformation of an instrument,
whether by way of correcting a description which by mistake includes property other than that intended, or omits property from the
description, or conveys too much
Art. 1360. 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.
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.
TOLENTINO: Requisites of Mistake:
1.
That the mistake is one of fact
2.
That it was common to both parties
3.
The proof of mutual mistake must be clear and convincing.
TOLENTINO: Effect of negligence Where the evidence of a mutual mistake is clear and decisive, the refusal to rectify on the sole
ground of the negligence of the complaining party may well work the gravest injustice and defeat the intention of both parties in
entering into the agreement.
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.
TOLENTINO: Where the mistake is only on one side, in order to be a ground for reformation the fraud or inequitable conduct of the
other party must be clearly shown, and must be at the time of the execution of the instrument; it may be actual or constructive.
TOLENTINO: The mistake of one party, under this article, must refer to the contents of the instrument, and not the subject matter or
principal conditions of the agreement
Art. 1363. When one party was mistaken and the other knew or believed that the instrument did not state their real agreement, but concealed that
fact from the former, the instrument may be reformed.
Art. 1364. 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.
Art. 1365. If two parties agree upon the mortgage or pledge of real or personal property, but the instrument states that the property is sold
absolutely or with a right of repurchase, reformation of the instrument is proper.
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.
TOLENTINO: Both donations and wills are gratuitous dispositions of property. It is said that one reason why courts will not interfere
to reform these instruments is that an action to reform a written instrument is in the nature of an action for specific performance and
requires a valuable consideration an element lacking as between donor or donee, and between testator and beneficiary
TOLENTINO: The power of a court to reform a written instrument is not accomplishing a vain thing, Therefore, an instrument which
when corrected will be void or inoperative, will not be reformed.
Art. 1367. When one of the parties has brought an action to enforce the instrument, he cannot subsequently ask for its reformation.
TOLENTINO: Courts deny relief of reformation when the party seeking reformation has brought an action to enforce the instrument,
because there has been an election as between inconsistent remedies, one in affirmance of the written contract and other is
disaffirmance. The party suing under the written contract may be said to have ratified the same
Art. 1368. Reformation may be ordered at the instance of either party or his successors in interest, if the mistake was mutual; otherwise, upon
petition of the injured party, or his heirs and assigns.
Art. 1369. The procedure for the reformation of instrument shall be governed by rules of court to be promulgated by the Supreme Court.
CHAPTER 5
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INTERPRETATION OF CONTRACTS
Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulations shall control.
If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. (1281)
Art. 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered.
(1282)
The cardinal rule in the interpretation of contracts is to the effect that the intention of the contracting parties should always prevail
because their will has the force of law between them.
TOLENTINO: Where the parties have reduced their contract into writing, the contents of the writing constitutes the sole repository of
the terms of the agreement between the parties. Whatever is not found in the writing must be understood as waived or abandoned.
As a rule, in the construction and interpretation of a document the intention of the parties must be sought. And once this intention has
been ascertained it becomes an integral part of the contract as though it had been originally expressed therein in unequivocal terms.
TOLENTINO: The important task in contract interpretation is always the ascertainment of the intention of the contracting parties and
that task is to be discharged by looking to the words they used to project that intention in their contract.
Art. 1371 should be 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 Court.
General Rule documents are interpreted in the precise terms in which they are expressed, but the COURT, 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 intention of the parties prevail.
One pattern is Art. 1371
EX. Where there is evidence regarding the intention of the parties to extend the contract equivalent to the period of suspension
caused by the war and the parties understood the suspension to mean extension, it was held that the suspension of the agreement
means the extension of the same for a period equivalent to the suspension
TOLENTINO: Reformation of Instruments Where, due to mistake, fraud, inequitable conduct or accident, the language used in
an instrument does not fully or accurately express the agreement or intention of the parties, the court will order a reformation of such
instrument.
The failure of a contract to express the true intent of the parties should be expressly put in issue in the pleadings whether the action is
for reformation or annulment of the contract, before parol evidence may be admitted
TOLENTINO: Where the contract is contained in several documents, all of them must be taken together to determine the intention of
the parties. In short, all circumstances may be proved, necessary for a correct interpretation of the contract, and the court should
consider them in order to give effect to the true intention of the contracting parties.
Art. 1372. However general the terms of a contract may be, they shall not be understood to comprehend things that are distinct and cases that are
different from those upon which the parties intended to agree. (1283)
TOLENTINO: In the construction of an instrument, when a general and a particular provision are inconsistent, the latter is paramount
to the former. So a particular intent will control a general one that is inconsistent with it.
The contract cannot be construed so as to include matters distinct from those with respect to which the parties intended to contract.
Art. 1373. If some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import which is most
adequate to render it effectual. (1284)
TOLENTINO: Where the instrument is susceptible of two interpretations, one which will make it invalid and illegal and another
which will make it valid and legal, the latter interpretation should be adopted.
Art. 1374. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all
of them taken jointly. (1285)
TOLENTINO: A contract cannot be construed by parts, but its clauses should be interpreted in relation to one another. The whole
contract must be interpreted or read together in order to arrive at its true meaning. Certain stipulation cannot be segregated and then
made to control; neither do particular words or phrases necessarily determine the character of a contract.
Art. 1375. Words which may have different significations shall be understood in that which is most in keeping with the nature and object of the
contract. (1286)
TOLENTINO: When there is doubt as to the meaning of any particular language, it should be determined by a consideration of the
general scope and purpose of the instrument in which it occurs.
Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of a contract, and shall fill the omission
of stipulations which are ordinarily established. (1287)
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TOLENTINO: An instrument may be construed according to usage, in order to determine its true character.
Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. (1288)
TOLENTINO: The party who draws up a contract in which obscure terms or clauses appear, is the one responsible for the obscurity
or ambiguity; they must therefore be construed against him
In contracts of adhesion in the event of ambiguity in such contract, the doubt must always be resolved against the party who
prepared the contract and in favor of the one who merely adhered to it.
Art. 1378. When it is absolutely impossible to settle doubts by the rules established in the preceding articles, and the doubts refer to incidental
circumstances of a gratuitous contract, the least transmission of rights and interests shall prevail. If the contract is onerous, the doubt shall be
settled in favor of the greatest reciprocity of interests.
If the doubts are cast upon the principal object of the contract in such a way that it cannot be known what may have been the intention or will of
the parties, the contract shall be null and void. (1289)
TOLENTINO: Where a contract is susceptible of being interpreted as a sale with right of repurchase, and as a loan with mortgage,
the latter interpretation is to be followed because it is in favor of the greater reciprocity of interests.
A deed of exchange is void or inexistent where the intention of parties relative to the objects of the exchange cannot be definitely
ascertained.
Art. 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be observed in the construction of contracts. (n)
TOLENTINO: It is a well-settled rule that in case repugnance exists between written and printed portions of a policy, the written
portion prevails, and there can be no question that as far as any inconsistency exists, the typed rider in an insurance contract prevails
over the printed clause it covers
Section 13, Rule 130, of the Rules of Court provides that when an instrument consists partly of written words and partly of a printed
form, and the two are inconsistent, the former controls the latter
When an instrument is equally susceptible of two interpretations, one in favor of natural right and the other is against it, the former is
to be adopted. The right to redeem is a natural right and a construction of a contract favoring it should be followed.
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CHAPTER 6
RESCISSIBLE CONTRACTS
1.
2.
3.
4.
4 Classes of defective contracts:

Rescissible contracts which is a contract that has caused a particular damage to one of the parties or to a 3 rd person and which for equitable reasons may be set aside even if it is valid.
Voidable contracts which is a contract in which the consent of one party is defective, either because of want of capacity or because it is vitiated, but which contract is valid until set aside by the
competent court.
Unenforceable Contracts which is a contract that for some reason cannot be enforced, unless it is ratified in the manner provided by law
Void or Inexistent Contracts which is an absolute nullity and produces no effect, as if it had never been executed or entered into.
As to defect:
As to effect:
RESCISSIBLE
There is damage or injury

either to one of the
contracting parties or to
third persons.
Considered valid
and
enforceable until they are
rescinded by a competent
court
VOIDABLE
There is vitiation of
consent or legal incapacity
of one of the contracting
parties.
The contract is entered into
in excess or without any
authority, or does not
comply with the Statute of
Frauds, or both contracting
parties
are
legally
incapacitated
Considered valid
and
enforceable until they are
annulled by a competent
court
Cannot be enforced by a
proper action in court
One or more of the

essential requisites of a
valid contract are lacking
either in fact or law
As a general rule, do not

produce any legal effect
UNENFORCEABLE
VOID
INEXISTENT
OR
As to prescriptibility
of action or defense:
The action for rescission
may prescribe
As to susceptibility of
ratification:
Not
susceptible
of
ratification
As to who may assail

contracts
May be assailed not only
by a contracting party but
even by a 3rd person who is
prejudiced or damaged by
the contract
Can be assailed only by a
contracting party
As to how contracts may

be assailed
May be assailed directly
only, and not collaterally
The
action
for
annulment
or
the
defense of annulability
may prescribe.
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
The
action
for
declaration of nullity or
inexistence
or
the
defense of nullity or
inexistence does not
prescribed
Susceptible
Susceptible
May be assailed only by a

contracting party
May be assailed directly or

collaterally
Not susceptible
May be assailed not only

by a contracting party but
even by a 3rd person whose
interest is directly affected

collaterally
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Art. 1380. Contracts validly agreed upon may be rescinded in the cases established by law. (1290)
1.
2.
3.
4.
5.
1.
2.
3.
4.
5.
Rescissible Contracts 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 3rd persons, such as creditors, it may be rescinded.
Rescissible C. a contract with is 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 3 rd persons, as a consequence of which it may be rescinded by
means of a proper action for rescission.
TOLENTINO: Relatively Ineffective Contract is distinguished from the voidable contract in that its ineffectiveness, with respect
to the party concerned, is produced ipso jure, while a voidable contract does not become inoperative unless an action to annul it is
instituted and allowed. It differs from the void or inexistent contract, in that the ineffectiveness of the latter is absolute, because it
cannot be ratified, while the relatively ineffective contract can be made completely effective by the consent of the person as to whom
it is ineffective, or by the cessation of the impediment which prevents its complete effectiveness.
Characteristics:
Their defect constitutes in injury or damage either to one of the contracting parties or to 3 rd persons
Before rescission, they are valid and therefore, legally effective
They can be attacked directly only, and not collaterally
They can be attacked only either by a contracting party or by a 3rd person who is injured or defrauded
They are susceptible of convalidation only by prescription and not by ratification
TOLENTINO: Requisites of Rescission:
The contract must be a rescissible contract, such as those mentioned in Art. 1381 and 1382
The party asking for rescission must have no other legal means to obtain reparation for the damages suffered by him
The person demanding rescission must be able to return whatever he may be obliged to restore if rescission is granted
The things which are the object of the contract must not have passed legally to the possession of a 3 rd person acting in good faith
The action for rescission must be brought within the prescriptive period of 4 years.
Remission a remedy granted by law to the contracting parties, and even to 3 rd 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.
Rescission distinguished from resolution of reciprocal obligations under Art. 1191 of the Code similarities both with respect to
validity and effects
As to party who may institute action:

