Crombonds - OBLICON

OBLIGATIONS AND CONTRACTS REVIEWER ATTY. MEL STA.
MARIA CROMBONDS 2011-2012

TITLE. IV. – PRESCRIPTION 2
Chapter 1: General Provisions 2
Chapter 2: Prescription of Ownership and Other Real Rights 5
Chapter 3: Prescription of Actions 10
TITLE. I. - OBLIGATIONS 15
Chapter 2: Nature and Effect of Obligations 17
OBLIGATIONS Chapter 3: Different Kinds of Obligations

SECTION 1. − Pure and Conditional Obligations
SECTION 2. − Obligations with a Period
SECTION 3. − Alternative Obligations
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22
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31
AND SECTION 4. − Joint and Solidary Obligations

SECTION 5. − Divisible and Indivisible Obligations
SECTION 6. − Obligations with a Penal Clause
Chapter 4: Extinguishment of Obligations
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37
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CONTRACTS
GENERAL PROVISIONS 40
SECTION 1. − Payment or Performance 40
Title II – CONTRACTS 59
Chapter 2: Essential Requisites of Contracts 65
General Provisions 65
Section 1 − Consent 65
ATTY. MEL STA. MARIA

Section 2 − Object of Contracts 74
Section 3 − Cause of Contracts 75
Chapter 3: Form of Contracts 77
Chapter 4: Reformation of Instruments 78
Chapter 5: Interpretation of Contracts 80
Chapter 6: Rescissible Contracts 83
Chapter 7: Voidable Contracts 86
Chapter 8: Unenforceable Contracts 89
Chapter 9: Void and Inexistent Contracts 92
Title III – NATURAL OBLIGATIONS 97
Title IV – ESTOPPEL 98
Title V – TRUSTS 100
Chapter 2: Express Trusts 102
Chapter 3: Implied Trusts 102
Title XVII – EXTRA-CONTRACTUAL OBLIGATIONS 104
Chapter 1: Quasi−Contracts 104
Section 1 − Negotiorum Gestio 105
Section 2 − Solutio Indebiti 107
Section 3 − Other Quasi−Contracts 108
CODAL MEMORY AID 111
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OBLIGATIONS AND CONTRACTS REVIEWER ATTY. MEL STA. MARIA CROMBONDS 2011-2012
o Prescription and Laches compared:
TITLE. IV. – PRESCRIPTION PRESCRIPTION LACHES
Concerned with fact of delay Concerned with effect of delay
A matter of time A question of inequity
Chapter 1: General Provisions Statutory Not provided by statutes
Based on Law Based on equity
Prescribes a fixed time No fixed time
Art. 1106 – Prescription Defined
By prescription, one acquires ownership and other real rights through the lapse of  ZE Lotho, Inc. v. Ice and Cold Storage − where the complainant
time in the manner and under the conditions laid down by law. only filed a suit after 9 years despite having knowledge of the
defendant’s violative practice, and where the material records
In the same way, rights and actions are lost by prescription. (1930a)
were already lost making it difficult for the defendant to
controvert claims for damages, the case was dismissed on the
 Object of Prescription − to suppress fraudulent and stale claims from ground of laches. Laches can bar the filing or the prosecution of
springing at great distances of time and surprising the parties or their the suit.
representatives when the facts have become obscure, or evidences or  Catholic Bishop of Balanga v. CA − although prescription does not
witnesses might already be lost. Sinaoan v. Sorongan
apply to registered property, a registered landowner may lose his
 2 Kinds of Prescription right to recover the possession of his registered property by
1. Acquisitive − acquisition of a right or property by the lapse of reason of laches.
time; also known as adverse possession and usucapcion
2. Extinctive − rights and actions are lost by the lapse of time; also
Art. 1107 – Acquisition by Capable Persons and Minors
known as limitation of action Morales v. CFI of Misamis Occidental
Persons who are capable of acquiring property or rights by other legal modes may
 Laches − doctrine of stale demands; defendant becomes the offended
acquire the same by means of prescription.
party due to the complainant’s inaction for an unreasonable and
unexplained length of time; founded on some change during the property Minors and other incapacitated persons may acquire property or rights by
or the relations between the parties during the lapse of time. prescription, either personally or through their parents, guardians or legal
o Requisites: (C.D.L.I.) representatives. (1931a)
1. Conduct on the part of the defendant of which complaint is
made to seek remedy
 Who may acquire property or rights through prescription:
2. Delay in asserting the complainant’s rights, having had
1. Persons of majority age − qualified to do all civil acts of life
knowledge or notice of the defendant’s conduct, and having 2. Minors and other incapacitated persons
been afforded opportunity to file a suit o Annullable or voidable − when acquisition is made without
3. Lack of knowledge or notice on the part of the defendant that the assistance of parents or guardians
the complainant would assert right on which he bases his suit o Ratified − when such minor attains majority age of 18 years
4. Injury or prejudice to the defendant in the event relief is (emancipation)
accorded to the complainant o Completely valid − when acquisition is made through parents
or guardians
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Art. 1108 – Persons Exempt from Prescription corporation whose causes of action are subject to the statute of
Prescription, both acquisitive and extinctive, runs against: limitation.
(1) Minors and other incapacitated persons who have parents, guardians or
other legal representatives; Art. 1109 – Between Husband and Wife, Children and Guardian
(2) Absentees who have other administrators, either appointed by them Prescription does not run between husband and wife, even though there be a
before their disappearance, or appointed by the courts; separation of property agreed upon in the marriage settlements or by juridical
(3) Persons living abroad, who have managers or administrators; decree.
(4) Juridical persons, except the State and its subdivisions
Neither does prescription run between parents and children, during the minority or
Persons who are disqualified from administering their property have a right to claim insanity of the latter; and between guardian and ward during the continuance of
damages from their legal representatives whose negligence has been the cause of the guardianship. (n)
prescription. (1932a)
General rule − Prescription does not run:
General rule − Prescription does not run against: (M.A.A.J.) Between husband and wife
o Pacio v. Billion − where the first wife claims that possession of the
1. Minors and other incapacitated persons − unless they have parents, property for 29 years is equivalent to a title, it was held that
guardians or other legal representatives. prescription by adverse possession cannot exist between husband and
 Vda. De Alberto v. CA − an illegitimate child who still has a living wife.
parent, his mother who actually filed the suit, cannot claim exemption  Between parent and child − during the child’s minority or insanity; based
from prescription. on natural bond of filiation
2. Absentees − unless they have administrators.  Between guardian and ward − during the continuance of the guardianship;
 Administrator may be appointed by the absentees before their based on fiduciary relationship
disappearance or by the courts (Art. 381 of the Civil Code).
 Absentees must be absent for at least 2 years and must prove that Exception − When the law so provides that prescription shall apply.
they cannot go back to their domicile. Ex. 1. Legal separation must be filed within 5 years from the occurrence of the
 If they can go back but intentionally do not want to return, cause (Art. 57, Family Code)
prescription will lie against them. 2. Annulment on the ground of impotency must be filed within 5 years
3. Persons living abroad − unless they have managers or administrators. from the marriage ceremony (Art. 47, Family Code)
 It must be shown that they cannot return to their domicile within the 3. Husband may impugn the legitimacy of the child within 1 year, 2 years or
period which prescription should have run. 3 years from his knowledge of the birth of the child, depending on his
4. The State and its subdivisions − unless not acting in their sovereign residence and the place of birth of the child (Art. 170, Family Code)
capacity or juridical persons.
 Juridical persons are endowed by law of the attributes of a natural Art. 1110 – Married Woman
person to acquire and lose properties and rights. Prescription, acquisitive and extinctive, runs in favor of or against a married woman.
 Republic v. PNB − if the political subdivision (AFP) is acting in its
proprietary character, or if the government instrumentality is not  Presupposes a situation involving a married woman and another person
acting in a sovereign capacity, prescription will lie against it. not her husband. Prescription shall run for or against a married woman.
 National Development Co. v. Tobia − upheld the applicability of
prescription against petitioner, acting in its proprietary character, who
like all other corporations capitalized by the government, is a business
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Art. 1111 – Co-Proprietor or Co-owner  Excludes property of the State and its subdivisions not patrimonial in
Prescription obtained by a co−proprietor or a co−owner shall benefit the others. character, things within commerce of men but prohibited by law:
(1933) Ex. 1. Movables possessed through a crime can never be acquired by
prescription by the offender (Art. 1133)
o Co-ownership − exists when the ownership of an undivided thing or right 2. Lands covered by Torrens Title
belongs to different persons. 3. Properties of spouses, parents and children, wards and
guardians under the restrictions imposed by law (Art. 1109)
o There could be valid acquisition by all owners even though only one or a few
are in actual possession.  Dir. of Forest Administration v. Fernandez − forest lands of public domain
cannot be acquired by prescription and its possession however long cannot
ripen into private ownership.
Art. 1112 – Renunciation
 Lovina v. Moreno − a navigable stream or any of its bed is not acquired by
Persons with capacity to alienate property may renounce prescription already
prescription.
obtained, but not the right to prescribe in the future.
 Republic v. CA − [1] area adjacent to bay which was covered with water
Prescription is deemed to have been tacitly renounced when the renunciation due to rain is not land of public domain. “Highest ordinary depth” is
results from acts which imply the abandonment of the right acquired. (1935) defined as the regular, common, natural depth, which occurs most of the
time during the year. [2] Having established his registerable title (Torrens
title does not grant acquisition), applicant may avail of a judicial
 When a debt is already barred by prescription, it cannot be enforced by
the creditor. confirmation of imperfect title which may be availed by: those who, by
themselves or through their predecessors−in−interest, have been in the
o Statutory limitation merely bars the remedy but does not
discharge the debt. open, continuous, exclusive, and notorious possession and occupation of
agricultural lands of the public domain, under bona fide claim of
 Renunciation − a waiver of one’s right to the prescriptive period. It is
ownership, for at least 30 years immediately preceding the filing of the
unilateral, hence does not require the approval of the person benefited by
application for confirmation of title.
it.
1. Express renunciation − made by a person capacitated to alienate
property. Art. 1114 – Right to Enforce Prescription
2. Implied renunciation − deduced from acts which imply the Creditors and all other persons interested in making the prescription effective may
abandonment of right acquired. avail themselves thereof notwithstanding the express or tacit renunciation by the
 Development Bank of the Philippines v. Adil − where the debtor issued a debtor or proprietor. (1937)
new promissory note recognizing his indebtedness, promises to pay and
agrees to the foreclosure of a mortgage should he fail to do so, such  Persons interested − may be the creditor, guarantor, sureties or other
debtor effectively and expressly renounced his right to prescription third persons
covering the first promissory note.  May ask the enforcement of prescription even though it has been waived
by the debtor
Art. 1113 – Subjects of Prescription
All things which are within the commerce of men are susceptible of prescription,
unless otherwise provided. Property of the State or any of its subdivisions not
patrimonial in character shall not be the object or prescription. (1936a)
Includes all things within the commerce (with commercial value) of man
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Art. 1115 – Special Laws Chapter 2: Prescription of Ownership and Other Real
The provisions of the present Title are understood to be without prejudice to what Rights
in this Code or in special laws is established with respect to specific cases of
prescription. (1938)
Art. 1117 – Acquisitive Prescription
In case of conflict between the period provided in this Title and in another Acquisitive prescription of dominion and other real rights may be ordinary and
portion of the Civil Code or special laws: the more specific provision will extraordinary.
prevail.
Ordinary acquisitive prescription requires possession of things in good faith and
If different statutes are providing for different prescriptive periods, and the
with just title for the time fixed by law. (1940a)
cause of action contemplated by them are apparently conflicting, they do
not exclude each other from being availed of by the aggrieved party.
Ex. Callanta v. Carnation Philippines Inc. − although Labor Code Kinds of Acquisitive Prescription:
provides that money claims prescribe in 3 years, the aggrieved 1. Ordinary − requires uninterrupted possession during the required
party in illegal dismissal case may avail of the 4−year prescriptive statutory period, good faith (Art. 1128) and just title (Art. 1129)
period for “injury to rights” under Article 1146 of the Civil Code. Ex. Godinez v. CA − property was acquired after adverse,
continuous and notorious possession for more than 50 years with
corrected decree of registration and good faith on the part of the
Art. 1116 – Transition
buyers.
Prescription already running before the effectivity of this Code shall be governed by
2. Extraordinary − requires uninterrupted possession for the required
laws previously in force; but if since the time this Code took effect the entire period
statutory period without need of good faith and just title
herein required for prescription should elapse, the present Code shall be applicable,
even though by the former laws, a longer period might be required. (1939)
Art. 1118 – Possession
Possession has to be in the concept of an owner, public, peaceful and
1. Prescriptive period under the old law has lapsed before the effectivity of
uninterrupted. (1941)
the 1950 Civil Code — old law shall apply
2. Prescriptive period under the old law is still running upon the effectivity of
Characteristics of Possession: (O.P.P.U.)
the new Code:
a. New code provides for a different period for the same situation — 1. In the concept of an Owner
New code shall apply if the prescriptive period it provides has possessor asserts dominion over the property to the exclusion of all
already lapsed even though under the old law, the period has not others.
yet lapsed.  must be adverseƒconcepto de dueno (as to claim title)
b. The remaining balance of the prescription period in the old law  Ramirez v. CA − antichretic creditor (debtor hands over his property,
since the effectivity of the new code is shorter than that provided allowing the use thereof, for the interest on the money lent) cannot
in the latter — old law will apply acquire the land by prescription because such property was not given to
The law which provides the shorter prescription period shall apply. him as the new owner.
 Republic v. CA − prescription does not apply where possession of property
was for recreational purposes only.
 Ramos v. CA − paying taxes does not evidence title but it is a strong
evidence of possession.
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2. Public Consequences of Natural Interruption:
must be a notorious holding of the property known to the community. Old possession is not revived and lapse of time shall begin to run from the
must not be of a surreptitious character. beginning should possession be claimed by the same adverse claimant.
3. Peaceful If the natural interruption is for only one year or less, the time elapsed
there must be no valid interference from others claiming or asserting their shall be counted in favor of the prescription.
rights to the property.
4. Uninterrupted Art. 1123 – Civil Interruption
possession during the required period must be continuous. Civil interruption is produced by the judicial summons to the possessor. (1945a)
Art. 1119 – Possession through License or Tolerance Art. 1124 – Judicial Summons
Acts of possessory character executed in virtue of license or by mere tolerance of Judicial summons shall be deemed not to have been issued and shall not give rise to
the owner shall not be available for the purposes of possession. (1942) interruption:
(1) If it should be void for lack of legal solemnities;
Possession by license or tolerance produces no effect with respect to (2) It the plaintiff should desist from the complaint or should allow the
possession or prescription because such possession acknowledges that proceedings to lapse;
somebody else owns the property. (3) If the possessor should be absolved from the complaint.
 Coronado v. CA − being allowed to enter and reap produce on said
In all these cases, the period of the interruption shall be counted for prescription.
property is not sufficient possession in the concept of an owner.
(1946a)
Art. 1120 – Interruption No civil interruption in the following cases: (S.A.D.)

Possession is interrupted for the purposes of prescription, naturally or civilly. (1943) 1. Lack of legal solemnities
 May consist error or irregularity in the form or process required to
Uninterrupted possession strengthens the adverse right of the possessor. acquire such summon.
2 Kinds of Interruption: Ex. Judicial summons have been served by a person not
1. Natural — through any cause it should cease for more than 1 year. authorized by the court.
2. Civil — produced by judicial summons to the possessor. 2. Desistance from plaintiff
 Desistance— voluntarily having the case dismissed.
Art. 1121 – Natural Interruption  Allowing the proceeding to lapse—manifests the lack of interest
Possession is naturally interrupted when through any cause it should cease for to prosecute the case.
more than one year. 3. Possessor is absolved
 Absolution—the complaint has not been fully substantiated to
The old possession is not revived if a new possession should be exercised by the support any adverse claim by the complainant.
same adverse claimant. (1944a)  The possessor is always presumed to be in good faith.
Art. 1122 – One Year or Less Art. 1125 – Possessor’s Recognition of Owner’s Right
If the natural interruption is for only one year or less, the time elapsed shall be Any express or tacit recognition which the possessor may make of the owner’s right
counted in favor of the prescription. (n) also interrupts possession. (1948)
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 Corpus v. Padilla − one cannot recognize the right of another and at the Art. 1127 – Good Faith
same time claim adverse possession which can ripen to ownership, thru The good faith of the possessor consists in the reasonable belief that the person
acquisitive prescription. from whom he received the thing was the owner thereof, and could transmit his
 Dinoso v. CA − where the seller and buyer executed a contract of sale giving ownership (1950a)
the seller the right to repurchase property after 10 years, the sale is
subject to the owner’s right of redemption. The purchaser’s possession has Art. 1128 – Other Conditions of Good Faith
been held in subordination to the title of the owner prior to the expiration The conditions of good faith required for possession in Articles 526, 527, 528 and
of the redemption period. 529 of this Code are likewise necessary for the determination of good faith in the
prescription of ownership and other real rights. (1951)
Art. 1126 – Titles
Against a title recorded in the Registry of Property, ordinary prescription of Conditions of Good Faith:
ownership or real rights shall not take place to the prejudice of a third person, o Art. 526 − not aware that there exists any flaw which invalidates his
except in virtue of another title also recorded; and the time shall begin to run from title or mode of acquisition
the recording of the latter. o Art. 527 − good faith is always presumed
o Art. 528 − possession acquired in good faith does not lose this
As to lands registered under the Land Registration Act, the provisions of that special character
law shall govern. (1949a) o Art. 529 − it is presumed that possession continues to be enjoyed in
the same character in which it was acquired
 General rule − Torrens title recorded in the Registry of Property is never  Negrete v. CFI of Marinduque − good faith is not complied with when a
subject of prescription to the prejudice of a third person. person claims a property through ordinary acquisitive prescription based
o However, it can be challenged by a claim of laches on a deed of sale which he knew involved a different property.
o Or when another title is also recorded. Prescription will begin to  Reyes v. CA − knowingly using a forged document to base one’s just title
run from the recording of such title for the purposes of acquisitive prescription is an act of bad faith.
 Dimayuga v. CA − no title to registered land in derogation of the registered  Magtira v. CA − good faith cannot be invoked if the claimant has actual or
owner shall be acquired by prescription or adverse possession. constructive notice of the legal and valid rights of possession of another
 Reyes v. CA − where petitioners forged a document and claimed during the prescriptive period.
acquisition, their title cannot defeat the real rights of private respondents
who stepped into the shoes of their father as successors−in−interest. Art. 1129 – Just Title
 Catholic Bishop of Balanga v. CA − although prescription will not apply to For the purposes of prescription, there is just title when the adverse claimant came
registered property, the doctrine of laches is applicable. A registered into possession of the property through one of the modes recognized by law for the
landowner may lose his right to recover possession of his registered acquisition of ownership or other real rights, but the grantor was not the owner or
property by reason of laches. could not transmit any right. (n)
Art. 1130 – True and Valid Title

The title for prescription must be true and valid. (1953)
Art. 1131 – Just Title must be Proved

For the purposes of prescription, just title must be proved; it is never presumed.
(1954a)
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 Just title − constitutes such title when the possession of a property is  Dira v. Tanega − after 8 years, the active partner, who took over of the
obtained through one of the modes recognized by law for acquisition (Art. shares of the delinquent partner in a printing business, acquired the shares
712) but the grantor was not the owner, or has no power to transmit of stock of the latter (personal property) through acquisitive prescription.
rights. The just title is intended to transfer ownership and could have
actually transmitted such had the grantor been the true owner. Possession Recovery of Property:
from a just title can ripen into ownership if the other elements of  Art. 559—the possession of movable property acquired in good faith is
prescription are present. equivalent to a title. If the possessor lost or of which the owner has been
 Doliendo v. Biarnesa − where a person bought a property from a public unlawfully deprived, has acquired it in good faith at a public sale, the
auction and took possession for more than 10 years but there was a first owner cannot obtain its return without reimbursing the price paid.
purchaser, such document from the public sale constituted a just title,  Art. 1505 − when goods are sold by a person who is not the owner, the
hence the person acquired the property through prescription. buyer gets no better title to the goods than the seller had, unless the
 Solis v. CA − a donacion propter nuptias is sufficient to constitute just title. owner of the goods is precluded from denying the seller’s authority to sell.
Even a void donation may ripen into title by prescription. A better title may However, nothing in the title shall affect:
be barred by that adverse possession. 1. laws which enable the apparent owner to dispose of goods as his
o “Titulo Colorado” − such title where, although there was a mode own
of transferring ownership, still something is wrong because the 2. the validity of any contract of sale under the order of the court
grantor is not the owner. This is enough to constitute just title. 3. purchases made from the merchant in accordance with the Code
of Commerce and special laws
Art. 1132 – Acquisition of Movables or Personal Property
The ownership of movables prescribes through uninterrupted possession for four Art. 1133 – Movables from Crime
years in good faith. Movables possessed through a crime can never be acquired through prescription by
the offender. (1956a)
The ownership of personal property also prescribes through uninterrupted
possession for eight years, without need of any other condition.  The benefits of prescription are denied to the offender.
With regard to the right of the owner to recover personal property lost or of which Ex. A thief cannot acquire title for a stolen car even if the owner did not
he has been illegally deprived, as well as with respect to movables acquired in a make a demand and the prescriptive period has already lapsed.
public sale, fair, or market, or from a merchant’s store the provisions of Articles 559  Tan v. CA − however, if the thing was in the meanwhile passed to a
and 1505 of this Code shall be observed. (1955a) subsequent holder, prescription begins to run 4 or 8 years (depending on
the existence of good faith).
SUMMARY: ACQUISITION THROUGH PRESCRIPTION
Movables (witho Immovables Immovables Art. 1134 – Acquisition of Immovables
Requisites Movables
other conditions) (Ordinary) (Extraordinary) Ownership and other rights over immovable property are acquired by ordinary
Years 4 8 10 30
prescription through possession of ten years. (1957a)
Uninterrupted
   
