University of the Philippines

College of Law
Law 101: Obligations and Contracts
Course Outline1
Contact Information:

rodolfowagajr@yahoo.com
+639178130772

Attendance Requirement:

College of Law rules on attendance shall be strictly applied.

Assessment:

(1) Class Participation

(2) Midterm examination
(3) Final Exam

Textbook:

30%
30%
40%

Tolentino, Civil Code of the Philippines, Vol. IV

PART ONE: OBLIGATIONS

1. General Provisions
Definition (Article 1156, Civil Code)
Elements

Active Subject
Passive Subject
Object or Prestation
Efficient Cause or Juridical Tie

Natural Obligations
Definition (Art. 1423, CC)
Examples (Arts 1424 to 1430)
Difference between Natural and Civil Obligation (Art. 1423)
Distinguished from Moral Obligations
Villaroel v. Estrada, 71 Phil. 140 (1940)
Fisher v. Robb, 69 Phil 101 (1939)
Conversion to Civil Obligation
By novation
By ratification
Sources of Obligations (Art. 1157)
Law (Art. 1158)
Contracts (Art. 1159, 1305)

1
From Outline of Prof. Mary Rose S. Tan

Quasi-contracts (Art. 1160, 2142)

Kinds:
Negotiorum gestio (Art. 2144)
Solutio indebiti (Art. 2154)
Others (Art. 2164 to 2175)
Delicts or Crime (Art. 1161)
Quasi-delicts (Art. 1162, 2176)
Distinction between crimes and quasi delicts
Vicarious liability (Art. 2180, Art. 218-219, Family Code)
Civil liability arising from crime (Art. 1161; Rule 111, Revised Rules of Criminal
Procedure)
Barredo v. Garcia, 73 Phil 607 (1942)
Mendoza v. Arrieta, 91 SCRA 113 (1975)
2. Nature and Effects of Obligations
Kinds of Prestation
To give
Specific thing
To preserve the thing (Art. 1163)
To deliver the accessions and accessories (Art. 1166)
To deliver the fruits (Art. 1164, par. 1)
To deliver the thing itself (Art. 1244)
Generic thing (Art. 1246)
To do (Art. 1244)
Not to do (Art. 1244)
Breach of Obligation
Concept
Velarde et al. v. Court of Appeals, 361 SCRA 56 (2001)
Angeles v. Calasanz, 135 SCRA 323 (1985)
Delta Motor Corporation v. Genuino, 170 SCRA 29 (1989)
Vermen Realty v. Court of Appeals, 224 SCRA 549 (1993)
Modes of Breach
Delay or mora (Art. 1169)
Mora solvendi
Cetus Development v. Court of Appeals 176 SCRA 72 (1989)
Aerospace Chemical Industries v. Court of Appeals, 315 SCRA 92 (1999)
Santos Ventura Hocorma Foundation v. Santos, 441 SCRA 472 (2004)
Vazquez v. Ayala Corporation, 443 SCRA 231 (2004)
Mora accipiendi (See also Art. 1268)
Villaroel v. Manila Motor Co., Inc., 104 Phil. 926 (1958)

 Compensation morae
Central Bank v. Court of Appeals, 139 SCRA 46 (1985)
Fraud or dolo (Art. 1171) Dolo incidente and dolo causante
Woodhouse v. Halili, 93 Phil. 526 (1953)
Geraldez v. Court of Appeals (1994)
Negligence (Art. 1172, 1173)
- culpa v. dolo
- culpa aquiliano v. culpa contractual
- standard of care required
Gutierrez v. Gutierrez, 56 Phil. 177 (1932)
Vasquez v. Borja, 74 Phil. 560 (1944)
De Guia v. Manila Electric Corporation, 40 Phil. 706 (1920)
US v. Barias, 23 Phil 434 (1912)
Sarmiento v. Sps. Cabrido, 401 SCRA 122 (2003)
Crisostomo v. Court of Appeals, 409 SCRA 528 (2003)
Contravention of the tenor (Art. 1172)
Chaves v. Gonzales, 32 SCRA 547 (1970)
Telefast v. Castro, 158 SCRA 445 (1988)
Arrieta v. NARIC, 10 SCRA 79 (1964)
Magat v. Medialdea, 206 Phil 341 (1983)
Remedies in case of breach
1. Performance
Specific performance (art. 1165; Section 10, Rule 39, Rules of Court)
Substituted performance
- in an obligation to give generic thing (Art. 1165, par. 2)
- undoing of poor work in an obligation to do (Art. 1167)
Chaves v. Gonzales, 32 SCRA 547 (1970)
Tanguilig v. Court of Appeals, 266 SCRA 78 (1997)
- undoing in an obligation not to do (Art. 1168)
2. Rescission (Art. 1191-1192)
3. Damages (Art. 1170)
Subsidiary Remedies of Creditor
1. Accion Subrogatoria (Art. 1177)

2. Accion Pauliana (Art. 1177; 1381, par. 3)

Khe Hong Cheng v. Court of Appeals, 355 SCRA 701 (2001)
Siguan v. Lim, 318 SCRA 725 (1999)
3. Other Specific Remedies (Art. 1652, 1729, 1608, 1893)
Fortuitous Event (Art. 1174)
1. Effect: Extinguishment of Liability
2. Exception to Extinguishment (Art. 1174, 1165 par. 3, 552, 1942, 1979, 2001, 2147)
Juan Nakpil & Sons v. Court of Appeals, 144 SCRA 597 (1986)
Republic v. Luzon Stevedoring Co., 21 SCRA 279 (1967)
Dioquino v. Laureano, 33 SCRA 65 (1970)
Austria v. Court of Appeals, 39 SCRA 527 (1971)
National Power Corporation v. Court of Appeals, 161 SCRA 334 (1988)
Yobido v. Court of Appeals, 281 SCRA 1 (1997)
Bacolod-Murcia Milling v. Court of Appeals, 182 SCRA 24
Philcomsat v. Globe Telecom, 430 SCRA (2004)
Usurious Transactions (Art. 1175, 1413, 1961)
PD 858; PD 1685; Central Bank Circular 416
Monetary Board Circular No. 905; No. 2209
Monetary Board Circular No. 799, Series of 2013
Eastern Shipping Lines v. Court of Appeals, 234 SCRA 781 (1994)
Nacar v. Gallery Frames, G.R. No. 189871, August 13, 2013
Macalinao v. Bank of the Philippine Islands, G.R. No. 175490, September 17, 2009
Sps. Florentino T. Mallari and Aurea V. Mallari v. Prudential Bank of the Philippines, G.R.
No. 197861, June 5, 2013
Crismina Garments v. Court of Appeals, 304 SCRA 356 (1999)
Keng Hua Products v. Court of Appeals, 286 SCRA 257 (1998)
Security Bank v. Regional Trial Court Makati, 263 SCRA 453 (1996)
Almeda v. Court of Appeals, 256 SCRA 292 (1996)
First Metro Investment v. Este del Sol, 369 SCRA (2001)
3. Different Kinds of Obligations
Pure and Conditional Obligations
Pure Obligations (Art. 1179, par.1)
Conditional Obligations (Art. 1181)
- Concept
- Condition v. Period or Term
Gaite v. Fonacier, 2 SCRA 830 (1961)
Gonzales v. Heirs of Tomas and Paula Cruz, 314 SCRA 585 (1999)