As to causes:
As to power of the courts:
As to contract which may be rescinded or

resolved:
Rescission
The action may be instituted not only by a
party to the contract but even a 3rd person
There are several causes or grounds such as
lesion, fraud and others expressly specified by
law
In rescission there is no power of the courts to
grant an extension of time for performance of
the obligation so long as there is a ground for
rescission
In rescission any contract, whether unilateral
or reciprocal, may be rescinded
Resolution
The action may be instituted only by a party
to the contract
The only ground is failure of one of the
parties to comply with what is incumbent
upon him
In resolution the law expressly declares that
courts shall have a discretionary power to
grant an extension for performance provided
that there is a just cause
Only reciprocal contracts may be resolved
Neither must rescission be confused with rescission of a contract by mutual consent of the contracting parties Rescission by
mutual consent 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 Articles 1385,
which is not applicable.
Art. 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the
value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of
the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission. (1291a)
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Art. 1382. Payments made in a state of insolvency for obligations to whose fulfillment the debtor could not be compelled at the time they were
effected, are also rescissible. (1292)
1.
2.
3.
4.
5.
6.
1.
2.
3.
4.
5.
6.
7.
1.
2.
3.
4.
1.
2.
TOLENTINO: A valid contract can be rescinded only for legal cause.

The first of the rescissible contracts are those which are entered into by guardians. This is without prejudice to the provision of
Art. 1386 which states that rescission shall not take place with respect to contracts approved by the courts.
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
Also in case of a father or mother considered as a natural guardian of the property of a child under parental authority where such
property is worth more than P2000.
Contract involves the sale or encumbrance of real property, judicial approval is indispensable.
Consequently, if a guardian sells, mortgages or otherwise encumbers real property belonging to his war without judicial approval, the
contract is unenforceable, and not rescissible even if the latter suffers lesion or damage of more than 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
which case the contract is rescissible if the latter suffers the lesion or damage mentioned in No. 1 of Art. 1381 of the Code
The second is contracts in behalf of Absentees However, such contracts are not rescissible if they have been approved by the
courts
Same as those of the guardians, the principles enunciated in the preceding section are also applicable here.
TOLENTINO: A guardian is authorized only to manage the estate of his ward; hence, he has no power to dispose of any portion
thereof without approval of the court.
Requisites for contracts entered into by guardians in behalf of his ward or by a legal representative in behalf of an absentee:
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.
The ward or absentee must have suffered lesion of more than one-fourth of the value of the property which is the object of the contract
The contract must have been entered into without judicial approval
There must be no other legal means for obtaining reparation for the lesion
The person bringing the action must be able to return whatever he may be obliged to restore, and
The object of the contract must not be legally in the possession of a 3rd person who did not act in bad faith
If the object of the contract is legally in the possession of a 3 rd person who did not act in bad faith, the remedy available to the person
suffering the lesion is indemnification for damages and not rescission
The third is contracts in fraud of creditors this complements Art. 1177 of the Code which states that 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.
TOLENTINO: Test of Fraud In determining whether or not a certain conveyance is fraudulent, the question in every case is
whether the conveyance was a bona fide transaction or a trick and contrivance to defeat creditors, or whether it conserves to the debtor
a special right.
TOLENTINO: Signs of Fraud:
The fact that the consideration of the conveyance is inadequate
A transfer made by a debtor after suit has been begun and while it is pending against him
A sale upon credit by an insolvent debtor
Evidence pf large indebtedness or complete insolvency
The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially
The fact that the transfer is made between father and son, when there are present any of the above circumstances
The failure of the vendee to take exclusive possession of all the property
Requisites before a contract can be rescinded on the ground that it has been entered into in fraud of creditors:
There must be a credit existing prior to the celebration of the contract
There must be a fraud, or at least, the intent to commit fraud, or at least, the intent to commit fraud to the prejudice of the creditor
seeking the rescission.
The creditor cannot in any other legal manner collect his credit
The object of the contract must not be legally in the possession of a 3rd person who did not act in bad faith
If the object of the contract is legally in the possession of a 3rd 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.
The fourth is contracts referring to things under litigation The case contemplated in this number 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 an 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 similar in the sense that in both cases the person who can avail of the
remedy of rescission is a stranger to the contract
Contracts by insolvent under Art. 1382
In order that the payment can be rescinded, it is indispensable:
That it must have been made in a state of insolvency
That the obligation must have been one which the debtor could not be compelled to pay at the time such payment was effected.
It is clear that the basis of the rescissible character of the transaction is fraud as in the case of No. 3 and 4 of Art. 1381
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Atty. Castillo
Insolvency it refers to the financial situation of the debtor by virtue of which is is impossible for him to fulfill his obligations. A
judicial declaration of insolvency is not, therefore, necessary.
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 natural obligations as well as those which are condoned or which have prescribed.
EX. Suspensive condition let us assume that A is indebted to B for P10,000 and to C for P5,000. The obligation in favor of C is
subject to a suspensive condition. 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 that 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.
TOLENTINO: Lesion is the injury which one of the parties suffers by virtue of a contract which is disadvantageous to him.
TOLENTINO: Accion Pauliana vs. Simulation