Possession
 Ordinary acquisitive prescription of immovables − must be by virtue of a
Good Faith  
just title, good faith and possession (in the concept of an owner,
Just Title 
uninterrupted, adverse and public).
Art. 1132 Art. 1132 Art. 1134 Art. 1137
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Art. 1135 – Mistake in Area (2) It is presumed that the present possessor who was also the possessor at a
In case the adverse claimant possesses by mistake an area greater; or less, than that previous time, has continued to be in possession during the intervening
expressed in his title, prescription shall be based on the possession. (n) time, unless there is proof to the contrary;
(3) The first day shall be excluded and the last day included. (1960a)
The extent of property subject to the prescription shall be the one actually
possessed or held by the claimant regardless of the size indicated or 1. The present possessor may complete the period necessary for prescription
described in the title. by tacking his possession to that of his grantor or predecessor in interest
 “Grantor” and “predecessor in interest” − connote a transfer in a
manner provided by law of property from one person to another.
Art. 1136 – Wartime
 Tacking − possession is allowed only when there is a privity of contract
Possession in wartime, when the civil courts are not open, shall not be counted in
or relationship between the previous and present possessors. South
favor of the adverse claimant. (n)
City Homes, Inc. v. Republic
o Tacking is not allowed if the predecessor in interest has not
The possession of the adverse claimant during that time shall not be
satisfied the requirements of prescription. Otherwise, there
counted where it must be observed that the civil courts must be closed.
can be no continuity in the nature of the possession.
If it is functioning, even during wartime, the possession may be counted in 2. It is presumed that the present possessor who was also the possessor at a
his favor. previous time, has continued to be in possession during the intervening
time, unless there is proof to the contrary.
Art. 1137 – Extraordinary Prescription of Immovables The presumption proceeds from a set of facts.
Ownership and other real rights over immovables also prescribe through For the presumption to exist, there must be a prior showing of the fact
uninterrupted adverse possession thereof for thirty years, without need of title or that the person presently possessing the property was also the one in
of good faith. possession of the same before the intervening time.
3. The first day shall be excluded and the last day included.
 Parcotilo v. Parcotilo − where a person’s adverse possession of a property
for 38 years ripened into a title by extraordinary prescription although all ***Other notes:
the requisites of a valid will were not executed. What is the rule to follow when the character of the possession of the predecessor is
 Heirs of Celso Amarante v. CA − acquisitive prescription has set in when different from that of the present possessor?
alienable public land was under the adverse possession of a person prior to  The law does not provide any solution to such kind of contingency. Thus,
the war although the titles have not been perfected. The possessor may sound judgment must be resorted to.
apply for the confirmation of his claims to the proper courts.
A. If the predecessor was in good faith but the successor is in bad faith:
Art. 1138 – Computation of Prescription  There are different views. Some writers say there must be no tacking.
In the computation of time necessary for prescription the following rules shall be Others say, the good faith of the predecessor should not be set at naught.
observed: The second is the better view. The computation of the periods to be tacked
(1) The present possessor may complete the period necessary for prescription should be proportionate, that is, in the proportion of what the period of
by tacking his possession to that of his guarantor or predecessor in possession in good faith bears to the period of extraordinary prescription.
interest; So it is in the proportion of 2:1 as regards movables and 3:1 for
immovables.
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B. If the possession of the predecessor was in bad faith and the possession of the SUMMARY: PRESCRIPTION OF ACTIONS
successor is in good faith, should there be tacking of possession: Art. 1140 Movables 8 years
Possession of the predecessor in bad faith cannot be counted and added to Art. 1141 Immovables 30 years
that of the present possessor. Here, the possession of the predecessor Art. 1142 Mortgages 10 years
cannot be considered in ordinary prescription because such requires good Art. 1143 Right of way, public or private nuisance None
faith all throughout the period fixed by law. Written contracts, obligations created by
Art. 1144 10 years
law, judgment
However, for purposes of extraordinary prescription, the possession in bad faith of Art. 1145 Oral contract, quasi−contract 6 years
the predecessor can be tacked to the possession in bad faith of the successor where Art. 1146 Injury to the rights, quasi−delict 4 years
there are no prohibitions provided. Art. 1147 Forcible entry and detainer, defamation 1 year
Art. 1149 All other actions with no fixed periods 5 years
o Art. 1140−1142, 1144−1147 are without prejudice to those specified in
Chapter 3: Prescription of Actions other parts of this Code, in the Code of Commerce, and in special laws.
(Art. 1148)
Art. 1139 – Lapse of Time
Actions prescribe by the mere lapse of time fixed by law. (1961) WHEN PRESCRIPTION SHALL BEGIN TO RUN
All kinds of actions when no From the day they may be
Art. 1150
Prescription of actions = limitation of actions provision provides otherwise brought
o Actions to enforce or preserve a right or claim must be brought Art. 1151 Enforcement of obligation to pay From the time of last payment
within a certain period of time. From the time judgment became
Art. 1152 Enforcement of judgment
When the government is the real party in interest and is proceeding mainly final
From the time the person
to assert its own rights and recover its own property, there can be no Demand accounting
responsible ceases to perform
defense on the ground of laches or limitation.
Art. 1153 From the day result was
o Prescription of action does not run against the government. Bring action from the result of
recognized by agreement of
accounting
interested parties
Elements of a cause of action: (R.O.A)
1. A right in favor of the plaintiff by whatever means and under whatever law
Art. 1140 – Prescription of Movables
it arises or is created must be present
Actions to recover movables shall prescribe eight years from the time the
2. An obligation on the part of the defendant to respect such right
possession thereof is lost, unless the possessor has acquired the ownership by
3. An act or omission on the part of such defendant violative of the right of
prescription for a less period, according to Article 1132, and without prejudice to
the plaintiff
the provisions of Articles 559, 1505, and 1133. (1962a)
 It is the legal possibility of bringing the action that determines the
starting point for the computation of the period of prescription, that
 This refers to the period of extraordinary prescription of 8 years for
is, only upon the happening of the third requisite when it can be said
movables to bring an action to recover.
that a cause of action has arisen. Espanol v. Philippine Veterans
o However, action shall not prosper if it is brought when the
Administration(Art. 1144)
possessor has already acquired title by ordinary acquisitive
prescription within 4 years.
10
o “Without prejudice” − if a possessor has acquired ownership no Art. 1142 – Prescription of Mortgages
action to recover may be filed even though there may still be
A mortgage action prescribes after ten years. (1964a)
several years remaining in the prescribed 8 years.
 If possessor acquired the movable in good faith at a public sale, owner
 Mortgage − an accessory contract constituted to secure a debt so that if
cannot obtain its return without reimbursing the price paid therefore. (Art.
the debtor fails to pay the principal obligation, the creditor can foreclose
559)
on the mortgage by selling it in a public sale and use the proceeds to pay
 In certain cases, owner is precluded from recovery without right to
off the debt.
reimbursement although the action has not yet prescribed. (Art. 1505)
 Development Bank of the Philippines v. Tomeldan − a suit for the recovery
 Movables possessed through a crime cannot be acquired through
of the deficiency after foreclosure of a mortgage is in the nature of
prescription by offender (Art. 1133)
mortgage action which prescribes in 10 years.
 Tan v. CA − where petitioner claims that, through bad faith and fraud, he
was led to assign his shares of stocks, it was held that the action had
Art. 1143 – Rights Not Extinguished by Prescription
already prescribed, hence the corporate entities have acquired such
The following rights, among others specified elsewhere in this Code, are not
personal property after possession of more than 8 years (without need of
extinguished by prescription:
good faith).
(1) To demand a right of way, regulated in Article 649;
 Dira v. Tanega − in a printing partnership, it was held that the active
(2) To bring an action to abate a public or private nuisance. (n)
partner has acquired the shares of the delinquent partner through
extraordinary prescription of 8 years, regardless of bad faith.
 To demand a right of way (Art. 649) − the owner by virtue of a real right
may use any immovable surrounded by other immovables owned by other
Art. 1141 – Prescription of Immovables
persons and without access to a public highway, is entitled to demand a
Real actions over immovables prescribe after thirty years.
right of way across the neighboring estates, after payment of the proper
This provision is without prejudice to what is established for acquisition of indemnity.
ownership and other real rights by prescription. (1963) o However, this easement is not compulsory if the isolation of the
immovable is due to the proprietor's own acts.
 This refers to extraordinary acquisitive prescription of immovables of 30  To abate a public or private nuisance − involves a person, thing, or
years in adverse possession. The right to sue prescribes after acquisition of circumstance causing inconvenience or annoyance; unlawful interference
the title. with the use and enjoyment of a person's land.
o However, if within the 30−year period, all the requisites of
Other rights not barred by prescription:
ordinary acquisitive prescription are present, the possessor
1. To demand partition of a co−ownership as long as the co−ownership is
acquires ownership after 10 years of uninterrupted possession,
expressly or impliedly recognized
just title and good faith.
2. To enforce an express trust
 In case of fraud:
3. To demand easement of light and view
o If action is based on fraud, action prescribes in 4 years from the
4. To declare the inexistence of a contract or the nullity of a void judgment or
discovery of fraud and such discovery is deemed to have taken
of a void title
place upon the issuance of the certificate of title over the
property. 5. To compel a trustee to reconvey property registered in his name for the
o lf based on implied or constructive trust, in 10 years from the benefit of the cestui que trust
alleged fraudulent registration or date of issuance of certificate of 6. To compel reconveyance of land registered in bad faith provided it has not
title over the property. yet passed to an innocent purchaser for value
11
7. To quiet title brought by a person in possession of the property b. Such positive acts of repudiation have been made known to the
8. To recover real property or its value where the property was taken by the cestui que trust.
government for public use without first acquiring title thereto c. The evidence thereon is clear and conclusive.
9. To seek issuance of a writ of possession o Such repudiation shall be the reckoning point of the cause of
10. To probate a will action.
11. To recover by the State non−registrable land
Art. 1145 – 6 Years
The following actions must be commenced within six years:
Art. 1144 – 10 Years (1) Upon an oral contract;
The following actions must be brought within ten years from the time the right of (2) Upon a quasi−contract. (n)
action accrues: 1. Oral contract
(1) Upon a written contract;  Action upon an oral contract of tenancy to compel the reinstatement
(2) Upon an obligation created by law; of a tenant comes under the provision.
(3) Upon a judgment. (n) 2. Quasi-contract
 Certain lawful, voluntary and unilateral acts give rise to the juridical
1. Written contracts relation of quasi−contracts to the end that no one shall be unjustly
 agreement must be in writing. enriched or benefited at the expense of another.
 a promissory note, a check or a ticket issued for transportation is a  Solutio indebiti − quasi contract provided in the Civil Code which
written contract. occurs if something is received when there is no right to demand it,
2. Obligations created by law and it has been delivered by mistake, the obligation to return arises.
 obligation of the possessor to reconvey to the true owner real  Municipality of Opon v. Caltex − right to recover taxes illegally
property arising from a constructive or implied trust. collected upon a quasi−contract.
 obligation of the lessor to indemnify the lessee in good faith for useful
improvements on the property leased. Art. 1146 – 4 Years
 obligation of the husband and wife, parents and children, and brothers The following actions must be instituted within four years:
and sisters to support each other. (1) Upon an injury to the rights of the plaintiff;
3. Judgment—judgment that is final and executory (2) Upon a quasi−delict. (n)
 under the Rules of Court, judgment may be executed on motion within
5 years from the date of its entry or from the date it becomes final and 1. Injury to the rights of the plaintiff
executory. After the lapse of such time, it may be enforced by ordinary  Purpose of an action or suit and the law to govern it, including the
action within 10 years. period of prescription, are to be determined by the complaint itself, its
 Espanol v. Philippine Veterans Administration − right of action accrues allegations and prayer for relief.
when there exists a cause of action which in this case is the  Action for recovery of damages for taking or retaining personal
declaration of the Court that the company’s administrative policy is property, or incident to trespass upon real estate prescribes within 4
invalid. years.
 Huang v. CA − an implied trust is normally not subject to prescription,  Virgilio Callanta v. Carnation Phil. Inc. − petition for illegal dismissal,
unless the trustee openly and adversely repudiates the trust by: reinstatement and backwages was illegally dismissed because
a. performing unequivocal acts amounting to an ouster of the cestui although the Labor Code provides 3 years for such claims, the case
que trust (French for the beneficiary of a trust). involved the profession of the plaintiff which is a property right, hence
12
was predicated “upon injury to the rights of the plaintiff” which  The provisions of Title V on Prescription have suppletory application to
prescribes in 4 years. (ln relation to Art. 1148) specific cases of prescription found elsewhere in the Civil Code and in
2. Quasi-delict special laws.
 When there is no pre−existing relations between parties, whoever by  Virgilio Callanta v. Carnation Phil. Inc. − where a petition upon injury to the
act or omission causes damage to another with fault or negligence, is rights of the plaintiff was found with merit, it was held that a statute of
obliged to pay damages. (Art.2176) limitation (pertaining to prescription for claims under the Labor Code)
 Dicosa v. Sarabia − prescriptive period is counted from the day the extinguishes the remedy only. Although the remedy to enforce a right may
quasi−delict occurred or was committed. be barred, that right may be enforced by some other available remedy
 Liability of manufacturers for any death or injuries caused by noxious (pertaining to Art. 1146 regarding injury upon the rights of the plaintiff).
or harmful substances used, although no contractual relations exist.
 Coca−Cola Bottlers Philippines Inc. v. CA − where soft drinks sold Art. 1149 – No Fixed Period = 5 Years
contained fiber−like matter and other foreign substances which caused All other actions whose periods are not fixed in this Code or in other laws must be
sickness to students. brought within five years from the time the right of action accrues. (n)
 Kramer Jr. v. CA − collision of two vessels is a quasi−delict.
 Allied Banking Corp. v. CA − action against the Central Bank for tortious  The right of action or cause of action accrues from the moment of
inference, in closing and liquidating a bank. commission or omission of an act by a party in violation of his duty to, or of
the right, of another.
Art. 1147 – 1 Year  Essential elements are: (R.O.A.)
The following must be filed within one year: 1. Right in favor of a person (obligee)
(1) For forcible entry and detainer; 2. A correlative obligation on the part of another (obligor)
(2) For defamation. (n) 3. An act or omission in violation of said right
1. Forcible entry and detainer Espanol v. Philippine Veterans Administration
 A summary proceeding to recover possession of land that is instituted  Tolentino v. CA − action to prevent the former spouse from using the
by one who has been wrongfully ousted from, or deprived of, petitioner’s husband’s surname prescribes in 5 years counted from the day
possession. such action might be brought.
 Vda. De Borromeo v. Pogoy − the 1−year prescriptive period is  Other Ex.s:
o Action to impugn the recognition of a natural child (Art. 296)
sufficient time for complainant to file a case and this period is counted
o Action to impugn the legitimation of a child (Art. 275)
from demand to vacate the premises.
o Action to reduce inofficious donations to be counted from the
2. Defamation
death of the donor (Vide Art. 772, Civil Code).
 Any intentional false communication, either written or spoken, that
harms a person's reputation.
Art. 1148 – Code of Commerce and Special Laws Art. 1150 – When to Count Prescriptive Periods
The limitations of action mentioned in Articles 1140 to 1142, and 1144 to 1147 are The time for prescription for all kinds of actions, when there is no special provision
without prejudice to those specified in other parts of this Code, in the Code of which ordains otherwise, shall be counted from the day they may be brought.
Commerce, and in special laws. (n) (1969)
13
 Quasi-delict − prescriptive period for actions based on quasi−delict shall  There is no difference between actions for accounting and reliquidation
begin to run from the day the action may be brought, that is, from the day since both involve the determination, adjustment and settlement of what
the quasi−delict was committed. is due to the parties under the law
 Criminal action − unless otherwise provided, the statutory limitation for  Dira v. Tanega − the delinquent partner’s action for accounting, filed after
period for filing a criminal action begins to run on the commission of the 14 years, had already prescribed.
offense.
 Separate civil action − where offended party expressly reserves his right to Art. 1154 – Fortuitous Event
institute a separate civil action, prescription runs from the date reservation The period during which the obligee was prevented by a fortuitous event from
is made up to the time the civil action is actually filed in court. enforcing his right is not reckoned against him. (n)
Art. 1151 – Prescription for Actions regarding Payment  Provident Savings Bank v. CA − when prescription is interrupted by a
The time for the prescription of actions which have for their object the enforcement fortuitous event, all the benefits acquired so far from the possession will
of obligations to pay principal with interest or annuity runs from the last payment cease and when prescription starts anew, it will be entirely a new one.
of the annuity or of the interest. (1970a)  Tan v. CA − the petitioner’s arrest and detention during the Marcos regime
was not considered as a fortuitous event which could have interrupted the
 This refers to obligations where payment of which is due at stipulated prescription for his right of action.
intervals.
o If the debt is not yet due, payment of interest or annuity will not
start the running of the period. Art. 1155 – Interruption of Prescription for Actions
The prescription of actions is interrupted when they are filed before the court,
Art. 1152 – Prescription of Actions declared by Judgment when there is a written extrajudicial demand by the creditors, and when there is
The period for prescription of actions to demand the fulfilment of obligations any written acknowledgment of the debt by the debtor. (1973a)
declared by a judgment commences from the time the judgment became final.
(1971)  Ledesma v. CA − this means that the period of prescription begins to run
anew, and whatever time of limitation might have already elapsed is
 Prescriptive period is counted not from the time the judgment was thereby negated and rendered inefficacious. The effect is to renew the
rendered but from the time it became final. obligation and to make prescription run again from the date of
 Philippine National Bank v. Bondoc − regarding judgment creditors, the interruption.
purpose of the revival judgment is to give a creditor a new right of
enforcement from the date of revival for the creditor’s protection. 1. Filing of an action in court
 Cabrera v. Tiano − civil actions are deemed commenced from the
Art. 1153 – Prescription for Accounting date of the filing and docketing of the complaint with the Clerk of
The period for prescription of actions to demand accounting runs from the day the Court.
persons who should render the same cease in their functions.  Interruption lasts during the pendency of the action.
 Olympia International Inc. v. CA − if the plaintiff desists from
The period for the action arising from the result of the accounting runs from the prosecuting the action to its final conclusion, the action is deemed
date when said result was recognized by agreement of the interested abandoned and as if it has never been instituted.
parties. (1972) 2. Written extrajudicial demand by the creditor
14
 Any written notice given by the creditor to the debtor to enforce Art. 1157 - Sources of Obligations
the delivery or payment of an obligation. Obligations arise from:
3. Written acknowledgement of the debt by the debtor (1) Law;
 Written offer of payment works as a renewal of the obligation (2) Contracts;
 Philippine National Bank v. Osete − not all acts of (3) Quasi−contracts;
acknowledgment of a debt interrupt prescription. To produce an (4) Acts or omissions punished by law; and
effect, it must be written. (5) Quasi−delicts. (1089a)
 Ramos v. Condez − although actions regarding written contracts
prescribe after 10 years, such was interrupted when the  Serves as the juridical tie of the obligation.
defendant submitted a letter acknowledging the validity of the  Enumeration is exclusive. The following are the only sources of obligations:
deed of absolute sale and promising to comply with the terms. (L.C.D.Q2)
BOOK IV: OBLIGATIONS AND CONTRACTS 1. Law − imposed by the law itself.
Ex. Obligation to pay taxes, support one’s family (Art. 291)
TITLE. I. - OBLIGATIONS 2. Contracts − from the stipulation of the parties
Ex. Obligation to repay a loan or indebtedness by virtue of
Chapter 1: General Provisions an agreement
3. Quasi-contracts − from lawful, voluntary and unilateral acts which are
enforceable to the end that no one shall be unjustly enriched or benefited
Art. 1156 – Definition at the expense of another.
An obligation is a juridical necessity to give, to do or not to do. (n) Ex. Obligation to return money paid by mistake or which is
not due
 “Juridical necessity” − in case of non−compliance, the courts may be called 4. Delicts (Crimes) − from civil liability which is the consequence of a criminal
upon by the aggrieved party to enforce its fulfilment offense.
 Obligation − a legal bond whereby constraint is laid upon a person or Ex. Obligation to return a car stolen
group of persons to act or forbear on behalf of another person or group of Obligation of a killer to indemnify the heirs of his victim
persons. 5. Quasi-delicts (Torts) − from damages caused to another through an act or
 Requirements: (J.O.S.) omission, there being fault or negligence, but no contractual relations
1. Juridical tie − efficient cause established by sources of obligations. between the parties.
2. Object or Prestation − conduct required to be observed by the debtor. Ex. Obligation of the possessor of an animal to pay for the
It may be to give, to do or not to do. damage which it may have caused
3. Subject-persons − may refer to both natural and juridical persons.  Obligations are civil or natural.
May be either: 1. Civil obligation − gives a right of action to compel their performance.
a. Active (obligeeƒcreditor) − person entitled to demand 2. Natural Obligations − not based on positive law but on equity and
fulfilment; he who has the right. natural law. These do not grant a right of action to enforce their
b. Passive (obligorƒdebtor) − person who is bound to the performance, but after voluntary fulfilment by the obligor, they
fulfilment of the obligation; he who has the duty. authorize retention of what has been delivered or rendered by reason
Ang Yu Asuncion v. CA thereof. (Art. 1423)
15
Art. 1158 – Obligations from Law contract which states the insurer’s liabilities, whenever the intentions of
Obligations derived from law are not presumed. Only those expressly determined in the parties are clear and the essential requirements for the validity of such
this Code or in special laws are demandable, and shall be regulated by the precepts contract exist.
of the law which establishes them; and as to what has not been foreseen, by the
provisions of this Book. (1090) Art. 1160 – Obligations from Quasi Contracts
Obligations derived from quasi−contracts shall be subject to the provisions of
 Legal Obligation − the law is the most important source of obligation. Chapter 1, Title XVII, of this Book. (n)
o It does not depend upon the will of the parties.
o lmposed by the State and is generally imbued with some public  Quasi Contract − certain lawful, voluntary and unilateral acts give rise to
policy considerations. the juridical relation of quasi−contract to the end that no one shall be
o The basis of the obligation must be clear. unjustly enriched or benefited at the expense of the other. (Art. 2142)
o lt cannot be presumed.  2 Kinds of Quasi−contracts:
Existing law enters into and forms part of a valid contract without need for 1. Solutio Indebiti − the juridical relation which is created when
the parties expressly making reference thereto. something is received when there is no right to demand it and it was
o The provisions of a contract are not only limited to what we see, unduly delivered through mistake.
but is understood to include what is prescribed by law. Ex. X owes Y ®1,000. X paid Y ®2,000 by mistake. Y is obliged to return
 Special laws − refers to all other laws not contained in the Civil Code like the excess of ®1,000.
the Corporation Code, Negotiable Instruments Law, Insurance Code, 2. Negotiorum gestio − the voluntary management of the property or
National Internal Revenue Code, Revised Penal Code, Labor Code, etc. affairs of another without the knowledge or consent of the latter. (Art.
2144)
Art. 1159 – Obligations from Contracts Ex. While X was out of town, a fire broke out near his house. Through
Obligations arising from contracts have the force of law between the contracting the effort of Y, X’s house was spared from being burned. X has the
parties and should be complied with in good faith. (1091a) obligation to reimburse Y of all expenses incurred in saving the
house.
 Contract – a meeting of minds between two persons whereby one binds  Implied contract − a contract which is implied in fact is one in which the
himself, with respect to the other, to give something or to render some circumstances imply that parties have reached an agreement even though
service. (Art. 1305) they have not done so expressly.
 Binding force – a contract is the law between the parties. Ex. By going to a doctor, a patient agrees that he will pay a fair price
o Upon perfection of the contract, the parties are bound to fulfill for the service. If he refuses to pay after being examined, he has
what has been stipulated including consequences should there be
breached a contract implied in fact.
a breach in good faith, usage, or the law.
o Stipulations should not be contrary to law, morals, good customs,
public policy or public order. Art. 1161 – Obligations from Crimes or Delicts
 Compliance in good faith − performance in accordance with the Civil obligations arising from criminal offenses shall be governed by the penal laws,
stipulations or terms of the contract or agreement. subject to the provisions of Article 2177, and of the pertinent provisions of Chapter
A contract may involve mutual and reciprocal obligations and duties 2, Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating
between and among the parties. damages. (1092a)
 Perla Compania de Seguros Inc. v. CA − the trial court cannot disregard and
substitute their own interpretation of the stipulations in an insurance  Civil liability − attaches to an individual who is found to be criminally liable.
16
The extent of the civil liability arising from crimes is governed by the o Indeterminate or generic object − any object which belongs to the
Revised Penal Code which includes: restitution, reparation and same kind. The debtor can give anything of the same class as long as it
indemnification. is of the same kind.
Ex. X stole the car of Y. If X is convicted, the court will order X: Ex. a sum of ®1,000
1) to return the car or pay its value a 1995 Toyota car
2) to pay for any damage caused to the car a cavan of rice
3) to pay such other damages suffered by Y as a consequence of  Diligence of a good father of a family (ordinary) − if there is no stipulation
the crime (like moral or exemplary damages) as to the diligence which should be observed, that which is expected of a
good father of a family is required.
Art. 1162 – Obligations from Quasi-delicts  Another standard of care (extraordinary) − if the law or stipulation of the
Obligations derived from quasi−delicts shall be governed by the provisions of parties provides for another standard of care, said law or stipulation shall
Chapter 2, Title XVII of this Book, and by special laws. (1093a) prevail.
o In case of a contrary stipulation of the parties, such should not be
one contemplating relinquishment or waiver of the most ordinary
 Quasi-delict or Torts − an act or omission which causes damage to another diligence
person, there being fault or negligence, but no pre−existing contractual o Common carriers—persons, corporations, firms or associations
relation between the parties. (Art. 2176) engaged in the business of carrying or transporting passengers or
Ex. Obligation of the possessor of an animal to pay for the goods or both, by land, water, or air, for compensation, offering
damage which it may have caused their services to the public. They are bound to observe
extraordinary diligence.
Chapter 2: Nature and Effect of Obligations  Factors to be considered − the diligence required depends on the nature of
the person, time and place. (Art. 1173)
Art. 1163 – Required Diligence  Cases of presumed negligence − substitute parental authority of schools,
Every person obliged to give something is also obliged to take care of it with the common carriers
proper diligence of a good father of a family, unless the law or the stipulation of the
parties requires another standard of care. (1094a) Art. 1164 – Right Over Fruits
The creditor has a right to the fruits of the thing from the time the obligation to
 Involves the prestation “to give” deliver it arises. However, he shall acquire no real right over it until the same has
 “Something” − connotes a determinate object been delivered to him. (1095)
o Determinate object − definite, known and has already been distinctly
decided and particularly specified as the matter to be given from  Involves the prestation “to give”
among the same things belonging to the same kind. The debtor cannot Kinds of Fruits: (N.I.C.)
substitute it with another although the latter is of the same kind and 1. Natural fruits − spontaneous products of soil and the young or
quality without the consent of the creditor. (Art. 1244) other products of animals
Ex. the house at x address Ex. grass, trees, puppies
the Toyota car with plate number xxx 2. Industrial fruits − produced by lads of any kind through cultivation
this cavan of rice or labor
the money I gave you Ex. sugar cane, vegetables, rice
3. Civil fruits − derived by virtue of a juridical relation
Ex. rent, interest, and other similar income
17
 Real right—the right or power of a person over a specific thing (like  In such cases, obligor may be compelled to effect
ownership, possession, mortgage), without a definite passive subject delivery and give the necessary damages (Art. 1170)
against whom such right may be personally enforced.
o Enforceable against the whole world and will prejudice anybody
claiming the same object of the prestation Art. 1166 – Accessions and Accessories
o Accrues when the thing or object of the prestation is delivered to The obligation to give a determinate thing includes that of delivering all its
the creditor accessions and accessories, even though they may not have been mentioned.
 Personal right—the right or power of a person (creditor) to demand of (1097a)
another (debtor), as a definite passive subject, the fulfillment of a
prestation to give, to do, or not to do.  Involves the prestation “to give”
o Can be defeated by a third person in good faith who has  Accessions − fruits, additions to, or improvements upon a thing (principal),
innocently acquired the property prior to the scheduled delivery which are not necessary to the principal thing.
regardless of whether or not such third person acquired the Ex. house or trees on a land, profits or dividends accruing from
property after the right to the delivery of the thing has accrued in shares of stocks
favor of the creditor  Accessories − things joined to or included with the principal thing for
embellishment, better use or completion. The accessory and the principal
Art. 1165 – Delivery of a Determinate or Indeterminate Thing thing must go together
When what is to be delivered is a determinate thing, the creditor, in addition to the Ex. frame of a picture, bracelet of a watch, charger of an iPad
right granted him by Article 1170, may compel the debtor to make the delivery. Both accessions and accessories can exist only in relation to the principal.
If the thing is indeterminate or generic, he may ask that the obligation be complied
Art. 1167 – Obligation To Do
with at the expense of the debtor.
If a person obliged to do something fails to do it, the same shall be executed at his
If the obligor delays, or has promised to deliver the same thing to two or more cost.
persons who do not have the same interest, he shall be responsible for any
This same rule shall be observed if he does it in contravention of the tenor of the
fortuitous event until he has effected the delivery. (1096)
obligation. Furthermore, it may be decreed that what has been poorly done be
undone. (1098)
 Involves the prestation “to give”
Remedies of a creditor in a real obligation:
 Involves the prestation “to do”
a. Non-delivery of a determinate thing − to file an action to compel
Remedies of the creditor:
the debtor to make the delivery, also known as specific
a. Debtor fails to perform an obligation to do − to have the
performance
obligation performed by himself or by another at the debtor’s
b. Non-delivery of an indeterminate or generic thing − the creditor
expense and recover damages (Art. 1170)
may have it accomplished or delivered in any reasonable and legal
 Unlike obligations to give, a specific performance in
way charging all expenses to the debtor
obligations to do may not be ordered as this may amount
c. Non-delivery due to fortuitous event (Art. 1174) − general rule:
to involuntary servitude. Feasible remedy is damages.
obligor is not liable for fortuitous event
b. Debtor performs the obligation but contrary to the terms or in a
 Except when the obligor delays (Art. 1169) or has
poor manner − in addition to remedy preciously mentioned, it
promised the same thing to 2 or more persons with
different interests may be ordered (by the court) that it be undone if it is still
possible.
18
 Chaves v. Gonzales − owner of the typewriter was entitled to the cost of  Requisites:
the execution of the obligation plus damages when the repairer of the 1. obligation is demandable and liquidated
typewriter returned it with missing parts and without having it repaired. 2. debtor delays performance
3. creditor demands performance
Art. 1168 – Obligation Not To Do SSS v. Moonwalk Development and Housing Corp.
When the obligation consists in not doing, and the obligor does what has been  General rule − default begins from the moment demand is made by the
forbidden him, it shall also be undone at his expense. (1099a) creditor judicially or extrajudicially. Commencement of a suit is sufficient
demand.
 Involves the prestation “not to do” o Except in 3 cases: (U.T.L.)
Ex. X bought a land from Y where it was agreed upon that Y would not 1. When the obligation or the law so provides
construct a fence on certain portions of the land. Should Y 2. When time is of the essence
construct a fence, the same may be removed at Y’s expense. 3. When demand would be useless
 Reciprocal Obligations − the obligation of one is a resolutory condition of
the other, the non−fulfillment of which entitles the other party to rescind
Art. 1169 - Delay
the contract.
Those obliged to deliver or to do something incur in delay from the time the obligee
o If one of the parties fails to deliver, the other cannot insist upon
judicially or extrajudicially demands from them the fulfillment of their obligation.
its performance. Legally, there is no default or delay on the part of
However, the demand by the creditor shall not be necessary in order that delay both parties.
may exist: o If both parties incur delay, the liability of the first infractor shall be
equitably tempered by the courts. If it cannot be determined,
(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 each shall bear his own damages. (Art. 1192)
the designation of the time when the thing is to be delivered or the service is to be 2 cases where Extrajudicial Demand is necessary before filing a civil suit:
rendered was a controlling motive for the establishment of the contract; or 1. Ejectment
2. Consignment
(3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform.  Extrajudicial demand − necessary so that the courts will have a basis on
when to start computing damages
In reciprocal obligations, neither party incurs in delay if the other does not comply  Delay in the payment of money − Art. 2209 provides that unless otherwise
or is not ready to comply in a proper manner with what is incumbent upon him. stipulated, legal interest for delay in payment is 6% per annum.
From the moment one of the parties fulfills his obligation, delay by the other o However, damages shall only begin to run after judicial or
begins. (1100a) extrajudicial demand.
 Barzaga v. CA − demand was not necessary where a contract entered into
 Delay − understood as legal delay or default; failure to perform or deliver for the construction of a niche for the wife of the aggrieved party who
on time which constitutes a breach of an obligation. It must be either expressly wished that she be buried before Christmas day.
malicious or negligent, the absence of which, the obligor shall not be liable  Binalbagan Tech Inc. v. CA − through no fault of the seller, the buyer could
under Art. 1170. not take possession of the property because such buyer was evicted by a
o Kinds of Delay: third party through a court order. Hence, the seller cannot rescind the
a. Mora accipiendi − delay on the part of the creditor to accept. contract for the buyer’s non−payment of the balance of a property.
 the debtor may release himself from the obligation by  Agcaoili v. GSIS − respondent had no right to rescind the contract where
consignation (Art. 1256) petitioner failed to immediately occupy the house built by petitioner
b. Mora solvendi − delay on the part of the debtor to deliver. because the house was in a state of incompleteness. Neither party incurs
19
in delay if the other does not comply or is not ready to comply in a proper The fraud or dolo necessarily involves a valid agreement but, in the
manner with what is incumbent upon him. performance of the same, fraud is committed.
 Tanguilig v. CA − the respondent may not be compelled to pay for the A waiver of an action for future fraud produces no effect.
balance and damages where the petitioner built windmills which collapsed
due to defects in the construction. Art. 1172 – Responsibility from Negligence
Responsibility arising from negligence in the performance of every kind of
Art. 1170 – Sources of Liabilities obligation is also demandable, but such liability may be regulated by the courts,
Those who in the performance of their obligations are guilty of fraud, negligence, or according to the circumstances. (1103)
delay, and those who in any manner contravene the tenor thereof, are liable for
damages. (1101)  Liability can be regulated by the courts depending on the circumstances.
Grounds for liability:

Art. 1173 – Fault or Negligence
1. Fraud (deceit or dolo) − the deliberate or intentional evasion of the
The fault or negligence of the obligor consists in the omission of that diligence
obligation; it implies malice or dishonesty and is synonymous to bad faith
which is required by the nature of the obligation and corresponds with the
in that, it involves a design to mislead or deceive another. (in relation to
circumstances of the persons, of the time and of the place. When negligence shows
Art. 1171)
bad faith, the provisions of Articles 1171 and 2201, paragraph 2, shall apply.
2. Negligence (fault or culpa) − omission of that diligence which is required by
the nature of the obligation and corresponds with the circumstances of the If the law or contract does not state the diligence which is to be observed in the
persons, of the time and of the place. (Art. 1173) performance, that which is expected of a good father of a family shall be required.
o Standard of care imposed by law or by stipulation of the parties. (1104a)
o In the absence of law or stipulation, that diligence which is
expected of a good father of a family is required.
 Negligence is a relative or comparative, not an absolute term and its
3. Delay (mora) − failure to perform or deliver on time which constitutes a
application depends on the circumstances of the persons, of time and of
breach of an obligation. (Art. 1169) the place.
o Barzaga v. CA − there is negligence and delay where a contract o Syquia v. CA − the memorial company was not negligent when it
was entered into for the construction of a niche for the wife of bore a hole on the grave of the deceased to prevent the vault
the aggrieved party who expressly wished that she be buried from falling due to heavy rains.
before Christmas day, and the constructors failed to deliver. o Philippine National Bank v. CA − the bank was held liable for
4. Contravention of the terms of the obligation − violation of the terms and negligently dishonoring the petitioners check causing serious
conditions stipulated in the obligation. anxiety, humiliation and embarrassment to the client.
 General rule − negligence must always be proven (burden of proof on the
 If any of these co−exists with a fortuitous event or aggravates the loss
creditor).
caused by a fortuitous event, the obligor cannot be excused from liability.
 “Negligence shows bad faith” − can be implied from repeated negligence;
hence the provision on fraud (Art. 1171) shall apply.
o Art. 2201, 2nd par—the obligor shall be responsible for all
damages which may be reasonably attributed to the non−
Art. 1171 – Responsibility from Fraud performance of the obligation
Responsibility arising from fraud is demandable in all obligations. Any waiver of an
action for future fraud is void. (1102a)
20
o Samson v. CA − bad faith is a state of mind of ill will and it does e. given the opportunity to save either the loaned
not simply connote bad judgment or negligence. It is synonymous thing or a personal property, he chose the latter
with fraud and involves a design to mislead or deceive another.  provisions of other codes
2. When declared by the stipulation of the parties
Art. 1174 – Fortuitous Events 3. When the nature of the obligation so requires the assumption of
Except in cases expressly specified by the law, or when it is otherwise declared by risk
stipulation, or when the nature of the obligation requires the assumption of risk, no  Tanguilig v. CA − destruction of the windmills by a typhoon was not
person shall be responsible for those events which could not be foreseen, or which, considered a fortuitous event because of the windmills’ inherent defect
though foreseen, were inevitable. (1105a) attributable to the petitioners. 4th element of fortuitous event was not
present.
 Fortuitous Event − any event which cannot be foreseen, or which though  Dioquino v. Laureano − throwing of a stone directed at the car of the
foreseen, is inevitable; force majeur. plaintiff was considered a fortuitous event.
o Act of man − war, fire, robbery, murder, accident  Sia v. CA − fortuitous event was not considered when a bank failed to
o Act of God − earthquake, flood, shipwreck volcanic eruption notify its client of the flooding of its safety box which resulted to the
Requisites of a fortuitous event: (U.F.I2.) destruction of the client’s stamp collection.
1. Independent of the will of the debtor  Victoria Planters Association Inc. v. Victoria’s Milling Co. − the obligee
2. Event must be unforeseeable or unavoidable cannot demand the fulfillment of the delivery of an obligation after 6 years
3. Event must be such as to render it impossible for the debtor to fulfill due to a fortuitous event, for such will be an extension of the contract. A
his obligation in a normal manner fortuitous event relieves the obligor from performance.
4. The debtor must be free from any participation therein, or aggravation o However, should the obligee choose to enforce his right which
of the injury was prevented by a fortuitous event, the prescription for such
Nakpil v. CA action will start anew. (Art. 1154)
 General rule − an obligor cannot be liable for a fortuitous event except:  Ace−Agro Development Corp. v. CA − suspension of the employee’s
1. When expressly specified by law contract was brought by a fortuitous event (burning), hence does not
 obligor promises the same thing to 2 or more persons of justify the extension of such contract. The contract was subject to a
different interests (Art. 1165) resolutory period which relieved the parties from their obligations, but did
 fraud, negligence, delay or violation by a person concurs with not stop the running of the period of their contract.
an act of God in producing a loss, such person is not exempt  Republic v. Luzon Stevedoring − extraordinary diligence is required of a
from liability (Art. 1170) towed barge.
 object of prestation is generic even if the object is wiped out
by a fortuitous event (Art. 1263) Art. 1175 – Usurious Transactions
Ex. delivery of money Usurious transactions shall be governed by special laws. (n)
 obligation to deliver arises from a crime (Art. 1268)
 bailee in commodatum − agreement to lend The law does not prohibit usurious contracts.
a. uses the thing for a different purpose  Usury − contracting for or receiving interest in excess of the amount
b. keeps it longer than what was agreed allowed by law for the loan or use of money, goods etc.
c. thing loaned was delivered with appraisal of its
value
d. lends of leases the thing to a third person
21
Art. 1176 – Presumption in Payment Art. 1178 - Transmissibility