 Kinds of Conditions
a. As to the effect on the obligation (Art. 1181)
Gonzales v. Heirs of Tomas and Paula, supra
i. Suspensive Condition or Condition Precedent
Retroactive effect when condition is fulfilled (Art. 1187)
Coronel v. Court of Appeals and Alcaraz, 263 SCRA 15 (1996)
Sps. Nameal and Lourdes Bonrostro v. Sps. Juan and Constancia Luna, G.R. No. 172346,
July 24, 2013
Rights of the creditor and debtor before fulfillment of the condition (Art. 1188)
ii. Resolutory Condition or Condition Subsequent
Parks v. Province of Tarlac, 49 Phil. 142 (1927)
Central Philippine University v. Court of Appeals, 245 SCRA 511 (1995)
Quijada v. Court of Appeals, 299 SCRA 695 (1998)
b.
i.

As to the cause or origin (Art. 1182)

Potestative
Effect of fulfillment of condition depends solely on the wall of the debtor
Debtors promise to pay when he can is not a condition (Art. 1180)

Lao Lim v. Court of Appeals, 191 SCRA 150 (1990)

ii. Causal
Naga Telephone Co. v. Court of Appeals, 230 SCRA 351 (1994)
iii. Mixed
Hermosa v. Longora, 93 Phil. 971 (1953)
Smith Bell v. Matti, 44 Phil. 875 (1922)
Rustan Pulp and Paper Mills, 214 SCRA 665 (1993)
Romero v. Court of Appeals, 250 SCRA 223 (1995)
c. As to possibility (Art. 1183)
Roman Catholic Archdiocese of Manila v. Court of Appeals, 198 SCRA 300 (1991)
d.

As to mode: positive or negative (Art. 1184-1185)

Rules in case of loss, deterioration or improvement pending the happening of the condition (Art.
1189-1190)

Heirs of Timoteo Moreno v. Mactan Cebu International Airport Authority, 413 SCRA 502
(2003)
1. Definition of loss, deterioration and improvement
2. Effect of loss or deterioration
Without debtors fault
With debtors fault
3. Effect of improvement
By nature or time
Due to debtors effort and expanse
Effect of prevention of the fulfillment of the condition by the obligor (Art. 1186)
Herrera v. Leviste, 135 SCRA 129 (1985)
Carlos Lim, et al. v. Development Bank of the Philippines, G.R. No. 177050, July 1, 2013
iii. Reciprocal Obligations
a. Concept
b. Alternative remedies of injured parties on case of breach
i. Action for specific performance
Effect when fulfillment no longer possible
ii. Action for rescission
Requisites
How made
Effects
Song Fo v. Hawaiian Philippines, 47 Phil. 821 (1925)
Boysaw v. Interphil Promotions, 148 SCRA 365 (1987)
University of the Philippines v. de los Angeles, 35 SCRA 365 (1989)
De Erquiaga v. Court of Appeals, 178 SCRA 1 (1989)
Angeles v. Calasanz, 135 SCRA 323 (1985)
James G. Ong v. Court of Appeals, 310 SCRA 1 (1999)
Iringan v. Court of Appeals, 366 SCRA 41 (2001)
Visayan Saw Mill v. Court of Appeals and RJ Trading, 219 SCRA 378 (1993)
Deiparine v. Court of Appeals and Trinidad, 221 SCRA 503 (2003)
Grace Park Engineering Co. Inc v. Dimaporo, 107 SCRA 266 (1981)
Roque v. Lapuz, 96 SCRA 741 (1980)
Suria v. Intermediate Appellate Court, 151 SCRA 661 (1987)
(Art 1786, 1788, 1484-86, Republic Act No. 6552)
iv. Obligations with a Period
a. Compare Period/Term v. Condition
b. Kinds of Period

i.
ii.
iii.
iv.

As to effect
Suspensive (Art. 1193, par. 1)
Resolutory (Art. 1193, par. 2)
As to expression
Express
Implied
As to definiteness
Definite
Indefinite
As to source
Voluntary
Legal
Judicial

c. Rules in case of loss, deterioration or improvement before arrival of the period (Art. 1194
and 1189)
d. Effect of Payment in Advance (Art. 1195, 1197, par. 3)
e. Benefit of Period (Art 1196)
i.

ii.
iii.

For whose benefit

Creditor
Debtor
Both
Effects
Presumption (Art. 1196)

Lachica v. Araneta, 47 Official Gazette No. 11, 5699 (1949)

Ponce de Leon v. Syjuco, 90 Phil 311 (1951)
Buce v. Court of Appeals, 332 SCRA 151 (2000)
iv.

When debtor loses right to make use of period (Art. 1198)

f. When Court May Fix a Period

i.
Period is implied
ii.
Period depends on sole will of the debtor
Araneta v. Philippine Sugar Estate Development Co., 20 SCRA 330 (1967)
Central Philippine University v. Court of Appeals, supra.
Deudor v. J.M. Tuason, 2 SCRA 129 (1961)
v. Alternative Obligations
a.
b.
c.

Concept (Art. 1199)

Right of Choice (Art. 1200)
Effect of Notice of Choice
7

d.
e.
f.