Accion Pauliana
Absolute Simulation
There is real alienation, but it is fraudulent
There is no alienation but a mere pretense that one has been made
Can be alleged only by the creditors prior to the act
By all creditors, before or after the simulation
Impossibility of satisfying the plaintiffs claim is required
Not required
An action to set aside a valid contract
Does not seek to set aside the simulated contract, but merely declare its
inexistence
1.
2.
TOLENTINO: Rescission is a subsidiary action, which presupposes that the creditor has exhausted the property of the debtor, which
is impossible on credits which cannot be enforced because of the term or condition.
TOLENTINO: There are parties who may appear to have become creditors after the alienation, but who may be considered as having
a prior right and entitled to the accion pauliana:
Those whose claims were acknowledged by the debtor after the alienation, but the origin of which antedated the alienation; the
recognition does not give rise to the credit, but merely confirms its existence. For instance, claims for damages arising before the
alienation, but acknowledged by the debtor only after the alienation
Those who becomes subrogated, before the alienation, in the rights of creditors whose credit were prior to the alienation
Other rescissible contracts Arts. 1098, 1189, 1526, 1534, 1539, 1542, 1556, 1560, 1567, and 1659 of the Code
Art. 1383. The action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no other legal means to
obtain reparation for the same. (1294)
Before a party who is prejudiced can avail himself of this remedy, it is essential that he has exhausted all of the other legal means to
obtain reparation
If it can be established that the property which is alienated or transferred by the debtor to another was his only property at the time of
the transaction, an action for rescission can certainly be maintained because it is clear that in such case the creditor can have no other
remedy.
Parties who may institute action:
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 action on the ground of fraud, and other persons authorized to exercise the same in other rescissory actions.
2.
Their representatives
3.
Their heirs (a right to the legitime is similar to a credit of a creditor) he may do so as a representative of the person who suffers from
lesion or of the creditor who is defrauded. However, if it can be established that the decedent entered into a contract with another in
order to defraud him of his legitime, he has no right to institute the action.
4.
Their creditors by virtue of the subrogatory action defined in Art. 1177 of the Code
Art. 1384. Rescission shall be only to the extent necessary to cover the damages caused. (n)
The purpose of rescission is reparation for the damage or injury which is suffered either by a party to the contract or by a 3 rd person.
Rescission need not be total in character, it may also be partial.
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. --rescissory action on the ground of lesion
Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not
act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the loss. (1295)
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Atty. Castillo
1.
2.
The first paragraph 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 has
not received anything.
Rescission is not possible, unless he who demands it can return whatever he may be obliged to restore.
i.e. where a guardian alienates the properties of a minor for P85,000 to a certain person, and subsequently, the minor upon reaching
the age of majority, brings an 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 law, no less than uniform court decisions, require, as a
condition precedent to rescission, that the consideration received should be refunded.
Fruits of the thing 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 that as far as the obligation to restore the fruits is concerned, the rules on possession shall be applied.
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.
i.e. as a condition to the rescission of a contract of sale of a parcel of land, the vendor must refund the vendees (who are in good
faith) an amount equal to the purchase price, plus the sum expanded by them in improving the land.
The second paragraph this applies to all kinds of rescissible contracts.
2 requisites in order that the acquisition of the thing which consitutues the object of the contract by a 3 rd person shall defeat an
action for rescission:
That the thing must be legally in the possession of the 3rd person
That such person must not have acted in bad faith.
If the thing is movable, the concurrence of these requisites offer no difficulty because of the principle that possession of movable
property acquired in good faith is equivalent to a title.
If the thing is immovable, the right of the 3rd person must be registered or recorded in the proper registry before we can say that the
thing is legally in his possession or what amounts to the same thing, before he is protected by law.
A 3rd person to whom the realty has been transferred who has 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 registered his right over the realty under the
Land Registration Act, there would be no legal obstacles to the transfer of the title of the said property, and for this reason the said
transfer cannot be rescinded.
The impossibility of maintaining an action for the rescission of the contract where the object is legally in the possession of a 3 rd person
in good faith, the person who is prejudiced is not left without any remedy. He may still bring an action for indemnity for damages
against the person who caused the loss.
Art. 1386. Rescission referred to in Nos. 1 and 2 of Article 1381 shall not take place with respect to contracts approved by the courts. (1296a)
Art. 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of
creditors, when the donor did not reserve sufficient property to pay all debts contracted before the donation.
Alienations by onerous title are also presumed fraudulent when made by persons against whom some judgment has been issued. The decision or
attachment need not refer to the property alienated, and need not have been obtained by the party seeking the rescission.
In addition to these presumptions, the design to defraud creditors may be proved in any other manner recognized by the law of evidence. (1297a)
Art. 1388. Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the latter for damages suffered by them on
account of the alienation, whenever, due to any cause, it should be impossible for him to return them.
If there are two or more alienations, the first acquirer shall be liable first, and so on successively. (1298a)
1.
2.
Proof of Fraud 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.
Presumption of Fraud (fraud of creditors in the following cases):
Alienations of property by gratuitous title if the debtor has not reserved sufficient property to pay all of his debts contracted before
such alienations.
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, 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 presumption that such alienation is fraudulent in accordance
with the rule stated in the 2 nd paragraph of Art. 1387. This presumption becomes stronger when it is established that the conveyance by
the judgment debtor is for the purpose of preventing the judgment creditor or other creditors from seizing the property. But where no
judgment or preliminary attachment exists against the debtor, the presumption is not applicable.
It must be observed that the above presumptions are disputable, and therefore may be rebutted by satisfactory and convincing evidence
to the contrary. Thus, if it can be established that the transferee acquired the property in good faith, without the least intention of
impairing the judgment obtained by the creditor against the transferor, and that he paid the purchase price in the belief that the latter
could freely dispose of the said property, the presumption of fraud is overthrown.
It is not indispensable that the creditor shall have to depend upon the two presumptions established in the 1 st and 2nd paragraphs of Art.
1387 in order to prove the existence of fraud or the intention to defraud
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1.
2.
3.
4.
5.
6.
7.
According to the 3rd paragraph of the same article, the design to defraud creditors may be proved in any other manner recognized by
the law of evidence.
Thus, in determining whether or not a certain conveyance is fraudulent the question in every case is whether the conveyance was a
bona fide transaction or merely a trick or contrivance to defeat creditors. It is not sufficient that 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 test as to whether or not a conveyance is fraudulent is does it prejudice the rights of creditors?
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.
The fact that the cause or consideration of the conveyance is inadequate.
A transfer made by a debtor after suit has been begun and while it is pending against him
A sale on credit by an insolvent debtor
Evidence of large indebtedness or complete insolvency
The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially
The fact that the transfer is made between father and son, when there are present others of the above circumstances
The failure of the vendee to take exclusive possession of all the property
i.e. where it is proved that 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 that 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 than their actual value, such circumstances would
be sufficient to establish the fraudulent character of the conveyance. Consequently, the sale can be set aside by means of an action for
rescission at 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, to contract. The remedy of the
creditor in such case would be to ask for a declaration of nullity of the conveyance.
The mere fact of relationship between vendor and vendee, as when the vendor is the vendees mother, is not in itself an element of
fraud, if the sale was made for a valuable consideration and said vendor was not at the time of the conveyance insolvent.
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 that 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.
If the property is acquired by a purchaser in good faith and for value, the acquisition as far as the law is concerned is not fraudulent.
The contract or conveyance is not rescissible
If the acquisition by the 3 rd person in bad faith the contract or conveyance is rescissible. In such case the creditor who is prejudiced
can still proceed after the property. However, if for any cause or reason, it should be impossible for the acquirer in bad faith to return
the property, he shall indemnify the creditor seeking the rescission for damages suffered on account of the alienation.
If it happens that there are two or more alienations, the first acquirer shall be liable first, and so on successively,
i.e. If A, against 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 to 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 that 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.
Art. 1389. The action to claim rescission must be commenced within four years.
For persons under guardianship and for absentees, the period of four years shall not begin until the termination of the former's incapacity, or until
the domicile of the latter is known. (1299)
TOLENTINO: A minor who is a party to a contract of sale must bring the action for rescission within 4 years after attaining the age
of majority, because under the present article the claim of rescission prescribes in 4 years from removal of ones incapacity
Under no. 3 and 4 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.
CHAPTER 7
VOIDABLE CONTRACTS
Voidable Contracts may be defined as those where 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.
TOLENTINO: Voidable or annullable contracts are existent, valid and binding, although they can be annulled because of want of
capacity or vitiated consent of one of the parties, but before alienation, they are effective and obligatory between the parties.
The most essential feature is that it is binding until it is annulled by a competent court.
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.
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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 an action for the rescission of rescissible contracts or from an 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 inexistent in void or inexistent contracts or the defense of
unenforceability in unenforceable contracts
TOLENTINO: Nullity vs. Rescission
Nullity
Rescission
As its name implies, declares the inefficacy which the contract already Merely produces that inefficacy, which did not exist essentially in the
carries in itself
contract
To be cured, requires an act of ratification
To be ineffective, needs no ratification
The direct influence of the public interest is noted
Private interest alone goven
Sanction; the law predominating in the former
Remedy; equity
Can be demanded only by the parties to the contract
May be demanded even by 3rd parties affected by it
TOLENTINO: Repentance is not a ground for nullification
Characteristics:
1.
Their defect consists in the vitiation of consent of one of the contracting parties
2.
They are binding until they are annulled by a competent court
3.
They are susceptible of convalidation by ratification or by prescription
Their defect or voidable character cannot be invoked by 3rd persons
Voidable Contracts
Rescissible Contracts
The defect is intrinsic because it consists of a vice which vitiates The defect is external because it consists of damage or prejudice either
consent
to one of the contracting parties or to a 3rd person
The contract is voidable even if there is no damage or prejudice
The contract is not rescissible if there is no damage or prejudice
The annulability of the contract is based on the law. Annulment is not The rescissibility of the contract is based on equity. Rescission is a
only a remedy but a sanction. Public interest predominates
mere remedy. Private interest predominates
The cause for annulment are different from the causes for rescission.
Susceptible of ratification
Not susceptible
Annulment may be invoked only by a contracting party
Rescission may be invoked either by a contracting party or by a 3 rd
person who is prejudiced.
Art. 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification. (n)
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.
If consent is absolutely lacking or simulated the contract is inexistent, not voidable.
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.
READ FELIPE VS. HEIRS OF ALDON (page. 521)
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. (1301a)
If the action is not commenced within such period, the right of the party entitled to institute the action shall prescribe.
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 that the defense shall also prescribe after the lapse of 4 years, since the basis of the action and
the basis of the defense are identical
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In Braganza vs. Villa Abrille, however, the SC declared that there is reason to doubt the pertinency of the period fixed by Art. 1391
of the Civil Code where minority is set up only as a defense to an action, without the minors asking for any positive relief from the
contract. only an assumption but more just and logical
i.e. Mrs. S borrowed P20,000 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 7 years, she died leaving a
balance of P10,000 on the note. PG demanded payment from Mario who refused to pay. When sued for the amount, Mario raised the
defense: that 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
that 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 that
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 Marios share in the obligation is concerned,
the promissory note is voidable because of minority. He cannot be absolved entirely from the monetary responsibility. Under the Civil
Code, even if his written contract is voidable because of minority he shall make restitution to the extent that he may have been
benefited by the money received by him (Art. 1399, CC). True, more than four years have already elapsed from the time that Mario
had attained the age of 21. Apparently, his right to interpose the defense has already prescribed. It has been held, however, that where
minority is sued as a defense and no positive relief is prayed for, the 4-year period (Art. 1391, CC) does not apply. Here Mario is
merely interposing his minority as an excuse from liability.
Answer No. 2 The defense should not be sustained. It must be noted that 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 CC, actions for annulment of voidable contracts shall prescribe after 4 years. In the case of contracts
which are voidable by reason of minority or incapacity, the 4-year period shall be counted from the time the guardianship ceases (Art.
1391). The same rule should also be applied to the defense. In the instant case, since more than 4 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
year 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 that the contract is voidable as far as he is concerned. In such case, the
defense of minority should then be sustained.
Art. 1392. Ratification extinguishes the action to annul a voidable contract. (1309a)
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. (1311a)
Art. 1394. Ratification may be effected by the guardian of the incapacitated person. (n)
Art. 1395. Ratification does not require the conformity of the contracting party who has no right to bring the action for annulment. (1312)
Art. 1396. Ratification cleanses the contract from all its defects from the moment it was constituted. (1313)
Besides prescription, the action for annulment of a voidable contract may also be extinguished by ratification.
Ratification or confirmation the act or means by virtue of which efficacy is given to a contract which suffers from a vice of curable
nullity.
TOLENTINO: Confirmation is the act by which a person, entitled to bring an action for annulment, with knowledge of the cause
of annulment and after it has ceased to exist, validates the contract either expressly or impliedly
TOLENTINO: Ratification is the act of approving a contract entered into by another without the authorization of the person in
whose name it was entered into, or beyond the scope of the authority of the former.
The code makes no more distinction between confirmation and ratification.
Requisites of Ratification:
1.
The contract should be tainted with a vice which is susceptible of being cured 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 not susceptible of confirmation.
2.
The confirmation should be effected by the person who is entitled to do so under the law implied from the provisions of Arts. 1394
and 1395
3.
It should be effected with knowledge of the vice or defect of the contract 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
charity 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. If the contract is tainted with several vices, such as when it has been executed through mistake or 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 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
4.
The cause of the nullity or defect should have already disappeared
Ratification:
Express R. 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 his desire to convalidate it, or what amounts to the same thing, to renounce his right to
annul the contract.
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Tacit R. 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.
Effects of ratification:
Art 1392 ratification extinguishes the action to annul the contract
Art. 1396 it cleanses the contract of its defect from the moment it was constituted.
TOLENTINO: Retroactivity of Ratification its effects retroact to the moment where the contract was entered into.
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. (1302a)
1.
2.
Requisites to confer the necessary capacity for the exercise of the action for annulment:
The plaintiff must have an interest in the contract
That the victim and not the party responsible for the vice or defect must be the person who must assert the same.
Generally, 3rd person cannot institute an action for its annulment. Exception according to SC, a person who is not a party obliged
principally or subsidiarily under a contract may exercise an action for annulment of the contract if he is prejudiced in his rights with
respect to one of the contracting parties, and can show the detriment which would positively result to him from the contract in which
he has no intervention i.e. 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 nullity the chattel mortgage.
The second requisite is based on the well-known principle of equity that whoever goes to court must do so with clean hands.
i.e. 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? No. True that the contract is voidable because of the fact that at the time of the celebration of the
contract, Y, the other contracting party, was a minor and such minority was known to X.
i.e. Pedro sold a piece of land to his nephew Quintin, a minor. One month later, Pedro died. Pedros 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? No. The CC in Art. 1397 is explicit. Persons who are capable cannot allege the incapacity of those with whom they
contracted. The requisites are lacking, the second is not in the case.
Art. 1398. An obligation having been annulled, the contracting 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 provided by law.
In obligations to render service, the value thereof shall be the basis for damages. (1303a)
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. (1304)
Art. 1398 obligation of mutual restitution.