The receipt of the principal by the creditor without reservation with respect to the Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if
interest, shall give rise to the presumption that said interest has been paid. there has been no stipulation to the contrary. (1112)
The receipt of a later installment of a debt without reservation as to prior  In general, rights growing out of an obligation are transmissible.
installments, shall likewise raise the presumption that such installments have been o However, the person who transmits the right cannot transfer
paid. (1110a) greater rights than he himself has by virtue of the obligation, and
vice versa.
A presumption must always arise from a fact or a set of facts.
 The transmissibility of rights may be limited, or altogether prohibited by
o Presumption can be rebutted by strong evidence to the contrary.
stipulation of the parties.
To have probative value, the creation of the presumption must be
provided by law.  Transmission must be subject to pertinent laws.
 Manila Trading & Suppy Co. v. Medina − receipts must clearly show
evidence of partial payment.
Chapter 3: Different Kinds of Obligations
Art. 1177 – Rights of the Creditor
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
SECTION 1. - Pure and Conditional Obligations
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) Art. 1179 – Pure Obligations
Every obligation whose performance does not depend upon a future or uncertain
Remedies of creditors to satisfy their claims (in particular order): event, or upon a past event unknown to the parties, is demandable at once.
1. Exhaust the properties of the debtor through levying by attachment and
Every obligation which contains a resolutory condition shall also be demandable,
execution upon all the property of the debtor, except such as are exempt
without prejudice to the effects of the happening of the event. (1113)
by law from execution
Ex. exempt property − family home
2. Exercise all the rights and actions of the debtor, save those personal to  Pure obligation – an unqualified obligation which is demandable
him (accion subrogatoria) immediately.
Ex. enforceable rights − right to collect from a debtor’s debtor o Pay v. Vda. De Palanca − an action filed after 15 years to execute
a promissory note which contains an obligation immediately
personal rights − right to receive legal support
demadable may no longer prosper, considering that the
3. Seek rescission of the contracts executed by the debtor in fraud of their
prescription of written documents is 10 years.
rights (accion pauliana)
 Conditional obligation – an obligation subject to the fulfillment of a
o Adorable v. CA − unless a debtor acted in fraud, the creditor
condition which may be a future and uncertain event, or past event
cannot order rescission of a contract between the debtor and a
unknown to the parties.
third party on the ground that such sale will prejudice the
o Condition − an act or event, other than a lapse of time, which,
creditor’s right to collect from the debtor.
unless the condition is excused, must occur before a duty to
perform a promise in the agreement arises or which discharges a
duty of performance that has already risen.
 Future and uncertain
22
 Past but unknown  Javier v. CA − when a contract is subject to a suspensive condition, its birth
Kinds of Conditions: or effectivity can take place only if and when the event constitutes the
a. Suspensive condition (condition precedent) − the fulfillment of which will condition happens or is fulfilled.
give rise to the performance of an obligation. The demandability of the
obligation is suspended until the fulfillment of the condition.
Ex. Contract to sell − when the buyer pays the last installment, the Art. 1180 – Payment Depends on Debtor’s Means
title of the property shall be transferred to him When the debtor binds himself to pay when his means permit him to do so, the
o Art. 1182 − potestative, casual conditions obligation shall be deemed to be one with a period, subject to the provisions of
b. Resolutory condition (condition subsequent) − operates to discharge a Article 1197. (n)
duty of performance that has already arisen. The obligation is extinguished
by operation of law. When duration of the period depends upon the will of the debtor:
Ex. X binds himself to give Y ®1,000 allowance until Y graduates from  Debtor − law presumes that the debtor really intends to pay.
college.  Creditor − the problem is, the creditor is left to speculate and payment
o Reciprocal obligations − the obligation of one is a resolutory could be an uncertain event.
condition of the obligation of the other, the non−fulfillment of  Remedy of the law − to balance the presumed intent of the debtor to pay
which entitles the other to rescind the contract. and the interest of the creditor by classifying the obligation as one with a
 Coronel v. CA − period.
CONTRACT TO SELL CONDlTlONAL CONTRACT OF SALE o Art. 1197 − The courts may fix a period.
Suspensive Promise to sell upon the happening of The seller reserves title to the o Period − a future and certain event upon the arrival of which the
Condition the suspensive condition (payment of property until the suspensive obligation subject to it arises or is extinguished. (Art. 1193)
the final installment). condition (full payment) is fulfilled.
Ownership Ownership will not automatically Ownership thereto automatically Art. 1181 – Conditional Obligations
transfer to the buyer although the transfers to the buyer by operation In conditional obligations, the acquisition of rights, as well as the extinguishment or
property may have been previously of law without any further act loss of those already acquired, shall depend upon the happening of the event which
delivered to him. having to be performed by the
constitutes the condition. (1114)
seller.
Third A 3rd person buying such property Prospective buyer can seek relief
Persons despite the fulfillment of the of reconveyance of the property.  Suspensive condition (condition precedent) − a condition which must be
suspensive condition, cannot be fulfilled before the obligation may be demandable.
deemed a buyer in bad faith. o Acquisition of rights
Prospective buyer cannot seek relief of  Resolutory condition (condition subsequent) − operates to extinguish an
reconveyance of the property (only a already existing obligation.
promise to sell). o Loss of rights already acquired
Status of There is already a contract from the If the suspensive condition is not
the beginning hence, if the suspensive fulfilled, the perfection of the
Art. 1182 – Potestative and Casual Conditions
Obligation condition is not fulfilled, the seller may contract is abated.
rescind the contract. When the fulfillment of the condition depends upon the sole will of the debtor, the
The prospective seller still has to conditional obligation shall be void. If it depends upon chance or upon the will of a
convey title to the prospective buyer by third person, the obligation shall take effect in conformity with the provisions of
entering into a contract of sale this Code. (1115)
23
 “When fulfillment of a condition” − connotes a suspensive character of the C. Mixed obligation − depends not only upon the will of the debtor but also
prestation upon chance and some other factors.
Ex.
Conditions contemplated in this provision: 1. Romero v. CA − downpayment from the buyer shall be
A. Potestative condition – fulfillment depends upon the sole will of the returned if the seller (will of the vendor) shall not be
debtor, then it is essentially a condition because whether the debtor will or able to remove the squatters (will of 3rd persons) from
will not fulfill the obligation is a future and uncertain event, which is void. the property.
Ex. 2. Naga Telephone Co. Inc. v. CA − petitioner can use the
1. Lao Lim v. CA − the lease contract shall subsist for so long as the electrical posts of the respondent as long as it needed
defendant needed the premises. The birth of the new lease the posts and the contract shall terminate when the
contract depended on the sole will of the lessee, which is void. respondent is forced to stop its operation as a public
2. Trillana v. Quezon College − full payment of the shares in a school service (dependent on chance, hazard and 3rd persons).
was to be made only after the obligor had harvested fish.  A condition at once facultative and resolutory may be valid even though
o However, if the potestative condition is imposed not on the birth the condition is made to depend upon the will of the obligor
of the obligation but on its fulfillment, only the condition is
avoided, leaving unaffected the obligation itself. This happens
when the obligation is pre−existing.
Ex. Art. 1183 – Void Conditions
1. X borrowed ®10,000 from Y payable within 2 months. Impossible conditions, those contrary to good customs or public policy and those
Subsequently, X promised to pay Y after X sells his car prohibited by law shall annul the obligation which depends upon them. If the
to which Y agreed. In this case, only the condition is obligation is divisible, that part thereof which is not affected by the impossible or
void but not the X’s pre−existing obligation to pay Y. unlawful condition shall be valid.
2. Osmena v. Ramos − where in a promissory note the
obligor promised to pay after the house is sold, the The condition not to do an impossible thing shall be considered as not having been
condition is void but the obligation to pay subsists. agreed upon. (1116a)
3. Security Bank and Trust Company v. CA − where upon
stipulation of the parties, the owner shall equitably  Impossible conditions − render the obligation dependent upon them as
make appropriate adjustments was void, hence the legally ineffective. The condition annuls the prestation.
bank was ordered to pay the obligation in full. 1. Physically impossible conditions − when such conditions cannot exist
o Patente v. Omega − when the condition is void and the obligation or cannot be done in the nature of things.
subsists, such obligation is not converted into one which is pure Ex. If it will not rain in the Philippines for one year
and unconditional. An arraignment might be enforced which is If you can carry 20 cavans of palay on your shoulder
not within the contemplation of the parties. The best solution is 2. Legally impossible conditions − when they are contrary to law,
to consider the parties having intended a period, and ask the morals, good customs, public order or public policy.
court to fix a period. Ex. If you kill Z (against the law)
B. Casual condition − depends on chance, hazard, or the will of a third person If you slap your father (against good customs)
o A resolutory condition that depends upon the will of a third If you overthrow the government (against public order)
person is not void.
Ex. Ducusin v. CA − agreement shall be terminated when
the lessor’s children need the premises.
24
Art. 1184 – Positive Condition  Constructive fulfillment – the obligor voluntarily prevents the fulfillment
The condition that some event happen at a determinate time shall extinguish the of the condition in an obligation where the law states that the obligation
obligation as soon as the time expires or if it has become indubitable that the event shall be deemed fulfilled.
will not take place. (1117) o Tayag v. CA − as a condition of a contract of sale, the buyer was
required to pay the balance of a particular loan and where the
vendors prematurely paid the loan, thereby preventing the buyer
 Positive condition − the happening of an event at a determinate time
to fulfill the condition, there was constructive fulfillment.
extinguishes the obligation.
Ex. X obliges to give Y ®10,000 if B will marry C before B reaches the  Reciprocal obligation − both parties are mutually obligors and also
obligees, and any of the contracting parties may, upon non−fulfillment by
age of 23.
the other party of his part of the prestation, rescind the contract or seek
 X is liable if B marries C before B turns 23.
fulfillment.
 X is not liable if B marries C when B turns 23 or after B
turns 23.
 If C dies when B is 22, it has become indubitable that the Art. 1187 – Retroactive Effects of the Fulfillment of a Suspensive Condition
condition shall happen. Hence, the obligation of X is The effects of a conditional obligation to give, once the condition has been fulfilled,
extinguished. 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
Art. 1185 – Negative Condition
mutually compensated. If the obligation is unilateral, the debtor shall appropriate
The condition that some event will not happen at a determinate time shall render
the fruits and interests received, unless from the nature and circumstances of the
the obligation effective from the moment the time indicated has elapsed, or if it has
obligation it should be inferred that the intention of the person constituting the
become evident that the event cannot occur.
same was different.
If no time has been fixed, the condition shall be deemed fulfilled at such time as
In obligations to do and not to do, the courts shall determine, in each case, the
may have probably been contemplated, bearing in mind the nature of the
retroactive effect of the condition that has been complied with. (1120)
obligation. (1118)
Presupposes the happening of a suspensive condition.

 Negative condition − if the event does not happen at a determinate time,
The effect of a conditional obligation to give retroacts to the day of the
the obligation shall become effective and binding.
constitution of the obligation.
Ex. X will give Y ®10,000 if Y does not fail any of his exams at the end
o The efficacy of the obligation is merely suspended or held in
of the semester.
abeyance until the condition is fulfilled.
 Resolutory condition − the fulfillment of the event extinguishes the
Art. 1186 – Constructive Fulfillment obligation; hence retroactivity is not relevant.
The condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment. (1119) Situations contemplated:
1. Reciprocal obligations − the fruits and interests during the pendency of
The good faith-obligation of the parties includes an implied term on the the condition shall be deemed to have been mutually compensated.
part of the said parties not to impede, hinder, obstruct or prevent the  Fruits on the object of prestation (from debtor) and the interest
fulfillment of the obligation. on the payment (from creditor) incurred during the pendency of
the condition need not be delivered.
25
2. Unilateral obligations − the debtor or obligor shall appropriate the fruits (5) If the thing is improved by its nature, or by time, the improvement shall inure to
and interests received, unless from the nature and circumstances of the the benefit of the creditor;
obligation it should be inferred that the intention of the person (6) If it is improved at the expense of the debtor, he shall have no other right than
constituting the same is different. that granted to the usufructuary. (1122)
 Any fruits or interests incurred by the object of prestation shall
belong to the obligor, prior to the fulfillment of the condition. Involves the prestation to give a determinate thing which is subject to a
3. Obligations not to do − courts shall determine the retroactive effect of the suspensive condition
fulfilled condition. o In the case of resolutory conditions, Art. 1170, 1173 and 1174
shall apply.
Art. 1188 – Rights Pending Fulfillment of Suspensive Condition Definitions:
The creditor may, before the fulfillment of the condition, bring the appropriate 1. Loss − when a thing perishes (physical loss), goes out of commerce
actions for the preservation of his right. (legal loss) or when a thing disappears in such a way that its
existence is unknown (civil loss).
The debtor may recover what during the same time he has paid by mistake in case 2. Deterioration − a thing deteriorates when its value is reduced or
of a suspensive condition. (1121a) impaired with or without the fault of the debtor.
 The choice of the remedies to be pursued, whether
1. Creditor − can file an injunction suit to stop the debtor from alienating his rescission plus damages or fulfillment plus damages,
property which is supposed to be given to the creditor once a particular belongs to the creditor regardless of the degree of
condition is fulfilled. deterioration caused by the debtor.
2. Debtor − can recover what has been paid by mistake when the obligation is  If the deterioration caused by the debtor is so grave that
not yet due and demandable. the object goes out of commerce, it can be considered
o A case of solutio indebiti lost and the creditor can seek damages from the debtor.
3. Improvement − a thing is improved when its value is increased or
Art. 1189 – Loss, Deterioration or Improvement Pending the Condition enhanced by nature or by time, or at the expense of the debtor or
When the conditions have been imposed with the intention of suspending the creditor.
efficacy of an obligation to give, the following rules shall be observed in case of the  Usufruct − gives a right to enjoy the property of another
improvement, loss or deterioration of the thing during the pendency of the with the obligation of preserving its form and substance
condition: unless the title constituting it or the law otherwise
provides.
(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;
26
Rules in case of loss, deterioration or improvement of the thing during rescission, even after he has chosen fulfillment, if the latter should become
pendency of suspensive condition: impossible.
Without fault/participation With fault/participation The court shall decree the rescission claimed, unless there be just cause authorizing
of the debtor of the debtor the fixing of a period.
Obligation is extinguished
LOSS Debtor shall pay damages This is understood to be without prejudice to the rights of third persons who have
(fortuitous event)
Creditor may choose acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage
Creditor shall bear rescission of the obligation Law. (1124)
DETERIORATION
impairment or its fulfillment, plus
damages  Reciprocal obligations − the obligation of one is a resolutory condition of
Creditor shall enjoy the Debtor shall only have the other, the non−fulfillment of which entitles the other to rescind the
IMPROVEMENT contract. Songcua v. lAC
benefits usufructuary rights
 Remedies − fulfillment of the obligation or rescission plus damages.
o The injured party may also seek rescission even after he has
Art. 1190 – Effects of Fulfillment of a Resolutory Condition chosen fulfillment.
When the conditions have for their purpose the extinguishment of an obligation to o Areola v. CA − the aggrieved party who opted for the fulfillment of
give, the parties, upon the fulfillment of said conditions, shall return to each other the obligation was also entitled to damages.
what they have received. o Ayson Simon v. Adamos − where both heirs of the deceased
owner and a buyer of a property won cases against a seller, and
In case of the loss, deterioration or improvement of the thing, the provisions which, both filed for the delivery of such property, the buyer’s action for
with respect to the debtor, are laid down in the preceding article shall be applied to rescission and damages was proper considering that the heirs
the party who is bound to return. already had possession of the property.
o Siy v. CA − the law does not authorize the injured party to rescind
As for the obligations to do and not to do, the provisions of the second paragraph of
the obligation and at the same time seek its partial fulfillment
Article 1187 shall be observed as regards the effect of the extinguishment of the
instead of collecting damages.
obligation. (1123)
 Once a resolutory condition is fulfilled, the obligation is extinguished and Rescission − to declare the contract void at its inception and to put an end to it as
there must be restitution of what has been obtained. though it never was.
 In the case of loss, deterioration or improvement of the thing during the  Predicated on the breach of faith by any of the parties to a contract that
pendency of the resolutory condition, Art. 1189 shall apply. violates the reciprocity between them.
 In obligations to do and not to do, the courts shall determine the effect of  The power to rescind is not absolute and must be based on a serious or
the extinguishment of the obligation. substantial breach of an obligation as to defeat the object of the parties in
making the agreement.
Art. 1191 – Remedies in Reciprocal Obligations o A mere casual breach does not justify rescission of the contract.
o The question of whether a breach of a contract is substantial
The power to rescind obligations is implied in reciprocal ones, in case one of the
depends upon the attendant circumstances.
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
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Cases: rescission made is not the revocatory act of rescission but merely
o Philippine Amusement Enterprises Inc. v. Natividad − that “there declaratory or an affirmation of the revocation.
were times” when the jukebox did not work did not constitute the o Palay Inc. v. Clave − stipulation which states that the seller may
substantial breach sufficient to effect a rescission. declare the contract cancelled without notice is void.
o Tan v. CA − private respondents have substantially complied with o Jison v. CA − sending a notice to the buyer is an indispensable act.
the obligation. Time not being of essence, a slight delay on the  Notice − revocatory act in express stipulation to rescind.
part of the private respondent is not sufficient ground for the
resolution of the agreement.
Art. 1192 – Breach by Both Parties
o Velarde v. CA − although a slight delay in payment of 1 month may
In case both parties have committed a breach of the obligation, the liability of the
be a casual breach considering that time is not of the essence,
first infractor shall be equitably tempered by the courts. If it cannot be determined
pre−conditions to pay by the debtor left the creditor with no
which of the parties first violated the contract, the same shall be deemed
choice but to opt for rescission.
extinguished, and each shall bear his own damages. (n)
o Santos v. CA − if the contract involved is a contract to sell, the
termination is not a rescission under Art. 1191, but an
 First infractor known − subsequently, the other also violated his part of
enforcement of the contract.
the obligation. The liability of the first infractor should be equitably
reduced.
Forms of power to rescind:
a. Implied power to rescind − can only be enforced through court action, in  First infractor cannot be determined − obligation shall be deemed
extinguished and shall bear his own damages.
the absence of stipulation to the contrary.
o The decision of the court is the revocatory act of rescission
o Court shall decree the rescission claimed unless there is just
cause to authorize fixing a period.
 Roman v. CA − if the buyer paid within 60 days according SECTION 2. - Obligations with a Period
to the terms, there would have been just cause to grant
an extension.
 Central Philippine University v. CA − no just cause; fixing
of a period would be a mere technicality and formality
Art. 1193 – Obligations with a Period
that would serve no purpose than to delay or lead to an
Obligations for whose fulfillment a day certain has been fixed, shall be demandable
unnecessary and expensive multiplication of suits.
only when that day comes.
b. Express unilateral extrajudicial stipulation to rescind − power to rescind
need not be implied in all cases. Obligations with a resolutory period take effect at once, but terminate upon arrival
o Parties may stipulate that the violation of the terms of the of the day certain.
contract shall cause the cancellation, termination or rescission
thereof even without court intervention A day certain is understood to be that which must necessarily come, although it
o University of the Philippines v. De Los Angeles − stipulation is may not be known when.
always provisional, subject to scrutiny and review by the proper
court. Notice must always be given to the defaulter before If the uncertainty consists in whether the day will come or not, the obligation is
rescission can take effect conditional, and it shall be regulated by the rules of the preceding Section. (1125a)
o De Luna v. Abrigo − when there is an express stipulation to
rescission, any court decision validating the propriety of the
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 Period − a future and certain event upon the arrival of which the obligation o Natural fruits − spontaneous products of soil and the young or
subject to it either arises or is terminated. It is a day which must other products of animals
necessarily come (like next Christmas), although it may not be known o Industrial fruits − produced by lads of any kind through cultivation
when (like the death of a person). or labor
 Obligation with a period − an obligation constituted at a much earlier date o Civil fruits − derived by virtue of a juridical relation
but its effectivity only commences on a certain future period of time.
 Suspensive period − gives rise to the effectivity of the obligation.
Art. 1196 – Period Benefits Both Creditor and Debtor
o Gaite v. Fonacier − where the balance was to be paid from and Whenever in an obligation a period is designated, it is presumed to have been
out of the first letter of credit covering the first shipment of iron established for the benefit of both the creditor and the debtor, unless from the
derived from the local sale of iron by the client, the stipulation is a tenor of the same or other circumstances it should appear that the period has been
suspensive period not a suspensive condition. established in favor of one or of the other. (1127)
o A suspensive condition is comparatively more onerous than a
suspensive period.  General rule − the presumption of the law is that the period is for the
 Resolutory period − gives rise to the extinguishment of the obligation. benefit of both debtor and creditor.
o Fernandez v. CA − a contract of lease is a reciprocal contract. The
period of lease must be deemed to have been agreed upon for
Art. 1194 – Loss, Deterioration or Improvement before Day Certain the benefit of both parties.
In case of loss, deterioration or improvement of the thing before the arrival of the  Exception − when the nature of the obligation or stipulation of the parties
day certain, the rules in Article 1189 shall be observed. (n) shows that the period was for the benefit of either party.
The benefit of the period may be waived by the person in whose favor it
The same rules in Article 1189 shall apply in obligations subject to a suspensive or a was constituted.
resolutory period. o Abesamis v. Woodcraft Works Inc. − where the obligor informed
the obligee that he will make an early delivery of the subject
Art. 1195 – Debtor May Recover Payment portions of shipment, the obligor was made liable for failure to
Anything paid or delivered before the arrival of the period, the obligor being make such delivery. Use of the period was effectively waived.
unaware of the period or believing that the obligation has become due and
demandable, may be recovered, with the fruits and interests. (1126a) Art. 1197 – Court May Fix a Period
If the obligation does not fix a period, but from its nature and the circumstances it
Applies only to obligations to give can be inferred that a period was intended, the courts may fix the duration thereof.
o The provision may not be applied in obligations to do or not to do The courts shall also fix the duration of the period when it depends upon the will of
because it is physically impossible to recover a service rendered. the debtor.
Similar to Art. 1188 paragraph 2 where a creditor cannot unjustly enrich
himself by retaining payment which is not due. In every case, the courts shall determine such period as may under the
Burden of proof of paying by mistake is on the debtor. Debtor is presumed circumstances have been probably contemplated by the parties. Once fixed by the
to be aware of the period. courts, the period cannot be changed by them. (1128a)
If the obligor delivered the object before the arrival of the period, and
upon arrival of the period, the obligee is in the possession of the object, Related articles:
the obligor can only recover the fruits and interests accruing from the time  Art. 1180 − when the debtor binds himself to pay when his means permit
of the delivery up to the arrival of the period. him to do so
Kinds of Fruits: (N.I.C.)
29
 Art. 1191 par. 3 − instead of issuing a decree of rescission, the court may 1. When debtor becomes insolvent
authorize the fixing of a period when there is just cause o Unless he gives a guaranty or security for the debt − a debtor may
ask a third person to guarantee his debt or put up his house as
Presumption − the court is generally without power to fix a period. If the obligation collateral.
does not state a period and no period is intended, the court is not authorized to fix o Insolvency need not be judicially declared.
a period because it has no right to make contracts for parties. 2. When debtor does not furnish the guaranties or securities promised
o Securities can take the form of real−estate mortgages or pledges
Gregorio Araneta, Inc. v. Phil. Sugar Estates Development Co. Ltd. 3. When guaranties or securities given have been impaired or have
2- step process: disappeared through the debtor’s acts
1. The court must first determine that the obligation does not fix a o Unless he immediately gives new ones equally satisfactory.
period or that a period is made to depend upon the will of the o Gaite v. Fonacier − because of the company’s failure to renew the
debtor, but from the nature and circumstances it can be inferred bond of a surety or else replace it with an equivalent guarantee,
that a period was intended. the debtor has forfeited it right to the period making the
2. The court must decide what period was probably contemplated obligation immediately demandable.
by the parties. o The debtor loses the benefit of the period even if the guaranties
 Radiowealth Finance Company v. Del Rosario − the fact that the due date and securities disappear through a fortuitous event.
was left blank does not necessarily mean that payment was left on the sole 4. When the debtor violates any undertaking, in consideration of which the
will of the debtor. The promissory note indicated that the debt should be creditor agrees to the period
amortized monthly in installments. o Allen v. Province of Albay
Constructive waiver of period − when the owner prevents the
period from arriving. Hence, the obligor shall be allowed to
Art. 1198 – When Debtor Cannot Make Use of the Period
furnish the obligation within reasonable time.
The debtor shall lose every right to make use of the period:
5. When the debtor attempts to abscond
(1) When after the obligation has been contracted, he becomes insolvent, o A mere attempt by the debtor to flee from his obligations, or to
unless he gives a guaranty or security for the debt; move away to evade payment of his indebtedness, is sufficient
(2) When he does not furnish to the creditor the guaranties or securities ground to demand from him immediately.
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)
When debtor cannot make use of the period: (G.A.V.I 2.)
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SECTION 3. - Alternative Obligations Ex.

 A owes B ®30,000. He can either pay by giving B his
horse, his piano, or ®30,000 in cash.
 A has two horses, one worth ®30,000 and another crap
Art. 1199 – Alternative Obligations one worth ®5,000. He cannot choose the ®5,000 horse
A person alternatively bound by different prestations shall completely perform one because it could not have been the object of the
of them. obligation.
The creditor cannot be compelled to receive part of one and part of the other
undertaking. (1131)
Art. 1201 – Choice Communicated
The choice shall produce no effect except from the time it has been communicated.
 “Different Prestations” − refers to both strict and loose sense of the word.
(1133)
o Either different kinds of prestations (1 to give, and 1 to do)
o Or merely different objects (give a car, or give a boat)
 Creditor is entitled to be notified of the choice.
 Partial Performance of different prestations does not fulfill the obligation,
 Mode of communication may vary − it is also the debtor’s choice
unless the creditor accepts such partial performance as complete
 Choice is given effect only upon communication to the creditor.
performance.
o Debtor must choose complete performance of one or the other.  Creditor has no right to oppose the choice, provided such choice of
 If all but one of the alternatives becomes legally impossible, obligation prestation is not unlawful, impossible, or outside what the parties wanted.
becomes simple.
o Loan payable in Pesos or USD, alternative obligation ceased to Art. 1202 – Only One Choice is Practicable
exist when USD was illegal (Japanese time) The debtor shall lose the right of choice when among the prestations whereby he is
alternatively bound, only one is practicable. (1134)
Art. 1200 – Debtor’s Right of Choice
The right of choice belongs to the debtor, unless it has been expressly granted to  Right of choice is given to the debtor − according to law
the creditor. o This right implies that the debtor can destroyƒimpair all other
choices as long as one remains
The debtor shall have no right to choose those prestations which are impossible,  Practicable – capable of being done; feasible.
unlawful or which could not have been the object of the obligation. (1132) o Thus, when only one of the choices is practicable, the debtor loses
his right of choice.
Any doubt as to whom the choice is given as to which prestation to comply o A prestation can be possible and lawful, but not practicable.
with is always construed in favor of the debtor. Ex. Kissing a highly contagious leper − possible, and not
 General rule − debtor always has choice. illegal, but impracticable and thus cannot be chosen by
o Exception − when such choice is expressly granted to the creditor. debtor.
 Restriction on Debtor’s Power of Choice − the law, the intention of the
parties, and the realm of possibility. Art. 1203 – Debtor Cannot Choose due to Creditor’s Acts
Debtor has no right to choose those prestations which are: If through the creditor's acts the debtor cannot make a choice according to the
o lmpossible – Ex. fly to the moon, turn water into wine, terms of the obligation, the latter may rescind the contract with damages. (n)
o Unlawful − Ex. steal a car, deal drugs
o Could not have been the object of the obligation Creditor cannot stop the debtor from fulfilling his obligation.
31
 If creditor’s own acts result in the loss of a choice, the debtor can (he is not Art. 1205 – Choice Given to Creditor
bound to do so) rescind with a right to damages. When the choice has been expressly given to the creditor, the obligation shall cease
Ex. A can pay his debt to B by giving a certain cellphone, giving a to be alternative from the day when the selection has been communicated to the
certain horse, or dancing in a show. debtor.
o If the creditor through his own acts makes any of these choices
impossible: Until then the responsibility of the debtor shall be governed by the following rules:
 Kills horse
 Destroys phone (1) If one of the things is lost through a fortuitous event, he shall perform the
 Burns club obligation by delivering that which the creditor should choose from among the
o Debtor has the option to rescind with damages. remainder, or that which remains if only one subsists;
As long as the creditor makes one of the choices impossible, the debtor
may rescind. (contrast this with next article) (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
Art. 1204 – Through Debtor’s Fault, All Choices are Lost fault of the former, has disappeared, with a right to damages;
The creditor shall have a right to indemnity for damages when, through the fault of
(3) If all the things are lost through the fault of the debtor, the choice by the
the debtor, all the things which are alternatively the object of the obligation have
creditor shall fall upon the price of any one of them, also with indemnity for
been lost, or the compliance of the obligation has become impossible.
damages.
The indemnity shall be fixed taking as a basis the value of the last thing which
The same rules shall be applied to obligations to do or not to do in case one, some
disappeared, or that of the service which last became impossible.
or all of the prestations should become impossible. (1136a)
Damages other than the value of the last thing or service may also be awarded.
Conferment of right of choice to the creditor must always be express.
(1135a)
Obligation ceases to be alternative when choice is communicated to the
debtor.
Debtor will not be liable for loss of choices, even if obligation ceases to
 Until communication is done, law provides rules as to the debtor’s
become alternative and becomes simple.
responsibility:
o He has the right of choice, after all, and the creditor cannot
o One of the things is lost through a fortuitous event
complain.
 Debtor delivers what creditor chooses from the
However, when all of the alternative prestations are rendered impossible,
remainder, or the only one remaining.
the creditor is entitled to damages.
o Loss of one of the things occurs through fault of the debtor
 The value of the damages will be based on the value of the last choice to
 Creditor may claim any of the remaining options.
be lostƒrendered impossible, be it a service or a thing to give.
 Creditor may claim the price of the thing which
Contrast with previous provision:
o Creditor only needs to render impossible at least one of the disappeared.
prestations.  Regardless of what the creditor picks, he has a right to
o Debtor must impair all of the prestations damages.
o If all things are lost through fault of the debtor
 Creditor chooses the price of any one of them.
 Also with an indemnity for damages.
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Art. 1206 – Facultative Obligations o “lndividually has the same meaning as “collectively”, “separately”,
When only one prestation has been agreed upon, but the obligor may render “distinctly”, etc.
another in substitution, the obligation is called facultative. Ex. An agreement (where the parties agree) to be”
individiaully liable” creates a several obligation.
The loss or deterioration of the thing intended as a substitute, through the o Other wordsƒphrases denoting several obligation
negligence of the obligor, does not render him liable. But once the substitution has  Juntos o sepadaramente
been made, the obligor is liable for the loss of the substitute on account of his  Mancomun o insolidum
delay, negligence or fraud. (n) o When a contract says “l promise” (singular) and is signed by two
or more promisors
 Facultative Obligation − only one prestation has been agreed upon, but
obligor may render another in substitution Art. 1208 – Joint Obligations
Ex. “l will give you my piano, but l may give you my TV as a substitute. lf from the law, or the nature or the wording of the obligations to which the
Thus, only the piano is due and only the loss of this piano makes me preceding article refers the contrary does not appear, the credit or debt shall be
liable for damages.” presumed to be divided into as many shares as there are creditors or debtors, the
Creditor cannot refuse the substitute, unless such is unlawful. credits or debts being considered distinct from one another, subject to the Rules of
Once substitution has been made, obligor is liable for its loss. Court governing the multiplicity of suits. (1138a)
 Presumption of law − obligation is always a joint one.

SECTION 4. - Joint and Solidary Obligations o Un Pak Leung v. Negorra − in the absence of facts that the
defendants made themselves individually liable for the whole
amount, they are only liable for their share in the debt.
 Joint Obligation – an obligation where the debtors are only bound to pay
Art. 1207 – Solidary Obligations
their share and the creditors can only claim their share.
The concurrence of two or more creditors or of two or more debtors in one and the
Ex. A and B owe C and D ®1000.
same obligation does not imply that each one of the former has a right to demand,
o C can collect ®250 each from A and B.
or that each one of the latter is bound to render, entire compliance with the
o D can also collect ®250 each from A and B.
prestation. There is a solidary liability only when the obligation expressly so states, o But if A owns only 1ƒ3 of the indebtedness, and C only 1ƒ5 of
or when the law or the nature of the obligation requires solidarity. (1137a) the credit:
o Creditors and debtors shall collect and pay only in
 Solidary Obligation − a situation where there are debts incurred by 2 or proportion to what they own and owe.
more debtors in favor of 2 or more creditors, and the right is given to o In this case, A only pays 1ƒ3 of the ®1000, split such that
anyone, some or all of creditors, to demand the satisfaction of the TOTAL C gets 1ƒ5 and D gets 4ƒ5.
obligation from anyone, some, or all of the debtors.
o Anyone of the creditors may demand fulfillment of the entire Art. 1209 – When Division is Impossible
obligation from any one of the debtor, not just for the share of If the division is impossible, the right of the creditors may be prejudiced only by
that debtor. their collective acts, and the debt can be enforced only by proceeding against all the
o Only exists when it is expressly stated, or when law or nature of debtors. If one of the latter should be insolvent, the others shall not be liable for his
obligation so requires. share. (1139)
 Ronquillo v. CA − the following terms indicate a solidary obligation:
Art. 1210 – Indivisibility and Solidarity
33
The indivisibility of an obligation does not necessarily give rise to solidarity. Nor  D can collect the whole amount from anyone, BUT the
does solidarity of itself imply indivisibility. (n) debtor can only pay the balance of the debts that have
already matured.
If division of the obligation is impossible, and the obligation is joint, the 2. A due on Monday, B on Tues, C on Wed.
creditors must act collectively  D can collect from any one of them, but can only collect
o One creditor cannot undertake an act which will prejudice the ®5,000 on Monday (since only A’s debt has matured)
others, unless he is authorized by the others to undertake such an
act.
If several debtors are obliged to give an indivisible obligation (like a house) Art. 1212 – Acts of Solidary Creditors
all of them must be sued if they renege on their obligation. Each one of the solidary creditors may do whatever may be useful to the others, but
o So if one of the debtors refuses to deliver the house, the not anything which may be prejudicial to the latter. (1141a)
obligation is turned into a claim for damages.
o A joint indivisible obligation becomes a claim for damages the As mentioned before, solidary creditors may not do anything which may
moment any one of the debtors does not comply with the prejudice the others.
undertaking. Ex. Refusing payment when debtors are ready to pay is prejudicial to the
o How will the damages be divided? others creditors.
 Those debtors who were ready to fulfill the obligation  Thus, the other creditors can ask for damages.
are only liable for their corresponding portion. They can, however, do things that may be useful for the others.
Ex. 3 debtors must give a house, and one refuses. In Ex. Quisumbing v. CA − one of the solidary creditors filed a suit for
the following claim for damages, the 2 debtors collection against the solidary debtors. This was held to be a useful
who were going to deliver the house are each act, and thus could be done just by one of the creditors.
only liable for 1ƒ3 the price of the house.
 The debtor who is responsible for the damages claim Art. 1213 – Mutual Trust among Solidary Creditors
may be liable for the additional damages. A solidary creditor cannot assign his rights without the consent of the others. (n)
o Debtors shall not be responsible for another debtor who becomes
insolvent. The relationship between the solidary creditors should be one of mutual
Solidarity does not mean indivisibility and vice versa. trust.
o Solidary refers to nature of the obligors and obligees  To preserve this − a solidary creditor cannot assign his rights to others
o Indivisibility refers to nature of the prestation without consent of the others. (they might not know the new co−creditor
as well, for Ex. − the trust may be lost)
Art. 1211 – Not Bound in the Same Manner
Solidarity may exist although the creditors and the debtors may not be bound in the Art. 1214 – Judicial or Extrajudicial Demand by a Solidary Creditor
same manner and by the same periods and conditions. (1140) 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.
 Solidarity can still exist even if creditors and debtors are bound in different (1142a)
manners, or have different conditionsƒperiods.
Ex. 1. A, B and C are solidarily indebted to D for ®15,000.
 General Rule − debtor may pay any of the solidary creditors.
o However, when demand (judicial or extrajudicial) is made by one
of the creditors, payment should be made to he who demanded.
34
 Payment to another creditor − the obligation will not be extinguished, This reiterates the rule that any one or some or all of the solidary debtors
payment is invalid insofar as the share of the demanding creditor, in case may be made to pay the debt, so long as it has not been fully collected.
the other creditor does not give it.  Thus, proceedings against one of the debtors will not be a bar to any
Ex. A is liable to pay B and C ®10,000. If B demands from A, A must further proceedings against another, provided that the debt is still
pay to B. subsisting (at the end of the day, if the debtors still owe something, then
 If A pays C, B is still entitled to his share from A in case C they must pay it − and since the obligation is solidary, the creditor can
does not give B his share. claim from anyone.)
 Atty. Mel disagrees with this interpretation − collecting payment is  Solidary creditor has a right to refuse partial payment − however, if he
beneficial to the other creditors and thus should be allowed. does accept partial payment from one debtor, this does not bar him from
If there are 2 or more debtors, only the debtor upon whom demand is demanding from the others the rest of the obligation.
made is bound to pay to the specific creditor who made the demand.
Art. 1217 – Payment by Solidary Debtors
Payment made by one of the solidary debtors extinguishes the obligation. If two or
Art. 1215 – Extinguishment by a Solidary Creditor more solidary debtors offer to pay, the creditor may choose which offer to accept.
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, He who made the payment may claim from his co−debtors only the share which
without prejudice to the provisions of Article 1219. 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
The creditor who may have executed any of these acts, as well as he who collects be demanded.
the debt, shall be liable to the others for the share in the obligation corresponding
to them. (1143) 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−
These are modes of extinguishing obligations, to be discussed in the next debtors, in proportion to the debt of each. (1145a)
title. Briefly, they are:
1. Novation − change of creditors, debtors, or principal condition. This article deals with the effect of payment by solidary debtors, with
2. Compensation − two persons are creditors and debtors of each regard to several relationships.
other.
3. Confusion − creditor and debtor are merged in the same person. 1. Between solidary debtors and creditor(s)
4. Remission − condonation of an obligation.  Payment made by one of the solidary debtors (payment in full)
Any of the solidary debtors can undertake these options with any of the extinguishes the obligation.
solidary debtors, and thus the obligation will be extinguished. However, he  Creditor is given a right to choose which offer to accept, if there
who does these acts will be liable to his fellow creditors for their share in are more than one debtors offering to pay.
the obligation. 2. Among the solidary debtors
 He who paid the debt can demand reimbursement from his co−
Art. 1216 – Rights of Creditor Against Solidary Debtors debtors for their proportionate shares (with legal interest from
The creditor may proceed against any one of the solidary debtors or some or all of the time that he paid).
them simultaneously. The demand made against one of them shall not be an  When one of the debtors cannot reimburse because he is
obstacle to those which may subsequently be directed against the others, so long as insolvent, the other debtors will pay his share, in proportion with
the debt has not been fully collected. (1144a) their respective debts.
3. Among the solidary creditors
35
o The receiving creditor (the person who was paid) is jointly liable  If payment was made BEFORE remission, A is liable to B
to the others for their corresponding shares. for ®500 because the remission had no effect.
Art. 1221 – Loss or Impossibility of Prestation in Relation to Solidary