When Notice Produces Effect (Art. 1201)

Effect of loss or impossibility of one or all prestations (Art. 1202 to 1205)
Facultative Obligation (Art. 1206)
i. Concept
ii. Distinguished from Alternative Obligations
iii. Effect of Substitution

vi. Joint and Solidary Obligations

a.

Joint Obligations
i. Concept
Requisites
Words used to indicate joint obligations
ii. Presumption (Art. 1207, 1208)
iii. Effects (Art. 1207, 1208)
Extent of liability to debtor
Extent of right of creditor
In case of novations, compensation, confusion (Art. 1277) or remission

b.

Solidary Obligations
i. Concept
Requisites
Words to indicate solidary obligations
ii. Kinds
As to source (Art. 1208)
o Legal (Art. 1915, 1945, 2194, Art. 119 of RPC)
o Conventional
o Real
As to parties bound
o Active
o Passive
o Mixed
As to uniformity
o Uniform
o Varied/non-uniform (Art. 1211)

Ynchausti v. Yulo, 34 Phil. 978 (1916)

Inciong v. Court of Appeals, 257 SCRA 578 (1996)
RCBC v. Court of Appeals, 178 SCRA 739 (1989)
Lafarge Cement Phil. v. Continental Cement, 443 SCRA 522 (2004)
iii. Effects
Solidary creditor in relation to:

o Common debtor
! Right to demand (Art. 1214-1216; 1217, par. 1)
! In case of novation, compensation, confusion, remission by a
creditor (Art. 1215, par. 1)
o Solidary co-creditors
! In case of novation, compensation, confusion, remission by a cocreditor (Art. 1215, par. 2)
! Prejudicial acts prohibited (Art. 1212)
! Assignment of rights not allowed (Art. 1213)
Solidary debtor in relation to:
o Common creditor
! Obligation to perform (Art. 1207)
! In case of novation, compensation, confusion, remission by a
creditor (Art. 1215, par. 1)
o Solidary co-debtor
! In case of payment by co-debtor (Art. 1217-1220)
! In case of fortuitous event (Art. 1221)
Jaucian v. Querol, 38 Phil. 718 (1918)
Rehabilitation Finance Corporation v. Court of Appeals, Official Gazette No. 6, p. 2467
Quiombing v. Court of Appeals, 189 SCRA 325 (1990)
Inciong v. Court of Appeals, 257 SCRA 578 (1996)
iv. Defenses Available to a Solidary Debtor Against the Creditor (Art. 1222)
Types
o Those derived from the nature of the obligations
o Personal defenses
o Defenses pertaining to his shares
o Those personally belonging to the other co-debtors
Effects
Ynchausti v. Yulo, supra.
Alipio v. Court of Appeals, 341 SCRA 441 (2000)
c.

Joint Indivisible Obligations

i. Concept
Distinguished from joint obligations
Distinguished from solidary obligations
ii. Indivisibility distinguished from solidarity (Art. 1210)
iii. Effects (Art. 1209, 1224)

vii. Divisible and Indivisible Obligations

a.

Divisible Obligations
i. Concept
ii. Effects (Art. 1223, 1233)

b.

Indivisible obligations
i. Concept: distinguished from solidary obligations
ii. Kinds
Natural (Art. 1225, par. 1)
Legal (Art. 1225, par. 3)
Conventional (Art. 1225, par. 3)
iii. Presumptions of divisibility and indivisibility (Art. 1225)
iv. Divisibility and indivisibility in obligations not to do (Art. 1225, par. 3)
v. Effects (Art. 1223, 1224)
vi. Cessation of Indivisibility

viii.

Obligations with Penal Clause

Concept

Kinds of Penal Clause

Principal v. Accessory Obligation

Distinguished from conditional obligations
Distinguished from alternative obligations
Distinguished from facultative obligations
Distinguished from guaranty

As to effect
o Subsidiary
o Complimentary
As to source
o Conventional
o Legal
As to purpose
o Punitive
o Reparatory

Demandability of Penalty (Art. 1226, par. 2)

Effects of Penal Clause: General Rule and Exceptions

Substitute for indemnity for damages and payment of interest (Art. 1226)
10

Makati Development Corp. v. Empire Insurance Co., 20 SCRA 557 (1967)

Tan v. Court of Appeals, 367 SCRA 571 (2001)
Country Bankers Insurance v. Court of Appeals, 201 SCRA 458 (1991)

Not exempt debtor from performance (Art. 1227)

Creditor cannot demand both performance and penalty at the same time (Art.
1227)

Creditor cannot collect other damages in addition to penalty (Art. 1226)

When Penalty shall be equitable reduced (Art. 1229)

Nullity of Principal Obligation of Penal Clause (Art. 1230)

4. Extinguishment of Obligations (Art. 1231)

Payment or Performance (Art. 1232)
Concept (Art. 1232)
Requisites

Who can pay

General Rule
Exceptions:
o Third person who is an interested party; effects (Art. 1302[3])
o Third person who is not and interested party but with the consent of debtor (Art.
1302 [2], 1236, par.1)
o Third person who is not an interested party and without the consent of the
debtor, without the knowledge or against the will of the debtor (Art. 1236, par.
2; Art. 1237, 1236, par. 1)
o Third person who does not intend to be reimbursed (Art. 1238)
In an obligation to give (Art. 1239, 1427)
In case of active solidarity (Art. 1214)

To whom payment can be made

General Rule
Exceptions:
a.
b.
c.
d.