Interest refers to the legal interest.
The benefit in Art. 1399 which obliges the incapacitated 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 person 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.
It is clear that the proof of such benefit is cast upon the person who has capacity, since it is presumed in the absence of proof that no
such benefit has accrued to the incapacitated person
Art. 1399 cannot be applied to cases where the incapacitated person can still return the thing which he has received.
TOLENTINO: Liability can even be based on Art. 20 and 21
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. (1307a)
Art. 1401. The action for annulment of contracts shall be extinguished when the thing which is the object thereof is lost through the fraud or fault
of the person who has a right to institute the proceedings.
If the right of action is based upon the incapacity of any one of the contracting parties, the loss of the thing shall not be an obstacle to the success
of the action, unless said loss took place through the fraud or fault of the plaintiff. (1314a)
Art. 1402. 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. (1308)
1.
The loss of the thing which constitutes the object of the contract through the fault of the party whom the action for annulment may be
instituted shall not, therefore, extinguish the action for annulment
The only difference from an 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 at the time of the loss.
Where loss is due to fault of plaintiff the action for annulment is extinguished
There are three modes whereby such action may be extinguished. They are:
prescription
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2.
3.
Ratification
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
If the loss was due to the fraud or fault of the plaintiff during his incapacity, the exception was applicable. The loss would not be an
obstacle to the success of the action.
If the person obliged by the decree of annulment to return the thing cannot do so because it has been lost through a fortuitous event,
the contract can still be annulled, but with this difference 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, not the plaintiff, must suffer the loss because he was still the owner of the
thing at the time of the loss; he should, therefore pay the value of the thing, but not the interest therein because the loss was not due to
his fault.
According to Dr. Tolentino, if the plaintiff offers to pay the value of the thing at 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 at the absurd conclusion that an action for
annulment would in effect be extinguished by the loss of the thing through a fortuitous event.
CHAPTER 8
UNENFORCEABLE CONTRACTS (n)
Unenforceable Contracts are those which cannot be enforced by a proper action in court, unless they are ratified, either they are
entered into without or in excess of authority or they do not comply with the statute of frauds or both of the contracting parties do not
possess the required legal capacity
As regards the degree of defectiveness, they occupy an intermediate ground between voidable and void contracts
3 General Classes of Unenforceable Contracts:

1.
Those contracts entered into in the name of another by one without any authority or in excess of his authority there is absolutely no
consent insofar as the person in whose name the contract is entered into is concerned
2.
Those which do not comply with the Statute of Frauds there is no writing, note or memorandum by which the contract may be
proved
3.
Those where both contracting parties are legally incapacitated consent is absolutely vitiated by the legal incapacity of both of the
contracting parties
Characteristics of all unenforceable contracts:

1.
They cannot be enforced by a proper action in court
2.
They are susceptible of ratification
3.
They cannot be assailed by 3rd persons
Distinguished from rescissible contracts:

Unenforceable
Rescissible
Cannot be enforced by a proper action in court
Can be enforced, unless it is rescinded
The cause for the unenforceable character of the former are different from the causes for the rescissible character of the latter
Susceptible of Ratification
Not
Cannot be assailed by 3rd persons
May be assailed by 3rd persons who are prejudiced
Distinguished from voidable contracts:

Unenforceable
Voidable
Cannot be enforced by a proper action in court
Can be enforced, unless it is annulled
The cause 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 action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its
contents:
(a) An agreement that by its terms is not to be performed within a year from the making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of another;
(c) An agreement made in consideration of marriage, other than a mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the
buyer 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
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sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers
and person on whose account the sale is made, it is a sufficient memorandum;
(e) An agreement of the leasing for a longer period than one year, or for the sale of real property or of an interest therein;
(f) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to a contract.
1.
2.
3.
1.
According to Art. 1404, such contracts shall be governed by Art. 1317 and by the principles of agency in Title X of the Code
The following principles are applicable:
No one may contract in the name 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
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, is unenforceable. This principle is reiterated in the law on agency
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.
Confirmation a term used to designate the act by which a voidable contract was cured of its vice
or defect
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.
Interchangeable ratification and confirmation
Recognition or acknowledgement an act whereby a defect of proof is cured, such as when an oral
contract is put in writing, or when a private instrument is converted into a public instrument.
Purpose of Statute the statute of frauds was enacted for the purpose of preventing frauds. Hence,
it should not be made the instrument to further them.
TOLENTINO: The purpose of the statute of frauds is to prevent fraud and perjury in the
enforcement of obligations depending for their evidence upon the unassisted memory of witnesses by requiring certain enumerated
contracts and transactions to be evidenced by a writing signed by the party to be charged.
TOLENTINO: A contract falling under the statute of frauds cannot be proved without the writing or
a memorandum thereof.
Under the Statute of Frauds, the only formality required is that the contract or agreement must be in
writing and subscribed by the party charged or by his agent. --- i.e. a telegram advising a person to whom a verbal promise for the
sale of land had been previously made to come at 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 sufficient
memorandum of sale to satisfy the requirement of the statute.
The noncompliance with the statute of frauds, the contract or agreement is unenforceable by action.
What is affected by the defect of the contract or agreement is not its validity, but its enforceability.
The Statute of Frauds does not declare that said contracts are invalid because they are not reduced to
writing. A contract exists and is valid eventhough it is not clothed with the necessary form. Consequently, the effect of non-compliance
with the requirement of the statute is simply that no action can be enforced unless the requirement is complied with. It is clear that 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 statute has been complied with.
TOLENTINO: Neither does the statute apply so as to prevent one of the parties to the contract from
proving the true interest and agreement, when an issue on this point is raised.
TOLENTINO: Hence, a deed of sale may be proved to be a mortgage, if this was the intention of
the parties even when the agreement for redemption rests entirely on parol, or is proved by parol evidence. The courts will not permit
the statute to be used as a shield for fraud or as a means for perpetrating fraud.
TOLENTINO: A note or memorandum is evidence of the agreement, and is used to show the
intention of the parties. The contents of the note or memorandum, whether in one writing or in separate ones, merely indicative for an
adequate understanding of all the essential elements of the entire agreement, may be said to be the contract itself, except as to form.
Contracts covered by the Statute of Frauds:
An agreement that 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. Where in an 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 statute aims to prevent and not to protect fraud.
TOLENTINO: A contract cannot be performed within a year means not a natural or physical impossibility, but an
impossibility by the terms of the contract itself, or by the understanding and intention of the parties to the contract.
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2.
3.
4.
5.
6.
TOLENTINO: A contract is within the statute if the time for the full performance of the contract exceeds a year, although
the excess is ever so little
TOLENTINO: Where no time is fixed by the parties for the performance of their agreement, and there is nothing in the
agreement itself to show that it cannot be performed within a year according to its terms and the understanding of the
parties, the agreement is not within the statute of frauds.
TOLENTINO: Thus, a contract for domestic and farm services, without a fixed period, at the rate of P10 a month, was
held to be outside the statute of frauds. The services could have been terminated within a year, and the mere fact that it was
repeated and continued for about 12 years, did not bring it within the statute.
A special promise to answer for the debt, default or miscarriage of another. It is well-settled that a promise in order to fall under the
statute must be collateral, not independent or original. 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 an original or a collateral one. If the promise is an original or an independent one,
if the promise becomes thereby primarily liable for the payment of the debt, the promise is not within the statute. But if the promise is
collateral to the agreement of another and the promisor becomes thereby merely a surety, the promise must be in writing
TOLENTINO: To bring a promise within the operation of the statute, there must be a
debt or obligation of one other than the promisor for whose default the latter undertakes to be responsible.
TOLENTINO: The special promise to answer for the debt, default or miscarriage of
another person need not state the consideration. There is a presumption that the contract is supported by a consideration
TOLENTINO: The terms default of miscarriage include liability for tort and are not to
be restricted to defaults or miscarriages arising out of contracts.
An agreement made in consideration of marriage, other than a mutual promise to marry. Thus, marriage settlements and donations by
reason of marriage shall be regulated by the Statute of Frauds
TOLENTINO: The provision of the Statute of Frauds requiring agreements in consideration of marriage to be in writing
and signed by the party to be charged, is not limited in its application to agreements between the parties to the
contemplated marriage, but is applied to promises by a 3 rd person to one of the parties contemplating the marriage. Thus, a
promise made by the father of a prospective bride to give a gift to the prospective husband is covered by the statute.
TOLENTINO: Where the woman and her father promised marriage to the man and his father, provided the latter would
improve the fathers house and spend for the wedding and other needs of the bride and the groom and his father, complying
with the agreement, made the improvements and spent P700, it was held that the man could sue the woman for damages for
breach of the mutual promise to marry, even if the promise was orally made. But the father of the man cannot sue on the
oral contract, which as to him is not a mutual promise to marry
An agreement for the sale of goods, chattels or thins in action, at a price not less then 500 pesos
TOLENTINO: Where a contract for the sale of goods at a price greater than P500 is oral, and neither part payment nor
delivery, receipt and acceptance of the goods, the contract is unenforceable and cannot be the basis of an action for the
recovery of the purchase price or as the basis of an action for damages for breach of the agreement.
TOLENTINO: Where there is a purchase of a number of articles which separately do not have a price of P500 each, but
which is their aggregate have a total price exceeding P500, the operation of the statute of frauds depends upon whether
there is a single inseparable contract or a several one. If the contract is entire or inseparable, and the total price exceeds
P500, the statute applies, even if there are articles priced at less than said amount. But if the contract is separable, then each
articles is taken separately, and the application of the statute to it depends upon its price.
TOLENTINO: A contract for the sale of goods, chattels or things in action at a price not less than P500 is removed from
the operation of the statute of frauds where the buyer accepts and receives part of such goods and chattels. Neither will the
statute of frauds apply where there has been part payment of the purchase price. The payment must ordinarily be made at
the time of the making of the contract in order to remove the contract from the operation of the statute and allow oral proof
An agreement for the leasing of real property for a longer period than one year, or for the sale of real property or an interest therein.
read case Western Mindanao Co. v. Medalle page 553
TOLENTINO: An oral contract for a supplemental lease of real property for a longer period than one year is within the
statute of frauds. An agreement to enter into an agreement is also within the statute of frauds and the promise is not
enforceable unless the statute is satisfied. Thus, an oral agreement to execute a lease of real estate of more than 1 year
cannot be enforced.
TOLENTINO: The memorandum in case of a contract to sell land, must describe the land sold. If an insufficient
description is given or there is no description, oral evidence is not admissible in aid of the memorandum. Although the land
is sufficiently described, the memorandum may be insufficient for uncertainty in the statement of the interest therein which
is to be conveyed. In the case of an agreement for a lease, the memorandum must designate the length or duration of the
term and the time when it is to begin
TOLENTINO: A telegram reading Come. Urgent to arrange purchase of house from Mr. Chicote was not considered as
sufficient to meet the requirements of the law because it does not describe the property, does not state the purchase price,
and is not signed by any person who had authority to bind the seller.
A representation as to the credit of a 3rd person
TOLENTINO: Thus, the statute of frauds applies when a lawyer, in order to obtain a loan for his client, made a false
representation to the effect that his client, made a false representation to the effect that his client could be trusted for the
loan because the titles to certain properties he had just bought were in his possession.
TOLENTINO: The representation that must be in writing are limited to those which operate to induce the person to whom
they are made to enter into contractual relations with the 3 rd person, but not to those representations tending to induce
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action for the benefit of the person making them. The representations must not be made with intent to defraud. The statute
of frauds does not embrace representations that are deceitfully made for it was not intended to protect wrongdoers. It was
designed to protect persons who honestly and in good faith make assurance respecting the credit or standing of another
TOLENTINO: Thus, a false representation that a person is a partner in a company, made for the purpose of inducing the
other party to sell goods to the company, is not within the statute of frauds and may be proved by oral evidence.
PROBLEM: A and B entered into a verbal contract whereby A agreed to sell to B his only parcel of land for P20K and B agreed to
buy at the aforementioned price. B went to the bank, withdrew the necessary amount and returned to A for the consummation of the
contract. A, however, 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?
ANSWER: The agreement is valid. It is a time honored rule that 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. However an action by B against A for specific performance
cannot prosper, unless it is ratified. The agreement, being an agreement of sale of real property, is covered by the Statute of Frauds. It
cannot, therefore, be enforced by a court action because it is not evidenced by any note or memorandum or writing properly
subscribed by the party charged.
The rule is well established that the Statute of Frauds is applicable only to those contracts which are executory and not to those which
have been consummated either totally or partially.
Contracts infringing the Statute of Frauds are susceptible of ratification. According to Art. 1405 of the CC, 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 has paid 10% of the purchase price?
ANSWER Yes, an oral sale of land where the land has not been delivered but the buyer has paid 10% of the purchase price may be
judicially enforced. In effect, there is already a ratification of the contract because of the acceptance of benefits.
PROBLEM: O verbally leased his house and lot to L for 2 years at a monthly rental of P250.00 a month. After the 1 st year, O
demanded a rental of 500.00 claiming that 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 priced. O proved an inflation rate of 100%. When L refused to vacate the house, O brought an
action for ejectment. O denied that they had agreed to a lease for 2 years.
ANSWER: Yes, the lessee L may testify on the verbal contract of lease. Well-settled is the rule that the Statute of Frauds by virtue of
which oral contracts 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 O a monthly rental of 250 for 1 year. The case is withdrawn from the coverage of the Statute of Frauds. O is
justified in increasing the monthly rental if he is able to prove an inflation rate of 100% Therefore, an increase is justified.
Distinguish 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 capacity.
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.
TOLENTINO: Where both parties do not have the capacity to consent, the contract is unenforceable. Neither party or his
representative can enforce the contract unless it has been previously ratified. The ratification by one party converts the contract into a
voidable contract voidable at the option of the party who has not ratified; the latter can enforce the contract against the party who has
already ratified. Or, instead of enforcing the contract, the party who has not ratified it may ask for annulment on the ground of his
incapacity.
Art. 1404. Unauthorized contracts are governed by Article 1317 and the principles of agency in Title X of this Book.
TOLENTINO: The sale of property made by a person without authority of the owner is null and void in the beginning, but afterwards
it becomes perfectly valid and is cured of the defects of nullity which it bore at its execution by the ratification solemnly made by the
said owner upon his stating under the oath in court that he himself consented to the formers making the said sale
TOLENTINO: Where a mother has assumed in her behalf and in that of her children, some of whom were then minors, an obligation
left by her deceased husband, the children who have come of age may be considered as having ratified the contract to pay such
indebtedness, where they have not directly impugned the validity of such contract but have remained silent.
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratified by the failure to object to the presentation of
oral evidence to prove the same, or by the acceptance of benefit under them.
TOLENTINO: If the parties to the action, during the trial, make no objection to the admissibility of oral evidence to support a
contract covered by the statute of frauds, and thereby permit such contract to be proved orally, it will be just as binding upon the
parties as if it had been reduced to writing
TOLENTINO: The statute of frauds cannot be invoked when the contract has already been partly executed; it applies only to
executory contracts.
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.
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Art. 1407. In a contract where both parties are incapable of giving consent, express or implied ratification by the parent, or guardian, as the case
may be, of one of the contracting parties shall give the contract the same effect as if only one of them were incapacitated.
If ratification is made by the parents or guardians, as the case may be, of both contracting parties, the contract shall be validated from the
inception.
Art. 1408. Unenforceable contracts cannot be assailed by third persons.
TOLENTINO: The defense of the statute of frauds is personal to the party to the agreement. It is like minority, fraud, mistake, and
other similar defenses which may be asserted or waived by the party affected. Hence, it can be relied upon only by the parties to the
contract or their representatives, and cannot be set up by strangers to the agreement.
CHAPTER 9
VOID AND INEXISTENT CONTRACTS
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.
If there is absolutely no consent, object or cause, or if the formalities which are essential for validity are not complied with, or even if
there is a cause and an object, if such cause or object is contrary to law, morals, good customs, public order or public policy, of if the
contract is expressly prohibited or declare by law to be void, the contract is void or inexistent.
Void and inexistent contracts are different from each other.
TOLENTINO: Void or inexistent c. one which has no force and effect from the very beginning as if it had never been entered into,
and which cannot be validated either by time or by ratification.
Contracts which are void refers 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.
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 at the time of the transaction.
If the contract is inexistent, it is open to attack even by the parties thereto, but if the contract is not inexistent but merely void or
illegal, specific articles of the CC command that neither party thereto may be heard to invoke its unlawful character as a ground for
relief.
VOID CONTRACT
INEXISTENT CONTRACT
All of the requisites of a contract are present, but ---(same as above)
(same as above as defined
The principle of pari delicto is applicable in the first
Not
May produce legal effects
Cannot produce any effect whatsoever
VOID OR INEXISTENT VS. RESCISSIBLE C.