Art. 1218 – When Payment has Prescribed or become Illegal Debtors
Payment by a solidary debtor shall not entitle him to reimbursement from his co− If the thing has been lost or if the prestation has become impossible without the
debtors if such payment is made after the obligation has prescribed or become fault of the solidary debtors, the obligation shall be extinguished.
illegal. (n)
If there was fault on the part of any one of them, all shall be responsible to the
 If a debtor pays after the obligation is prescribed or has become illegal, creditor, for the price and the payment of damages and interest, without prejudice
essentially, he is paying a non−existent debt. to their action against the guilty or negligent debtor.
o Prescription means that the cause of action has already lapsed
and ceased to exist. 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
 Thus, he cannot demand that his co−debtors reimburse him for their
shares. judicial or extrajudicial demand upon him by the creditor, the provisions of the
preceding paragraph shall apply. (1147a)
Art. 1219 – Remission of a Solidary Debtor’s Liability

This article provides rules for when the thing to be delivered is lot, or when
The remission made by the creditor of the share which affects one of the solidary
the prestation becomes impossible to comply with.
debtors does not release the latter from his responsibility towards the co−debtors,
1. Loss is without fault of debtors, and without delay − obligation is
in case the debt had been totally paid by anyone of them before the remission was
extinguished.
effected. (1146a)
2. If with fault of any of the debtors − all shall be liable for damages with
interest without prejudice innocent debtors actions against the guilty or
Art. 1220 – Remission of the Whole Obligation
the negligent debtor.
The remission of the whole obligation, obtained by one of the solidary debtors,
3. Loss is due to fault of a solidary debtor
does not entitle him to reimbursement from his co−debtors. (n)
Ex. A, B, and C are obliged to deliver a truck worth ®15,000 to D
 If it is lost through the fault of C, A and B are still
When a creditor remits the debt of one of the solidary debtors, the effects
responsible to D for the price of the truck as well as
depend on when such remission was done.
damages. (in solidary obligations, the faultƒdelay of one
o lf the creditor remits the whole debt before payment was made,
of the debtors is the faultƒdelay of all)
the person who convinced the creditor to remit cannot claim
anything from his co−debtors, because he hasn’t paid anything.  A and B can recover from C damages.
4. Loss is without fault but after delay
o If debt had been paid already, and the creditor is convinced to
condone the debt, this has no effect. However, the debtor who o D can recover damages from the innocent debtors, and the
paid can still go after his other co−debtors for their share. innocent debtors have the same action against the offending
debtor as mentioned in the previous number.
 This article is only applicable when there is one creditor.
o Because one of them was in default, all of them now are
Ex. A and B are solidarily liable to C for ®1,000.
responsible even for a fortuitous event.
 C remits A’s share.
 If B pays C ®1,000, he cannot go after A for ®500.
 C, however, has to return ®500 to B.
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Art. 1222 – Solidary Debtor’s Defenses  Divisible obligation − an obligation whose object, in its delivery or
A solidary debtor may, in actions filed by the creditor, avail himself of all defenses performance, is capable of partial fulfillment
which are derived from the nature of the obligation and of those which are  Indivisible Obligation − not capable of partial fulfillment
personal to him, or pertain to his own share. With respect to those which  Test − not the possibility or impossibility of partial performance, but
personally belong to the others, he may avail himself thereof only as regards that rather, the purpose of the obligation or the intention of the parties
part of the debt for which the latter are responsible. (1148a) o The objectƒservice may be physically divisible, but if the
partiesƒlaw say it should be indivisible, it’s indivisible.
o However, if physically indivisible, it’s always indivisible.
Defenses available to a solidary debtor
1. Derived from the nature of the obligation  This article says that the “Nature and Effect of Obligations” (arts 1163−
1178) are also applicable to these kinds of obligations, even if there is only
Ex. A and B are solidarily liable to C for ®4,000. D pays this
one debtor or creditor.
entire debt.
 If C sues A, A can raise the defense of payment. Art. 1224 - Liabilities in Joint Indivisible Obligations
 This is a complete defense − because the A joint indivisible obligation gives rise to indemnity for damages from the time
obligation is nullified and extinguished anyone of the debtors does not comply with his undertaking. The debtors who may
oOther examples: have been ready to fulfill their promises shall not contribute to the indemnity
 Prescription beyond the corresponding portion of the price of the thing or of the value of the
 Remission service in which the obligation consists. (1150)
 Fraud
 Joint Debtors − only bound to perform their respective portion. In
2. Personal to debtor sued
divisible, this is easy
o Insanity at the time the obligation was contracted (only  If obligation is indivisible, each debtor must coordinate with his co−debtors
with respect to the specific insane debtor) for the fulfillment of the obligation.
o Incapacity  A, B, and C are required to give a computer worth ®30,000 to D, but when
o Mistake D demands payment, only C unjustly refuses to deliver.
o Violence o Obligation is then turned into a claim for damages, as well as the
3. Personal to other solidary debtors amount of the computer.
o A and B are liable for their share in the value of the PC (®10,000
each).
o But only C shall be liable for all damages.
SECTION 5. - Divisible and Indivisible Obligations
Art. 1225 – Divisible and Indivisible Obligations
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
Art. 1223 – Nature and Effect of Divisible and Indivisible Obligations indivisible.
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 When the obligation has for its object the execution of a certain number of days of
provisions of Chapter 2 of this Title. (1149) work, the accomplishment of work by metrical units, or analogous things which by
their nature are susceptible of partial performance, it shall be divisible.
37
However, even though the object or service may be physically divisible, an  Indivisible − A promises not to sell cigarettes for one year − the
obligation is indivisible if so provided by law or intended by the parties. performance is continuous.
 Divisible − A promises not to sell cigarettes during Sundays and
In obligations not to do, divisibility or indivisibility shall be determined by the holidays − performance is NOT continuous
character of the prestation in each particular case. (1151a) o Generally, “to do” and “not to do” are indivisible (except “to do”
mentioned above).
This article deems some obligations indivisible, and others, divisible. It lays
down the general rule.
Again, the purpose of the obligation is the controlling circumstance. SECTION 6. - Obligations with a Penal Clause
A. Obligations deemed indivisible:
1. Obligations to give definite things − a particular electric fan
2. Obligations which are not susceptible of partial performance − Art. 1226 – Definition of Oblig with Penal Clause
to sing a song, to dance a dance In obligations with a penal clause, the penalty shall substitute the indemnity for
3. Obligations provided by law to be indivisible − payment of taxes damages and the payment of interests in case of noncompliance, if there is no
4. Obligations intended by parties to be indivisible, even if the thing stipulation to the contrary. Nevertheless, damages shall be paid if the obligor
is physically divisible: refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.
 “Pay me ®2,000 on January 5.”
 The intention is clear − the ®2,000 should be delivered at The penalty may be enforced only when it is demandable in accordance with the
one time and as a whole provisions of this Code. (1152a)
 De Leon: Suppose there are 2 debtors, is the obligation
still indivisible? YES  SSS v. Moonwalk − a penal clause is “an accessory obligation which the
o It is divisible as to the two debtors, because they parties attach to a principal obligation for the purpose of insuring the
can deliver it in parts performance thereof by imposing on the debtor a special prestation
o However, as far as creditor is concerned, the (generally consisting in the payment of money) in case the obligation is not
money should be delivered as a whole and is fulfilled or irregularly or inadequately fulfilled.
thus indivisible − intention of the parties is  Obligation with a penal clause − is one which contains an accessory
controlling undertaking to pay a previously stipulated indemnity in case of breach of
B. Obligations deemed divisible: the principal prestation, intended primarily to induce its fulfillment.
o Obligations which have for their object the execution of a certain Purposes of penal clauses:
number of days of work − “Paint my house and finish within 10 o To insure performance
days.” o To substitute a penalty for the indemnity of damagesƒpayment of
o Obligations which have for their object the accomplishment of interest
work by metrical units. − “Make a table 3 feet wide and 5 feet o To punish the debtor
long” Kinds of Penal Clause:
o Obligations which by their nature are susceptible of partial a. As to Origin
performance − Obligation to render 3 song numbers, obligation to 1. Legal penal Clause − provided by law
pay money in installments. 2. Conventional Penal Clause − provided for by stipulation
C. Divisibility/Indivisiblity of obligations not to do of the parties
o Character of the prestation in the particular case shall determine b. As to Purpose
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1. Compensatory − penalty takes place of damages Art. 1228 – Proof is Not Necessary
2. Punitive − imposed as a penaltyƒpunishment for breach Proof of actual damages suffered by the creditor is not necessary in order that the
c. As to demandabilityƒeffect penalty may be demanded. (n)
1. Subsidiary/Alternative − only the penalty can be
enforced Art. 1229 – Court Intervention
2. Joint/Cumulative − both principal obligation and penalty The judge shall equitably reduce the penalty when the principal obligation has been
can be enforced partly or irregularly complied with by the debtor. Even if there has been no
 General Rule − in obligations with a penal clause, the penalty takes the performance, the penalty may also be reduced by the courts if it is iniquitous or
place of damages and the payment of interest in case of non−compliance. unconscionable. (1154a)
 Thus, proof of actual damage suffered is not necessary to enforce the
penalty as long as there is non−compliance. One of the cases where the court steps in between the parties.
Creditor may recover damages in addition to the penalty: If the penalty is so unconscionable, then the court may temper, reduce, or
1. When so stipulated delete it.
2. When obligor refuses to pay the penalty If penalty clause is so unconscionable that its enforcement would
3. When obligor is guilty of fraud in the fulfillment of the obligation − constitute an undue deprivation or confiscation of property, the courts can
creditor can recover damages caused by such fraud. strike it down as invalid.
Art. 1227 – Penalty and Fulfillment Art. 1230 – Nullity of the Penal Clause
The debtor cannot exempt himself from the performance of the obligation by The nullity of the penal clause does not carry with it that of the principal obligation.
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 The nullity of the principal obligation carries with it that of the penal clause. (1155)
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  If the penal clause is null, the original obligation still persists.
the obligation, the performance thereof should become impossible without his  If the original obligation is null, the penal clause is null as well.
fault, the penalty may be enforced. (1153a)
Penalty is an accessory obligation, not a substitute.

Debtor cannot merely pay the penalty instead of performing the obligation
in order to extinguish the obligation. (as always, however, the parties can
stipulate otherwise)
Creditor cannot demand fulfillment of obligation and payment of penalty
at the same time (unless stipulated)
Penalty may be enforced if, after creditor demands fulfillment, it becomes
impossible without fault of the creditor.
If the creditor requires the obligation to be fulfilled, and performance
becomes impossible without his or her fault, the penalty may be imposed.
39
o Receipt of principal without reservation as to interest gives rise to
Chapter 4: Extinguishment of Obligations presumption of payment of interest.
o Receipt of a later instalment without reservation as to a prior
GENERAL PROVISIONS installment gives rise to the presumption of payment of the prior
installment.
 Burden of proof to show payment, once debt is established, is on the
debtor.
Art. 1231 – Modes of Extinguishment  Payment and performance are synonymous.
Obligations are extinguished:
Art. 1233 - Payment must be Complete
(1) By payment or performance: A debt shall not be understood to have been paid unless the thing or service in
(2) By the loss of the thing due: which the obligation consists has been completely delivered or rendered, as the
(3) By the condonation or remission of the debt; case may be. (1157)
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;  Payment − full satisfaction of the debtƒobligation
(6) By novation. o everything that is necessary to satisfy the obligation, consistent
with the object of the same.
Other causes of extinguishment of obligations, such as annulment, rescission, Anything less than complete performance may be considered to be a
fulfillment of a resolutory condition, and prescription, are governed elsewhere in breach.
this Code. (1156a)
Art. 1234 – Substantial Performance in Good Faith
 Provides modes by which obligations can be extinguished. If the obligation has been substantially performed in good faith, the obligor may
 Death does not extinguish an obligation unless such is personal or recover as though there had been a strict and complete fulfillment, less damages
intransmissible suffered by the obligee. (n)
 First Exception − substantial performance

o Generally, anything less than complete = breach
SECTION 1. - Payment or Performance  In this case, there is substantial fulfillment − the breach is not material
enough to compel the creditor to rescind.
o Thus, the unperformed part should not destroy the valueƒpurpose
of the contract.
Art. 1232 – Payment Defined  Debtor may recover as if there had been a strict and complete fulfillment,
Payment means not only the delivery of money but also the performance, in any less damages suffered by creditor.
other manner, of an obligation. (n) o Creditor is benefitted by the substantial performance, so the
obligor should be allowed to recover.
 Payment is not exclusively limited to giving of money o The damages are compensation for the relative breach committed
 Payment is any manner of performing the obligation with the end in view by obligor.
of extinguishing it.  Pagsibigan v. CA − the debtor, because of high interest rate and several
 Certain presumptions are made in favor of payment penalty charges, had effectively paid more than the original amount of the
40
loan. − SC ruled that there was substantial compliance. Thus, debtor was Art. 1237 – No Subrogation
released from his mortgage − “debtor may recover as if…” 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
Art. 1235 – Creditor Accepts Incompleteness or Irregularity arising from a mortgage, guaranty, or penalty. (1159a)
When the obligee accepts the performance, knowing its incompleteness or
irregularity, and without expressing any protest or objection, the obligation is Art. 1238 - Donation
deemed fully complied with. (n) 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
 Second Exception − the creditor waives the damages arising from the payment is in any case valid as to the creditor who has accepted it. (n)
breach of contract resulting in the incompletenessƒirregularity.
 He must express his objection, because if not, he accepts the performance  People whose payment the creditor is bound to accept:
as fully complied with. 1. The debtor
Esguerra v. Villanueva 2. Any person who has an interest in the obligation (ex. Guarantor)
o Debtor said that since creditor received partial payments, he 3. A third person uninterested in the obligation, WHEN STlPULATED.
accepted partial performance and thus the obligation should be  Payment by a 3rd person − several situations may arise. These will
considered complied with determine whether the third person becomes a creditor as to the original
o SC: “receipt” is not equivalent to “acceptance.” debtor.
o Mere receipt is not enough to constitute acceptance − in fact, 1. Third person pays without knowledge or against the will of the
creditor actually manifested their dissatisfaction debtor
o No particular manner prescribed for the creditor’s objection – so o The third person can only recover from the debtor to the
long as the acts of the creditor at the time of the irregular extent that the debtor is benefitted.
payment show that the former is not satisfied. o What is beneficial to the debtor is determined by law and not
Tayag v. CA the will of the debtor.
o Sellers accepted numerous payments in installment after the due Ex. A owed B ®500,000 secured by a mortgage.
date, without any protest, it was even the buyers (debtors) who  C pays B without knowledgeƒagainst the will of A.
filed a case for performance of the sale − SC held that these acts  C can recover the ®500,000, but he does not acquire
were clearly a waiver of the right to rescind the right to the mortgage − he cannot foreclose on the
property.
Art. 1236 – Payment by a Third Person 2. Third person pays with knowledge, but against the will of the
The creditor is not bound to accept payment or performance by a third person who debtor − same as above
has no interest in the fulfillment of the obligation, unless there is a stipulation to 3. Third person pays with knowledge and consent of the debtor
the contrary. o Third person can recover the amount he paid to the creditor.
o He may also compel the creditor to transfer to him any
Whoever pays for another may demand from the debtor what he has paid, except mortgage, guaranty or penalty
that if he paid without the knowledge or against the will of the debtor, he can o There is legal subrogation here.
recover only insofar as the payment has been beneficial to the debtor. (1158a) 4. Creditor accepts payment from third person, because its
stipulated – same as previous, because obviously the debtor
agrees with such payment.
5. Third person pays creditor without intending to be reimbursed
by the debtor
41
o Obligation is extinguished, regardless of the debtor’s Art. 1241 – Payment to Incapacitated or Third Persons
consent. Payment to a person who is incapacitated to administer his property shall be valid if
o It’s treated as a donation. he has kept the thing delivered, or insofar as the payment has been beneficial to
him.
Art. 1239 – Payment by an Incapacitated Person
In obligations to give, payment made by one who does not have the free disposal of Payment made to a third person shall also be valid insofar as it has redounded to
the thing due and capacity to alienate it shall not be valid, without prejudice to the the benefit of the creditor. Such benefit to the creditor need not be proved in the
provisions of Article 1427 under the Title on "Natural Obligations." (1160a) following cases:
(1) If after the payment, the third person acquires the creditor's rights;
 “Free Disposal of the Thing” − the thing must not be subject to any claim (2) If the creditor ratifies the payment to the third person;
or lien or encumbrance of a third person. (3) If by the creditor's conduct, the debtor has been led to believe that the third
 “Capacity to alienate” – person is not incapacitated to enter into contracts person had authority to receive the payment. (1163a)
and to make a disposition of the thing due.
 Thus, payments by any person not possessing these qualities is invalid.  Effect of payment to an incapacitated person
o Exception: People 17 years old and below who enter into a o not valid, unless such person keeps the thing paid or delivered, or
contract without the consent of their parentƒguardian, and who was benefitted by the payment
pay voluntarily to fulfill the obligation have no right to recover Ex. If A gives to B, a minor, 1000 in payment of the debt, and C
from the creditor who has spent it in good faith. (based on Art. loses 700 because of negligence − the payment should be
1427 of Civil Code and 234 and 236 of the Family Code) considered made only to the extent of 300.
 If B keeps the money, or spent it on purposes useful to him −
Art. 1240 – To Whom Payment Should be Made payment shall be valid
Payment shall be made to the person in whose favor the obligation has been  Effect of payment to a third person
constituted, or his successor in interest, or any person authorized to receive it. o Not valid, except insofar as it has redounded to the benefit of the
(1162a) creditor.
o Thus benefit is not presumed and must be proven by evidence.
o Exceptions − when it need not be proven (S.R.E.)
 Payment should only be paid to
o The creditor
1. Subrogation − If after the payment, the 3rd person acquires
the creditor’s rights
o His successors in interest
o Any person authorized to receive it.  A owed B 1000. He does not pay on due date, so B
 Authorized by the creditor adds 100 as interest.
 Authorized by the law  A pays X, a third person, the 1000.
 Payment made to a third person, even if through error and good faith does  If B empowers X to collect the P100 interest for himself
not release debtor of obligation to pay. Creditor can still demand payment. (X), then the benefit to the creditor need not be
o If it becomes impossible to recover, any loss shall be borne by the proven.
deceived debtor 2. Ratification by the creditor
3. Estoppel on the part of the creditor
 B tells A that he can pay X the indebtedness.
 B cannot disclaim the payment to X.

42

3. There must be an agreement between creditor and debtor that
 Art. 1242 – Payment to Possessor of Credit the obligation is immediately extinguished.
 Payment made in good faith to any person in possession of the credit shall release  If thing is of less value − for example, the piano
the debtor. (1164)
 o The debt is extinguished to the extent of the value of the thing.
o Unless the parties agree that the whole obligation is extinguished.
 A person in possession of the credit is presumed to own the credit.
 The examples about “to bearer” checks fall under this article.
Art. 1246 – Delivery of a Generic Thing

Art. 1243 – Judicial Order to Retain the Debt
When the obligation consists in the delivery of an indeterminate or generic thing,
Payment made to the creditor by the debtor after the latter has been judicially
whose quality and circumstances have not been stated, the creditor cannot demand
ordered to retain the debt shall not be valid. (1165)
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
 The debtor is prohibited from paying a creditor if the court prohibits him
consideration. (1167a)
from doing so − if he does, such is invalid
 The purpose − to protect other creditors of the debtor
 Rule of Medium Quality
o Creditor cannot demand the best.
Art. 1244 – Creditor Cannot be Compelled to Receive a Different Thing o Debtor cannot give the worst.
The debtor of a thing cannot compel the creditor to receive a different one,  What is delivered should be consistent with the purpose and goal of the
although the latter may be of the same value as, or more valuable than that which obligation.
is due. o Rent a car to be used in a simple wedding
o Creditor cannot demand a Rolls−Royce that debtor cannot afford
In obligations to do or not to do, an act or forbearance cannot be substituted by
o Obligor cannot give a crap Kia Pride that does not brake.
another act or forbearance against the obligee's will. (1166a)
Art. 1247 – Extrajudicial Expenses
 Debtor has no choice in the payment except to give what is agreed upon.
Unless it is otherwise stipulated, the extrajudicial expenses required by the
o Unless the obligation is facultativeƒalternative.
payment shall be for the account of the debtor. With regard to judicial costs, the
Rules of Court shall govern. (1168a)
Art. 1245 – Dation in Payment
Dation in payment, whereby property is alienated to the creditor in satisfaction of a
 Principal behind this is that the creditor usually is the beneficiary of the
debt in money, shall be governed by the law of sales. (n)
obligation
 Thus, it is the debtor who does service, and must bear any extra−judicial
 Dation in payment / dacion en pago – conveyance of ownership of a thing
costs in his performance.
as an accepted equivalent or performance.
Ex. D owes C ®30,000. To fulfill this obligation, D, with consent of C,
delivers a piano.
Art. 1248 – Partial Receipt and Payment
Unless there is an express stipulation to that effect, the creditor cannot be
 Requisites of dation in payment: (P.D.A.)
compelled partially to receive the prestations in which the obligation consists.
1. The performance of the prestation in lieu of payment
Neither may the debtor be required to make partial payments.
 Delivery of a realy thing, or a real right, or a credit
2. There must be some difference between the prestation due and
that given in substitution
43
However, when the debt is in part liquidated and in part unliquidated, the creditor  Legal Tender − that currency which a debtor can legally compel a creditor
may demand and the debtor may effect the payment of the former without waiting to accept in payment of a debt in money when tendered by debtor in the
for the liquidation of the latter. (1169a) right amount.
o Debts in money shall be paid in the currency stipulated.
 This contemplates obligations where there is only one creditor and only o If impossible to deliver such currency, or in the absence of
one debtor. stipulation, the default is that payment shall be made in the
currency which is legal tender in the Philippines. (all coins and
 General rule − payment must be in full in order to extinguish an obligation.
notes issued by the Bangko Sentral ng Pilipinas)
o Creditor may accept partial performance, but he may not be
compelled to.  Payment by means of instruments of credits − do not extinguish the
o Debtor should fulfill the obligation, but he cannot be required to obligation until:
make partial payments. o They have been cashed.
o They have been impaired through the fault of the creditor.
 When is partial performance allowed:
 Applicable only to instruments executed by 3rd persons and
1. Express stipulation in the obligation
delivered by debtor to creditor
2. Debt is part liquidated (computed) and in part unliquidated
 Does not apply to instruments executed by debtor himself and
Ex. The obligation is to deliver ®1,000, and whatever debtor gets
delivered to creditor
from his father’s estate.
 He can give the ®1,000 first without waiting for the  Bill of exchange – unconditional order in writing addressed by one person
determination of his inheritance. to another, signed by the person giving it, requiring the addresee to pay on
3. If creditor accept such payment and benefits from it demand a sum certain in money to the bearer.
4. When the different prestations in which the obligation consists o A check is a bill of exchange addressed to the bank, payable on
demand.
are subject to different terms or conditions which affect some of
 If payment is tendered by way of check, and the obligee
them.
accepts, such obligee is estopped from questioning the efficacy
Ex. Obligation to pay debt in installments
 Prestations (each installment) need not be given of such tender
simultaneously.
Art. 1250 – Inflation or Deflation
In case an extraordinary inflation or deflation of the currency stipulated should
Art. 1249 – Currency and Legal Tender supervene, the value of the currency at the time of the establishment of the
The payment of debts in money shall be made in the currency stipulated, and if it is obligation shall be the basis of payment, unless there is an agreement to the
contrary. (n)
not possible to deliver such currency, then in the currency which is legal tender in
the Philippines.
 Extraodrinary Inflation − a decrease or increase in the purchasing power of
The delivery of promissory notes payable to order, or bills of exchange or other the Philippine currency which is unusual or beyond the common
mercantile documents shall produce the effect of payment only when they have fluctuation of the value of the said currency, and such decrease or increase
been cashed, or when through the fault of the creditor they have been impaired. could not have been foreseen, or was beyond contemplation of the
parties.
In the meantime, the action derived from the original obligation shall be held in the o Cannot be applied without an official declaration from competent
abeyance. (1170) authorities.
o Applies only to cases where a contractƒagreement is involved.
o Does not apply when obligation to pay is derived from law.
44
Art. 1251 – Place of Payment  These apply to a person who has several debts of the same kind to a single
Payment shall be made in the place designated in the obligation. creditor.
 When a person pays, he is given the choice to which debt the payment is
There being no express stipulation and if the undertaking is to deliver a determinate applied.
thing, the payment shall be made wherever the thing might be at the moment the  The payments must still conform to the rules given in the previous articles
obligation was constituted. o Creditor can refuse if the payment is applied to a debt that would
only be partially fulfilled
In any other case the place of payment shall be the domicile of the debtor.  Application of payments cannot be made on debts which are not yet due.
1. Unless parties agree
If the debtor changes his domicile in bad faith or after he has incurred in delay, the 2. Payment is made by the party for whose benefit the term has
additional expenses shall be borne by him. been constituted
Ex. A owes B ®1,000 pesos, and such debt will not incur
These provisions are without prejudice to venue under the Rules of Court. (1171a)
interest before a certain date, the term is constituted for
the debtor’s benefit.
 Provides where to pay in order to ensure certainty in payment. 3. If the debtor receives and accepts a receipt for the application he
1. If there is a stipulated place, then it shall be made there. cannot complain about where it was applied.
2. If there is no stipulation, and the thing is determinate, payment
shall be made where the thing was at the time of the perfection of
Art. 1253 - Interest
the contract
If the debt produces interest, payment of the principal shall not be deemed to have
3. No stipulation, generic thing − domicile of the debtor
been made until the interests have been covered. (1173)
 Domicile – a person’s place of habitual residence; true fixed
permanent home; he has the intention of returning
 Costs shall be borne by by the creditor in going to the domicile,  This is only directory and not mandatory.
unless such has been changed in bad faith, or unless debtor is in  Payment of both interest and principal − two payments by the debtor.
delay  This article is why the presumption of payment of interest arises when the
principal is received by the creditor.
SUBSECTION 1. - Application of Payments  Right to apply payment to interest first can be waived.
Art. 1254 – Most Onerous Debt

Art. 1252 – Application of Payments When the payment cannot be applied in accordance with the preceding rules, or if
He who has various debts of the same kind in favor of one and the same creditor, application cannot be inferred from other circumstances, the debt which is most
may declare at the time of making the payment, to which of them the same must onerous to the debtor, among those due, shall be deemed to have been satisfied.
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 If the debts due are of the same nature and burden, the payment shall be applied to
shall not be made as to debts which are not yet due. all of them proportionately. (1174a)
If the debtor accepts from the creditor a receipt in which an application of the  If there is no indication as to which debt the payment goes to − it goes to
payment is made, the former cannot complain of the same, unless there is a cause the most onerous, provided it is due.
for invalidating the contract. (1172a) o “Onerous” − indebtedness which exacts the heaviest burden
45
Ex. A debt with interest is more onerous than one without  Effect of Cession
interest. o Unless otherwise stipulated, creditors do now become owners.
 Same nature and burden − there is no “most onerous” o Debtor is only released up to the net proceeds of the sale.
o Payment shall be applied to all proportionally.  If his properties, when sold, don’t raise enough money, he still
Ex. A owes B three debts totalling ®30,000, and he gives ®9,000 has a debt to pay
without saying where it will go.
 Each debt will be reduced by ®3,000.
Ex. A owes B ®10,000, 20K, and ®30,000. He pays ®6,000 − the SUBSECTION 3. - Tender of Payment and Consignation
proportion is 1:2:3.
 ®1,000 applied to the ®10,000 debt, ®2,000 to the ®20,000, and
®3,000 to the ®30,000. Art. 1256 – Tender of Payment and Consignment
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.
SUBSECTION 2. - Payment by Cession
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
Art. 1255 - Cession
payment;
The debtor may cede or assign his property to his creditors in payment of his debts.
(2) When he is incapacitated to receive the payment at the time it is due;
This cession, unless there is stipulation to the contrary, shall only release the debtor
(3) When, without just cause, he refuses to give a receipt;
from responsibility for the net proceeds of the thing assigned. The agreements
(4) When two or more persons claim the same right to collect;
which, on the effect of the cession, are made between the debtor and his creditors
(5) When the title of the obligation has been lost. (1176a)
shall be governed by special laws. (1175a)
Art. 1257 - Announcement
 Payment by Cession In order that the consignation of the thing due may release the obligor, it must first
o Special form of payment
be announced to the persons interested in the fulfillment of the obligation.
o Assignmentƒabandonment of all the properties of the debtor for
the benefit of his creditors. The consignation shall be ineffectual if it is not made strictly in consonance with the
 Only the properties which are susceptible and not exempted by provisions which regulate payment. (1177)
law from being alienated (example family home)
o Such that the latter may sell the same and apply the proceeds to Art. 1258 – Consignation Process
the satisfaction of their credits Consignation shall be made by depositing the things due at the disposal of judicial
 Only the proceeds − no right of creditors as to ownership of the authority, before whom the tender of payment shall be proved, in a proper case,
properties ceded. and the announcement of the consignation in other cases.
 Requisites of Cession
1. Two or more creditors The consignation having been made, the interested parties shall also be notified
2. Debtor (partially) insolvent thereof. (1178)
3. Cession must be accepted by creditors
 Creditors must agree which debt will be paid first, or the
proportioning.
46
 Tender of payment o Expenses are chargeable to the debtor if the consignation is not
o Act on the part of the debtor properly made.
o Offering to the creditor the thing or the amount due  Proper consignation:
o Debtor must show that he has the thingƒmoney in his possession 1. When creditor accepts the thing or sum deposited, without
o Must be made in lawful currency objection, as payment of the obligation
o Extrajudicial 2. When creditor questions the validity of consignation, and court
o Requisites for valid tender of payment deems it valid
1. Must comply with the rules on payment (Arts 1256−1258) 3. When creditor neither accepts or questions validity, and court
2. Must be unconditional and for the whole amount orders cancellation of the obligation
3. It must actually be made
 Consignation Art. 1260 – Judicial Declaration
o Act of depositing the thing or amount due with the proper court Once the consignation has been duly made, the debtor may ask the judge to order
o When the creditor does not desire or cannot receiev it the cancellation of the obligation.
o Consignation is judicial − generally requires a prior tender of
payment Before the creditor has accepted the consignation, or before a judicial declaration
o Requisites of a valid consignation − in order that debtor may be that the consignation has been properly made, the debtor may withdraw the thing
released (V.T.R.P.A.S.) or the sum deposited, allowing the obligation to remain in force. (1180)
1. Existence of a valid debt, which is due
2. Tender of payment by debtor  Once consignation is deemed proper, debtor should be released from the
3. Refusal without justifiable reason by creditor obligation
4. Previous notice of consignation to persons interested in o Court order to that effect
the fulfillment of the obligation o Court orders creditor to accept the moneyƒthing
5. Actual consignation of the thingƒsum dueƒthe amount is  Consignation is retroactive.
placed at the disposal of the court o Payment deemed to have been made at the time of the deposit of
6. Subsequent notice to interested parties the moneyƒwhen the thing was placed at the disposal of the court
 When consignation produce the same effect (Ex. even without tender of  Creditor may accept either unconditionally or with reservation.
payment) − five cases (A.I.G.T.T.) o Reservation does not completely extinguish obligation.
1. Creditor is absentƒunknownƒdoes not appear at the place of  Withdrawal of thing/sum by debtor − debtor may withdraw the thing or
payment sum deposited.
2. Creditor is incapacitated to receive payment at the time it is due. o Before creditor has accepted the consignation
3. Creditor refuses without just cause to give a receipt. o Before a judicial declaration that the consignation has been
4. Two or more persons claim the same right to collect properly made
5. Title of the obligation has been lost o This is because he is still the owner of the thing
o Obligation shall continue to remain in force
Art. 1259 – Expenses Borne by the Creditor o Expenses paid by debtor
The expenses of consignation, when properly made, shall be charged against the
creditor. (1178)
 Creditor is responsible because it is his fault that consignation was

necessary − his refusal to accept payment.
47
Art. 1261 – Creditor Authorizes Debtor to Withdraw Ex. If he is in delay

o When stipulated by parties
If, the consignation having been made, the creditor should authorize the debtor to
o When nature of obligation requires the assumption of risk
withdraw the same, he shall lose every preference which he may have over the
o When obligation to deliver a specific thing arises from a crime
thing. The co−debtors, guarantors and sureties shall be released. (1181a)
 Contemplates a situation where there has already been a finding by the