Incapacitated person (Art. 1241, par. 1)

Third person (Art. 1241, par. 2
When proof of benefit not required (Art. 1241, par. 3; Art. 1242
In case of active solidarity (Art. 1214)
11

What is to be paid (Identity)

General Rule
Specific cases:
a. To give a specific thing (Art. 1244)
b. To give a generic thing (Art. 1246)
c. To pay money (Art. 1249, 1250; R.A. 4100, R.A. 8183)

Arrieta v. NARIC, supra

Kalalo v. Luz, 34 SCRA 377 (1970)
St. Paul Fire and Marine Insurance v. Macondray, 70 SCRA 122 (1976)
Papa v. A.V. Valencia, 284 SCRA 643 (1998)
Philippine Airlines v. Court of Appeals, 181 SCRA 557 (1990)
Payment of Interest (Art. 1956)
Carlos Lim, et al. v. Development Bank of the Philippines, G.R. No. 177050, July 1, 2013

How payment is to be made (Integrity)

General Rule (Art. 1233)
1. Partial payment is not allowed; exceptions (Art. 1248)
2. Substantial performance in good faith (Art. 1234)
3. Estoppel (Art. 1235)
4. Presumption in payment of interests and installments (Art. 1176)

When payment is to be made

General Rule (Art. 1169)
No demand, no delay; Exceptions

Where payment is to be made

Place expressly designated (Art. 1251, par. 1)
When place of payment is not expressly designated (Art. 1251, par. 2 to 4)

Who pays for expenses for making payment (Art. 1247)

iii. Application of Payments

Concept (Art. 1252)
Reparations Commission v. Universal Deep Fishing, 83 SCRA 764 (1978)
Paculdo v. Regalado, 345 SCRA 134 (2000)

12

Requisites

Rules in Application of Payments (Art. 1252-1253)

If rules are not applicable or cannot be inferred (Art. 1254)
Meaning of the most onerous debtor

iv. Payment by Cession

Concept (Art. 1255)
Requisites
Effects
Compared to Assignment of Receivables
v. Dation in payment
Concept (Art. 1245)
Distinguished from Payment by Cession
Development Bank of the Philippines v. Court of Appeals, 284 SCRA 14 (1998)
Requisites
Effects
Filinvest Credits Corporation v. Philippine Acetylene, 111 SCRA 421 (1982)
vi. Tender of Payment and Consignation

Tender of Payment
Concept
Requisites

Consignation
Concept and Purpose
Requisites
o When tender and refusal not required (Art. 1256, par. 2)
o Two notice requirement (Art. 1257, par. 1; Art. 1258, par. 2); Effects of noncompliance
Effects (Art. 1260, par. 1)
o Withdrawal by debtor before acceptance by creditor or approval of court (Art.
1260, par.2)
o Withdrawal by debtor after proper consignation (Art. 1261)
! With creditor approval
! Without creditor approval
Expenses of Consignation

Sps. Nameal and Lourdes Bonrostro v. Sps. Juan and Constancia Luna, G.R. No. 172346,
July 24, 2013
De Guzman v. Court of Appeals, 144 SCRA 693 (1986)
Soco v. Militante, 123 SCRA 160 (1983)

13

Sotto v. Mijares, 28 SCRA 17 (1969)

Reisenbeck v. Court of Appeals, 209 SCRA 657 (1992)
Rural Bank of Caloocan v. Court of Appeals, 104 SCRA 151 (1981)
Licuanan v. Diaz, 175 SCRA 530 (1989)
Chan v. Court of Appeals, 230 SCRA 685 (1994)
Meat Packing Corp. v. Sandiganbayan, 359 SCRA 409 (2001)
Loss or Impossibility
Loss of Thing Due
Concept (Art. 1189, par. 2)
Kinds
Total
Partial
Requisites (Art 1262)
Presumption (Art. 1266, 1267)
Effects
In an obligation to give a specific thing (Art. 1262, 1268)
In an obligation to give a generic thing (Art. 1263)
In case of partial loss (Art 1264)
Action against third persons (Art.1269)
Impossibility of Performance
Concept (Art. 1266, 1267)
Kinds
Total
Partial
Requisites (Art. 1266)
Effects
In obligations to do (Art. 1266-1267; Art. 1262, par.2)
Impossibility distinguished from difficulty
In case of partial impossibility (Art. 1264)
Occea v. Court of Appeals, 73 SCRA 637 (1976)
Naga Telephone Company v. Court of Appeals, 230 SCRA 351 (1994
PNCC v. Court of Appeals, 272 SCRA 183 (1997)
iii. Condonation or Remission
Concept
Kinds
Total or Partial
Express or implied (Art 1270, par. 1)
Requisites (Art. 1270, par.2)
Yam v. Court of Appeals, 303 SCRA 1 (1999)

14

Presumptions (Art. 1271-1271; 1274)

Effects
In general
In case of joint or solidary obligations
Governing Rules (Art. 1270)
Renunciation of Principal or Accessory Obligation (Art. 1273)
iv. Concept or Merger
Concept
Requisites
Effects
In general (Art 1275)
In case of Joint or Solidary Obligations (Art. 1277)
Confusion in Principal or Accessory Obligations (Art 1276)
v. Compensation

Concept (Art 1278); distinguished from Confusion

Kinds
Total or Partial
Legal
Conventional (Art. 1279, Art. 1282)
Judicial (Art 1283)
Facultative

Legal Compensation
Requisites (Art. 1279-1280): Due distinguished from demandable

Gantian v. Court of Appeals, 28 SCRA 235 (1969)

Bank of the Philippine Islands v. Reyes, 255 SCRA 571 (1996)
Philippine National Bank v. Sapphire Shipping, 259 SCRA 174 (1996)
CKH Industrial Development v. Court of Appeals, 272 SCRA 333 (1997)
Mirasol v. Court of Appeals, 351 SCRA 44 (2001)
Associated Bank v. Tan, 446 SCRA 282 (2004)
Villanueva v. Tantuico, 182 SCRA 263 (1990)
Perez v. Court of Appeals, 127 SCRA 636 (1984)
Silahis Marketing Corp. v. Intermediate Appellate Court, 180 SCRA 21 (1989)
Bank of the Philippine Islands v. Court of Appeals, 255 SCRA__ (1996)
Effects (Art 1290, 1289)
When Compensation is not allowed (Art. 1287 1288)

15

Compensation of Debts Payable in Different Places (Art. 1286)

Effect of Nullity of Debts to be Compensated (Art. 1284)
Effects of Assignment of Credit

With consent of debtor (Art 1285, par. 1)

With knowledge but without consent of debtor (Art 1285, par 2)
Without knowledge of debtor (Art 1285, par.3)

vi. Novation
Concept (Art. 1291)
Change in debtor
Change in object
Change in third person who is surrogated
Change in creditor with its consent or at its instance is not novation
Kinds
As to form: express or implied
As to origin: conventional or legal
As to object
Objective or real
Subjective or personal
Mixed
Requisites (Art. 1292)
Millar v. Court of Appeals, 38 SCRA 642 (1971)
Dormitorio V. Fernandez, 72 SCRA 388 (1976)
Magdalena Estate v. Rodriguez, 18 SCRA 967 (1966)
Reyes v. Secretary of Justice, 264 SCRA 35 ( 1996)
Cochingyan v RB Surety and Insurance, 151 SCRA 339 (1987)
Broadway Centrum Condominium Corporation v. Tropical Hut, 224-SCRA 302 (1993)
Molino v. Security Diners International, 363 SCRA 358 (2001)
Garcia v. Llamas, 417 SCRA 292 (2003)
California Bus Lines v. State Investment, 418 SCRA 297 (2003)
Babst v. Court of Appeals, 350 SCRA 341 (2001)
Effects (Art. 1296)
Effects of the Status of the Original and New Obligation
i.
ii.
iii.