VOID OR INEXISTENT
RESCISSIBLE
Produces as a rule no effect even if it is not set aside by a direct action
Valid, unless it is rescinded
The defect consists in absolute lack in fact or in law of one or some of Defect consists in the lesion or damage to one of the contracting
the essential elements of a contract
parties or to a 3rd persons
The nullity or inexistence of the contract is based on the law. Absolute The rescissible character is based on equity. Rescission is a mere
nullity is not only a remedy but a sanction. Public interest remedy. Private interest predominates
predominates.
The action for the declaration of the nullity or inexistence of a contract Action for the rescission of a contract is prescriptible
is imprescriptible
The nullity or inexistence of a contract cannot as a rule be assailed by May be assailed by 3rd persons
3rd persons
VOID OR INEXISTENT V. VOIDABLE CONTRACTS

VOID OR INEXISTENT C.
VOIDABLE CONTRACTS
Produces as a rule no effect even if it is not set aside by a direct action.
Binding, unless it is annulled
The causes for the inexistence or absolute nullity of the former are different from the cause for the annulability or relative nullity of ratification
Not susceptible of ratification
Susceptible
The action for the declaration of the nullity or inexistence of a contract Prescriptible
is imprescriptible
The defense of inexistence or absolute nullity is available to 3 rd The defense of annulability is not available to 3rd persons.
persons whose interests are directly affected
VOID OR INEXISTED CONTRACT V. UNENFORCEABLE CONTRACTS