court that the consignation is valid. Art. 1263 – Loss of a Generic Thing
o ln this case, it is incumbent on the creditor to obtain from the In an obligation to deliver a generic thing, the loss or destruction of anything of the
court the thing deposited. same kind does not extinguish the obligation. (n)
o However, if the debtor withdraws the thing, with the creditor’s
consent − nothing to retrieve  Generic thing cannot really be lost unless the whole class of the said thing
 Essentially reviving the indebtedness is destroyed − hence, obligation persists.
 However, the creditor loses any preference to the thing
deposited − anyone can now go after it
Art. 1264 – Partial Loss
SECTION 2. - Loss of the Thing Due 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)
Art. 1262 - Loss  Partial Loss − the courts may consider it as a complete loss which
An obligation which consists in the delivery of a determinate thing shall be extinguishes the obligation.
extinguished if it should be lost or destroyed without the fault of the debtor, and This happens if the loss is so important that it affects the whole object of
before he has incurred in delay. the obligation.
Ex. Obligation to give a specific computer with a specialized
When by law or stipulation, the obligor is liable even for fortuitous events, the loss keyboard and monitor, such that the parts are dependent on each
of the thing does not extinguish the obligation, and he shall be responsible for other.
damages. The same rule applies when the nature of the obligation requires the  Loss of the keyboard, though only partial, renders the whole
assumption of risk. (1182a) thing useless.
Debtor may go to court and declare that this partial loss has extinguished
When a thing is considered lost the obligation.
o When it perishes
o Goes out of commerce Art. 1265 – Loss of Thing in the Possession of the Debtor
o Disappears in a way such that its existence is unknown or it Whenever the thing is lost in the possession of the debtor, it shall be presumed that
cannot be recovered the loss was due to his fault, unless there is proof to the contrary, and without
When does loss of a thing extinguish an obligation to give prejudice to the provisions of article 1165. This presumption does not apply in case
o Obligation is to deliver a specific or determinate thing of earthquake, flood, storm, or other natural calamity. (1183a)
o Loss of the thing occurs without fault of the debtor
o Debtor is not guilty of delay If debtor is not in possession of the thing when it is lost, the presumption
When does loss NOT extinguish? does not arise.
o When law so provides
48
Debtor must prove that he is not at fault, or that loss was because of a Requisites of Rebus Sic Stantibus
fortuitous event. 1. Prestation has become so difficult to render
Presumption does not apply in case of natural calamities. 2. Service has become manifestly beyond contemplation of the
parties
Art. 1266 – Legal or Physical Impossibility
The debtor in obligations to do shall also be released when the prestation becomes Art. 1268 – Proceeds from a Criminal Offense
legally or physically impossible without the fault of the obligor. (1184a) 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
 This involves obligations “to do.” may be the cause for the loss, unless the thing having been offered by him to the
o Without debtor’s fault, obligation becomes legally or physically person who should receive it, the latter refused without justification to accept it.
impossible (1185)
Effect of impossibility of performance
o lmpossibility extinguishes the obligation Another instance where a fortuitous event does not extinguish the
o This impossibility must take place after the constitution of the obligation
obligation Ex . A stole a watch from B, and was charged for it. If the watch is
Kinds of Impossibility lost through a fortuitous event, A must still pay the price of the
1. Physical Impossibility – in purely personal obligations (obligations watch.
where personal qualifications are involved) death or physical  EXCEPTION − if the creditor refuses to accept the thing when offered to
incapacity results in physical impossibility him by the debtor
Ex. A is obliged to paint B’s house. Two days later, A is
attacked by a shark and loses both his arms. He is thus
released. Art. 1269 – Creditor’s Right of Action
2. Legal Impossibility − Obligation cannot be performed because it is The obligation having been extinguished by the loss of the thing, the creditor shall
rendered impossible by provision of law have all the rights of action which the debtor may have against third persons by
reason of the loss. (1186)
Art. 1267 – Difficult Beyond Contemplation
When the service has become so difficult as to be manifestly beyond the Designed to protect interests of the creditor
contemplation of the parties, the obligor may also be released therefrom, in whole He is given right to proceed against a third person responsible for the loss
or in part. (n) Ex. A is obliged to give B a specific horse. The horse is lost through
the fault of C. A’s obligation is extinguished, but B is allowed to
Difficulty alone does not excuse the debtor. go after C to recover the price of the horse, with damages.
What must happen is that the service is so difficult as to be manifestly
beyond the contemplation of the parties.
This is the principal of rebus sic stantibus
o Where the parties stipulate in the light of certain conditions
o When these conditions cease to exist, the contract also ceases to
exist
 This is one case where the court can enter into a contract and judge
whether it’s the performance is still within what the parties contemplated
49
SECTION 3. - Condonation or Remission of the Debt Ex. Promissory note − if the creditor gives the debtor his
promissory note, it implies that he is no longer interested in
the debt.
 This waiver can be nullified by showing that it is inofficious.
Art. 1270 – Condonation Defined o What the debtor can do is show that the delivery of the document
Condonation or remission is essentially gratuitous, and requires the acceptance by was made because of payment, and not because of remission.
the obligor. It may be made expressly or impliedly.
One and the other kind shall be subject to the rules which govern inofficious Art. 1272 – Presumption when Credit is in the Possession of the Debtor
donations. Express condonation shall, furthermore, comply with the forms of Whenever the private document in which the debt appears is found in the
donation. (1187) possession of the debtor, it shall be presumed that the creditor delivered it
voluntarily, unless the contrary is proved. (1189)
Condonation : an act of liberality
 Creditor decides not to enforce the debtor’s prestation If the debtor has the document and it is not known where he got it, the
o ln effect, a donation of the obligee’s credit in favor of the debtor presumption is that it was voluntarily given by the creditor
 lt requires the impliedƒexpress consent of the debtor  “It is believed” that presumption of voluntary delivery  presumption of
Governed by the rules of lnofficious donation payment, not remission. Only when it is known that there is no payment
o lnofficious − the amount remitted encroaches on the should there be a presumption of remission.
legitimeƒsuccessional rights of the heirs of the condoning creditor
o Ex. Creditor condones debt worth 50K Art. 1273 – Extinguishment of Accessory Obligations
o Creditor gives birth to a child, when her properties are only worth The renunciation of the principal debt shall extinguish the accessory obligations; but
®10,000 (thus, with remitted debt, the overall estate is 60K) the waiver of the latter shall leave the former in force. (1190)
o Child has ½ of this as his legitime. Hence, free portion is only
®30,000. The remission will only be ®30,000.  Accessory follows the principal − existence of the accessory obligation
Other rules on donation are provided in the Civil Code depends on the existence of the principal obligation.
When principal is waived, the accessory is waived as well.
Art. 1271 – Delivery of a Credit to the Debtor But when accessory is waived, principal remains in force.
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 Art. 1274 – Accessory Obligation of Pledge
against the latter. 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
If in order to nullify this waiver it should be claimed to be inofficious, the debtor
debtor, or of a third person who owns the thing. (1191a)
and his heirs may uphold it by proving that the delivery of the document was made
in virtue of payment of the debt. (1188)
 Pledge − a contract where the debtor gives to the creditor or a third
person a movable or instrument evidencing incorporeal rights in order to
This article creates a presumption : If a private document evidencing credit
secure the fulfillment of a principal obligation, such that when the
is given by the creditor to the debtor, it implies that he is condoning the
obligation is fulfilled, the thing delivered shall be returned with all its fruits
debt.
and accessories.
50
If the thing pledged is found in the possession of the debtor, then there is a  There is merger in persons of X and C.
presumption that the obligation has been remitted.  Obligation is extinguished as to the ®1,000 share of C, but not
to the rest.
 A and B still owe ®1,000 each.
SECTION 4. - Confusion or Merger of Rights  If solidary − merger in C and X extinguishes the obligation.
o If A pays the ®3,000 to X before the merger, A can collect from X
and B their respective shares in the indebtedness (®1,000 each)
Art. 1275 – When Obligation is Extinguished
The obligation is extinguished from the time the characters of creditor and debtor
are merged in the same person. (1192a) SECTION 5. – Compensation
Ex. A son owes his father ®10,000, and his father dies, leaving,
among others, ®10,000 owed by the son to his dad. In this Art. 1278 – Compensation Defined
case, there is a merger. Compensation shall take place when two persons, in their own right, are creditors
 Chittick v. CA − wife filed a complaint against her father for support in and debtors of each other. (1195)
arrears. She died, and her children continued the case. The father died. SC
held that since the children are also heirs of their grandfather, the  Compensation − extinguishment to the concurrent amount of the debts of
obligation had been extinguished. two persons, who, in their own right, are debtors and creditors of each
other.
Art. 1276 – Effect on Guarantors o The simultaneous balancing of 2 obligations in order to extinguish
Merger which takes place in the person of the principal debtor or creditor benefits them to the extent in which the amount of one is covered by that
the guarantors. Confusion which takes place in the person of any of the latter does of the other.
not extinguish the obligation. (1193) Kinds of compensation
a. As to effectƒextent
1. Total − both obligations are of the same amount, and
 Indebtedness guaranteed by a third person is also extinguished if there is
thus are entirely extinguished.
confusionƒmerger.
2. Partial – two obligations are of different amounts and a
Thus, guarantor is benefitted because the accessory obligation of the
balance remains. (partial only as to the larger debt)
guarantee is extinguished.
b. As to causeƒorigin
o Merger of persons of guarantor and creditor only extinguishes
accessory obligation, not the whole thing. 1. Legal − takes place by operation of law, even without
o Merger of debtor and guarantor only extinguishes the accessory. knowledge of the parties
2. Voluntary/Conventional − takes place by agreement of
the parties
Art. 1277 – Confusion in Joint Obligations
3. Judicial − takes place by order from a court in litigation
Confusion does not extinguish a joint obligation except as regards the share
4. Facultative − can be set up by only one of the parties
corresponding to the creditor or debtor in whom the two characters concur. (1194)
Art. 1279 – Requisites of Compensation

Joint debtors owe only their share, and creditors can only collect from each
In order that compensation may be proper, it is necessary:
debtor his respective share.
Ex. A, B, and C owe X ®3,000.
51
(1) That each one of the obligors be bound principally, and that he be at the same Ex. A owes B ®1,000, due on Jan 1. B owes A ®1,000, due on Jan. 21.
time a principal creditor of the other;  Third person C filed suit against A, and was able to obtain a
(2) That both debts consist in a sum of money, or if the things due are consumable, resolution garnishing all money and credits of A (including the
they be of the same kind, and also of the same quality if the latter has been stated; indebtedness of B in A’s favor).
(3) That the two debts be due;  If B only found out about the garnishment on Feb. 1, then
(4) That they be liquidated and demandable; compensation would have set in already, and C cannot make
(5) That over neither of them there be any retention or controversy, commenced by use of these credits to satisfy A’s debt to C.
third persons and communicated in due time to the debtor. (1196)  If B found out about the garnishment on Jan 15, then no
compensation sets in.
Requisites of Compensation:
Art. 1280 – Set-up by Guarantor
1. Mutual principal creditors and debtors − each one of the obligors is bound Notwithstanding the provisions of the preceding article, the guarantor may set up
principally, and that each of them be at the same time a principal creditor compensation as regards what the creditor may owe the principal debtor. (1197)
of the other.
2. Both in money, or same kind − both debts consist in a sum of money, or if  Guarantor − a person who promises to pay the creditor in case the
the things due are consumable, they be of the same kind, and also of the principal debtor cannot pay the indebtedness.
same quality.  Before a creditor can go after the guarantor, he must exhaust all possible
o Consumable − “fungible”; susceptible of substitution ways to collect debt from principal debtor.
o Ong v. Court of Appeals − no compensation could take place o Unless guarantor is bound solidarily.
because one party owed money, and the other owed zippers.  A possible defense of a guarantor is that compensation had set in between
3. Both debts are due the creditor and the principal debtor.
o Debts need not be contracted at the same time o This is the case when the guarantor “sets up” compensation
o Parties, however, can agree that compensation can be made even between the two parties.
if debts are not yet due.
o PNB Madecor v. Uy − one of the debts was payable upon demand,
Art. 1281 – Total or Partial Compensation
and no demand was made. There is no compensation, because
Compensation may be total or partial. When the two debts are of the same
the debts were not yet due.
amount, there is a total compensation. (n)
4. Liquidated and demandable
o Debts must be determined and certain.
o Compensation cannot take place where one of the debts is not  Total Compensation − when both debts are equal, and both are
liquidated. extinguished.
o Compania Maritima v. CA − since legal interest was still accruing  Partial Compensation − one of the debts is bigger; the smaller debt is
on the debt, it was not liquidated. Thus, no compensation deducted from the bigger debt.
o Miailhe v. Halili − no compensation because a certain amount was Ex. A owes B 2000. B owes A ®1,500. A will still owe B ®500.
still under litigation, and thus, not being liquidated and certain.
5. No controversy from third persons − Over neither of them be any Art. 1282 – Debts Not Due
retention or controversy commenced by third persons and communicated The parties may agree upon the compensation of debts which are not yet due. (n)
in due time to the debtor.
o “Due Time” − period before legal compensation was supposed to  This is an exception to the general rule that debts should be due for
take place compensation to set in.
52
An example of contractual compensation. 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)
Art. 1283 – Judicial Set-off Situations when a creditor gives his credit to a third person:
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 1. Debtor has consented to the assignment of rights to a third person -
amount thereof. (n) cannot set up compensation against the assignee, which would pertain to
the debtor against the original creditor.
 Contemplates a situation of a judicial set−off. o Exception: when debtor reserves this right.
Essentially, compensation when it comes to damages. Ex. A owes B ®1,000, due on Jan 1. B owes A ®1,000 due on Feb 2.
Ex. A files a collection case against B for ®1,000. B can file a  On Jan 3, B assignes his credit to C, with consent of A, and without
counterclaim for ®1,000, claiming damages arising from the same reservation as to right of compensation against B.
transaction  C demands payment from A on Feb 5, and A cannot claim that the
 B requests the court to off-set the damages. debts have been extinguished because of compensation
 If court agrees, there can be compensation.  If A told B that he was reserving his right to compensation, he can
 Ong v. CA − amount of damages must be duly proven in order for judicial validly invoke that the debts had been extinguished.
set−off to apply. 2. Debtor did not consent to the assignment of rights – debtor can set up
compensation of debts prior to the cession, but not of subsequent ones.
Ex. A has two debts to B.
Art. 1284 – Compensation of Voidable Debts before Voided
Debt 1 is due on Jan 1. Debt 2 is due on Feb 1.
When one or both debts are rescissible or voidable, they may be compensated
 B owes A in the same amounts. Debt 1 is due on March 1. Debt 2
against each other before they are judicially rescinded or avoided. (n)
is due on March 3.
 On March 2, B gives all his credits to C. A does not consent.
These are valid until voided.
 A can say that Debt 1 is extinguished due to compensation,
Thus, if all requisites to a valid compensation are present before contract is
because they became due before the cession.
voided, then compensation can take place.
 He cannot say that Debt 2 has been extinguished, because it
became due after the cession.
Art. 1285 – Assignment of the Creditor’s Rights to a Third Person 3. Assignment is made without the knowledge of the debtor
The debtor who has consented to the assignment of rights made by a creditor in o Debtor can claim compensation for debts prior to the cession
favor of a third person, cannot set up against the assignee the compensation which o Debtor can claim compensation for debts after the cession, as
would pertain to him against the assignor, unless the assignor was notified by the long as he has no knowledge of the cession.
debtor at the time he gave his consent, that he reserved his right to the o When he finds out, he can no longer claim compensation for
compensation. debts coming after that point.
If the creditor communicated the cession to him but the debtor did not consent Art. 1286 – Different Places
thereto, the latter may set up the compensation of debts previous to the cession,
Compensation takes place by operation of law, even though the debts may be
but not of subsequent ones.
payable at different places, but there shall be an indemnity for expenses of
exchange or transportation to the place of payment. (1199a)
53
Once all requisites are present, compensation takes place by operation of Ex. If B borrows the PS3 of A, he cannot refuse to return it on
law (legal compensation). the ground that A owes him something.
Parties need not notify each other that they want to have their debts 3. Duty to support
compensated.  Compensation cannot arise if the other obligation is of support
The indemnity for transportation in this article only applies in a case of  A father cannot refuse to support his son on the ground that the
partial compensation. son owes him money
Ex. A owes B ®1,000, due in CBTL Rockwell. B owes A ®500, due in  “Without prejudice to the provisions” − refers to the fact that
CBTL Katipunan. support in arrears can be compensated.
 If B has to commute to Rockwell to receive the balance of ®500,  of doubtful application, because the Family Code has deleted
he should be reimbursed by A, the debtor. the provision mentioned.
 Art. 1247 − extrajudicial expenses to be borne by debtor 4. Civil liability arising from a penal offense
Ex. A owes B 1000. B stole the ring of D worth 1000.
 B cannot claim compensation
Art. 1287 – No Compensation  But A, the offended party, can claim compensation
Compensation shall not be proper when one of the debts arises from a depositum  Prohibition only applies to the accused
or from the obligations of a depositary or of a bailee in commodatum.
Art. 1289 – Several Debts
Neither can compensation be set up against a creditor who has a claim for support If a person should have against him several debts which are susceptible of
due by gratuitous title, without prejudice to the provisions of paragraph 2 of Article compensation, the rules on the application of payments shall apply to the order of
301. (1200a) the compensation. (1201)
Art. 1288 – Civil Liability  See Arts 1252−1254.

Neither shall there be compensation if one of the debts consists in civil liability
arising from a penal offense. (n)
Art. 1290 – By Operation of Law
4 Cases where Legal Compensation is not allowed: 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,
1. Depositum, or from the obligations of a depository
even though the creditors and debtors are not aware of the compensation. (1202a)
 Deposit − constituted from the moment a person receives a thing
belonging to another with the obligation of safely keeping it and
returning it.  Compensation takes place by mere operation of law
o From the moment all requisites concur, compensation takes place
Ex. A owes B ®1,000. Previously, A deposited with B for
automatically.
safekeeping ®1,000.
o Even without the agreement of parties.
 There is no compensation, because B’s obligation to give A the
o Retroactive − from the day the requisites concurred.
®1000 arises from the obligations of a depository.
 Full legal capacity − not required
2. Bailee in Commodatum
o Because of the fact that it takes place by operation of law.
 A bailee in commodatum acquires the use of the thing loaned, but
not its fruits.
 Bailee cannot retain the thing loaned just because the bailor (true
owner of the thing) owes him something
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SECTION 6. - Novation Art. 1292 – Express and Implied Novation

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
Art. 1291 – Kinds of Novation and the new obligations be on every point incompatible with each other. (1204)
Obligations may be modified by:
(1) Changing their object or principal conditions;  Requisites of Novation: (V.E.I.N.)
(2) Substituting the person of the debtor; 1. A previous valid obligation
(3) Subrogating a third person in the rights of the creditor. (1203) 2. Capacity and intention of parties to modifyƒextinguish the
obligation
 Novation − extinction of an obligation through the creation of a new one 3. ModificationƒExtinguishment
which substitutes it. 4. Creation of a new valid obligation
o The Civil Code refers to extinctive novation and not modificatory  All parties must consent or be made parties to the new contract.
novation.  Novation is never presumed. 2 indications of the presence of novation:
 Kinds of Novation: 1. Novation is explicitly stated and declared in unequivocal terms.
a. According to Origin 2. Old and new obligations are incompatible on every point.
1. Legal − takes place by operation of law.  Test – whether or not the two obligations can stand together,
2. Conventional − takes place by agreement of the parties. each one having its independent existence.
b. According to how Constituted  If they cannot, then they are incompatible and the latter
1. Express − declared in unequivocal terms. novates the first one.
2. Implied − old and new obligation are essentially incompatible
with each other. Art. 1293 – Substituting a New Debtor
c. According to Extent or Effect Novation which consists in substituting a new debtor in the place of the original
1. Total/Extinctive − old obligation is completely extinguished. one, may be made even without the knowledge or against the will of the latter, but
2. Partial/Modificatory − old obligation is merely modified. not without the consent of the creditor. Payment by the new debtor gives him the
d. According to Subject rights mentioned in Articles 1236 and 1237. (1205a)
1. Real or Objective − the objective, cause, or principal conditions
of the obligation are changed.  Substituting a new debtor may be made without the knowledge and
 Ajax v. CA − to effect an objective novation, there must consent of the original debtor.
be express declaration that old obligation is  Creditor must always consent and have knowledge of the replacement.
extinguished, or that the new obligation be on every
point incompatible with the new one. Art. 1294 – Insolvency of the New Debtor in Expromision
2. Personal or Subjective − when the person of the debtor is If the substitution is without the knowledge or against the will of the debtor, the
substitutedƒthird person is subrogated in rights of the creditor new debtor's insolvency or non−fulfillment of the obligations shall not give rise to
 Ibid − To effect a subjective novation in the person of any liability on the part of the original debtor. (n)
the debtor, it is necessary that old debtor be expressly
released from the obligation.  Substitution − person of the debtor is substituted.
3. Mixed – a combination of real and personal novation.  Subrogation − a third person is subrogated in the rights of the creditor.
 Kinds of Personal Novation
55
1. Expromision − a third person of his own initiative and without  In both cases, the creditor must not have knowledge of such insolvency.
knowledge or against the will of the original debtor assumes the o If he has knowledge, he cannot claim the benefits of these
latter’s obligation with consent of creditor exceptions.
o Creditor must consent.  In both cases, the insolvency must have existed at the time of the
o Right of new debtor who pays − right to beneficial delegation.
reimbursement (Art. 1236)
o Insolvency of new debtor shall not give rise to an action Art. 1296 – Effect on Accessory Obligations
against the old debtor When the principal obligation is extinguished in consequence of a novation,
Ex. A owes B ®1,000. Without knowledge or consent of accessory obligations may subsist only insofar as they may benefit third persons
A, C commits to pay B. who did not give their consent. (1207)
 Novation occurs only if B agrees to release A
from his obligation.  General Rule − accessory follows the principal.
 Thus, if C only pays B partially, B cannot go after o If principal is extinguished, accessories are extinguished
A anymore. Ex. Mortgage, guarantee, pledge
 C can go after A for reimbursement to the  Exception − accessory obligations persist only insofar as they may benefit
extent C was benefited. third persons who do not give consent to the novation.
2. Delegacion – creditor accepts a third person to take the place of the Ex. A owes B ®2,000, with interest of 14%.
debtor, at the suggestion of the latter.  B owes C ®280.
o Creditor must consent  IT was agreed that A would pay the interest of ®280 to C.
o Right of new debtor who pays − reimbursement and  This is a stipulation in favor of C, a third person.
subrogation (Art. 1237)  Later, A and B novate the obligation, and A is now obliged to
 Bangayan v. CA − assignment of a lease contract by the lessee needs give a TV set in payment of the loan.
consent of lessor, because assignment involves transfer of obligations. It  Inspite of the novation, the accessory obligation to give C ®280
constitutes novation by substitution. subsists, unless C gives his consent to the novation.
Art. 1297 – New Obligation is Void, Old one shall subsist

Art. 1295 - Insolvency of the New Debtor in Delegacion If the new obligation is void, the original one shall subsist, unless the parties
The insolvency of the new debtor, who has been proposed by the original debtor intended that the former relation should be extinguished in any event. (n)
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
 A void obligation intended to novate an old one has no legal effect.
knowledge, or known to the debtor, when the delegated his debt. (1206a)
 General Rule − when new obligation is void, old obligation subsists.
 Exception − when the parties stipulate that in any event, the old obligation
 General Rule − in delegacion, when accepted by the creditor, the original
shall be extinguished.
debtor’s obligation is completely extinguished. Thus, creditor cannot go
after old debtor in case of insolvency of the new debtor
Art. 1298 – Original Obligation was Void
 Exceptions:
The novation is void if the original obligation was void, except when annulment may
1. Insolvency of new debtor has already been existing and of public
be claimed only by the debtor or when ratification validates acts which are
knowledge when the old debtor delegated the debt.
voidable. (1208a)
2. Insolvency of the new debtor is known to the old debtor when he
delegates the debt.
56
 Novation presupposes an original valid obligation. Art. 1301 – Conventional Subrogation
 If original obligation is void, a subsequent obligation to novate it is also Conventional subrogation of a third person requires the consent of the original
void. parties and of the third person. (n)
o Unless it is clear that the subsequent one can stand on itself and
without any reference to the old one
 Consent of all parties is required − this is a contractual subrogation.
 If original is voidable, it is valid until annulled.
o Thus, it can be novated before it is annulled.
Ex. Through force and intimidation, A was obliged togive B a
Art. 1302 – When Legal Subrogation is Presumed
car. Later, also through force, prestation was novated to It is presumed that there is legal subrogation:
a house.
(1) When a creditor pays another creditor who is preferred, even without the
 In such a way that only A, the debtor, can file a case to annul it.
debtor's knowledge;
 He does not annul it.
(2) When a third person, not interested in the obligation, pays with the express or
 This novation may be given effect.
tacit approval of the debtor;
o Also, if by A’s acts the obligation is ratified, it is valid as well.
(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
Art. 1299 – Subject to a Suspensive or Resolutory Condition the latter's share. (1210a)
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.  3 cases where legal subrogation is presumed (subrogation happens by
(n) operation of law):
1. Creditor pays another creditor who is preferred, even without
 General Rule − new prestation is also subject to the same suspensive or knowledge of debtor
resolutory condition. o Preferred Creditor − a creditor who is preferred because of the
 Exception − unless otherwise stipulated. stipulation of law
Ex. A owes B 1000, secured by a first mortgage. A owes C
Art. 1300 – Kinds of Subrogation 2000, which is unsecured. Under the law, B is a preferred
Subrogation of a third person in the rights of the creditor is either legal or creditor. If C pays the debt of A to B, then C will be
conventional. The former is not presumed, except in cases expressly mentioned in subrogated in B’s right − he can then foreclose on the
this Code; the latter must be clearly established in order that it may take effect. mortgage of A.
(1209a) 2. When a third person not interested in the obligation pays with the
expressƒtacit approval of the debtor
 Subrogation − substitution of one person in the place of a creditor with o Debtor agrees to the payment.
reference to a lawful claim or right, giving the former all the rights of the Ex. A owes B 1000. C pays B with expressƒimplied consent of
latter, including rights to employ all remedies to enforce payment A. C will be subrogated in the rights of B.
 Kinds of Subrogation: 3. Third person interested in the obligation pays weven without
1. Conventional − Expressly agreed upon by original parties and the knowledge of the debtor
new creditor. o “person interested” − one who will be affected by the payment
2. Legal − takes place by operation of law (Art. 1302) Ex. Suppose in above example, C is guarantor of A (he is
interested in the fulfillment of obligation). If C, the guarantor,
pays B, even without the knowledge of A, C is
subrogated in the rights of B.
57
 Confusion takes place in person of C.
 Guaranty is extinguished, but principal
obligation subsists.
Art. 1303 – General Effect of Subrogation

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. (1212a)
 Effect of Subrogation:
o “Stepping into the shoes’ of the creditor
o Conventional subrogation − parties may stipulate and limit the
scope of this subrogation
Art. 1304 – Effect of Partial Subrogation

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)
 Contemplates a situation where the original creditor has been partially

paid by new creditor:
o He remains a creditor to the extent of the balance of the debt.
o In case of insolvency of debtor, he has a preferential right above
the new creditor.
Ex. A owes B ®10,000. C pays B ®6,000, with consent of A. B remains
creditor with balance of ®4,000.
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Stages of Contracts:
Title II – CONTRACTS 1. Negotiation − covers the period from the time the prospective contracting
parties indicate interest in the contract to the time the contract is
Chapter 1: General Provisions concluded (perfected).
2. Perfection − takes place upon the concurrence of the essential elements of
Art. 1305 – Contracts Defined the contract.
A contract is a meeting of minds between two persons whereby one binds himself, o A contract which is consensual as to perfection is so established upon
with respect to the other, to give something or to render some service. (1254a) a mere meeting of the minds i.e. the concurrence of offer and
acceptance, on the object and on the cause thereof.
3. Consummation − begins when the parties perform their respective
Contract:
undertakings under the contract culminating in the extinguishment
 a source of obligation and it can also be defined as a legally enforceable
thereof.
agreement.
 A juridical convention manifested in legal form, by virtue of which one or Kinds of Contracts:
more persons bind themselves in favor of another or others, or 1. Real contract − a contract which requires, in addition to the above, the
reciprocally, to the fulfillment of a prestation to give, to do or not to do.
delivery of the object of the agreement, as in a pledge or commodatum
 An agreement whereby at least one of the parties acquires a right, either in 2. Solemn contract − compliance with certain formalities prescribed by law is
rem or in personam, in relation to some person, thing, act or forbearance. essential in order to make the act valid, the prescribed form being thereby
 Agreements falling under the Statute of Frauds are useless contracts for an essential element thereof.
they cannot be implemented which, in effect, negates the existence of a 3. Auto-contracts − one person contracts himself. As a general rule, it is
contract. accepted in our law. The existence of a contract does not depend on the
number of persons but on the number of parties. There is no general
Characteristics of Contracts: prohibition against auto−contracts; hence, it should be held valid.
1. Essential elements − without the following there is no contract (COC): 4. Contracts of Adhesion − contracts prepared by another, containing
a. Consent provisions that he desires, and asks the other party to agree to them if he
b. Object wants to enter into a contract.
c. Cause Ex. Transportation tickets − other party can reject it entirely
2. Natural elements − exist as part of the contract even if the parties do not
provide for them, because the law, as suppletory to the contract, creates Other Terms:
them.
 Perfect promise − distinguished from a contract, in that the latter
3. Accidental elements − those which are agreed by the parties and which
establishes and determines the obligations arising therefrom; while the
cannot exist without being stipulated.
former tends only to assure and pave the way for the celebration of a
contract in the future.
Number of Parties:
 Imperfect Promise − mere unaccepted offer
 The Code states “two persons” but what is meant actually is two parties.  Pact − a special part of the contract, sometimes incidental and separable
 For a contract to exist, there must be at least two parties. A party can be for the principal agreement.
one or more persons.  Stipulation − similar to a pact; when the contract is an instrument, it refers
Ex. Husband & Wife − cannot sell to each other as a protection of the to the essential and dispositive part, as distinguished from the exposition
conjugal partnership. They can however enter into a contract of of the facts and antecedents upon which it is based.
agency.
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Art. 1306 – Guarantee of Freedom to Contract countenance disrespect for or failure to observe a legal prescription.
The contracting parties may establish such stipulations, clauses, terms and The Statute takes precedence.
o Only laws existing at the time of the execution of a contract are
conditions as they may deem convenient, provided they are not contrary to law,
applicable thereto and that later statutes do not govern said
morals, good customs, public order, or public policy. (1255a)
contract unless the latter is specifically intended to have a
retroactive effect.
Autonomous Nature of Contracts:
 Ortigas v. CA − construction of a commercial edifice was
 Freedom to stipulate terms and conditions − essence of the contractual
proper provided that the area was reclassified from a
system provided such stipulations are not contrary to law, morals, good
residential to a commercial zone.
customs, public order, or public policy.
o Prohibits a party from coercing or intimidating or unduly o Non-impairment of contracts or vested rights clauses − must to
influencing another to enter into a contract. yield to the superior and legitimate exercise by the State of police
o Azcuna Jr. v. CA − there is nothing immoral or illegal in a provision power to promote the health, morals, peace, education, good
stating that the lessee shall be charged ®1000ƒday if the lessee order, safety and general welfare of the people.
shall not vacate the premises on the due date. Ex.
o Manila Bay Club Corporation v. CA − termination of a lease is valid  Pakistan International Airlines v. Ople − contractual
when it is due to the failure of the lessee to comply with the stipulations contravening provisions of law designed to
insurance clause of the contract. Contracts are respected as the protect laborers and employees are not valid.
law between the contracting parties.  stipulations to pay usurious interests
 Teves v. People’s Homesite and Housing Corp. − in the absence of express  agreement to declare valid a law or ordinance
legislation or constitutional prohibition, a court may declare a contract 2. Contrary to Morals − morals mean those generally accepted principles
void as against public policy when: of morality which have received some kind of social and practical
1. It has a tendency to injure the public. confirmation.
2. It is against the public good. Ex.
 Philippine American General Insurance v. Mutuc − a provision that
3. It contravenes some established interest of society.
a bond may be extended without notification is not necessarily
4. It is inconsistent with sound policy and good morals which tends contrary to law or morals as to render the stipulation null and
to undermine the security of individual rights, whether of void.
personal liability or of private property.
 De Leon v. CA − agreement by the husband and wife to terminate
their relations is contrary to law, Filipino morals and public policy.
Principle of Autonomy: The termination of a marriage by the parties cannot be done on
 Freedom to contract − any person has the liberty to enter into a contract their own and without legal basis.
so long as they are not contrary to law, morals, good customs, public order  a promise to marry or not to marry, to secure legal separation, or
or public policy. The legislature, under the constitution, is prohibited from to adopt a child
enacting laws to prescribe the terms of a legal contract.  a promise to change citizenship, profession, religion or domicile
 Validity of Stipulations − any and all stipulations not contrary to law,  a promise not to hold public office or which limits the
morals, good customs, public order or public policy is valid. performance of official duties
1. Contrary to law − freedom of contract is restricted by law for the good  a promise to enter a particular political party or separate from it
of the public. It is fundamental postulate that however broad the 3. Contrary to Public Order − if the court finds that the contract as to the
freedom of the contracting parties may be, it does not go so far as to consideration or the thing to be done, contravenes some established
60
interest of society, or is inconsistent with sound policy and good obligatory and it must be proved as a fact according to
morals, or tends to undermine the security of individual rights. the rules of evidence
Ex.
 Common carrier cannot stipulate for exemption for liability unless Innominate Contracts according to Kind of Prestation:
such exemption is justifiable and reasonable and the contract is 1. do ut des (I give that you may give) − An agreement in which A will give
freely and fairly made. one thing to B, so that B will give another thing to A.
 Payment to intermediaries in securing import licenses or quota 2. do ut facias (I give that you may do) − An agreement under which A will
allocations give something to B, so that B may do something for A.
 Contract of scholarship stipulating that the student must remain 3. facio ut facias (I do that you may do) − An agreement under which A does
in the same school and that he waives his right to transfer to something for B, so that B may render some other service for A.
another school without refunding the school 4. facio ut des (I do that you may give) − An agreement under which A does
something for B, so that B may give something to A.
Art. 1307 – Innominate Contracts Cases:

Innominate contracts shall be regulated by the stipulations of the parties, by the  Dizon v. Gaborro − a contract where respondent shall pay for the
provisions of Titles I and II of this Book, by the rules governing the most analogous obligations of the petitioner, and the petitioner grants possession,
nominate contracts, and by the customs of the place. (n) enjoyment and the use of certain lands until full reimbursement, partakes
the nature of an antichresis.
Innominate Contracts:  Corpus v. CA − contract between lawyer and client is analogous to a
 Those which are not specifically governed by any provision in the Civil Code contract of agency.
or special law but which likewise involve the fulfillment or accomplishment
of some prestations
 They are actually not extraordinary contracts. Such contracts are common Art. 1308 – Mutuality of Contracts
and frequently encountered. The contract must bind both contracting parties; its validity or compliance cannot
Ex. contract to translate a book, contract to model, be left to the will of one of them. (1256a)
contract between lawyer and client
 They are governed by the following (SLAC): Mutuality of Contracts:
a. Stipulation of the parties  In order that obligations arising from contracts may have the force of law
b. Law − provisions of obligations and contracts under Title I and between the parties, there must be mutuality between the parties based
II of the Civil Code on their essential equality. A contract containing a condition which makes
c. Rules governing the most analogous nominate contracts its fulfillment dependent upon the exclusive will of the contracting parties
 Sale, barter or exchange, lease, partnership, agency, is void. PNB v. CA
loan, deposit, aleatory, contracts, compromises,  Garcia v. Rita Legarda Inc. − a contract expressly giving to one party the
guaranty, pledge, mortgage, and antichresis right to cancel the same if a resolutory condition therefor agreed upon is
 Governed by special laws: insurance, real estate not fulfilled, is valid, the reason being that when the contract is thus
mortgage, and charter party cancelled, the agreement of the parties is in reality being fulfilled.
d. Customs of the place  Allied Banking Corp. v. CA − a stipulation which states that a contract may
o Custom − a rule of conduct formed by repetition of acts be renewed for a like term at the option of the lessee is valid since such
uniformly observed as a social rule, legally binding and right of the lessee is part of the consideration in the contract.
61
 Contract of adhesion − wherein a party, usually a corporation, prepares Art. 1310 – When Determination is Inequitable
the stipulations in the contract, while the other party merely affixes his The determination shall not be obligatory if it is evidently inequitable. In such case,
signature or his adhesion thereto. Serra v. CA the courts shall decide what is equitable under the circumstances. (n)
o Not per se void.
o Binding as ordinary contracts because the party who adheres to
Exception to Mutuality of Contracts (Art. 1308)
the contract is free to reject it entirely.
 Qualifies determination in Art. 1309
 When the decision cannot be arrived due to inequity, the courts shall
Cancellation by One Party:
decide what is equitable for the parties involved.
 Unilateral Cancellation − just as nobody can be forced to enter into a
contract, in the same manner once a contract is entered into, no party can
renounce it unilaterally or without the consent of the other. Art. 1311 – Stipulation Pour Atrui
o Nobody is allowed to enter into a contract, and while the contract Contracts take effect only between the parties, their assigns and heirs, except in
is in effect, leaves, denounces or disavows the contract to the case where the rights and obligations arising from the contract are not
prejudice of the other. transmissible by their nature, or by stipulation or by provision of law. The heir is not
 Upon Stipulation − however, when the contract so stipulates that one may liable beyond the value of the property he received from the decedent.
terminate the contract upon a reasonable period is valid.
o Judicial action for the rescission of the contract is no longer If a contract should contain some stipulation in favor of a third person, he may
necessary when the contract so stipulates that it may be revoked demand its fulfillment provided he communicated his acceptance to the obligor
and cancelled for the violation of any of its terms and conditions. before its revocation. A mere incidental benefit or interest of a person is not
This right of rescission may be waived. sufficient. The contracting parties must have clearly and deliberately conferred a
favor upon a third person. (1257a)
Relativity of Contracts (General Rule):

Art. 1309 – Determination of Performance by a Third Person
 Between Principals (parties) − contracts take effect only between parties
The determination of the performance may be left to a third person, whose
to the same. A stranger cannot invoke the contract of another for his own
decision shall not be binding until it has been made known to both contracting
interest or for a source of an alleged prejudice.
parties. (n)
o Integrated Packaging Corp. v. CA − supplier private respondent is
not a party to the agreement, hence cannot be held liable for any
Exception to Mutuality of Contracts (Art. 1308)
breach between the contracting parties.
 A third person may be called upon to decide whether or not performance
 Transmissibility to Assigns and Heirs − the law operates to effect the
has been done for the fulfillment of the contract. Such decision becomes
transfer of a chosen of action from one person to another without any
binding when communicated to the parties.
concurring act on the part of the parties or indeed without their assent.
Ex. A sold his parcel of land to B. It was agreed that C, a real estate
o Heirs are not third persons because there is privity of interest
appraiser, would be the one to determine the reasonable price of
between them and their predecessor.
the land. C, then fixed the price after considering all the
o Transfer of an interest in land may be by marriage, and by death.
circumstances affecting the value of the land. C must make known
o DKH Holdings Corp. v. CA − upon acquiring the property, the heir
his decision to A and B who will be bound by the same.
has acquired all the rights and obligations of the deceased lessor
with respect to the property.
o Transmission of rights and obligations in a contract may be agreed
upon by the parties.
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o The heir may not be held liable beyond the value of the property Stipulation Pour Autrui Cases:
received.  Marmont Resort Hotel v. Guiang − spouses may be held liable as Marmont
o 3 cases where contracts cannot take effect with respect to the hotel is a third party who is benefitted upon the second memorandum of
heirs or assigns (SNL): agreement which the spouses executed with Maris Trading.
1. Nature − of the contract does not allow transmission  Coquia v. Fieldman’s Insurance Co. Inc. − insurance contract is contract
 Where acts stipulated in a contract require the exercise pour autrui. Any authorized driver of the insured taxi company has a right
of special knowledge, genius, skill, taste, ability, of claim in case of a death or bodily injury suffered through an accident.
experience, judgment, discretion, integrity, or other  Mandarin Villa, Inc. v. CA − in a transaction between a restaurant, bank
personal qualification of one or both parties, the and a credit card holder, the card holder’s offer to pay by means of his
agreement is of a personal nature, and terminates on the credit card constitutes not only an acceptance of the said stipulation but
death of the party who is required to render such service also an explicit communication of his acceptance to the obligor.
2. Stipulation − that no transmission of rights shall be allowed  Young v. CA − when given a right of first refusal, the sale of subject
3. Law − provides non−transmission property to some other person constitutes a revocation of such right.
4 Exceptions to the Relativity of Contracts:

1. Contracts Pour Autrui (Art. 1311 par. 2) − enforcement of which may be Art. 1312 – Contracts Creating Real Rights Bind Third Persons
demanded by a third party for whose benefit it has been made, although In contracts creating real rights, third persons who come into possession of the
not a party to the contract, before the stipulation in his favor has been object of the contract are bound thereby, subject to the provisions of the Mortgage
revoked by the contracting parties. There must be a clear intent to benefit Law and the Land Registration Laws. (n)
the third party. It is insufficient that the third party be merely incidentally
benefited. Real Rights in Property:
o Requisites of a Stipulation Pour Autrui (SPCLA):  A real right directly affects property subject to it.
a. There must be a stipulation in favor of a third person (who is  Whoever is in possession of such property must respect that real right.
not necessarily named) Ex. If the lessor terminates the lease contract for a valid cause, the
b. The stipulation must be a part, not the whole of the contract sublessee can be ejected from the leased premises even if he is
c. The contracting parties must have clearly and deliberately not a party to the lease contract.
conferred a favor upon a third person, not a mere incidental
benefit or interest
Art. 1313 – Right of Creditors to Impugn Fraudulent Contracts
d. Neither of the contracting parties bears the legal
Creditors are protected in cases of contracts intended to defraud them. (n)
representation or authorization of the third party
e. The favored party must have communicated his acceptance
 Art. 1381(3) − provides that a contract shall be rescissible if it is
of the stipulation to the obligor before its revocation
undertaken in fraud of creditors when the latter cannot in any other
2. Contracts creating Real Rights (Art. 1312)
manner collect the claim due them.
3. Right of Creditors to Impugn Fraudulent Contracts (Art. 1313)
 Even if the creditor is not a party to the contract intended to defraud him,
4. Person who Induces Another to Violate a Contract (Art. 1314)
he is given legal personality by law to terminate the contract.
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Art. 1314 – Liability of Third Persons Responsible for Breach of Contract Art. 1315 – Perfection of Contracts and Implied Terms
Any third person who induces another to violate his contract shall be liable for Contracts are perfected by mere consent, and from that moment the parties are
damages to the other contracting party. (n) 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
 A stranger owes to the parties to the agreement a duty not to interfere faith, usage and law. (1258)
with its performance.
o This covers every case where one person maliciously persuades  Implied terms − obligations not stipulated in a contract but includes all
another to break any contract with a third person. consequences that may be in keeping with good faith, usage and law.
 Malicious act − if the persuasion be used for the indirect purpose of Ex. observance of proper diligence
injuring the plaintiff, or benefiting the defendant, at the expense of the delivery includes all accessions and accessories
plaintiff. provisions on fortuitous events
o Lack of malice precludes damages. But it does not relieve
petitioner of the legal liability for entering into contracts and Art. 1316 – Real Contracts are Perfected upon Delivery
causing breach of existing ones.
Real contracts, such as deposit, pledge and Commodatum, are not perfected until
 The party guilty of such breach may, nevertheless, recover against the one
the delivery of the object of the obligation. (n)
who induces him to violate his contract when the latter, by such acts and
persuasion, intended to injure the other contracting party or to coerce him
 General Rule − contracts are perfected by mere consent of the parties.
into adopting a line of business against his will and judgment
o Exceptions:
 Damage − the loss, hurt, or harm which results from injury and damages 1. Contract of Sale − ownership over the object is transferred only
are the recompense or compensation awarded for the damage suffered. upon actual or constructive delivery.
Song Pin Bun v. CA 2. Real Contracts
o One becomes liable in an action for damages for a non− a. Deposit − constituted from the moment a person
trespassory invasion of another’s interest in the private use and receives a thing belonging to another for the purpose of
enjoyment of asset if (RILS): safely keeping it and returning the same. (Art. 1962)
1. The other has property rights and privileges with respect b. Pledge − constituted by the owner of the object to
to the use or enjoyment interfered with.
secure a loan. It is indispensable that the thing pledged
2. The invasion is substantial.
be in possession of the creditor.
3. The defendant’s conduct is a legal cause of the invasion.
c. Commodatum − bailee in commodatum acquires the use
4. The invasion is either intentional and unreasonable or
of the thing loaned.
unintentional and actionable under general negligence
rules.
o Elements of Tort Interference (EKI): Art. 1317 – Unauthorized Contracts are Unenforceable
1. Existence of a valid contract No one may contract in the name of another without being authorized by the latter,
2. Knowledge on the part of the third person of the existence of or unless he has by law a right to represent him.
contract
A contract entered into in the name of another by one who has no authority or
3. Interference of the third person is without legal justification
legal representation, or who has acted beyond his powers, shall be unenforceable,
or excuse
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)
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 General rule − no person may contract in the name of another.  “Concur” − all the three requisites must be present. Absence of one
o Exception − if such person has by law a right to represent him. negates the existence of a contract.
Ex. Parents exercising parental authority have the right and  The rule on pari delicto − when both parties are equally at fault.
duty to represent their unemancipated child. o Void and inexistent contracts − when any of the elements are
 Contract of Agency − a person binds himself to render some service or to absent pari delicto shall not apply.
do something in representation or on behalf of another, with the consent o Ostensible contracts − when the elements are all present but the
or authority of the latter. contract is void, pari delicto shall apply.
o The principal of the agent must comply with all the obligations Ex. purchase and delivery of drugs
which the agent may have contracted with the scope of his
authority. Section 1 – Consent
o Wherein the agent has exceeded his power, the principal is not
bound except when he ratifies it expressly or tacitly.
o When the agent exceeded his authority, the principal is solidarily Art. 1319 – Consent Defined
liable with the agent if the former allowed the latter to act as Consent is manifested by the meeting of the offer and the acceptance upon the
though he had full powers. thing and the cause which are to constitute the contract. The offer must be certain
o When a sale of a piece of land or any interest therein is through and the acceptance absolute. A qualified acceptance constitutes a counter−offer.
an agent, the authority of the latter shall be in writing, or else, the Acceptance made by letter or telegram does not bind the offerer except from the
sale shall be void. time it came to his knowledge. The contract, in such a case, is presumed to have
 Yao Ka Sin v. CA − if a private corporation intentionally or negligently been entered into in the place where the offer was made. (1262a)
clothes its officers or agents with apparent power to perform acts for it,
the corporation cannot deny that the existence of such authority, as to  Consent – the concurrence of the wills of the offerer and acceptor as to
innocent third persons dealing in good faith with such officers or agents. the thing and the cause which constitute a contract.
 Regal Films v. Concepcion − such an agreement is void where the agent o Requisites of Consent:
was no longer acting on behalf of the movie actor. 1. Consent must be manifested by the concurrence of the
offer and the acceptance (Arts. 1319−1326)
2. Contracting parties must possess the necessary legal
capacity (Arts. 1327−1329)
3. Consent must be intelligent, free, spontaneous and real
Chapter 2: Essential Requisites of Contracts (Arts. 1330−1346)
General Provisions  Offer – a manifestation of a willingness to enter into a bargain so made as

to justify another person in understanding that his assent to that bargain is
invited and will conclude it.
Art. 1318 – Elements of a Contract o Making an offer means inviting an acceptance which, if given, will
There is no contract unless the following requisites concur: finally create a contract.
o It must be so complete that its acceptance will form an agreement
(1) Consent of the contracting parties;
containing all the terms necessary and intended by the parties, for
(2) Object certain which is the subject matter of the contract;
it is obvious that there can be no agreement until its terms are
(3) Cause of the obligation which is established. (1261)
settled, and that an offer which is not complete is merely a step in
the negotiations.
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o The following relations, until a contract is perfected, are not other party options andƒor remedies to protect
considered binding commitments, and if withdrawn, such interests.
withdrawal is effective immediately after its manifestation such as o Person making the offer must have actual knowledge of the
by its mailing and not necessarily when the offeree learns of the acceptance.
withdrawal:
1. Negotiation – is formally initiated by an offer Art. 1321 – Offerer Fixes Manner, Time and Place of Acceptance
2. Imperfect promise (policitacion) – is merely an offer
The person making the offer may fix the time, place, and manner of acceptance, all
3. Public advertisements or solicitations – are ordinarily
of which must be complied with. (n)
construed as mere invitations to make offers or only as
proposals.
 General rule − offerer will not be bound by an acceptance made by the
acceptor in any other manner than that specified by the offerer.
Art. 1320 - Acceptance o Exception − when the offerer acquiesces in the change.
An acceptance may be express or implied. (n)  Matias v. CA − a lessee may not compel the subsequent owner of a
property to sell it in an amount which the lessee feels reasonable.
 Acceptance − must exist to establish concurrence of the wills of the  Contract of sale − the manner of payment of the purchase price is an
parties, otherwise there is no consent to form a contract. essential element before a valid and binding contract of sale can exist.
 Salonga v. Farrales − where the defendant merely
offered the property but which offer was not accepted,
Art. 1322 – Communication of Acceptance to Agent
there was no consent.
An offer made through an agent is accepted from the time acceptance is
o Must be absolute − it may be express or implied.
communicated to him. (n)
 Adelfa Properties Inc. v. CA − except where formal
acceptance is required, it may be shown by acts, conduct
 Contract of Agency − a person binds himself to render some service or to
or words of the accepting party that clearly manifest a
do something in representation or on behalf of another with the consent
present intention or determination to accept the offer to
or authority of the latter.
buy or sell.
o Must be unconditional − it must be identical to the terms of the When a sale of a piece of land or any interest therein is through an agent,
offer. the authority of the latter shall be in writing, otherwise the sale is void.
 It must not vary from the proposal by way of omission,
addition or alteration. Art. 1323 – When Offer Becomes Ineffective
 Counter-offer − a qualified acceptance which binds An offer becomes ineffective upon the death, civil interdiction, insanity, or
neither of the parties. insolvency of either party before acceptance is conveyed. (n)
 Jardine Davies v. CA − when the acceptance of a
construction bid was subject to certain basic terms and  “Before acceptance is conveyed” − before acceptance has come to the
conditions, it was not tantamount to a qualified actual knowledge of the offeror.
acceptance. As to conditions: When an offer becomes ineffective, nothing can be accepted.
 Condition imposed on the perfection of a  Villanueva v. CA − an offer became ineffective when a bank became
contract − failure to comply results in the failure insolvent and was placed under receivership before its acceptance of the
of a contract. purchase of a certain foreclosed property was communicated to the seller.
 Condition imposed merely on the performance Hence, no contract was created.
of an obligation − failure to comply gives the
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o However, it is not the giving of the earnest money per se, but the
Art. 1324 – Contract of Option, Option Period, Option Money proof of the concurrence of all the essential elements of the
When the offerer has allowed the offeree a certain period to accept, the offer may contract of sale which establishes the existence of a perfected
be withdrawn at any time before acceptance by communicating such withdrawal, sale.
except when the option is founded upon a consideration, as something paid or
promised. (n) Art. 1325 – Business Advertisements
Unless it appears otherwise, business advertisements of things for sale are not
 Option — a contract granting a privilege to buy or sell at a determined definite offers, but mere invitations to make an offer. (n)
price within an agreed time.
 Option period — when the offerer has allowed the offeree a certain period  General Rule — advertisements of things for sale are mere invitations to
to accept the offer. make an offer.
 Ang Yu Asuncion v. CA — rules on option period: o Exception — unless it appears otherwise or where such
PERIOD NOT FOUND ON A PERIOD HAS A SEPARATE advertisement may constitute an offer which is certain.
CONSIDERATION CONSIDERATION
The offerer is still free and has the A contract of —option is deemed Art. 1326 – Advertisements for Bidders
right to withdraw the offer before perfected and it would be a breach Advertisements for bidders are simply invitations to make proposals, and the
its acceptance or if an acceptance of that contract to withdraw the
advertiser is not bound to accept the highest or lowest bidder, unless the contrary
was made, before the offeror’s offer during the agreed period. appears. (n)
coming to know of such fact, by
communicating that withdrawal to If the optioner−offeror withdraws
the offer before its acceptance by  Jardine Davies Inc. v. CA — when a company starts the process of a bidding
the offeree.
and disseminates the document denominated the “Terms Conditions of
The right to withdraw must not be the optionee−offeree, the latter the Bidding” to the bidders, the dissemination of the said documents
exercised whimsically or arbitrarily; may not sue for specific
constitutes an advertisement to bid in the project. The bid proposals or
otherwise, it could give rise to a performance on the proposed
quotations submitted by the prospective suppliers are the offers. The
damage claim under Art. 19 of the contract since it has failed to reach favorable reply of the company to one of the prospective suppliers is the
Civil Code. its own stage of perfection.
acceptance.
The optioner−offeror renders
himself liable for damages for
breach of the option. Art. 1327 – Persons who Cannot Give Consent
 Serra v. CA — an optional contract is a privilege existing only in one party— The following cannot give consent to a contract:
the buyer.
(1) Unemancipated minors;
o He is given the right to decide to purchase or not, a certain
merchandise or property, at any time within the agreed period, at (2) Insane or demented persons, and deaf−mutes who do not know how to write.
a fixed price. (1263a)
 Consideration — in an option contract, may be anything of value, unlike in
sale where it must be the price certain in money or its equivalent. Persons who are capable cannot allege the incapacity of those with whom
 Earnest money — considered part of the price in a contract of sale and can they contracted to annul the contract.
be a proof of the perfection of the contract of sale.
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Unemancipated Minors: Deaf−mutes:
Emancipation takes place by the attainment of majority age which  Being deaf−mute is not by itself alone a disqualification for giving consent.
commences at the age of 18 years.  The law refers to the deaf−mute who does not know how to write.
Any contract entered into by an unemancipated person is annullable or
voidable.
Art. 1328 – Lucid Intervals, Drunkenness, Hypnotic Spell
o Unless they ratify the same upon reaching the age of majority.
Contracts entered into during a lucid interval are valid. Contracts agreed to in a
Only the minor can invoke the ground that a contract is annullable
state of drunkenness or during a hypnotic spell are voidable. (n)
because, at the time it was entered into, he was still a minor.
Misrepresentation by a Minor:
Lucid Interval:
a. Braganza v. De Villa Abrille (passive misrepresentation) — where
 Lucid interval — that period of time when an insane person acts with
minors signed a promissory note without telling the creditor their reasonable understanding, comprehension and discernment with respect
ages, and where the creditor sought to enforce the promissory note to what he is doing.
against them, it was held that the minors can set up the defense of Lunacy may be intermittent in character, but when one is shown to have
minority to resist claim. been mentally deranged at a recent period anterior to the execution of the
o Minors have no juridical duty to disclose their inability or age. contract, that condition is presumed to continue and the burden is on the
o Even if the written contract is unenforceable because of non− other party to show that the agreement was entered into during a lucid
age, they shall make restitution to the extent that they may interval.
have profited by the money they received.
b. Mercado v. Espiritu (active misrepresentation) — document signed by Drunkenness or Hypnotic Spell:
the minor specifically stated he was of age. The minor is estopped  Intoxication — must be such a character as to perpetuate an undue
from setup the defense of minority. advantage over the drunken person.
o It must render the person incapable of intelligent assent and
Insane or Demented Persons: deprived of the power to know what he is doing.
Contracts entered into by insane or demented persons are annullable, not o Anything short of this will not invalidate the contract.
void ab initio. o An agreement made by a person when so drunk, is voidable at the
o Valid up to the time they are rendered ineffective by the courts. intoxicated person’s option under any of the following (OFC):
o Insanity of the other party at the time of the perfection of the 1. When it appears that the drunkenness was brought about by
contract must be proven. the opposite party
o When the insane is not under a guardian and the other 2. That a fraudulent advantage was taken of it
contracting party has no reasonable cause to believe him 3. That the drunkenness was so complete as to deprive the
otherwise insane, the agreement is valid if equitable and party of his reason of an agreeing mind
beneficial to such insane person.  Hypnosis — an artificially induced state, resembling sleep, but
3 classes of mental incapacity: characterized by exaggerated suggestibility and continued responsiveness
1. Idiot — one who has been insane from birth. to the voice of the hypnotist.
2. Lunatic — one who was at one time sane, but who from some cause
or other has lost use of his reason.
Art. 1329 – Incapacity Subject to Modifications
3. Mentally Weak — not totally incapable of transacting business or
The incapacity declared in Article 1327 is subject to the modifications determined
managing affairs.
by law, and is understood to be without prejudice to special disqualifications
established in the laws. (1264)
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The Rules of Court provide a list of incompetents who need guardianship: Annulment of contract on the ground of error is limited to cases in which it
o persons suffering from the penalty of civil interdiction may reasonably be said that without such error the consent would not
o hospitalized lepers have been given.
o prodigals For mistake to make a contract voidable or annullable, the law states that
o deaf and dumb who are unable to write and read the consent must either refer to the (SC):
o those of unsound mind (even though they have lucid intervals) 1. Substance of the thing which is the object of the contract
o persons not being of unsound mind but by reason of age, disease, 2. Conditions which principally moved the parties to enter into a
weak mind, and other similar causes cannot, without outside aid, contract
take care of themselves and manage their property—becoming an  Unilateral mistake — of which the other party is entirely
easy prey for deceit and exploitation. ignorant and to which he in no way contributes, will not
The incapacity to give consent (Arts. 1327 & 1328) to contracts renders the affect the agreement or afford ground for its avoidance
contract merely voidable, while special disqualification (Art. 1329) makes it or rescission, unless it is such a mistake as goes to the
void. substance of the agreement itself.
 Identity or qualifications — even when there is no error
Art. 1330 – Characteristics of Consent as to person, is a cause vitiating consent, if such
qualifications have been the principal cause of the
A contract where consent is given through mistake, violence, intimidation, undue
contract.
influence, or fraud is voidable. (1265a)
 Motive — does not affect the contract unless such
motive was a condition of the consent given, because an
Meeting of the minds must be free, voluntary, willful and with reasonable
accidental element is, by the will of the parties,
understanding of the various obligations the parties intend to be bound.
converted into a substantial element.
 Mistake, intimidation, violence, undue influence, fraud — grounds to
annul a contract because there is no real assent to the contract.  Spouses Heinzrich Theis and Betty Theis v. CA — Mistake involves either:
1. Ignorance — absence of knowledge which respect to a thing.
 Intimidation, violence, undue influence — acts of duress where the
2. Mistake properly speaking — a wrong conception about said
coerced party is compelled to execute the contract against his will.
thing or a belief in the existence of some circumstance, fact or
A contract obtained through duress or mistake is voidable or annullable
event which in reality does not exist.
under Art. 1390.
 A simple mistake of account shall give rise to its correction — it does not
go into the essentials of a contract.
Art. 1331 – Mistake or Error
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 Art. 1332 – Burden of Proof in case of Fraud or Mistake
principally moved one or both parties to enter into the contract. 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
Mistake as to the identity or qualifications of one of the parties will vitiate consent contract must show that the terms thereof have been fully explained to the former.
only when such identity or qualifications have been the principal cause of the (n)
contract.
A simple mistake of account shall give rise to its correction. (1266a)  Presumption — when entering into a contract, the parties are presumed to
have understood the terms of the contract they voluntarily signed
especially when there is proof that they are educated.
Mistake:
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o May be rebutted by evidence that the person invoking the same Art. 1335 – Violence or Force
has either of these conditions:
There is violence when in order to wrest consent, serious or irresistible force is
 Inability to read
employed.
 Inability to understand the language of the contract
Burden of proof shifts to the one enforcing the contract to show that the There is intimidation when one of the contracting parties is compelled by a
terms have been explained to the other party. reasonable and well−grounded fear of an imminent and grave evil upon his person
The fact of not understanding is not enough; it must be coupled with fraud. or property, or upon the person or property of his spouse, descendants or
 Lustan v. CA — a deed of definite sale was ruled to be an equitable ascendants, to give his consent.
mortgage where an illiterate woman was made to believe that what she
signed evidenced an indebtedness to the creditor. To determine the degree of intimidation, the age, sex and condition of the person
 Lim v. CA — where a contract was written in English signed by an elderly shall be borne in mind.
woman who claimed that she did not understand it, was upheld because
fraud was not proven. A threat to enforce one's claim through competent authority, if the claim is just or
 Arriola v. Mahilum — upheld the cause of an illiterate where her sister legal, does not vitiate consent. (1267a)
fraudulently had her sign a document including the partition of her own
property.  Violence − refers to physical force or compulsion.
o There is total absence of free will in case a person is compelled to
enter into a contract through violence.
Art. 1333 – Knowledge of Risk
o Requisites of violence:
There is no mistake if the party alleging it knew the doubt, contingency or risk
1. that the physical force employed must be irresistible or of
affecting the object of the contract. (n) such degree that the victim has no other course, under the
circumstances, but to submit.
 If the parties are conscious of their ignorance as to the existence of some 2. that such force is the determining cause in giving the consent
facts, the non−existence of such facts is of no consequence. to the contract.
 Wood v. Boynton — contract cannot be annulled where a Topaz turned out  Intimidation − refers to moral force or compulsion.
to be actually a Diamond because there was conscious uncertainty and o It is necessary that the threats and circumstances be of a
both parties took the risk. character as to excite the reasonable apprehensions of a person
of ordinary courage, and that the agreement be made under the
Art. 1334 – Mistake of Law May Vitiate Consent influence of such threats or menace.
Mutual error as to the legal effect of an agreement when the real purpose of the o Threat must be tangible and direct
parties is frustrated, may vitiate consent. (n) o Requisites of intimidation:
1. that the intimidation must be the determining cause of the
 General rule — A unilateral mistake of law as to the legal effect of an contract, or must have caused the consent to be given.
agreement is not a ground to annul a contract. 2. that the threatened act be unjust or unlawful.
o Exception — when the following requisites concur: 3. that the threat be real and serious, there being an evident
1. The mistake as to the legal effect of the agreement must be disproportion between the evil and the resistance which all
mutual. men can offer.
2. Such mutual mistake frustrates the real purpose of the 4. that it produces a reasonable and well−grounded fear from
parties. the fact that the person from whom it comes has the
necessary means or ability to inflict the threatened injury.
70
De Leon v. CA been unduly influenced was suffering from mental weakness, or was ignorant or in
 Duress − that degree of constraint or danger either actually inflicted financial distress. (n)
(violent) or threatened and impending (intimidation), sufficient to
overcome the mind and will of a person of ordinary firmness.  Annulling a contract based on undue influence —is based upon principles
o Vda. De Lacson v. Granada − the duress or intimidation must be of highest morality, it reaches every case and grants relief where influence
more than the “general feeling of fear.” is acquired and abused, or where confidence is reposed and betrayed.
 There must be specific acts or instances of such nature  “Undue” — unrighteous, illegal and designed to perpetrate a wrong.
and magnitude as to have, of themselves, inflicted fear or o It must amount to fraud or coercion.
terror upon the subject thereof that his execution of the  “Due influence” — solicitation, importunity, argument and persuasion
questioned deed or act cannot be considered voluntary. used by one party as means to the consent of the other.
 Mere threat to bring a good faith action, maintainable at o Banez v. CA − influence obtained by persuasion or argument or by
law, does not amount to duress. appeals to the affections is not prohibited either in law or morals
o Laperal v. Rogers − where fearing for his life and that of his family, and is not obnoxious even in courts of equity.
he sold the house, it was held that the contract can be annulled as o Marubeni Corporation v. Lirag − an agreement entered into
the consent was coerced by direct intimidation. because of the actual or supposed influence...which contemplates
o Legal actions which amount to duress: the use of personal influence and solicitation rather than appeal
 A threatened civil action where the parties are not on an to the judgment of the official on the merits of the object sought
equal footing. is contrary to public policy.
 Threats made against a person of inferior intellect, or an
aged weakened in body and mind to the effect that
certain civil proceedings will be instituted.
Art. 1338 – Causal Fraud
 Threatening litigation while the defendant is ill, or to
There is fraud when, through insidious words or machinations of one of the
continue litigation when the circumstances are
contracting parties, the other is induced to enter into a contract which, without
oppressive.
them, he would not have agreed to. (1269)
Art. 1336 – Violence or Intimidation by a Third Person  Fraud — a false representation of a material fact made by word or conduct
Violence or intimidation shall annul the obligation, although it may have been with knowledge of its falsehood or in reckless disregard of its truth, in
employed by a third person who did not take part in the contract. (1268) order to induce and actually inducing another to act thereon to his injury.
o There must be always be damage or injury in case of fraud.
Ex. lf A is coerced to enter into a contract with X because G threatens to kill all o Fraud is every kind of deception, whether in the form of insidious
the children of A if he does not do so, such contract may be annulled machinations, manipulations, concealments, or
whether or not X knew of the intimidation. misrepresentations, for the purpose of leading another party into
error and thus executing a particular act.
o Fraud produces qualified error; it induces in the other party an
inexact notion of facts. The will of another is maliciously misled by
Art. 1337 – Undue Influence
means of false appearance of reality.
There is undue influence when a person takes improper advantage of his power
o Insidious words or machinations include false promises;
over the will of another, depriving the latter of a reasonable freedom of choice. The
exaggeration of hopes or benefits; abuse of confidence; and
following circumstances shall be considered: the confidential, family, spiritual and
fictitious names, qualifications, or authority.
other relations between the parties, or the fact that the person alleged to have
o The result of fraud is error on the part of the victim.
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Kinds of fraud: If a party is induced by such exaggerations, there may be fraud amounting
1. Dolo causante (Art. 1338) — which determines or is the essential to active misrepresentation.
cause of the consent; fraud in the perfection of contract; can be a If it is within the means of the other party to investigate and he does not
ground for annulment. do so, there will be no fraud despite the exaggerations.
2. Dolo incidente (Arts. 1344 & 1170) — which does not have such a  Tolerated fraud − includes minimizing the defects of the thing,
decisive influence and by itself cannot cause the giving of consent, exaggeration of its good qualities, and giving it qualities that it does not
but refers only to some particular or accident of the obligation; have. This is lawful misrepresentation known as dolus bonus. This is also
cannot be a ground for annulment. called lawful astuteness.
Requisites of fraud: o These misrepresentations are usually encountered in fairs,
1. Employed by one contracting party upon the other markets, and almost all commercial transactions. They do not give
2. Induced the other party to enter into the contract rise to an action for damages, either because of their
3. Serious insignificance or because the victim’s gullibility is the real cause of
4. Resulted in damage or injury to the party seeking annulment his loss.
 Rivero v. CA − it was held that consent of the old woman was obtained
through fraudulent misrepresentation of her nephew when she was made Art. 1341 – Expert Opinion
to believe that the contract was a mortgage when in fact it was a sale. 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)
Art. 1339 – Fraud by Concealment
Failure to disclose facts, when there is a duty to reveal them, as when the parties  General Rule — Opinions are not regarded as representation of facts
are bound by confidential relations, constitutes fraud. (n) Hence, if it turns out to be wrong, it is not considered legally deceitful
insidiously inducing a party to enter into a contract.
The mere fact that one of the parties has superior knowledge of the value o Exception — an opinion of an expert is like a statement of fact,
of the property subject of the transaction does not per se constitute fraud. and if false, may be considered a fraud giving rise to annulment.
o There is only fraud when, under the special and peculiar
circumstances of each case, a legal or equitable duty is imposed
upon the dominant party to reveal certain facts material to the Art. 1342 – Fraud by a Third Person
transaction or when there is a confidential relationship between Misrepresentation by a third person does not vitiate consent, unless such
the parties. misrepresentation has created substantial mistake and the same is mutual. (n)
 Silence or concealment − by itself, does not constitute fraud, unless there
is a special duty to disclose certain facts, or unless according to good faith A contract may be annulled on the ground of vitiated consent if deceit by a
and the usages of commerce, the communication should be made third person, even without connivance or complicity with one of the
o The innocent non−disclosure of a fact does not affect the contracting parties, resulted in mutual error on the part of the parties to
formation of the contract or operate to discharge the parties from the contract.
their agreement.  General rule — is that the fraud employed by a third person upon one of
the parties does not vitiate consent and cause the nullity of a contract.
Art. 1340 – Usual Exaggerations in Trade o Exception — If one of the parties is in collusion with the third
The usual exaggerations in trade, when the other party had an opportunity to know person, or knows of the fraud by the third person, and he is
the facts, are not in themselves fraudulent. (n) benefited thereby, he may be considered as an accomplice to the
fraud, and the contract becomes voidable.
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 Rural Bank of Caloocan v. CA − there was misrepresentation where a When both parties use fraud reciprocally, neither one has an action against
person induced an elderly woman to co−sign a promissory note as a co− the other; the fraud of one compensates that of the other. Neither party
debtor and such person claimed false qualifications to get a loan from a can ask for the annulment of the contract.
bank.
Art. 1343 – Misrepresentation Made in Good Faith Art. 1345 – Simulation of a Contract
Misrepresentation made in good faith is not fraudulent but may constitute error. Simulation of a contract may be absolute or relative. The former takes place when
(n) the parties do not intend to be bound at all; the latter, when the parties conceal
their true agreement. (n)
 Misrepresentation − inclusive of the term fraud.
o Practically, every fraud is a misrepresentation but not every  Absolute simulation — renders the contract null and void when the parties
misrepresentation is fraudulent. do not intend to be bound at all by the same. Umali v. CA
Misrepresentations may be made without the knowledge of its falsity and o The basic characteristic of this type of simulation of contract is the
therefore completely done in good faith. fact that the apparent contract is not really desired or intended to
o ln such case, it may constitute merely an error. either produce legal effects or in any way alter the juridical
o Hence, breach of contracts need not always be in good faith as it situation of the parties. Umali v. CA
could be the due to an honest mistake.  Simulation − the declaration of a fictitious will, deliberately made by
agreement of the parties, in order to produce, for the purposes of
deception, the appearance of a juridical act which does not exist or is
Art. 1344 – Causal Fraud may make a Contract Voidable
different from that which was really executed.
In order that fraud may make a contract voidable, it should be serious and should
not have been employed by both contracting parties.
Art. 1346 – Absolute and Relative Simulation of Contracts
Incidental fraud only obliges the person employing it to pay damages. (1270) 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
The fraudulent act must be serious law, morals, good customs, public order or public policy binds the parties to their
o There must be an intention to injure and that damage or injury in real agreement. (n)
fact resulted.
o It must not be dolo incidente—accidental and collateral fraud—  Javier v. CA − assignee should be held liable considering that the
which does not necessarily bear on the decision of the party assignment was a relatively simulated contract which, though containing a
defrauded to enter into the contract. false consideration, was not null and void per se.
o It must be dolo causante—which refers to the very cause why the  JR Blanco v. Quasha − simulation of contracts may be absolute or relative.
other party entered into the contract. a. Absolute simulation − there is color of a contract, without any
Fraud is serious when it is sufficient to impress, or to lead an ordinarily substance thereof, the parties not having any intention to be
prudent person into error; that which cannot deceive a prudent person bound.
cannot be a ground for nullity. b. Relative simulation − the parties have an agreement which they
Besides being serious, the fraud must be the determining cause of the conceal under the guise of another contract.
contract. It must be dolo causante. Ex. a deed of sale executed to conceal donation.
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 Pua v. CA — where it was proven that the person who allegedly entered  Within the commerce of man − any property or service can be the object
into the contract was not even conceived at the time the contract was of a contract provided that it is within the commerce of man.
executed, the SC said that the contract was definitely absolutely simulated. o Maneclang v. IAC − a creek cannot be converted into a fishpond
 Velasquez v. CA − contract was clearly simulated to facilitate the because it is a property belonging to the public domain which is
transaction with the bank as there was absolutely no consideration at all not susceptible to private appropriation and acquisitive
and the parties clearly did not intend to be bound by the deed of sale and prescription.
its accompanying documents. o Things which are outside the commerce of man:
 Francisco v. Francisco−Alfonso − when two illegitimate daughters claimed  Services which imply an absolute submission by those
they bought property but it was shown that they could not have possibly who render them, sacrificing their liberty, their
acquired the same given that they had no income, the contract of sale was independence or beliefs, or disregarding in any manner
void for being simulated because there was no consideration for the same. the equality and dignity of persons, such as perpetual
servitude or slavery;
 Personal rights, such as marital authority, the status and
capacity of a person, and honorary titles and distinctions;
Section 2 – Object of Contracts
 Public offices, inherent attributes of the public authority,
and political rights of individuals, such as the right of
Art. 1347 – Object of a Contract suffrage;
All things which are not outside the commerce of men, including future things, may  Property, while they pertain to the public dominion, such
be the object of a contract. All rights which are not intransmissible may also be the as the roads, plazas, squares, and rivers;
object of contracts.  Sacred things, common things, like the air and the sea,
and res nullius, as long as they have not been
No contract may be entered into upon future inheritance except in cases expressly
appropriated.
authorized by law.
 Even future things can be the object of contracts, as long
All services which are not contrary to law, morals, good customs, public order or as they have the possibility or potentiality of coming into
public policy may likewise be the object of a contract. (1271a) existence.
Future things that can be reasonably ascertained can be the object of a
 The object of a contract is its subject matter. It is the thing, right, or service contract.
which is the subject−matter of the obligation arising from the contract. Rights may likewise be the object of contracts provided they are
Requisites (CILID): transmissible.
1. within the commerce of man;  Future inheritance — any property or right not in existence or capable of
2. not intransmissible determination at the time of the contract, that a person may in the future
3. must be licit, or not contrary to law, morals, good customs, public acquire by possession.
policy, or public order;  Blas v. Santos — where the wife agreed to give whatever her share in the
4. not an impossible thing or service; and conjugal partnership property to her heirs once the husband dies, the SC
5. it must be determinate as to its kind. said that such agreement does not involve future inheritance.
o The document refers to existing properties which she will receive
Art. 1348 – Impossible Things or Services by operation of law on the death of her husband, because it is her
Impossible things or services cannot be the object of contracts. (1272) share in the conjugal assets.
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The law, however, generally does not allow contracts on future  Consideration − the reason, motive, or inducement by which a man is
inheritance. A contract entered into by a fideicommissary heir with respect moved to bind himself by an agreement.
to his eventual rights would be valid provided that the testator has already  The contact is the law between the parties. When the words of a contract
died. The right of a fideicommissary heir comes from the testator and not are plain and readily understandable, there is no room for construction.
from the fiduciary.  Dihiansan v. CA − the consideration was the private respondent’s
preferential right to buy the property from the owner.
Art. 1349 – Quantity Need Not be Determinate
The object of every contract must be determinate as to its kind. The fact that the Cause of contracts:
quantity is not determinate shall not be an obstacle to the existence of the 1. Onerous contract — for each contracting party, the prestation or promise
contract, provided it is possible to determine the same, without the need of a new of a thing or service by the other
contract between the parties. (1273) o The cause need not be adequate or an exact equivalent in point of
actual value, especially in dealing with objects which have a
The object must be one that can be ascertained with reasonable certainty rapidly fluctuating price. There are equal considerations.
as to its kind. 2. Reciprocal contracts — the obligation or promise of each party.
o Hence, a contract engaging a certain person to perform a deed, o Republic v. Cloribel − in a compromise agreement designed to
without specifying what deed it is, does not make the service terminate the case, the cause of the compromise was the mutual
determinable and is therefore void. waiver and abandonment of the parties of their claims against
each other.
3. Remuneratory contracts — the service or benefit which is remunerated
Section 3 – Cause of Contracts o Where a party gives something to another because of some
service or benefit given or rendered by the latter to the former,
Art. 1350 – Cause Defined where such service or benefit was not due as a legal obligation.
In onerous contracts the cause is understood to be, for each contracting party, the The consideration of one is greater than the other‘s.
prestation or promise of a thing or service by the other; in remuneratory ones, the 4. Contracts of pure beneficence — mere liberality of the benefactor
service or benefit which is remunerated; and in contracts of pure beneficence, the o It does not involve any material thing but rather it involves only
mere liberality of the benefactor. (1274) the generosity of the benefactor.
 Cause of the contract — the essential or more proximate purpose which Art. 1351 – Motive Defined
the contracting parties have in view at the time of entering into the The particular motives of the parties in entering into a contract are different from
contract the cause thereof. (n)
o It may or may not be tangible
o It can take different forms:  Cause — essential reason for the contract.
 Prestation or promise of a thing or service by another
 Motive — particular reason for a contracting party which does not affect
 Giving of a sum of money, an object
the other party and which does not preclude the existence of a different
 Expectation of profits from a subdivision project consideration.
The cause as to each party is the undertaking or prestation to be
o Motivation of the parties is independent from the cause of the
performed by the other. The object of the contract is the subject matter
contract and therefore does not form an essential part of it.
thereof
 General rule — motive or particular purpose of a party in entering into a
Ex. the land which is sold in a sales contract
contract does not affect the validity nor existence of the contract.
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o Exception — when the realization of such motive or particular Art. 1353 – False Cause
purpose has been made a condition upon which the contract is The statement of a false cause in contracts shall render them void, if it should not
made to depend. Philippine National Construction Corp. v. CA
be proved that they were founded upon another cause which is true and lawful.
No judicial action is necessary for the annulment of a void contract. Any
(1276)
such action would be merely declaratory.
Cause is the objective, intrinsic, and juridical reason for the existence of
 General rule — false cause stated in a contract makes the contract void.
the contract itself, while motive is the psychological, individual, or personal
o Exception — when a contract, though stating a false
purpose of a party to the contract.
consideration, has in fact a real consideration, the contract is not
 General principle — the motives of a party do not affect the validity or void
existence of a contract.
The contract is at least a relatively simulated one.
o Exceptions — When motive predetermines the purpose of the
contract, such as:
 When the motive of a debtor in alienating property is to Art. 1354 – Cause Presumed to Exist and Lawful
defraud his creditors, the alienation is rescissible; Although the cause is not stated in the contract, it is presumed that it exists and is
 When the motive of a person in giving his consent is to lawful, unless the debtor proves the contrary. (1277)
avoid a threatened injury, as in the case of intimidation,
the contract is voidable; and Unless the contrary is proved, a contract is presumed to have a good and
 When the motive of a person induced him to act on the sufficient consideration.
basis of fraud or misrepresentation by the other party, This presumption applies when no cause is stated in the contract.
the contract is voidable.  Liam v. Olympic Sawmill Co. − defendants had not proven that the
 E. Razon v. Philippine Ports Authority − contract with an illegal cause is obligation was illegal hence, it subsists.
void.
 Uy v. CA − where the NHA purchased lots and cancelled because the lots Art. 1355 – Lesion Defined
turned out to be unsuitable for its housing project, the cancellation was Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a
valid as it was based on the negation of the cause which is to use the land contract, unless there has been fraud, mistake or undue influence. (n)
for housing.
A valuable consideration, however small or nominal, if given or stipulated
Art. 1352 – Absence of Cause in good faith is, in the absence of fraud, sufficient. Penaco v. Ruava
Contracts without cause, or with unlawful cause, produce no effect whatever. The In case of lesion or inadequacy of cause:
cause is unlawful if it is contrary to law, morals, good customs, public order or o General rule — the contract is not subject to annulment.
 Exception — in cases provided by law, however, such as
public policy. (1275a)
those mentioned in Art 1381, the lesion is a ground for
rescission of the contract.
Absence of the cause, being one of the essential elements of a contract, do
not create a contract as there can be no meeting of the minds. Gross inadequacy naturally suggests fraud and is evidence thereof, so that
it may be sufficient to show it when taken in connection with other
circumstances.
 Auyong Hian v. Court of Tax Appeals − petitioner has not shown that the
instant sale is a cause exempted by law from the operation of Art. 1355.
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Chapter 3: Form of Contracts  A party who wishes to have his contract reduced to the particular form
required by law may file an action to compel the other party to comply
with such form.
Art. 1356 – Form of Contracts  If requirement is merely directory − no impact on the validity or
Contracts shall be obligatory, in whatever form they may have been entered into, enforceability.
provided all the essential requisites for their validity are present. However, when o Parties may enforce the contract.
the law requires that a contract be in some form in order that it may be valid or o Demand that it be reduced in the form required by law.
enforceable, or that a contract be proved in a certain way, that requirement is  Zaide v. CA − unregistered contract of sale was assailed as invalid, SC ruled
absolute and indispensable. In such cases, the right of the parties stated in the in favor of validity.
following article cannot be exercised. (1278a) o The deed of sale was defective as to render it unregisterable − no
name of the vendee’s husband.
Form of Contracts: o However, such defect does not invalidate the deed.
 General Rule − contracts are binding from perfection in whatever form, o Though defective in form, the sale was valid.
provided the three requisites exist: o Thus, the parties may compel each other to do what is needed to
1. Consent make the document of sale registerable.
2. Object
3. Cause Art. 1358 – Contracts Which Must Appear in a Public Document
 1356 establishes Exceptions − where form is required for validity. The following must appear in a public document:
1. Contracts which law itself requires that they be in some particular
form (1) Acts and contracts which have for their object the creation, transmission,
2. Donation of immovable property must be in a public instrument modification or extinguishment of real rights over immovable property; sales of real
such that the donation may be valid property or of an interest therein a governed by Articles 1403, No. 2, and 1405;
 Donation of movables worth more than P 5,000
3. Contracts that law requires to be proven by some writing of its (2) The cession, repudiation or renunciation of hereditary rights or of those of the
terms conjugal partnership of gains;
 Statute of Frauds
 Cenido v. Apacionado −the purposes of prescribing form: (3) The power to administer property, or any other power which has for its object
1. Validity − non−observance of form renders contract void an act appearing or which should appear in a public document, or should prejudice
2. Enforceability − non−compliance with form will not permit the a third person;
contract to be proved or enforced
(4) The cession of actions or rights proceeding from an act appearing in a public
3. Greater efficacy − if not done, would not adversely affect validity
document.
or enforceability of the contract between the parties themselves
All other contracts where the amount involved exceeds five hundred pesos must
Art. 1357 – Form for the Convenience of the Parties appear in writing, even a private one. But sales of goods, chattels or things in action
If the law requires a document or other special form, as in the acts and contracts are governed by Articles, 1403, No. 2 and 1405. (1280a)
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 Failure to put in a public or private document of matters enumerated :
exercised simultaneously with the action upon the contract. (1279a)
Does not render the agreement void.
Compulsion to follow form :
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Agreement is still valid between the parties. o The written instrument does not express the true agreement or
Requirement is only for purpose of: intention of the parties.
1. Greater efficacy o Failure to express the true intention is due to mistake, fraud,
inequitable conduct, or accident.
2. Convenience
o The facts upon relief by way of reformation of the instrument is
3. Binding of third persons sought are put in issue by the pleadings.
 Dalion v.. CA − requirement under 1358 is only for convenience, not a o There is clear and convincing evidence (more than a preponderance)
requisite for validity or enforceability. of the mistake, fraud, inequitable conduct, or accident.
 Reformation distinguished from annulment:
Chapter 4: Reformation of Instruments o Reformation − there is a meeting of the minds: a contract exists. The
deficiency lies in the written instrument embodying such contract.
o Annulment − there was no valid contract perfected.
Art. 1359 - Reformation
Art. 1360 – Principles of the General Law on Reformation
When, there having been a meeting of the minds of the parties to a contract, their
The principles of the general law on the reformation of instruments are hereby
true intention is not expressed in the instrument purporting to embody the
adopted insofar as they are not in conflict with the provisions of this Code.
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
Art. 1361 – Mutual Mistake as Basis of Reformation
intention may be expressed.
When a mutual mistake of the parties causes the failure of the instrument to
If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the disclose their real agreement, said instrument may be reformed.
minds of the parties, the proper remedy is not reformation of the instrument but
annulment of the contract. Mutual Mistake as Basis for Reformation:
 Mutual Mistake − mistake of fact that is common to both parties which causes
 Reformation − defined:
the failure of the instrument to express true intention.
o That remedy by means of which a written instrument is amended or
 Gonzales Mondragon v. Santos − contracts solemnly and deliberately entered
rectified…
into may not be overturned by inconclusive proof or by reason of mistake of
o As to express or conform to the real agreement or intention of the
one of the parties to which the other in no way has contributed.
parties, when…
 The following requisites must concur to justify reformation under this article
o By reason of mistake, fraud, inequitable conduct, or accident…
(FCMC):
o The instrument fails to express such agreement or intention.
1. Mistake must be of fact .
 Reason − equity
2. Such mistake proved by clear and convincing evidence.
o Courts do not attempt to make a new contract
3. Mistake must be mutual – common to both parties.
o Reformation is based on the doctrine that it would be unjust and
4. Mistake must cause the failure of the instrument to express true
inequitable to allow the enforcement of a written instrument which
intention.
does not reflect or disclose the real meeting of the minds of the
parties.  If the mutual mistake is one of law – the remedy is annulment.
 Requisites of Reformation − (ME-MFIA-FC)
o There is a meeting of the minds of the parties to the contract.
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Art. 1362 –Mistaken, Fraud and Inequitable Conduct o Lack of skill