Nullity or voidability of original obligation (Art. 1298)

Nullity or voidability of new obligation (Art. 1297)
Suspensive or resolutory condition or original obligation (Art. 1299)

16

Objective Novation
Subjective Novation
i.

By change of debtor
Expromision
o Requisites (Art. 1293)
o Effects (Art. 1294)
Delegacion
o Requisites (Art. 1293)
o Effects (Art. 1295)

Garcia v. Llamas, 417 SCRA 292 (2003)

Quinto v. People, 305 SCRA 709 (1999)
ii.

By change of creditor subrogation of a third person in the rights of the creditor

(Art. 1300)
Conventional Subrogation
o Requisites (Art. 1301)
o Distinguished from Assignment of Credit
o Effects (Art. 1303 1304)

Licaros v. Gatmaitan, (2001)

Legal Subrogation
o Requisites
o When presumed (Art. 1302)
o Effects (Art. 1303 1304)
Vector Shipping Corporation v. American Home Assurance company and Sulpicio Lines, G.
R. No. 159213, July 3, 2013
Asian Terminals, Inc. v. Philam Insurance Co., Inc. and Asian Terminals, Inc. G. R. Nos.
181163/181262/181319, July 24, 2013

PART TWO: CONTRACTS

I. Introduction

17

A. Concept and Definition (Art. 1305)

B. Classification of Contracts
1. According to subject matter: things or services
2. According to name: nominate and innominate contracts (Art. 1307)
3. According to perfection: by mere consent (Art. 1315) or by delivery of object (Art. 1316)
4. According to its relation to other contracts preparatory; principal; or accessory
Robert Development Corporation, et al. vs. Peoples Landless Association represented by
Florida Ramos, et. al., G.R. No. 173622. March 11, 2013
5.
6.
7.
8.
9.

According to form: informal or formal

According to purpose
According to nature of legal tie created: unilateral, bilateral or reciprocal
Acoording to cause: onerous or gratuitous
According to risk: commutative or aleatory
Dizon v. Gaborro, 83 SCRA 688 (1978)

C. Characteristics
1.

Obligatory Force between the Parties (Art. 1308)

a.

General Rule: Freedom to Contract (Art 1306)

Gabriel v. Monte de Piedad, 71 Phil. 497 (1941)

Pakistan International Airlines v. Ople, 190 SCRA 90 (1990)
b.

Exceptions:
i. When it is inequitable (Art. 1310)
ii. Special disqualifications:
Art. 87, Family Code
Articles 1490 and 1491
Article 1782
iii.

What may not be stipulated

Contrary to Law
a. Pactum commisorium (Art. 2088)
b. Pactum leonine (Art. 1799)
c. Pactum de non alienado (Art. 2130)
d. Other limitations: Labor Code, Corporation Code

Contrary to Morals
Contrary to good customs
Contrary to public order
Contrary to public policy

Cui v. Arellano, 2 SCRA 205 (1961)

Filipinas Compaa de Seguros v. Mandanas, 17 SCRA 391 (1966)

18

Bustamante v. Rosel, 319 SCRA 413 (1999)

c.

Effect of contract as to third parties

i. Performance may be determined by third parties (Art. 1309)
ii. When possession of the object of the contract is with a third person (Art. 1312)
iii. Creditors of contracting parties (Art.1313,1177, 1381)
iv. Interference by third parties (Art. 1314)

Daywalt v. La Corporacion de los Padres Agustinos Recoletos, et. al., 39 Phil. 587 (1919)
So Ping Bun v. Court of Appeals, 314 SCRA 751 (1999)
Lagon v. Court of Appeals, 453 SCRA 616 (2005)
2.

Mutuality (Art. 1308 to 1310; 1473)

GSIS v. Court of Appeals, 228 SCRA 183 (1993)
Professional Academic Plans, Inc. et al. v. Crisostomo, 453 SCRA 342 (2005)

3.

Relativity or Privity of Contracts (Art. 1311)

a.
Contracts take effect only between the parties, their assigns and heirs
Manila Railroad Co. v. La Compania Transatlantica, 38 Phil. 875 (1918)
DKC Holdings Corp. Court of Appeals, 329 SCRA 666 (2000)
Sps. Dela Cruz vs. Planters Products, Inc. G. R. No. 158649, February 18, 2013
b.

No one may contract in the name of another (Art. 1317)

Gutierrez Hermanos v. Orense, 28 Phil. 571 (1914)

c.

Stipulations in favor of third person (Art. 1311, par. 2)

Florentino v. Encarnacion, 79 SCRA 192 (1977)

Coquia v. Fieldmen Insurance Co., 26 SCRA 178 (1968)
Constantino v. Espiritu, 39 SCRA 178 (1968)
Young v. Court of Appeals, 169 SCRA 213 (1989)
Marmont Resort v. Guiang, 168 SCRA 373 (1988)
Mandarin Villa v. Court of Appeals, 257 SCRA 538 (1996)
II. Essential Requisites of Contracts
A.

Consent: Requisites (Art. 1319)

1.

Perfection of Contract: Offer and Acceptance

a. Offer
Must be certain (Art. 1319)
What may be fixed by the offeror (Art. 1321)
When made through an agent (Art. 1322)
When offer becomes ineffective (Art. 1323)
Business advertisements or things for sale (Art. 1325)
19


b.