VOID OR INEXISTENT CONTRACT
UNENFORCEABLE CONTRACT
There is in reality no contract at all
There is actually a contract which cannot be enforced by a court of
action, unless it is ratified
The causes for the inexistence or absolute nullity of the former are different from the causes for the unenforceability of the latter
Not susceptible of ratification
Susceptible
Can be assailed by 3rd persons whose interests are directly affected
Cannot be assailed by 3rd persons
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Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.
1.
2.
3.
4.
5.
1.
2.
3.
4.
No. 1,4,5,6, and 7 refer to contracts which are void, while Nos. 2 and 3 refer to contracts which are inexistent.
Besides those enumerated in the article, we can include those which are the direct results of previous illegal contracts, those 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.
Characteristics of void or inexistent contracts:
As a general rule, they produce no legal effects whatsoever in accordance with the principle quod nullum est nullum producit
effectum
They are not susceptible of ratification
The right to set up the defense of inexistence or absolute nullity cannot be waived or renounced
The action or defense for the declaration of their inexistence or absolute nullity is imprescriptible
The inexistence or absolute nullity of a contract cannot be invoked by a person whose interest are not directly affected.
TOLENTINO: Characteristics of void contracts:
The contract produces no effect whatsoever either against or in favor of anyone; hence, it does not create, modify, or extinguish the
juridical relation to which it refers.
No action for annulment is necessary, because the nullity exists ipso jure; a judgment of nullity would be merely declaratory
It cannot be confirmed or ratified
If it has been performed, the restoration of what has been given is in order
In the case of void contracts where the nullity proceeds from the illegality of the cause or object, a certain qualification must be made.
Under Arts. 1411 and 1412 of the CC, 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 to recover what he has already given under the contract.
TOLENTINO: Any person may invoke the inexistence of the contract whenever judicial effects founded thereon are asserted against
him
TOLENTINO: if there has been a void transfer of property, and transferor can recover it by the accion reinvindicatoria; and any
possessor may refuse to deliver it to the transferee, who cannot enforce the transfer. Creditors may attach property of the debtor which
has been alienated by the later under a void contract; a debtor can assert the nullity of an assignment of credit as a defense to an action
by the assignee.
TOLENTINO: Even when the contract is void or inexistent, an action is necessary to declare its inexistence, when it has already been
fulfilled. Nobody can take the law into his own hands; hence, the intervention of the competent court is necessary to declare the
absolute nullity of the contract and to decree the restitution of what has been given under it. The judgment will retroact to the very day
when the contract was entered into.
TOLENTINO: If the void contract is still fully executory, no party need bring an action to declare its nullity, but if any party should
bring an action to enforce it, the other party can simply set up the nullity as a defense.
TOLENTINO: The nullity of these contracts is definite and cannot be cured by ratification.
TOLENTINO: The causes of nullity which have ceased to exist cannot impair the validity of the new contract
Art. 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe.
The defect is of such a nature that it cannot be cured by prescription. This principle of imprescriptibility is applicable not only to the
action for the declaration of the inexistence or absolute nullity of the contract but also to the defense.
TOLENTINO: As between the parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or is against
public policy
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EXAMPLE: 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 P1000 was sold to, and thus registered in the latters name. 6 years after the issuance of the title to JG, MC the
sole heir of PC who had just died, brought an action for recovery of the property alleging in his complaint, among others, that PC then
very old and with weak eyesight was tricked by JC into signing the Deed of Absolute Sale upon the fraudulent misrepresentation that
said document was only a renewal of the lease contract over the property; that the price stated in the document is only P10,000
although the property was then worth about 50,000. JG moved to dismiss the action on the ground of prescription. Should the motion
be granted?
Art. 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a criminal offense, both
parties being in pari delicto, they shall have no action against each other, and both shall be prosecuted. Moreover, the provisions of the Penal
Code relative to the disposal of effects or instruments of a crime shall be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has given, and shall not be bound to
comply with his promise. (1305)
Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be
observed:
(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or
demand the performance of the other's undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the
fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any
obligation to comply his promise. (1306)
1.
2.
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 at fault or in pari delicto, the law refuses them every remedy and leaves them where they are.
TOLENTINO: Art. 1411 and 1412 are not applicable to fictitious or simulated contracts, because they refer to contracts with an
illegal cause or subject-matter, whether it constitutes an offense, or whether the cause is only rendered illegal, or to contracts which are
null and void ab initio.
Arts. 1411 and 1412 principle of in pari delicto
Where the contract involves a violation of our coastwise trade law, or of our contraband laws, such as the importation of silver into
this country, and both of the contracting parties are in pari delicto, it is evident that under Art. 1411 of the Code neither party would
have any remedy against the other
The rule is expressed in the maximis: Ex dolo malo nom oritur action and In pari delicto potior est condition defendentis the law
will not aid either party to an illegal agreement, it leaves them where they are. Of course, this presupposes that the fault of one party is
more or less equal or equivalent to the fault of the other party.
The principle of in pari delicto applies only to cases of existing contracts with an illegal cause or object and not to simulated or
fictitious contract nor to those which are inexistent for lack of an essential requisite such as cause or consideration.
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 be observed that the illegality must be with respect to the cause or the object of the contract and not with respect to the motives
of the contracting parties
TOLENTINO: The doctrine of in pari delicto is not applicable where the contract is merely prohibited by law, not illegal per se and
the prohibition is designed for the protection of the rights of the party seeking to recover.
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 that the principle, enunciated in Arts. 1412 of the CC is not applicable, since what is illegal is
the motive of the transferor and not the object or the cause of the contract
Effect if only one party is at fault:
o
If the contract has already 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 that a party should invoke his own guilt
as a reason for relief from a situation which he had deliberately entered. The innocent party may demand for the return of
what he has given.
o
If the contract is merely executory, it is clear that 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.
The principle of pari delicto is not absolute in character. The CC recognizes the following exceptions:
Payment of usurious interest in such case, the law allows the debtor to recover the interest paid in excess of that allowed by the
usury laws, with interest thereon from the date of payment
Payment of money or delivery of property for an 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 3 rd person. in such case, the courts may allows such
party to recover what he has paid or delivered, f the public interest will thus be subserved
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3.
4.
5.
6.
7.
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
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.
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
Contract whereby a laborer undertakes to work longer than the maximum number of hours fixed by law in such case, the laborer
may demand for overtime pay
Contract whereby a laborer accepts a wage lower than the minimum wage fixed by law. in such case, the laborer may demand for the
deficiency.
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.
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 that the rule enunciated in this article, although consistent with the rule enunciated in Art. 1961, which states that
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 that usurious transactions shall be governed by special laws, and Art.
1957, which states that the borrower may recover in accordance with the laws on usury.
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 whole interest paid with costs and
attorneys fees in such sum as may be allowed by the court in an action against the creditor if such action is brought within 2 years
after such payment.
The SC declared that there is no conflict between the CC and the Usury Law. Under the latter, in Sec. 6, the debtor may recover the
whole interest paid. Under the CC, 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 that allowed by the
usury law, it means the whole usurious interest.
Thus, if the loan is P1000 with interest of 20% per annum 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 CC is not to provide for the recovery of the interest paid in
excess of that allowed by law, which the Usury Law already provided for, but to add that the same can be recovered with interest
thereon from the date of payment
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.
TOLENTINO: Where the parties to an illegal contract are not equally guilty, and where public policy is considered as advanced by
allowing the more excusable of the two to sue for relief against the transaction, relief is given to him
TOLENTINO: Thus, where the wife was induced by another to transfer properties to him, through fraudulent misrepresentation that
her husband was going to sue for such properties, and for the purpose of preventing the husband from recovering them, it was held
that the wife is entitled to recover the properties so transferred, because although she was a party to a fraudulent contract, she was not
in pari delicto with the other party and justice would be served by allowing her to be placed in the position in which she was before the
transaction was entered into.
Art. 1415. Where one of the parties to an illegal contract is incapable of giving consent, the courts may, if the interest of justice so demands allow
recovery of money or property delivered by the incapacitated person.
Art. 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designated for the protection of the
plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered.
TOLENTINO: An act or contract that is illegal per se is one that by universally recognized standards inherently or by its very nature
bad, improper, immoral, or contrary to good conscience.
Art. 1417. When the price of any article or commodity is determined by statute, or by authority of law, any person paying any amount in excess
of the maximum price allowed may recover such excess.
Art. 1418. When the law fixes, or authorizes the fixing of the maximum number of hours of labor, and a contract is entered into whereby a laborer
undertakes to work longer than the maximum thus fixed, he may demand additional compensation for service rendered beyond the time limit.
Art. 1419. When the law sets, or authorizes the setting of a minimum wage for laborers, and a contract is agreed upon by which a laborer accepts
a lower wage, he shall be entitled to recover the deficiency.
Art. 1420. In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced.
The above article was applied to usurious contracts of loan

PROBLEM: A partnership borrowed P20,000 from A at clearly usurious interest. Can the creditor recover anything from the debtor?
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Atty. Castillo
Answer: Yes the creditor can recover from the debtor the following: the principal, legal interest on the principal from the date of
demand, legal interest on the legal interest from the time of judicial demand and attorneys fees, if proper under Art. 2208 of the CC.
TOLENTINO: As a general rule, the provisions of this article must be applied if there are several stipulations in the contract, some of
which are valid and some void. If the stipulations can be separated from each other, then those which are void will not have any effect,
but those which are valid will be enforced. In case of doubt, the contract must be considered as divisible or separable. The rule of
divisibility given in this article has two exceptions: (1) when the nature of the contract requires indivisibility, and (2) when the
intention of the parties is that the contract be entire
TOLENTINO: The rule of divisibility and partial enforceability stated in this article must yield to the contrary intention of the
parties.
TOLENTINO: If the illegality does not affect the principal part, or that which the parties must have contemplated as the desired
minimum in relation to the whole contract, as projected, then only the illegal parts are void.
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 CC, 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 that what is illegal is the prestation to pay the stipulated interest. Hence,
being separable, the latter only shoul be deemed void.
Dissenting Opinion in Briones vs. Cammayo the then justice castro:
o
It is my view that in a contract which is tainted with usury with a stipulation 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 have it returned but indeed to acquire inordinate gain.
o
The prestation to pay usurious interest being an integral part and controlling part of the cause, making it illegal and the
contract of loan void, Article 1411 of the CC should be applied.
o
An exception is provided in the 2nd sentence of Art. 1957 which states: The borrower may recover in accordance with the
laws on usury. As an exception to the general rule in Art. 1411, the debtor is allowed in accordance with the Usury Law to
recover the amount he has paid as usurious interest. Thus Art. 1413 explicitly authorizes that Interest paid in excess of the
interest allowed by the usury law 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 in Art.
1411
o
MORE CORRECT
Art. 1421. The defense of illegality of contract is not available to third persons whose interests are not directly affected.
TOLENTINO: The right to set up the nullity of a void or non-existent contract is not limited to the parties, as in the case of
annullable or voidable contracts; it is extended to 3rd persons who are directly affected by the contract.
Art.
1422.
contract
which
is
the
direct
result
of
previous
illegal
contract,
is
also
void
and
inexistent.
Title III. - NATURAL OBLIGATIONS

Art. 1423. Obligations are civil or natural. Civil obligations give a right of action to compel their performance. Natural obligations, not being
based on positive law but on equity and natural law, do not grant a right of action to enforce their performance, but after voluntary fulfillment by
the obligor, they authorize the retention of what has been delivered or rendered by reason thereof. Some natural obligations are set forth in the
following articles.
1.
2.
3.
4.
Natural 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
TOLENTINO: From the nature of man and of things, as well as from law and reason, there arises a NATURAL LAW, which is
immutable and independent of all human regulations; it is also called RATIONAL LAW.
TOLENTINO: This includes those rules which are neither written nor promulgated, but are derived from reason and nature.
TOLENTINO: 4 types of obligations:
Moral Obligations which are duties of conscience completely outside of the field of law
Natural Obligations which are not sanctioned by any action but have a relative juridical effect
Civil Obligations which are juridical obligations which apparently are in conformity with positive law but are contrary to juridical
principles and susceptible of being annulled
Mixed Obligations which have juridical effect
TOLENTINO: Jurisprudence has reduced this classification into two only: natural and civil obligations. The civil obligations include
the mixed.
TOLENTINO: Natural obligations are midway between the civil obligations and the purely moral obligations. Civil obligations are
enforceable by action, while moral obligations rest entirely upon conscience. It is distinguished from the moral in that if produces
some juridical effects, such as the right to retain what has been voluntarily paid by the debtor; and from the civil in that it does not
give rise to an action to compel its performance
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Atty. Castillo
TOLENTINO: It is a real obligation to which the law denies an action, but which the debtor may perform voluntarily. It is
patrimonial and presupposes a prestation.
TOLENTINO: 2 conditions necessary for a natural obligation:

1.
That there be a juridical tie between 2 persons distinguishes the natural obligation from the moral
2.
That this tie is not given effect by law distinguishes it from the civil.
TOLENTINO: If he does not want to pay, he cannot be compelled to do so; if he pays, he cannot recover what he has paid.
TOLENTINO: Perfect Obligation is one where there is a determination of the creditor, the debtor, and the nature and value of the
obligation, while an Imperfect Obligation is not so determined.
TOLENTINO: It is the existence of the imperfect obligation that depends exclusively upon the judgment of the debtor; while in
natural obligations, it is only the performance that is left to the will of the debtor.
Natural O. obligations without a sanction, susceptible of voluntary performance, but not through compulsion by legal means.
Natural vs. Civil

Natural O.
Civil O.
Based on equity and natural law
Positive Law
Not enforceable by court action
Enforceable by court action
Natural O. vs. Moral O.