o Negligenceƒbad faith
If one party was mistaken and the other acted fraudulently or inequitably in such a
 Such mistake will be deemed mutual, and either party may ask for reformation
way that the instrument does not show their true intention, the former may ask for
− this is because neither party is responsible.
the reformation of the instrument.
 The right to ask for reformation is given to the party whose mistake was in Art. 1365 – Mortgage or Pledge Stated as a Sale
good faith. If two parties agree upon the mortgage or pledge of real or personal property, but
 It must be shown that the other party has acted fraudulently or inequitably  the instrument states that the property is sold absolutely or with a right of
and such act resulted in the drafting of a document that does not correspond repurchase, reformation of the instrument is proper.
to the actual agreement
 General Rule − mistake of law cannot result in reformation  Situation contemplated : the real agreement is mortgage or pledge, but the
o Exception − where, on account of misplaced confidence, and because instrument says that such property is sold absolutely.
of some artifice or deception fraudulently practiced upon him by the  Reformation in this case will be proper.
other party, a material part of the contract was omitted from the  Palileo v. Cosio − parties to a contract intended that a house was to be
writing, or he was otherwise misled, equity will decree a reformation. collateral for a previous loan. Agreement apparently stated that the house was
subject of a conditional sale. It was held that the courts do not make another
Art. 1363 – Concealment of Mistake by the Other Party contract… they merely inquire into the intention of the parties, and, having
When one party was mistaken and the other knew or believed that the instrument found it, reform the written instrument (not the contract) in order that it may
did not state their real agreement, but concealed that fact from the former, the express the real intention.”
instrument may be reformed.
Art. 1366 –Cases when Reformation Not Allowed
 Concealment of mistake of other party There shall be no reformation in the following cases:
o Remedy of reformation may be availed of the party who acted in good
(1) Simple donations inter vivos wherein no condition is imposed;
faith.
(2) Wills;
o The concealment of mistake constitutes fraud.
(3) When the real agreement is void.
 Knowledge by one party of the other’s mistake regarding the expression of the
agreement is equivalent to a mutual mistake.
Art. 1367 – Party who Brought Action to Enforce Cannot Reform
o Injured party may seek reformation.
When one of the parties has brought an action to enforce the instrument, he
cannot subsequently ask for its reformation.
Art. 1364 –Ignorance, etc. on the Part of Third Person
When through the ignorance, lack of skill, negligence or bad faith on the part of the When is reformation not allowed − DWEV :
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  Simple donations inter vivos where no condition is involved
be reformed. o Donation − an act of liberality whereby a person disposes gratuitously
of a thing or right in favor of another.
 Situation contemplated: If person drafting or typing the instrument is unable o Inter vivos − a donation intended to take place during the donor’s
to come up with a correct written document that embodies the will of the lifetime
parties, because of: o Since act is essentially gratuitous, donee has no just cause for
o lgnorance complaint
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o Donor is not bound to correct mistakes in deed of donation If the words appear to be contrary to the evident intention of the parties, the latter
 Donor may ask for reformation. shall prevail over the former. (1281)
o Donations do not involve a meeting of the minds.
o If donation is onerous in character or involves a condition, the deed  Purpose of interpretation − to be able to know the intent of the parties, so that
may be reformed so that the true conditions imposed by the donor the contract can be properly implemented.
may be expressed. o Making intelligible what was not before understood, ambiguous, or
 Will − an act whereby a person is permitted, with formalities of law, to control not obvious.
to a certain degree the disposition of his estate, to take effect after his death. o The meaning of language is ascertained.
o It is a strictly personal and free act.  Rules in statutory construction can likewise be applied.
 Where the real agreement is void o Finman General Assurance Corp v. CA − the statcon rule “expressio
o When the real agreement is void, there is nothing to reform. unius exclusio alterius” was applied in deciding the case
 When one party has brought an action to enforce the instrument (Art 1367)  Generally, intention of parties is reflected in the wordings − Thus, the general
o Based on estoppel. rule is that the literal meaning of stipulations shall control.
o When a party brings an action to enforce a contract, he admits its o Adelfa Properties Inc v. CA − the important task in contract
validity and that it expresses the true intention of the parties. interpretation is the ascertainment of the intention of the parties. And
that task is to be discharged by looking to…all the words, not just a
Art. 1368 – Party Entitled to Reformation particular word or two, and words in context, not words in isolation.
Reformation may be ordered at the instance of either party or his successors in o Conde v. CA − if the contract is plain and unequivocal in its terms, he is
interest, if the mistake was mutual; otherwise, upon petition of the injured party, or ordinarily bound thereby. It is the duty of every contracting party to
his heirs and assigns. learn and know its contents before he signs. Thus, parties must every
contract they enter into very carefully.
 This article gives the persons who are given legal standing to initiate an action o Santi v. CA − lease contract provided: 20 year period of lease being
for reformation: extendable for another period of 20 years. Lower court interpreted
1. Either of parties, if mistake is mutual (Arts. 1361, 1364, 1365) this as automatic renewal. It was held that we must look at literal
2. In all other cases, the injured party (Arts 1362 − 1365) meaning when the terms are clear and unequivocal. There is no
3. Heirs or successors in interest, in lieu of the party entitled reason to construe these terms in a different meaning. If they wanted
 Effect of reformation is retroactive from the time of the execution of the automatic extension, they could have just provided for a period of 40
original contract. years.
o Universal Textile Mills, Inc. v. NLRC −− NLRC misread and misapplied
provisions of a CBA. It was held that the NLRC cannot remake a
Art. 1369 – Procedure for Reformation
contract by eviscerating it, by deleting words placed there by the
The procedure for the reformation of instrument shall be governed by rules of court
parties. No court, interpreter, or applier of a contract has such
to be promulgated by the Supreme Court.
prerogative.
 The interpretation or construction of a contract does not
Chapter 5: Interpretation of Contracts include its modification or creation of a new and different
one.
Art. 1370 – Interpretation of Contracts Defined  Whatever interpretation the court will make should be within
If the terms of a contract are clear and leave no doubt upon the intention of the the realm of what the parties intended.
contracting parties, the literal meaning of its stipulations shall control.  They cannot revise or modify.
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Art. 1371 – Contemporaneous and Subsequent Acts Determine Intent o It should not include S’s refrigerator, which is distinct from
In order to judge the intention of the contracting parties, their contemporaneous furniture.
and subsequent acts shall be principally considered. (1282)
Art. 1373 – Interpretation of Stipulation with Several Meanings
 An interpreter must look at the reasons and surrounding circumstances behind If some stipulation of any contract should admit of several meanings, it shall be
a contract’s execution − This is so he may place himself in the situation understood as bearing that import which is most adequate to render it effectual.
occupied by the parties concerned at the time of the writing. (1284)
 Pingol v. CA − there was a dispute as to whether the purchase agreement was a
contract to sell, or an absolute sale. The court looked at the contemporaneous  Basic Rule : Terms in a construct must be given a construction as will give effect
and subsequent acts of the parties. Pursuant to the deed, the vendor delivered to them.
actual and constructive possession of the property to the vendee. Vendee Ex. S sells “his parcel of land” to B.
occupied and took such possession, constructed a building thereon. These acts  S owns 2 lands − one owned by him absolutely, and another
are demonstrative that the vendor, since the sale, recognized the vendee as that he co−owns with C. C did not give consent.
the absolute owner of the property. Thus, it was a contract of absolute sale.  We must interpret it as referring to the land owned by him
 Rapanut v. CA − the controversy was about the interpretation of a provision on alone, as this would give the contract effect.
the application of interest. Significant is the fact that private respondent  Lao Lim v. CA − where the instrument is susceptible of two interpretations, one
accepted the payments petitioner religiously made for four years. Thus, the which will make it invalid and illegal, and another which will make it valid and
acts of the respondent made the application of the provision clearer − it was legal, the latter interpretation should be interpreted.
that interest that was applicable. Since there was no objection or rescission,  Ridjo Tape and Chemical Corp v. CA − construction resulting in impairment or
respondent was now estopped. loss of right is not favored.
 Carceller v. CA − analysis and construction should not be limited to the words o Conservation and preservation, not waiver, forfeiture, or
used in the contract, as they may not accurately reflect the parties’ true intent. abandonment of a right is the rule.
Reasonableness of the result obtained ought to be considered. Contracts
should not be interpreted in a harsh and iniquitous way. Art. 1374 – Interpretation of Various Stipulations
The various stipulations of a contract shall be interpreted together, attributing to
Art. 1372 – Special Intent Prevails Over General Intent the doubtful ones that sense which may result from all of them taken jointly. (1285)
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  Provisions of a contract must be read as a whole, and not in isolation.
which the parties intended to agree. (1283)  Each provision must be related to each other to clearly know the total import
and application of the law.
Two latin maxims are in the purview of this article : Ex. R leased his house to E.
 Noscitur a sociis  The contract said that E should not sublease the house
o General and unlimited terms are restrained and limited without the written consent of R.
o By the particular terms that follow.  Another stipulation said that E should pay P1000 as additional
 Ejusdem generis rent a month, should he violate the condition.
o A general term joined with a specific one will be deemed to include  E subleased the house without consent of R.
only things that are like, of the same genus as, the specific one.  R has no right to eject E, because of the clause stating the
Ex. S sells his house “including all the furniture therein.” penalty for the violation of the condition.
o “all” only modifies “furniture”
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 Ruiz v. Sherriff of Manila − controversy involving a mortgage contract, and Art. 1377 – Interpretation of Obscure Words
foreclosure. Its entirety must be taken into account, and not merely its last two The interpretation of obscure words or stipulations in a contract shall not favor the
sentences. A reading of the entire provision will readily show that appellants party who caused the obscurity. (1288)
were allowed to amortize their loan. This illustrates that like statutory
construction, meaning can be found by reading all of the provisions, as a
 Words or stipulations that cause ambiguity in application shall be construed
whole.
against the person who chose to use such language.
o This is the contra preferentem rule.
Art. 1375 – Interpretation of Words with Different Significations o Against the profferer − he who drafted the documents
Words which may have different significations shall be understood in that which is o Reason for this is that the one who drafted the contract had better
most in keeping with the nature and object of the contract. (1286) opportunity to prevent mistake or ambiguity
 This rule is generally applied to contracts of adhesion
Ex. R leased to E a roof for the purpose of erecting an advertising sign. o Those contracts which do not result in negotiation
o Contract provides for termination of the lease by E if a “building” should o Prepared by one party to which the other may “adhere to” if he
be constructed on the adjoining property that would obscure E’s sign. wishes, but which he cannot change − a “take it or leave it” contract
o There was erected on the roof of an adjoining building a sign that  Capitol Insurance v.. Sadang − ambiguity in the mortgage contract drafted by
obstructed the view of E’s sign. lawyer of insurance company led to ambiguity in application. The court ruled
o The term “building” may be included as to include the obstructing sign, that the doubt must be resolved against Capitol, whose lawyer prepared the
having in mind the nature and object of the contract – that situation document.
where E’s sign was obscured.
Art. 1378 – Rules in Case Doubts are Impossible to Settle
When it is absolutely impossible to settle doubts by the rules established in the
Art. 1376 – Usage or Custom as aid in Interpretation preceding articles, and the doubts refer to incidental circumstances of a gratuitous
The usage or custom of the place shall be borne in mind in the interpretation of the contract, the least transmission of rights and interests shall prevail. If the contract is
ambiguities of a contract, and shall fill the omission of stipulations which are onerous, the doubt shall be settled in favor of the greatest reciprocity of interests.
ordinarily established. (1287)
If the doubts are cast upon the principal object of the contract in such a way that it
Ex. X rendered services to Y, but the contract did not state the amount of cannot be known what may have been the intention or will of the parties, the
compensation to be paid. In this case, the amount must be determined by the contract shall be null and void. (1289)
rate customarily paid in the place where the services where rendered.
 Situation contemplated : after application of all the preceding rules, there are
 It is necessary to prove the existence of usage or custom − burden of proof on still doubts that exist.
he who alleges it.  This article gives supplementary rules, depending on what kind of contract it is,
 Usage or custom cannot supersede or vary the plain and literal terms of a and where the doubts lie.
contract. o Gratuitous Contract − such interpretation should be made which
o The proper office of a custom or usage in trade is to ascertain and would result in the least transmission of rights and interests.
explain the meaning and intention of the parties. It does not go  Ex. R gave his car to E. It is not clear whether contract is a
beyond this, and is used as a mode of interpretation on the theory donation or a commodatum.
that the parties knew of its existence and contracted with reference  The contract is presumed to be a mere commodatum
to it. because that transmits less rights.
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o Onerous Contract − doubts should be settled in favor of the greatest Requisites of Rescission:
reciprocity of interests. 1. Contract validly agreed upon
Ex. D borrows from C P5,000 at 12% interest. 2. Pecuniary prejudice to one of the parties or a third person
 It cannot be determined whether the loan is payable in 6 3. Rescission must be based on a case provided by law
months or one year. 4. No other legal remedy
 It must be assumed that the period agreed upon is one year 5. Party asking for rescission must be able to return what he is
which results in greater reciprocity, since D can use the obliged to restore
money for one year, and C can earn interest due for one year 6. Object of the contract must not be legally in the possession of a
instead of just 6 months. 3rd person who acquired it in good faith
 A contract for sale is generally onerous − thus, if doubt is 7. Period for filing has not prescribed. (De Leon)
between a suspensive condition or a suspensive period for Rescissible contracts are valid, but may be terminated upon legal grounds.
the payment of a price, the doubt shall be resolved in favor of o Rescissibility predicated not on breach of trust, but on economic
the latter. Gaite v. Fonacier damage as a result of inequitable conduct by a party.
o Principal object of the contract − doubt refers to the principal object  Dilag v. CA − Contract in fraud of creditors but completely simulated is void
of the contract, leaving the intention of the parties to be unknown, ab initio.
then the contract shall be null and void.
Art. 1381 – Cases of Rescissible Contracts
Ex. S sold to B his land. S has many lands, and it cannot be
The following contracts are rescissible:
determined which land was intended.
 This contract is null and void. (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;
Art. 1379 – Rules of Court Applicable
The principles of interpretation stated in Rule 123 of the Rules of Court shall (2) Those agreed upon in representation of absentees, if the latter suffer the lesion
stated in the preceding number;
likewise be observed in the construction of contracts. (n)
(3) Those undertaken in fraud of creditors when the latter cannot in any other
 It is now contained in Rule 130. manner collect the claims due them;
 The sections are reproduced in the book.
(4) Those which refer to things under litigation if they have been entered into by
Chapter 6: Rescissible Contracts the defendant without the knowledge and approval of the litigants or of competent
judicial authority;
Art. 1380 – Rescissible Contracts Defined (5) All other contracts specially declared by law to be subject to rescission. (1291a)
Contracts validly agreed upon may be rescinded in the cases established by law.
(1290)
 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
Rescissible Contracts are those validly agreed upon because al the
thereof.
essential elements exist, and therefore, legally effective, but in the cases
o Lesion − economic damage.
established by law, the remedy of rescission is granted in the interest of
o Act of ownership by guardian on behalf of his ward, with respect to
equity.
ward’s property, without court approval is void.
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o What is contemplated here is a transaction with court approval −  Debtor collateralized his property to secure such
which is valid. loan
o If by guardian’s act of ownership however, causes ward to suffer  Failure of debtor to recognizeƒimplement the
economic damage − more than one−fourth of the value of the things of stipulated right of first refusal of the creditor will
the object of the contract − the contract can be rescinded. make any sale of the property to a third person
 Those agreed upon in representation of absentees, if the latter suffer the lesion rescissible
stated in the preceding number.  All other contracts specially declared by law to be subject to rescission
o Provisional absence − person disappears from his domicile,
whereabouts unknown, without leaving an agent − judge can appoint Art. 1382 – Payments Made in State of Insolvency
an administrator at the instance of an interested party, relative, or Payments made in a state of insolvency for obligations to whose fulfillment the
friend. debtor could not be compelled at the time they were effected, are also rescissible.
o How is absence declared – court may declare a person absent when: (1292)
 Absence for more than two years without news
 Absence for five years (if person has left administrator)
 Insolvency − when a debtor has liabilities in excess of his assets and can barely
o Same rule as in the previous number applies
pay off his debts.
 Those undertaken in fraud of creditors when the latter cannot in any other
 If he pay a creditor whose credit is not yet due, such payment can be rescinded
manner collect the claims due them.
 Prior judicial declaration of insolvency not required.
o Contract entered to in bad faith.
o Designed to evade the due obligations in favor of creditors, who have
no other way of collecting their debts. Art. 1383 – Nature of Action for Rescission
o Bobis v. Provincial Sheriff of Camarines Norte − it is essential to prove The action for rescission is subsidiary; it cannot be instituted except when the party
that both contracting parties have acted maliciously and with fraud in suffering damage has no other legal means to obtain reparation for the same.
order to prejudice creditors. (1294)
 This refers only to actual creditors of the debtor
 Marsman Investment Ltd v.. Philippine Abaca Development  Action for rescission can only be made in a proper and direct action filed for
Company − plaintiff corporations had ceased to be the that purpose, and not on a mere motion incidental to another case.
creditors of transferer PADCO as of 1959, and were  Air France v. CA − Action for rescission may not be raised or set up in a
thereafter deprived of any interest in assailing the validity of summary proceeding through a motion, but in a an independent civil action
the transfer of its properties to Marsman. and only after a full blown trial.
 Those which refer to things under litigation if they have been entered into by  It must also be the last remedy. Other means to claim reparation must be
the defendant without the knowledge and approval of the litigants or of availed of first − included here is the filing of a court case.
competent judicial authority  Khe Hong Cheng v. CA − presuppositions for an accion pauliana, or action for
Ex. In a suit for replevin wherein plaintiff seeks to recover personal rescission that highlight the point that it has to be the last remedy.
property from the defendant 1. A judgment
Defendant cannot in bad faith sell the property being 2. Issuance by trial court of a writ of execution for satisfaction of the
liquidated to any third person judgment
If he does, and the third person is in bad faith as well, such 3. Failure of sheriff to enforce and satisfy court’s judgment
contract is rescissible
Litonjua v. LR Corporation Art. 1384 – Extent of Rescission
 Creditor lent money to debtor Rescission shall be only to the extent necessary to cover the damages caused. (n)
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 Rescission presupposes a valid contract. Art. 1387 – When Alienation Presumed in Fraud of Creditors
o It need not be rescinded totally − rescission shall only be up to the All contracts by virtue of which the debtor alienates property by gratuitous title are
extent needed to cover the damage. presumed to have been entered into in fraud of creditors, when the donor did not
 Recall : Rescission is based on economic damage as a result of inequitable reserve sufficient property to pay all debts contracted before the donation.
conduct.
Alienations by onerous title are also presumed fraudulent when made by persons
Art. 1385 – Rescission Creates Obligation of Mutual Restitution against whom some judgment has been issued. The decision or attachment need
Rescission creates the obligation to return the things which were the object of the not refer to the property alienated, and need not have been obtained by the party
contract, together with their fruits, and the price with its interest; consequently, it seeking the rescission.
can be carried out only when he who demands rescission can return whatever he
may be obliged to restore. In addition to these presumptions, the design to defraud creditors may be proved in
any other manner recognized by the law of evidence. (1297a)
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.  This article provides rebuttable presumptions.
o It creates the presumption that acts have been done in fraud of
In this case, indemnity for damages may be demanded from the person causing the creditors
loss. (1295) o However, all these presumptions may be rebutted by strong evidence
that the contract was not in fraud of creditors.
 Objective of restitution is to restore their parties to their original (pre−contract)  First − debtor alienates property by gratuitous title, when donor did not
position. reserve sufficient property to pay all debts contracted before such donation
 Upon rescission, parties must return: o Ex. B owes a total of P30,000 to several creditors
1. The object of the contract o He has P60,000 in the bank
2. Fruits and interests of such object, if any o He donates P55,000 to X − donation is presumed to be fraudulent
 If object cannot be restored because of loss − damages may be claimed. o Maturity of debts immaterial
 Rescission cannot take place if the object of the contract is legally in possession  Second − Alienation by onerous title is made by persons against whom some
of a third party in good faith. judgment has been issued
o Good faith is presumed unless contrary evidence is adduced. o This refers to a person against whom a writ of attachment has already
been issued
Art. 1386 – Contracts Approved by the Courts o Mere alienation during pendency of suit does not create the
Rescission referred to in Nos. 1 and 2 of Article 1381 shall not take place with presumption
o Alienation need not refer to property attached
respect to contracts approved by the courts. (1296a)
Ex. A obtains a writ of attachment against debtor B, with respect to a
property in Mandaluyong.
 Numbers 1 and 2:
 If B sells his property in Laguna the presumption arises, even
o Guardian with respect to ward’s property
if it is not the property attached
o Administrator − absentee
 Contracts entered into by these people, once judicially approved, cannot be
subject of rescission. Art. 1388 – Liability of Purchaser in Bad Faith
o Approval implies that the contract was justified already in the eyes of Whoever acquires in bad faith the things alienated in fraud of creditors, shall
the court. 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.
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If there are two or more alienations, the first acquirer shall be liable first, and so on These contracts are binding, unless they are annulled by a proper action in court.
successively. (1298a) They are susceptible of ratification. (n)
 Buyer who knows that conveyance has been made in fraud of creditors shall be  Voidable or annullable contracts − those which possess all the essential
liable for damages to the creditor, should it be impossible to return the requisites, but one of the parties.
property. a. Is incapable of giving consent.
 If he can, he has obligation to return what has been transferred to him in bad b. Has his consent vitiated by mistake, violence, undue influence or
faith. fraud.
 They may be cured by the aggrieved party − ratification
Art. 1389 – Period for Filing Action for Rescission  Lim Tay v. CA − annulment operates prospectively, and does not retroact.
The action to claim rescission must be commenced within four years.
Art. 1391 – Period for Filing Action for Annulment
For persons under guardianship and for absentees, the period of four years shall The action for annulment shall be brought within four years.
not begin until the termination of the former's incapacity, or until the domicile of
the latter is known. (1299) This period shall begin:
In cases of intimidation, violence or undue influence, from the time the defect of
When the four year period begins :
the consent ceases.
Generally, when the aggrieved party has unsuccessfully exhausted all
possible remedies to enforce the obligation or to recover what has been In case of mistake or fraud, from the time of the discovery of the same.
lost
o Persons under guardianship – from the time the incapacity And when the action refers to contracts entered into by minors or other
terminates incapacitated persons, from the time the guardianship ceases. (1301a)
o For absentees – from the time he learns of the contract
o Defrauded creditors – from the time the fraud is discovered  Prescriptive period to annul a contract is four years.
o Things under litigation – from the time of knowledge of the  Starting point depends on the ground invoked.
transaction 1. Intimidation, violence, undue influence − when such defect ceases.
Ex. A intimidates B with bodily harm in order to enter into a lease
Chapter 7: Voidable Contracts contract. The moment A reforms and stops the threats, the four
year period begins counting.
Art. 1390 – Voidable Contracts Defined 2. Mistake or Fraud − from the discovery of such defect
The following contracts are voidable or annullable, even though there may have Ex. A fools B into thinking that a jewel is made of diamond, when in
been no damage to the contracting parties: fact it is made of glass. Once B discovers the fraud, the period
begins running.
(1) Those where one of the parties is incapable of giving consent to a contract; 3. Contracts entered into by minors or other incapacitated persons −
from the moment guardianship ends
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue Ex. If A’s guardian fraudulently transfers his property to a
influence or fraud. third party, A must wait until the guardianship ceases to
file the case, and from there, the period will begin
running.
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Art. 1392 – Effect of Ratification Art. 1395 – Conformity of Guilty Party to Ratification Not Required
Ratification extinguishes the action to annul a voidable contract. (1309a) Ratification does not require the conformity of the contracting party who has no
right to bring the action for annulment. (1312)
Art. 1393 – Forms of Ratification
Ratification may be effected expressly or tacitly. It is understood that there is a tacit  Ratification − unilateral act
ratification if, with knowledge of the reason which renders the contract voidable  Consent of injuring party is not required.
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. 1396 – Retroactive Effect of Ratification
Ratification cleanses the contract from all its defects from the moment it was
 Ratification − the act of curing the defect which made the contract annullable − constituted. (1313)
it extinguishes the action to annul
 May be express or tacit:
 Ratification retroacts to the day the contract was entered into.
A. Express − after coercion ceases, A tells B that he will continue to pay
 It makes the contract valid from its inception, subject to the prior rights of third
the lease payments
persons.
B. Tacit − After coercion ceases, A merely continues to pay the rentals for
o “prior” − means prior to ratification
the property
 Requisites:
1. Knowledge of reason which renders contrct voidable
Art. 1397 – Party Entitled to Bring an Action to Annul
2. Such reason ceases The action for the annulment of contracts may be instituted by all who are thereby
3. Injured party executes an act which implies an obliged principally or subsidiarily. However, persons who are capable cannot allege
intention to waive his right the incapacity of those with whom they contracted; nor can those who exerted
o In both cases, the defect is cured whuch erases the infirmity in the intimidation, violence, or undue influence, or employed fraud, or caused mistake
contract. base their action upon these flaws of the contract. (1302a)
 Yao Ka Sin Trading v. CA − no ratification by a corporation of acts performed by
an officer if he has no authority from such corporation, or if such acts are not  General rule − only parties to the contract may bring an action for its
annulment.
later validated.
 Requisites for capacity to annul:
1. Must be interested in the contract
Art. 1394 – Who May Ratify
2. The victim is the one who must assert the same (in other words, the
Ratification may be effected by the guardian of the incapacitated person. (n)
person who caused the defect cannot be the one to bring the action
for annulment)
 Guardian − takes with the administration of person and properties of the ward  Capacitated persons may not allege the incapacity of the
 A contract entered into by an incapacitated person may be ratified by: other party in order to annul
A. Guardian  However, in case the incapacity involved is minority, the
B. Injured party himself, once capacitated capacitated party may file a case for enforcement, provided
 No longer insane, for example that the misrepresentation of majority was active
 Reaches age of majority  Users of intimidation, etc cannot annul the contract based on
 In case contract is voidable on ground of mistake, etc − ratification can be these acts.
made by party whose consent is vitiated.
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 Exceptions:  However, since as a general rule, capacitated persons may
1. A person who is not a party…may exercise an action for the nullity of not allege incapacity in order to annul. A may only recover
the contract if he is prejudiced in his rights with respect to one of the upon an action for annulment filed by B when he reaches
contracting parties… majority
2. …and can show the detriment which would positively result to him
from the said contract. Banez v. CA Art. 1400 – Effect of Loss of Thing to be Returned
 Thus, a stranger to the contract must show: Whenever the person obliged by the decree of annulment to return the thing can
1. Prejudice to his rights not do so because it has been lost through his fault, he shall return the fruits
2. Detriment that would result received and the value of the thing at the time of the loss, with interest from the
same date. (1307a)
Art. 1398 – Duty of Mutual Restitution upon Annulment
An obligation having been annulled, the contracting parties shall restore to each Effect of Loss of Thing to be Returned:
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.  If lost without the fault of person obliged:
o No more obligation to return such thing.
In obligations to render service, the value thereof shall be the basis for damages. o The other party cannot be compelled to restore what he had received.
(1303a)  If lost through fault of person obliged:
o Obligation converted into a claim for damages
 Parties, as a general rule, must restore to each other, upon annulment: o Damages − value of the thing at the time of the loss, with interest
1. Subject matter of the contract, with fruits from the same date, and fruits received from the thing.
2. Price thereof, with legal interest
 Like in rescission, the purpose is to restore the parties to their original position. Ex. S sold his plow and carabao to B. On petition of S, contract was
annulled. However, carabao died through fault of B.
 In personal obligations, where service had already been rendered, the value
thereof with interest is the basis for damages.
 B must pay value of carabao at the time of its death, with
interest from the same date.
Art. 1399 – Restitution by an Incapacitated Person  If carabao had given birth, the baby carabao would be
When the defect of the contract consists in the incapacity of one of the parties, the delivered to S as a fruit.
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. 1401 – Extinguishment of Action for Annulment
The action for annulment of contracts shall be extinguished when the thing which is
 When defect consists in incapacity, the incapacitated person is not obliged to the object thereof is lost through the fraud or fault of the person who has a right to
make any restitution except insofar as he has been benefited by the thing or institute the proceedings.
price received by him.
Ex. A loans B, a minor, money. 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,
 If B spends it uselessly, A cannot recover even if court
unless said loss took place through the fraud or fault of the plaintiff. (1314a)
declares the obligation annulled.
 If B spends it on things beneficial to him, such as tuition for
school, A may recover.
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Extinguishment of Action for Annulment: 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
 No one can come to court with unclean hands. contents:
 If the person who had a right to institute an action for annulment is unable to
restore the thing he would be obliged to return, because such thing is lost (a) An agreement that by its terms is not to be performed within a year from the
through his fault, the right to annul is extinguished. making thereof;
o If A coerces B to sell him a car, B can seek annulment.
o However, if B loses the car by intentionally destroying it, his right to (b) A special promise to answer for the debt, default, or miscarriage of another;
file the action would be extinguished.
(c) An agreement made in consideration of marriage, other than a mutual promise
 Right of action based on incapacity − the rule is the same.
to marry;
o Generally, if an incapacitated person loses the object, there is no bar
to the action for annulment. (d) An agreement for the sale of goods, chattels or things in action, at a price not
 This is because he is only obliged to restore to the extent of
less than five hundred pesos, unless the buyer accept and receive part of such
how he was benefited. goods and chattels, or the evidences, or some of them, of such things in action or
 If the object was lost, he could not have benefited. pay at the time some part of the purchase money; but when a sale is made by
o However, if he loses it through his own fault, the case for annulment
auction and entry is made by the auctioneer in his sales book, at the time of the
will be dismissed.
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
Art. 1402 – Effect where a Party Cannot Restore Object memorandum;
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 (e) An agreement of the leasing for a longer period than one year, or for the sale of
comply with what is incumbent upon him. (1308) real property or of an interest therein;
 When a contract is annulled, a reciprocal obligation of restitution is created. (f) A representation as to the credit of a third person.
 Return by one party of what he is obliged to restore is regarded as a condition
to the fulfillment of the other’s obligation to return. (3) Those where both parties are incapable of giving consent to a contract.
 Thus, if a party cannot return what he has received, the other may not be
Unenforceable Contracts :
compelled to return what he has received.
 Those that cannot be enforced in court or sued upon by reason of certain
Chapter 8: Unenforceable Contracts defects provided by law.
o Even if they have all the requisites for perfection.
Art. 1403 – Uneforceable Contracts Defined  Until and unless they are ratified according to law.
The following contracts are unenforceable, unless they are ratified:  Binding force − none until they are ratified.
(1) Those entered into in the name of another person by one who has been given Kinds of Unenforceable Contracts :
no authority or legal representation, or who has acted beyond his powers;
1. Unauthorized contracts − those entered into in the name of another by one
(2) Those that do not comply with the Statute of Frauds as set forth in this number. without, OR acting in excess of, authority.
In the following cases an agreement hereafter made shall be unenforceable by o Governed by Article 1317
action, unless the same, or some note or memorandum, thereof, be in writing, and 2. Those that do not comply with the Statute of Frauds
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3. Those where both parties are incapable of giving consent to a contract. o The defense of the SoF is personal to the parties − cannot be
interposed by strangers to the contract
The Statute of Frauds − in General: o No particular form of language or instrument needed to constitute a
memorandum or note in writing under the SoF
 Purpose: Need not be contained in a single document
1. Prevent fraud 2 or more writings properly connected may serve as the
2. Guard against mistakes by honest men required memorandum
3. By requiring certain agreements that are susceptible to fraud must be Ex. Limketkai Sons Milling Inc V. CA
in writing  “While there was no written contract of sale… there
4. For certain executory contracts to be enforceable in a court of law, the are abundant notes and memoranda extant in the
only evidence that can prove such contract is a written proof of the records of this case evidencing the elements of a
agreement. perfected contract.
 Application (some fundamental principles relative to the Statute of Frauds)
 Note − when we say “applicable,” it means that such contracts must be The Statute of Frauds − Agreements within its Scope:
reduced to writing. If “not applicable,” it’s okay that it’s not in writing
o SoF not applicable in actions that are not for…  Agreement not to be performed within one year from the making thereof
Damages because of violation of contract Ex. On Oct 10, 2007, S entered into an oral contract with B for the
Specific performance of a contract. construction of B’s house to begin on October 20, 2008. − Such
o SoF applicable only to executory contracts (that is, where no contract must be in writing
performance has yet to be made by either party)  For such contract to fall under the SoF, it must appear that
Not to contracts which are totally or partially performed the parties intended when they made the contract that it
 Why? − Performance, like writing, furnishes reliable evidence should not be performed within a year.
of the intention of the parties or the existence of the contract o If a contract stipulates that a certain type of activity shall be
 Ex. Contract of sale of real property in installment not within commenced within the year, but can only be finished after one year,
the Statute, if the first installment has already been paid. – the SoF will apply.
this constitutes partial performance Ex. On March 21, 2012, A enters into a contract with B that B
 Babao v. Perez − oral contract partially performed must be will construct a skyscraper, to commence on June 30, 2012.
proven clearly in court. Obviously, such contract cannot be finished by March 2012,
 Partial performance can also be manifested when so it must be in writing.
improvements are made on property, rentals are paid, etc − o If a party fully paid the boulder of the building for the complete
in general, acts of partial performance remove the contract construction of the same six months after the making of the contract,
from the SoF it does not come within the statute.
o SoF not applicable when the contract is admitted expressly, or  Babeo v. Perez − contracts which y their terms are not to be
impliedly by the failure to deny specifically its existence. performed within one year may be taken out of the statute
o SoF applicable only to the agreements enumerate therein by performance of one party thereto.
o SoF not applicable where a writing does not express the true  “AII that is required…is complete performance
agreement of the parties. within one year of one party, however many years
o lt does not declare contracts void. elapse before agreement is performed by another
o The defense of the SoF may be waived. party.”
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 “…nothing less than full performance by one party o Other examples
will suffice, and it has been held that if anything  Marriage settlements
remains to be done after expiration of the year,  Donations propter nuptias
besides the mere payment of money, the statute will  Agreement for sale of goods, at a price not less that P500.
apply.” Ex. S and B mutually promised to sell and buy a piano worth P12,000.
 Promise to answer for the debt, default, or miscarriage of another  This agreement must be in writing to be enforceable against
Ex. D owes C P 10,000, with G as guarantor. either party
 G promises to answer for the debt of D in case D fails.  Unless there is already delivery or partial/full payment.
 This agreement (between G and D) is unenforceable unless it  Agreement for leasing for a longer period than one year.
is in writing signed by G. Ex. R agreed to lease his house to E for two years.
o The promise here is merely subsidiary or collateral to the promise of  Must be in writing, unless partially executed.
another (original debtor, D)  Agreement for sale of real property or of an interest therein.
o If the promise is an original or independent one, the promise is not Ex. B orally sold his land or his right of usufruct in said land to B.
within the SoF and thus may be proven by oral evidence.  Such agreement is unenforceable, unless it has been partially
o “Special promise” − express and tacit promises in fact made. executed.
 Does not apply in cases where duties are created by law  Representation as to the credit of a third person
without any promissory assent. Ex. D is seeking a loan from C.
o “Debt, default, miscarriage” − includes all legal obligations under  T represents to C that D is solvent and has a good credit
which a person can come, contractual or non−contractual, requiring a reputation.
money payment or any other kind of performance.  Such representation must be in writing.
o If obligation is joint – no special promise
 “one is not considered as promising…within the meaning of Art. 1404 – Rules Governing Unauthorized Contracts
the statute… where his performance will also extinguish the Unauthorized contracts are governed by Article 1317 and the principles of agency in
promisor’s own debt.” Title X of this Book.
o If obligation is solidary – depends on whether or not the promisor
knew that only one of the solidary debtors would truly be benefited Art. 1405 – Modes of Ratification under Statutes of Fraud
by payment. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are
 “But if one of several promisors is to have the purchased ratified by the failure to object to the presentation of oral evidence to prove the
goods or the borrowed money, the others lending their credit same, or by the acceptance of benefit under them.
as security, the latter are “answering for the debt of another
within the statute.” Modes of Ratification under the SoF :
 Agreement in consideration of marriage other than promise to marry
Ex. M agrees to build a house worth P1M for W, if W marries M.  Failure to object to the presentation of oral evidence to prove the contract
 Applicable even when promise to build the house is made by o This amounts to a waiver of the SoF.
a third person to W. o Makes the contract as binding as if it had been reduced to writing.
o Mutual promise to marry between M and W need not be in writing. o Limketkai Sons Milling v. CA − contacts infringing the SoF are ratified
 Note − law states no period to performance, unlike number 1 when the defense fails to object, or asks questions on cross−
 An oral mutual promise to marry may be proved by parol examination.”
evidence, even if marriage is to be celebrated beyond one  “as no timely objection or protest was made to the admission
year of the testimony of the plaintiff with respect to the contract…
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[defendants] tacitly waived there right to have it stricken o They are not parties to the contract.
out.”
 Acceptance of benefits under the contract.
o In this case, the contract is no longer executory.
Ex. A sold to G a particular real property, and A benefited from the
Chapter 9: Void and Inexistent Contracts
transaction by already obtaining the purchase price .
Articles 1409 and 1422 provide for the instances where contracts are
 Contract of sale can be enforced, even if not in writing.
deemed void or inexistent. It must be noted that where contracts are divisible and
the illegal terms can be separated, the legal ones may be enforced (1420).
Art. 1406 – Right of a Party where Contract Enforceable The defense against the nullity of void contracts does not prescribe (1410)
When a contract is enforceable under the Statute of Frauds, and a public document
and this defense may even be raised by a 3rd person provided that his interest is
is necessary for its registration in the Registry of Deeds, the parties may avail directly affected (1421).
themselves of the right under Article 1357. Usually, when parties enter into a contract that is contrary to law, the
parties are not in good faith. Thus, Articles 1411 to 1419 talk about pari delicto.
 When the agreements in the SoF are in writing and thus enforceable, and the Generally, parties who are in pari delicto may not recover what has been given nor
law requires that such document should be transformed into a pbulic compel the other to comply with what has been agreed upon (1411 −1412)
document for registration. However, the law provides some exceptions to this rule and gives instances when
 Contracting parties may compel each other to observe the form once the recovery may be made (1413 − 1419).
contract has been perfected.
Art. 1409 – Instances of void or inexistent contracts
Art. 1407 – When Uneforceable Contract becomes Voidable The following contracts are inexistent and void from the beginning:
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 (1) Those whose cause, object or purpose is contrary to law, morals, good customs,
parties shall give the contract the same effect as if only one of them were public order or public policy;
incapacitated. (2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
If ratification is made by the parents or guardians, as the case may be, of both (4) Those whose object is outside the commerce of men;
contracting parties, the contract shall be validated from the inception. (5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the
 If both parties have no guardian, for example, then it is unenforceable. contract cannot be ascertained;
 If there is one guardian, or if one of the parties upon gaining capacity ratiies it, (7) Those expressly prohibited or declared void by law.
it becomes voidable.
 If ratification is made by guardians, or by both parties upon attaining capacity, These contracts cannot be ratified. Neither can the right to set up the defense of
this bevcomed valid. illegality be waived.
Art. 1408 – Right of Third Persons to Assail an Unforceable Contract What are void and inexistent contracts?
Unenforceable contracts cannot be assailed by third persons.
 Void Contracts – those which, because of certain defects generally
 Third persons cannot assail unenforceable contracts. produce no effect at all. It is no contract at all.
o They cannot be executed anyway.
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o Exception – see Art 1411−1412 where illegal contracts may protect a party was held as absolutely simulated and therefore
produce effects where parties are not of equal guilt. null and void. (See Art. 1345 and 1346 for more examples)
 Inexistent Contracts – agreements which lack one or some or all of the 3. Contracts without cause or object
elements or do not comply with formalities which are essential for the  The phrase ”did not exist at the time of the transaction” does not
existence of contracts. apply to a future thing which may legally be the object of a
contract (De Leon).
Characteristics of a void or inexistent contract:  See Art. 1347, 1352, and 1353 for examples and comments.
4. Contracts whose object is outside the commerce of men
1. Generally produces no effect
 See comments and examples under Art. 1347 and 1348.
2. It cannot be ratified (Art 1409, Par 2)
5. Contracts which contemplate an impossible service
3. The right to set up the defense of illegality cannot be waived
 See comments and examples under Art. 1347 and 1348
4. The action or defense for the declaration of its inexistence does not
6. Contracts where the intention of the parties relative to the object cannot
prescribe (Art. 1410)
be ascertained
5. The defense of illegality is not available to 3rd persons whose interest are
 See comments and examples under Art. 1378, par. 2
not directly affected (Art. 1421)
7. Contracts expressly prohibited or declared void by law
6. It cannot give rise to a valid contract (Art. 1422)
Ex.
Instances of void or inexistent contracts: a. A stipulation prohibiting a mortgagor to sell property
mortgaged is void for being contrary to the express
1. Contracts whose cause, object or purpose is contrary to law, etc. provision of Art. 2130 of the Civil Code
 De Leon v. CA − A contract whose consideration is the termination b. Contracts upon future inheritance except those expressly
of the marriage by the parties is void for being contrary to law and authorized by law (Art. 1347)
Filipino morals and public policy. c. Sale of property between husband and wife except when
 Prudential bank v. Panis − Mortgage contract entered into by the there is separation of property (Art. 1490)
grantee within the prohibited period provided by the Public Land d. Donation between spouses (Art. 87, FC)
Act is null and void.
 Maharlika Publishing Co. v. Tagle −A contract of sale in a public The defect in a void contract is permanent and incurable:
beidding entered into by a wife acting in behalf of her husband,  Chavez v. PCGG − A void agreement will not be rendered operative by the
an influential public official, was declared void for being violative parties’ alleged partial or full performance of their respective prestations.
of public policyƒorder. It produces no legal effect.
 Cui v. Arellano University − A contract that provides a refund of  Arsenal v. IAC − Neither can an infirmity be cured by equity.
scholarship grant as a precondition to a student’s transfer is void  Acierto v. De Los Santos − The pari delicto doctrine may not be invoked in
for being contrary to public policy and morals. void contracts that run contrary to state policy.
a. Public Policy − court must find that the contract  19 Am. Jur. 802 − it is generally considered that as between parties to a
contravenes some established interest of society, or contract, validity cannot be given to it by estoppel if it is prohibited by law
inconsistent with sound policy and good morals or tends or against public policy.
to undermine the security of individual rights. (See Art.  Eugenio v. Perfido − the mere lapse of time cannot give efficacy to
1306 and 1416 for more examples) contracts that are null and void.
2. Contracts which are absolutely simulated or fictitious.
 Gardner v. CA − a contract purporting a sale of land was really
without consideration and was actually intended merely to
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Art. 1410 – Action or Defense is Imprescriptible A has no action against B if B does not give the car even if the
The action or defense for the declaration of the inexistence of a contract does not former succeeded in kidnapping X. The same rule applies if B
prescribe. complies and A does not.
Both A and B will be prosecuted and the car will be