Advertisements for bidders (Art. 1326)

Acceptance
Must be absolute (Art. 1319)
Kinds:
o Express (Art. 1320)
o Implied (Art. 1320)
o Qualified (Art. 1319)

Period of Acceptance (Art. 1324)

Option contract (Art. 1324)

Sanchez v. Rigos, 45 SCRA 368 (1972)

c.

Termination of Offer

d.

Perfection of Contract
Four theories when contract is perfected:
o Manifestation theory
o Expedition Theory
o Reception Theory
o Cognition Theory (Art. 1319 [2])

Rosentock v. Burke, 46 Phil. 217 (1924)

Malbarosa v. Court of Appeals, 402 SCRA 168 (2003)
San Lorenzo Development Corporation v. Court of Appeals, 449 SCRA 99 (2005)
MMDA v. Jancom, G.R. No. 147465, January 30, 2002
2. Legal Capacity of the Parties
a.
b.
c.

Minors, insane or demented persons, and deaf-mutes who do not know how to write (Art.
1327)
When offer or acceptance is made during a lucid interval, intoxication, during hypnotic spell
(Art 1328)
Corporations (Sections 23 and 36, Corporation Code)

3. Vices of Consent: Consent must be Intelligent, Free, Spontaneous and Real (Art. 1330 to 1346)
a) Mistake or Error
i. Mistake of Fact
As to substance of object
As to principal conditions
As to identify or qualifications of the parties
As to quantity, ad distinguished from simple mistake of account
Heirs of William Sevilla v. Sevilla, 402 SCRA 501 (2003)
Andres v. Manufacturers Hanover and Trust, 177 SCRA 618
Spouses Theis v. Court of Appeals, 268 SCRA 167 (1997)

20

ii.

Mistake or Error of Law

General Rule: Ignorance of the law excuses no one (Art. 3)
Exception: Mutual Error of Law (Art. 1334)

iii.

Mistake when one party is unable to read (Art. 1332)

Hemedes v. Court of Appeals, 316 SCRA 347 (1990)

Lustan v. Court of Appeals, 266 SCRA 663 (1997)
Katipunan v. Katipunan, 375 SCRA 199 (2002)
Leonardo v. Court of Appeals, 438 SCRA 201 (2004)
iv.

Inexcusable mistake (Art. 1333)

b) Violence or Intimidation (Art. 1335)

Martinez v. HSBC, 15 Phil. 252 (1910)
Lee v. Court of Appeals, 201 SCRA 405 (1991)
c) Undue Influence (Art. 1337)
d) Fraud or Dolo (Art. 1338)
Kinds
i.
Dolo Causante (Art. 1338)
ii.
Dolo Incidente (Art 1344 [2])
Hill v. Veloso, 31 Phil. 161 (1915)
Geraldez v. Court of Appeals, 230 SCRA 320 (1994)
Sierra v. Court of Appeals, 211 SCRA 785 (1992)
Failure to Disclose Facts when there is a duty to reveal them (Art. 1339)
Tuason v. Marquez, 45 Phil 381 (1923)
Rural Bank of Sta Maria v. Court of Appeals, 314 SCRA 255 (1999)
Usual exagerrations in trade opportunity to know the facts (Art 1340)
Azarraga v. Gay, 52 Phil. 599 (1928)
Trinidad v. Intermediate Appellate Court, 204 SCRA 524 (1991)
Mere expressions of opinion (Art. 1341); Effects (Art. 1344)
Songco v. Sellner, 37 Phil. 254 (1917)
e) Misrepresentation
i.
ii.

By a third person (Art. 1342)

Made in good faith (Art 1343)
21

iii.

Active or Passive

Mercado v. Espiritu, 37 Phil. 215 (1917)

Braganza v. Villa Abrille, 105 Phil. 456 (1959)
4. Simulation of Contracts
Rodriguez vs. Rodriguez, 28 SCRA 229 (1914)
Suntay v. Court of Appeals, 251 SCRA 430 (1995)
Pangadil et al. v. Court of First Instance, G. R. No. L-32437, August 31, 1982
Umali v. Court of Appeals, G. R. No. 89561, September 13, 1990
a. Kinds: Absolute and Relative (Art. 1345)
b. Effects (Art. 1346)
B. Object
Must be determinate as to its kind (Art. 1379)
What may NOT be objects of contracts (Art. 1347)
a. All things outside the commerce of man
b. All intransmissible rights
c. Those services which are contrary to law, morals, good customs, public order, or
public policy
d. Future inheritance, except when authorized by law
e. Impossible things or services (Art. 1348)
Blas v. Santos, 1 SCRA 899 (1961)
JLT Agro, Inc. v. Balansag, 453 SCRA 211, G. R. No. 141882, March 11, 2005
C. Cause
1. Meaning of Cause (Art. 1350)
a. In onerous contracts
b. In remuneratory contracts
c. In contracts of pure beneficence
2. Distinguished from Motive (Art. 1351)
3. Presumption: Existence and Lawfulness of Cause (Art. 1354)
4. Defective Causes and Effects
a. Absence of Cause or Unlawful Cause (Art. 1352)
b. Statement of False Cause (Art. 1355)
c. Inadequacy of Cause or Lesion (Art. 1355)
Liguez v. Court of Appeals, 102 Phil. 577 (1957)
Carantes v. Court of Appeals, 76 SCRA 514 (1977)
Spouses Buenaventura v. Court of Appeals, 416 SCRA 263
III. Form of Contracts
A. General Rule: Contracts are obligatory in whatever form, provided all essential requisites are
present (Art. 1356)

22

Rodolfo G. Cruz and Esperanza Ibias vs. Atty. Delfin Gruspe, G. R. No. 191431, March 13,
2013.
B. Exception: When the law requires the contract to be in a specific form in order for it to be valid
or enforceable (Art. 1356)
Kind of formalities required by law:
1. For validity (Articles 748, 749, 1874, 2134, 1771, 1773
2. To make it effective as to third parties (Articles 1357 and 1358)
3. For purposes of proving existence of contract (Statute of Frauds in Art. 1403)

Hernandez v. Judge delos Angeles, 27 SCRA 1276 (1969)

Resuena v. Court of Appeals, G. R. No. 128338, March 28, 2005
IV. Interpretation of Contracts
A. Compare with Rules of Statutory Construction
B. Primacy of Intention (Articles 1370, 1372)
Borromeo v. Court of Appeals, 47 SCRA 65 (1972)
Santi v. Court of Appeals, G.R. No. 93625, 227 SCRA 541 (1993)
C. Determining Intention (Art. 1371)
Rapanut v. Court of Appeals, 246 SCRA 323 (1995)
D. Rules of Contract Interpretation
1.