Natural O.
Moral O.
There is a juridical tie between the parties which is not enforceable by There is not juridical tie whatsoever
court action
Voluntary fulfillment of natural obligations by the obligor produces Voluntary fulfillment of moral obligations does not produce any legal
legal effects which the court will recognize and protect
effect which courts will recognize and protect
TOLENTINO:
In the domain of the law, being a true obligation, with a legal tie Entirely within the domain of morals
between the debtor and creditor, but which because of certain causes
cannot be enforced in the courts
The consequence of juridical tie in natural obligations is that they The moral duty is inexistent from the juridical point of view
produce certain civil effects
TOLENTINO: Natural obligations according to the French courts:

1.
The support of a natural child who has not been recognized
2.
Indemnification of a woman seduced, even when the seduction does not constitute a crime
3.
The support of relatives, by consanguinity or affinity, for whom the law makes no provision for support
4.
Indemnity for damages caused under circumstances which do not give a right of action to the injured party.
TOLENTINO: The term fulfillment does not refer only to the delivery of things, but also to the performance of an act, the giving of a
security, the execution of a document, the abandonment of a right; in other words, the full extent of the juridical meaning of payment
TOLENTINO: The signing of a document has generally the effect of converting a natural into a civil obligation. The signer thereby
renounces the defense which prevents enforcement of the obligation, which can thereafter be the basis of a juridical action
TOLENTINO: Voluntary fulfillment may be understood as spontaneous, free from fraud or coercion, or it may be understood as
meaning with knowledge, free from error.
TOLENTINO: Voluntary must be construed as with knowledge that he cannot be compelled to pay the obligation, thereby
distinguishing it from the payment by mistake (solution indebiti) which constitutes a quasi-contract. It allows the recovery of what has
been paid by mistake, even if there is actually a natural obligation between the payor and the payee. Thus a payment by mistake is not
voluntary and may be recovered. Payment is voluntary knew that the obligation is a natural one.
TOLENTINO: Natural obligations can be converted into civil obligations by novation, by confirmation or ratification.
TOLENTINO: As a general rule, partial payment of a natural obligation does not make it civil; the part paid cannot be received, but
payment of the balance cannot be enforced.
TOLENTINO: Obligations which are contrary to morals and good customs do not constitute natural obligations, and, therefore,
whatever is paid under such obligations can be recovered without prejudice to the provision of Art. 1411, 1412 and 1414
Reasons for regulation of natural obligations The specified cases of natural obligation recognized by the NCC, there is a moral
but not a legal duty to perform or pay, but the person thus performing or paying feels that in good conscience he should comply with
his undertaking which is based on moral grounds.
Art. 1424. When a right to sue upon a civil obligation has lapsed by extinctive prescription, the obligor who voluntarily performs the contract
cannot recover what he has delivered or the value of the service he has rendered.
PROBLEM: A borrowed from B P1000 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 P1000 on the ground that 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?
ANSWER: A will not succeed in collecting the P1000 if he sues B in court. The case is expressly covered by Art. 1424 of the CC
which declares that when a right to sue upon a civil obligation has lapsed by extinctive prescription, the obligor who voluntarily
performs the contract cannot recover what he has delivered or the value of the service he has rendered. Because of extinction
prescriptive, the obligation of A to pay his debt of P1000 to B became a natural obligation. While it is true that a natural obligation
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Atty. Castillo
cannot be enforced by court action, nevertheless, after voluntary fulfillment by the obligor, under the law, the oblige is authorized to
retain what has been paid by reason thereof.
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.
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 the he has not been
benefited thereby, there is no right to demand the thing or price thus returned.
TOLENTINO: After a degree of annulment of a contract, the parties are generally bound to make mutual restitution. When the
ground for annulment is the incapacity of the plaintiff, he is not bound to make restitution except to the extent that he was benefited. If
there was no benefit derived by the incapacitated person from the thing received by him from the other party, he is not legally obliged
to make restitution. However, he has a natural obligation to do sol hence under this article, if he voluntarily makes restitution, he
cannot recover what he has delivered, if he is a minor over eighteen years of age. A minor at such age is deemed to have sufficient
mental and moral development to be aware of his debt of conscience.
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. (1160A)
TOLENTINO: This article deals with voluntary payment by a minor over 18 years of age under an annullable contract. There is no
natural obligation in the situation contemplated by this article; the obligation here is a civil obligation, which exists and is enforceable
unless it is set aside or annulled by a competent court in an action for that purpose. It is not the voluntary payment that prevents
recovery under this article, but the fact that the oblige has consumed or spent the thing or money in good faith. It is true that the
contract can be annulled, but until it is so annulled, it exists as a civil obligation
TOLENTINO: The present article simply creates an exception to the general rule of mutual restitution in case the contract is
annulled. Generally, upon the annulment of the contract, the party who contracted with the minor must return whatever he may have
received under the contract; but he is exempted from this obligation to restore, if the payment was made by a minor over 18 years old
and the thing or money paid was consumed or spent by the former in good faith.
TOLENTINO: The good faith of the creditor consists in the belief that the debtor has capacity to deliver the object of the contract. It
must exist at the time when the thing was consumed or the money was spent. The debtor or his legal representative can recover if the
good faith, even if it existed at the time of delivery, has ceased to exist at the time of consumption or spending
TOLENTINO: The code uses the term fungible but what is really meant is consummable
TOLENTINO: Even if the thing delivered is non-consummable, the debtor cannot recover, if the thing is no longer in the possession
of the creditor who has acted in good faith, either because he has alienated it or it has been lost. The right to recover presupposes the
existence of the thing. On the other hand, the alienation in good faith is an exercise of the right of the creditor, and he cannot be held
liable for it; much less, if the thing was lost without his fault.
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.
TOLENTINO: The principle embodied in this article can be generalized so as to include every licit obligation which is unenforceable
because of the lack of proper formalities. One such obligation is voluntarily paid, the debtor cannot recover.
Title IV. - ESTOPPEL (n)
Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved
as against the person relying thereon.
Estoppel 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.
TOLENTINO: Estoppel is a bar which precludes a person from denying or asserting anything to the contrary of that which has, in
contemplation of law, been established as the truth, either by the acts of judicial or legislative officers or by his own deed or
representation, either expressed or implied
TOLENTINO: It concludes the truth in order to prevent falsehood and fraud, and imposes silence on a party only when in conscience
and honesty he should not be allowed to speak.
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Atty. Castillo
o
o
o
o
o
o
o
o
o
o
o
o
o
o
o
TOLENTINO: Whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led another to believe a
particular thing to be true and to act upon such belief, he cannot, in any litigation arising out of such declaration, act or omission, be
permitted to falsify it.
TOLENTINO: The principle of estoppel would step in to prevent one party from going back upon his own acts and representations to
the prejudice of the other party who relied upon them. However, if the act, conduct or representation of the party sought to be estopped
is due to ignorance founded on innocent mistake, estoppel will not arise. A party who has no knowledge of nor gave consent to a
transaction may not be estopped by it.
TOLENTINO: The doctrine of estoppel has its origin in equity and is based on moral right and natural justice.
TOLENTINO: Estoppel cannot be predicated on an illegal act. It is generally admitted that as between the parties to a contract,
validly cannot be given to it by estoppel if it is prohibited by law or is against public policy.
TOLENTINO: Distinguished from waiver:
o
Waiver a voluntary and intentional abandonment or relinquishment of a known right. It carries no implication of fraud. It
involves the act or conduct of only one of the parties
o
Equitable estoppel may arise even where there is no intention on the part of the person estopped to relinquish any
existing right and frequently carries the implication of fraud. It involves the conduct of both parties.
TOLENTINO: Distinguished from ratification:
o
Ratification the party is bound because he intended to be
o
Estoppel he is bound notwithstanding the fact that there was no such intention, because the other party will be prejudiced
and defrauded by his conduct unless the law treats him as legally bound
TOLENTINO: The representation must be intended to influence the other party or, at least, must be such as may reasonably be
supposed to be intended. The representation must be clear and plain. Estoppels cannot be sustained on doubtful inferences.
TOLENTINO an estoppel may arise from the making of a promise, eventhough without consideration, if it was intended that the
promise should be relied upon, and in fact it was relied upon, and if a refusal to enforce it would be virtually to sanction the
perpetuation of fraud or would result in other injustice.
TOLENTINO : the related principles of volenti non fit injuria (consent to injury), waiver and acquiescence, it finds its origin
generally in the equitable notion that one may not change his position and profit from his wrongdoing when he has caused another to
suffer a detriment by relying on his former promises or representations. A promise cannot be the basis of an estoppel if any other
essential element is lacking. Justifiable reliance by or irreparable detriment to the promise are requisite factors.
TOLENTINO: EXAMPLES
Where the plaintiff was induced to buy a promissory note on the representations of the defendant made at the time of the sale that the
note has no legal defect, the defendant cannot later on allege that the note was executed for an unlawful consideration. Defendant
cannot be allowed to go against his own act to the prejudice of the plaintiff.
An employee who accepts an acting appointment without any protest or reservation and having acted thereunder for a considerable
time, cannot later be heard to say that such, appointment is permanent and that, by reason of its being so, he could not be removed,
except for cause.
In one case, the plaintiff manifested that he had no objection to the boring of a well on his lot by the municipal government thereby
leading the latter to believe that it was given the authority to make the necessary drilling. A few days after the work was started,
plaintiff changed his mind and ordered the stopping of the work. It was held that he was estopped from revoking the authority he gave
the municipality without reimbursing the latter for the expenditure incurred upon the strength of said authority.
A husband who has connived with his wife to conceal her civil status, so as to induce her parents to believe that she was still single, is
estopped to assert her true civil status in an action to invalidate a deed of some of her property in favor of her father.
Where the government could have collected a tax but without action upon the specific request of the taxpayer, the latter will not be
permitted later to raise the defense of the statute of limitations. He who prevents a thing from being done may not avail himself of the
non-performance which he himself has occasioned.
One who petitions the court for an early union election cannot afterwards be heard to claim, after an election was actually held
wherein the other partys ticket won, that said election is null and void because of a policy of the Ministry of Labor that the term of
union officers should be three years and not less
A party is also estopped, on grounds of public policy, from invoking the plea of lack of jurisdiction after submitting himself to the
jurisdiction of the court and assailing its jurisdiction only after an adverse judgment was rendered against him. A party cannot invoke
the jurisdiction of a court to secure affirmative relied and after failing to obtain such relief, repudiate or question that same jurisdiction
When the vendor of a piece of land, after failure of the vendee to pay some installments, advised the latter that the contract was
cancelled and that the vendee was relieved of his obligation there under, leading the latter to believe this to be so and act upon such
belief, it was held that such vendor cannot later be allowed to enforce the contract.
ADMISSION a party may be estopped to insist upon a claim, assert an objection, or take a position which is inconsistent with an
admission which he has previously made and in reliance upon which the other party has changed his position.
Where one admits in a will that a certain property belonging to his son to a 3 rd person, said testator was estopped from claiming the
same lot from the vendee on the ground that his son had sold the same lot to him a month after said testator made the will.
But the doctrine of estoppel does not extend in favor of whose who are charged with notice of the true facts or of facts and
circumstances which, through due diligence and ascertainment, could have unerringly disclosed those true facts in connection with
which the representation was made and, if he fails to do so intentionally closes his eyes to the ascertainment of the ultimate truth, he
cannot later on be heard to say that he was led to believe what has been represented to him
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Atty. Castillo
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.
1.
2.
1.
2.
3.
2 kinds of estoppel:
Estoppel in pais (by conduct)
Estoppel by deed
3 kinds of estoppel by the Supreme Court:
Estoppel in pais
Estoppel by deed or by record technical estoppel
Estoppel by laches
Estoppel in pais or by conduct is that which arises 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.
o
TOLENTINO: Estoppel in pais and equitable estoppel are now generally used interchangeably as applicable to all estoppels
which are not by record or bu deed
o
TOLENTINO: Essential elements in relation to the party sought to be estopped are:
1.
Conduct amounting to false representation or concealment of material facts, or at least calculated to convey the impression that
the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert
2.
Intent, or atleast expectation that this conduct shall be acted upon by, or atleast influence, the other party
3.
Knowledge, actual or constructive, of the real facts
o
TOLENTINO: As related to the party claiming the estoppel, the essential elements are:
1.
Lack of knowledge or of the means of knowledge of the truth as to the facts in question
2.
Reliance, in good faith, upon the conduct or statements of the party to be estopped
3.
Action or inaction base thereon of such character as to change the position or status of the party claiming the estoppel, to his
injury, detriment or prejudice.
Estoppel by silence or inaction 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. (example is Art. 1437)
o
TOLENTINO: one who is silent when he sought to speak will not be heard to speak when he ought to be silent
o
TOLENTINO: Mere innocent silence will not work an estoppel. There must also be some element of turpitude or negligence
connected with the silence by which another is misled to his injury. But one who invokes this doctrine of estoppel must show not
only unjustified inaction but also some unfair injury would result to him unless the action is held barred.
o
TOLENTINO: Estoppel by acquiescence closely related to estoppel by silence. In this kind, a person is prevented from
maintaining a position inconsistent with one in which he has acquiesced
Thus, when the owner of a piece of land merely keeps silent and makes no objections, although he knows that a
railroad corporation has entered upon his land without authority and is constructing a railway therein, he cannot later
on recover his land or prevent its use by the railroad after the railway is completed at much expense
Estoppel by acceptance of benefits refers to a type of estoppel in pais which arises when a party by accepting benefits derived from
a certain act or transaction, 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 (example Art. 1438)
Estoppel by deed or by record (2 distinct types of technical estoppel)
Estoppel by deed 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 privies any right or title in derogation of the deed, or from denying any material fact
asserted therein.
Estoppel by record defined as a type of technical estoppel by virtue of which a party and his privies are precluded from denying the
truth of matters set forth in a record whether judicial or legislative. ( TOLENTINO EXAMPLE: conclusiveness of a judgment on the
parties to a case
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
o
Merely a type of estoppel by record.
o
It may be defined as the preclusion of a party to a case from denying the facts adjudicated by a court of competent
jurisdiction.
o
Different from res judicata
o
Estoppel by judgment bars the parties from raising any question that might have been put the issue and decided in the
precious litigation
o
Res judicata makes a judgment conclusive between the same parties as to the matter directly adjudged.
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Atty. Castillo
Estoppel by laches a type of equitable estoppel which arises when 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 that the former would assert such rights, has
become so changed that he cannot without injury or prejudice, be restored to his former state.
o
Laches is failure or neglect, for an unreasonable and unexplained length of time, to do that 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 that the party entitled to assert it either has abandoned it or declined to assert it.
o
Basis of doctrine of laches or of state demands based upon grounds of public policy which requires, for the peace of
society, the discouragement of state claims and, unlike the statute of limitations, is not a mere question of time but is
principally a question of the inequity or unfairness of permitting a right or claim to be enforced or asserted.
o
4 essential elements of the doctrine of laches:
1.
Conduct on the part of the dependant, 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 complainants rights, the complainant having had knowledge or notice, of the defendants conduct
and having been afforded an opportunity to institute a suit
3.
Lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his
suit
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.
o
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
o
Rodriguez vs. Rodriguez where the plaintiff, in 1934, sold 2 fishponds to a daughter by a previous marriage, and the
latter, in turn, sold the same fishponds to her mother and stepfather for the purpose of circumventing the legal prohibition
against donations between spouses thus 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 that the doctrine of laches is
applicable.
o
Miguel vs. Catalino the father of the plaintiffs, a non-Christian, sold a parcel of land to the father of the defendants 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 suit now barred by laches?
According to the SC, the suit is now barred by laches. Even granting plaintiffs proposition that no prescription lies against
their fathers recorded title, their passivity and inaction for more than 34 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.
o
The doctrine has been applied to actions for reconveyance of property held in constructive or implied trust
o
Thus, where some of the co-heirs were able, through fraud, to register a large tract of land in their names in 1937, while it
is very true that the principle is that if property is acquired through fraud, the person obtaining it is considered a trustee of
an implied trust for the benefit of the person from whom the property comes 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 that the doctrine of
laches is applicable. In other words, the action is already barred.
Laches distinguished from prescription:

LACHES
PRECRIPTION
Concerned with the effect of delay
Concerned with the fact of delay
Principally a question of inequity of permitting a claim to be enforced, Is a question or matter of time
this inequity being founded on some changes in the condition of the
property or the relation of the parties
Not statutory
Statutory
Applies in equity
Applies to law
Not based on fixed time
Based on fixed time
TOLENTINO: Since estoppel is founded on ignorance, and everyone is conclusively presumed to know the law, want of knowledge
of the law cannot be the basis of estoppel
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.
Read case Bucton vs. Gabar - p.630
TOLENTINO: An action for the recovery of some parcels of land was brought by plaintiff on the ground that when his father sold the
said parcels to the defendant his father was not yet the owner of said parcels of land, having obtained the title thereto only after the
sale. It was held that although plaintiffs father did not obtain title to the land until some years after he had sold such land, his
subsequent acquisition of the land would have the effect of making his conveyance of the same to defendant valid. A person who sells
property when he did not have title to it, cannot deny validity to the sale after he has acquired title. The vendee is also deemed a
purchaser in good faith.
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Atty. Castillo
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.
TOLENTINO: Estoppel of tenant a tenant will not be heard to dispute his landlords title. One a contract of lease is shown to exist
between the parties, the lessor cannot be compelled to prove his title thereto. The tenant cannot deny the title of his landlord at the
time of the commencement of the relation of landlord and tenant between them.
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 wrongful 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.
TOLENTINO: Estoppel Against Owner the title of land or real property may pass by an equitable estoppel, which is effectual to
take the title to land from one person and vest it in another where justice requires that such an action be done.
o
Where the owner of real property holds out another as the owner thereof, or with knowledge of his own title, allows the
latter to represent himself as the owner having full power of disposition over the property, and innocent 3 rd persons are led
into dealing with such person with apparent title, the true owner cannot, to the prejudice of such 3 rd persons, nullify the act
of the apparent owner
Art. 1438. One who has allowed another to assume apparent 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.
TOLENTINO: Estoppel from Benefits refers to a case where the owner of personal property has allowed another to assume
apparent ownership of the thing for the purpose of making any transfer of it, and the latter pledges it to a 3 rd person who receives the
same in good faith and for value. The owner is precluded from setting up his own title to defeat the pledge of the property if he
received the sum for which the pledge has been constituted. The receipt of the sum for which the pledge has been made, stops the
party benefited from questioning the validity and effectiveness of the matter or transaction.
o
This estoppel is based upon the acceptance and retention by one having knowledge of the facts of the benefits from a
transaction which he might have rejected. It is said that the case is referable, when no fraud is involved, to the principles of
ratification rather than to those of equitable estoppel. The result produced is the same and the distinction is usually not
made
o
One who voluntarily clothed a person with apparent authority to negotiate some quedans upon which a bank relied, cannot
deny the authority of the apparent agent and the validity of the title of the bank
1439.
Estoppel
is
effective
only
as
between
the
parties
thereto
or
their
successors
in
interest.
TOLENTINO: An estoppel operates on the parties to the transaction out of which it arises and their privies.
o
A stranger to a transaction is neither bound by, nor in a position to take advantage of, an estoppel arising therefrom. If
anybody at all may be heard to challenge the application of the doctrine of estoppel, it is only the party against whom it
may be invoked. An estoppel binds privies in blood, like heirs and in estate, like guarantees
o
The reason for the rule is that mutuality is an essential element of an estoppel; an estoppel must bind both parties or neither
is bound. Thus, in a sale, only the vendors and vendees are chargeable with misrepresentation as against each other
o
The government is not estopped by mistake or error on the part of its officials or agents, the erroneous application and
enforcement of the law by public officers does not prevent a subsequent correct application of the statute.
Title V. - TRUSTS (n)
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.
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Atty. Castillo
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.
Art. 1442. The principles of the general law of trusts, insofar as they are not in conflict with this Code, the Code of Commerce, the Rules of Court
and special laws are hereby adopted.
CHAPTER 2
EXPRESS TRUSTS
Art. 1443. No express trusts concerning an immovable or any interest therein may be proved by parol 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 appointed declines the designation, unless the contrary should appear 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.
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 paid 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 its is
paid. The latter may redeem the property and compel a conveyance thereof to him.
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 is contemplated.
Art. 1454. If an absolute conveyance of 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.
Art. 1457. An implied trust may be proved by oral evidence.
Page 119

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OBLIGATIONS and CONTRACTS REVIEWER

From the book of Jurado and Tolentino

Only covers civil obligations

Requisite of Obligations (4):

Classification of Obligations according to Sanchez Roman

Natural when the obligation is in accordance with natural law.

Civil when the obligation is in accordance with Positive law.

Mixed both natural and positive law

Unilateral and Bilateral

Unilateral only one party is bound

Bilateral both parties are mutually and reciprocally bound

Individual and collective

Individual one obligor

Collective several obligors

Determinate and Generic

Determinate the object is specific

Generic object is designated by class or genus

Simple and Multiple

Simple only one undertaking

Multiple several undertakings

Alternative obligor is allowed to choose out of several obligations which

Made by: Roselle Casiguran

OBLIGATIONS and CONTRACTS REVIEWER

Facultative - obligor is allowed to substitute another obligation for one

Positive and negative

Positive obligor is obliged to give or do something

Negative obligor must refrain from giving or doing something

Real and Personal

Real obligation consists in giving something

Personal obligation is doing / not doing

Possible and Impossible

Possible capable of fulfillment

Divisible and indivisible

Divisible obligation is susceptible of partial performance

Principal and Accessory

Principal main undertaking

Accessory merely an undertaking to guarantee the fulfillment of the principal obligation

Conditional subject to condition

Resolutory the h/f results in the extinguishment of the obligation

With a term of period (a plazo)

Art. 1157. Obligations arise from:

Made by: Roselle Casiguran

OBLIGATIONS and CONTRACTS REVIEWER

As a rule, contracts are perfected by mere consent. (Consensual Contracts)

Obligation may either be Reciprocal or unilateral.

Reciprocal O. mutually or reciprocally obliged to do or give something

Unilateral O. only one party is obliged

Every person liable for a felony is also civilly liable.

2 aspects of crime: criminal and civil

Enforcement of Civil Liability:

Made by: Roselle Casiguran

OBLIGATIONS and CONTRACTS REVIEWER

Suspension by reason of pre-judicial question

Guardians minors/ incapacitated persons

Teachers or heads of establishments of arts and trade pupils/students/apprentices in their custody

DEFENSE: diligence of a good father

The fault or negligence of the defendant

The damage suffered or incurred by the plaintiff

Made by: Roselle Casiguran

OBLIGATIONS and CONTRACTS REVIEWER

Affect the public interests; wrong against the state

Private concerns; wrong against the individual