Under the Civil Code

a. When it contains stipulations which admit of several meanings (Art. 1373)
Oil and Natural Gas Commission v. Court of Appeals, G. R. No. 114323, July 23, 1998.
b. When it contains various stipulations, some of which are doubtful (Art 1374)
Spouses rigor v. Consolidated Orix Leasing and Finance Corporation, G. R. 136423, Aug.
20, 2002
c. When it contains words with different meanings (Art. 1375)
d. When it contains ambiguities and omission of stipulations (Art 1376)
Chua v. Court of Appeals, G. R. No. 119255, April 9, 2003
e. With respect to the party who caused the obscurity (Art. 1377)
Rizal Commercial Banking Corporation v. Court of Appeals, G. R. No. 133107, March 25,
1999.
f. When it is impossible to settle doubts using the above-cited rules (Art. 1378)
In gratuitous contracts

23

Gacos v. Court of Appeals, G. R. Nos. 85962-63, Aug 3, 1992

In onerous contracts

g. When doubts are cast upon the principal object so that the true intention cannot be
known (Art. 1378)
2.

Under the Rules of Court (Rule 130, Sections 10 to 19)

V. Reformation of Instruments
A. Requisites (Art. 1359)
1.
2.
3.

Meeting of the minds

True intention of the parties are not expressed in the instrument
Failure to express true intention due to mistake, fraud, inequitable conduct or accident.

Bentir v. Leande, 330 SCRA 591 (2000)

Quiros v. Arjona, G.R. No. 158901, March 9, 2004
B. When Reformation is not allowed (Art. 1366)
C. Implied Ratification (Art. 1367)
D. Who may ask for reformation (Art. 1368)
E. Procedure for reformation (Art. 1369)
Atilano v. Atilano, 28 SCRA 2232 (1969)
Carantes v. Court of Appeals, 76 SCRA 514
Sarming v. Dy, 383 SCRA 131 (2002)
VI. Defective Contracts
A.

Rescissible Contracts
1. Kinds (Art. 1381)
2. Characteristics
a. The defect consists in injury or damage either to one of the contradicting parties to a
third person
b. Contract is valid before rescission
c. Attack may only be direct on, not collaterally
d. Attack maybe done by contracting party or by a third person who is injured or defrauded
e. Validated only by prescription and not by ratification
3. Definition (Art. 1380): Distinguished from Rescission in Art. 1191 (Resolution)
Universal Food Corporation v. Court of Appeals, 33 SCRA 1 (1970)

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Spouses Cannu v. Sps. Galang, G.R. No. 139523, May 26, 2005
Iringan v. Court of Appeals, G.R. No. 129107, September 26, 2001
Rivera v. del Rosario, G.R. No. 144934, January 15, 2004
Equatorial Realty v. Mayfair Theatre, G.R. No. 133879, November 21, 2001
4. Requisites
a. Contract is rescissible
b.

Party asking for rescission has no other legal means to obtain reparation (Art. 1383)

Union Insurance Society of Canton v. Court of Appeals, G.R. No. 100319, August 8, 1996
c.

He is able to return what he may be obliged to restore if rescission is granted (Art. 1385)

Rivera v. del Rosario, G.R. No. 144934, January 15, 2004

5. Effect of Rescission (Art. 1385)
a.
As to third persons who acquired thing in good faith (Art. 1385 [2] and [3])
b.
As to third persons who acquired things in bad faith, when alienation was in fraud of
creditors (Art. 1388)
6. Extent of Rescission (Art. 1384)
Siguan v. Lim, 318 SCRA 725 (1999)
Gotesco Properties, Inc., et al. vs. Sps. Eugenio and Angelina Fajardo, G.R. No. 201167,
February 27, 2013
7. Badges of Fraud (Art. 1387)
Oria v. McMicking, 21 Phil 243 (1912)
Siguan v. Lim, 318 SCRA 725 (1999)
Suntay v. Court of Appeals, 251 SCRA 430 (1995)
China Banking Corporation v. Court of Appeals, G.R. No. 129644, March 7, 2000
MR Holdings Limited v. Carlos, G.R. No 138104, April 11, 2002
B.

Voidable or Annullable Contracts

1. Kinds (Art. 1390)
2. Characteristics
a.
There is a defect in consent of one of the contracting parties
b.
Binding until annulled by a competent court
c.
May be validated by ratification or prescription
Felipe v. Heirs of Aldon, 120 SCRA 628 (1983)
3. Annulment
a.
Distinguished from Rescission
b.
Grounds (Art. 1390)
c.
Who may or may not institute action for annulment (Art. 1397)

25

Singsong v. Isabela Sawmill, 88 SCRA 623 (1979)

Samahan ng Magsasaka sa San Josep v. Valisno, 430 SCRA 629 (2004)
Malabanan v. Gaw Ching, 181 SCRA 84 (1990)
Armentia v. Patriarca, 18 SCRA 1253 (1966)
d.

Prescription (Art. 1391)

Carantes v. Court of Appeals, 76 SCRA 514

e.

Effect: Mutual Restitution (Art. 1398 and 1402)

Cadwallader & Co. v. Smith Bell & Co., 7 Phil 461 (1907)
Velarde et al. v. Court of Appeals, 361 SCRA 56 (2001)
Ines v. Court of Appeals, 247 SCRA 312 (1995)
Arra Realty Corporation v. Guarantee Development Corporation, 438 SCRA 441 (2004)
A. When one of the parties is incapacitated (Art. 1399)
Katipunan v. Katipunan, 375 SCRA 199 (2002)
B. When the thing is lost through the fault of the party obliged to return the same (Art.
1400)
f.

Extinguishment of Action for Annulment

A. By ratification (Art. 1392)
B. When the thing is lost through the fault of the person who has the right to file the
action (Art. 1401)

4. Ratification
a.
Requisites
A. Contract is voidable
B. Ratification is made with knowledge that contract is voidable
C. At the time of ratification, the cause for nullity has already ceased to exist
b.

Forms
A. Express or tacit (Art. 1393)
B. By the parties themselves or by the guardian in behalf of an incapacitated party (Art.
1394)

c.

Effects
A. Action to annul is extinguished (Art. 1392)

Uy Soo Lim v. Tan Unchuan, 38 Phil. 552 (1918)

B. Contract is cleansed retroactively from all its defects (Art. 1396)

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C.

Unenforceable Contracts
1. Characteristics
a.
Valid but cannot be enforced by a proper action in court
b.
Can be ratified
c.
Cannot be assailed by third persons
2. Kinds (Art. 1403)
a.

Unauthorized contracts (Art. 1404)

b.

Contracts covered by Statute of Frauds

A. Purpose of Statute of Frauds

Asia Production Co. Inc. v. Judge Pano, 205 SCRA 458 (1992)
Western Mindanao Co. v. Medalle, 79 SCRA 702 (1977)
Limketkai & Sons v. Court of Appeals, 250 SCRA 523 (1995)
Babao v. Perez, 102 Phil. 756 (1957)
Reiss v. Memije, 15 Phil. 350 (1910)
Villanueva v. Court of Appeals, 267 SCRA 89 (1997)
B. How Ratified (Art. 1405)
Philippine National Bank v. Philippine Vegetable Oil Co., 49 Phil. 857 (1927)
Carbonnell v. Poncio et al, 103 Phil 655 (1958)
First Philippine International Bank v. Court of Appeals, 252 SCRA 259
C. Right of the parties when a contract is enforceable but a public document is
necessary for its registration (Art. 1406)
c.

Contracts executed by parties who are both incapable of giving consent

A. Effect of ratification by the parents or guardian of one of the parties (Art. 1407)
B. Effect of ratification by the parents or guardian of both parties (Art. 1407)

D.

Void or Inexistent Contracts

1. Characteristics
Void from the beginning
Produces no effect whatsoever
Cannot be ratified (Art. 1409)
Tongoy v. Court of Appeals, 123 SCRA 99 (1983)
Cui v. Arellano, 2 SCRA 205 (1961)
Chavez v. Presidential Commission on Good Government, 307 SCRA 372 (1999)
Guiang v. Court of Appeals, 291 SCRA 372 (1998)
Castillo v. Galvan, 85 SCRA 526 (1978)

27

2. Kinds
a.
Void Contracts
A. Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy
When the act constitutes a criminal offense (Art. 1411)
When the act is unlawful but does not constitute a criminal offense (Art. 1412)
o In pari delicto rule
Menchavez v. Teves, 449 SCRA 380 (2005)
Angel v. Aledo and Modales, 420 SCRA 645 (2004)
When the purpose is illegal and money is paid or property delivered therefore
(Art. 1414)
When the contract is illegal and one of the parties is incapable of giving consent
(Art. 1415)
Liguez v. Court of Appeals, 102 SCRA 577 (1957)
Rellosa v. Gaw Cheen Hum, 93 Phil 827 (1953)
When the agreement is not per sel illegal but prohibited (Art. 1416)
Philippine Banking Corporation v. Lui She, 21 SCRA 52 (1967)
Frenzel v. Catito, 406 SCRA 55 (2003)
Acabal and Nicolas v. Acabal, 454 SCRA 555 (2005)
When the amount paid exceed the maximum fixed by law (Art. 1417)
When by virtue of a contract a labourer undertakes to work longer than the
maximum number of hours of worked fixed by law (Art. 1418)
When the contract is divisible (Art. 1420)
When the contract is the direct result of a previous illegal contract (Art. 1422)
B. Those whose object is outside the commerce of man
C. Those which contemplate an impossible service
D. Those where the intention of the parties relative to the principal object of the
contract cannot be ascertained
E. Those expressly prohibited by law
b.

Inexistent Contracts
A. Those which are absolutely simulated or fictitious (Articles 1345 to 1346)

Dr. Lorna C. Formaran v. Dr. Glenda B. Ong and Solomon S. Ong, G.R. No. 186264, July 8,
2013

28

B. Those whose cause or object did not exist at the time of the transaction
3. No waiver of Defense of Illegality (Art. 1409)
4. Action or Defense for the Declaration of the Inexistence of a Contract

No prescription period (Art. 1410)

Not available to third persons not directly affected (Art. 1421)

PART THREE: SPECIFIC EXAMPLES OF OBLIGATIONS

Obligations Created by Law
A.

Estoppel
1.

Definition (Art. 1431)

Kalalo v. Luz, 34 SCRA 337 (1970)

2.

Kinds
a. Technical estoppel
i. By record
ii. By deed (Art. 1433)
b. Equitable estoppel or estoppel in pais (Art. 1433)

3.

Persons Bound (Art. 1439)

Manila Lodge No. 761 Benevolent and Protective Order of the Elks v. Court of Appeals, 73
SCRA 169 (1976)
4.

Application (Art. 1434 to 1438)

Miguel v. Catalino, 26 SCRA 234 (1969)

Read: Annotation 32 SCRA 542
Mendoza v. Reyes and Court of Appeals, G.R. No. L-31618, August 17, 1983
B.

Trusts
1. Definition (Art. 1442)
2. Parties (Art. 1440)
a. Trustor
b. Trustee
c. Beneficiary or cestui que trust
Salao v. Salao, 70 SCRA 168 (1976)
3.

Kinds (Art. 1441)

a. Express trusts
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b.

i. Proof required (Art. 1443)

ii. Form (Art. 1444)
iii. Want of trustee (Art. 1445)
iv. Acceptance by the beneficiary (Art. 1441)
Implied Trusts
i. How established (Art. 1441)
ii. How proved (Art. 1457)
iii. Specific cases (Art. 1448 to 1456)

Fabian v. Fabian, 22 SCRA 231 (1968)

Bueno v. Reyes, 27 SCRA 1179 (1969)
Tamayo v. Callejo, 46 SCRA 27 (1972)
Heirs of Sanjorjo v. Quijano, G.R. No. 140457, January 19, 2005
Aznar Brothers Realty Company v. Aying, G.R. No. 144773, May 16, 2005

30