There is no need to judicially file an action to make the contract void. A confiscated in favour of the government when kidnapping is
case is filed merely to declare that the contract, which is void, is in fact committed.
void.
Ex. For a consideration of ®2,000,000, B will construct A’s house in 3  Where only one party is guilty – the same rule as above will apply against
days. This is void for being impossible. There is no need to file a the guilty party but the innocent party (1) may claim what he has given and
case. It is void. However, A may file a case to have it declared void (2) shall not be bound to comply with his promise
if A has already paid the ®2,000,000
Doctrine of Laches does not apply. Articles 1411 and 1412 do not apply to inexistent contracts:
 DBP v. CA − restitution should generally apply in void contracts if both
parties have no fault or are not guilty.  Modina v. CA − An inexistent contract has absolutely no consideration at
all, or there is total absence of consent, or there is no object. Thus, pari
Art. 1411 – Rules where Contract is Illegal and Act is Criminal Offense delicto will not apply because these contracts have considerations or
objects, but are illegal. Simulated Contract is an example.
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, Art. 1412 – Rules where Contract is Illegal but Act is not Criminal Offense
the provisions of the Penal Code relative to the disposal of effects or instruments of If the act in which the unlawful or forbidden cause consists does not constitute a
a crime shall be applicable to the things or the price of the contract. criminal offense, the following rules shall be observed:
This rule shall be applicable when only one of the parties is guilty; but the innocent (1) When the fault is on the part of both contracting parties, neither may recover
one may claim what he has given, and shall not be bound to comply with his what he has given by virtue of the contract, or demand the performance of the
promise. (1305) other's undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover what he
NOTE: Articles 1411 and 1412 embody the general principle that the law refuse
has given by reason of the contract, or ask for the fulfillment of what has been
remedy when parties are in pari delicto. Some exceptions to this rule are contained
promised him. The other, who is not at fault, may demand the return of what he
in Articles 1413 to 1419.
has given without any obligation to comply his promise. (1306)
Rules where contract is illegal and the act constitutes an illegal offense:
Where both parties are in pari delicto (NPC) Rules where the contract is illegal but the act does not constitute a criminal offense:
a. The parties shall have no action against each other. Where both parties are in pari delicto
b. Both shall be prosecuted. 1. Neither party may recover what he has given by virtue of the
c. The things or the price of the contract, as effects or instruments contract.
of the crime shall be confiscated in favour of the Government. 2. Neither party may demand the performance of the other’s
undertaking.
Ex. A and B enter into a contract where A will kidnap X and bring Where only one party is guilty
him to B. In return, B will give the car used to kidnap X to A. 1. The guilty party loses what he has given by reason of the contract.
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2. The guilty party cannot ask for the fulfilment of the other’s Art. 1415 – Recovery by an Incapacitated Person
undertaking. Where one of the parties to an illegal contract is incapable of giving consent, the
3. The innocent party may demand the return of what he has given. courts may, if the interest of justice so demands allow recovery of money or
4. The innocent party cannot be compelled to comply with his
property delivered by the incapacitated person.
promise.
This rule is within the discretion of the court hence it may issue an order
Art. 1413 – Recovery of Usurious Interest allowing or disallowing recover of money.
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. Ex. A, a minor, enters into a contract with B for the purchase of illegal drugs
worth ®10,000. The court may allow the minor to recover the ®10,000
Payment of usurious interest is void. pesos if it finds that the interest of justice so demands.
 Angel Jose v. Chelda Enterprise − the phrase “interest paid in excess of the
interest allowed by law” means the whole interest paid. Art. 1416 – Recovery where Contract is Not Illegal per se
Ex. In a loan of ®1,000, with interest of 20% per annum (wƒc is a When the agreement is not illegal per se but is merely prohibited, and the
usurious rate) or ®200 per year, if the borrower pays said ®200, prohibition by the law is designated for the protection of the plaintiff, he may, if
the whole ®200 is the usurious interest. The borrower may public policy is thereby enhanced, recover what he has paid or delivered.
recover the whole ®200 and not just the part which is in excess of
the interest allowed by law. When is recovery permitted?
1. The agreement is not illegal per se but is merely prohibited
Art. 1414 – Recovery where Contract Entered Into for Illegal Purpose 2. The prohibition is designed for the protection of the plaintiff
When money is paid or property delivered for an illegal purpose, the contract may 3. Public policy would be enhanced by allowing the plaintiff to recover what
be repudiated by one of the parties before the purpose has been accomplished, or he has paid or delivered.
before any damage has been caused to a third person. In such case, the courts may,
Ex. Ras v. Sua − The Supreme Court allowed repossession of a certain land to
if the public interest will thus be subserved, allow the party repudiating the contract
the owner who acquired the same pursuant to a law designed to give land
to recover the money or property.
to the landless even when the said owner leased, in violation of the spirit
of the law, the said land to another person who later refused to return the
Recovery where contract entered into for illegal purpose:
same despite demand of the owner and even after the former violated the
1. The contract is for an illegal purpose.
lease agreement on the ground of pari delicto
2. The contract is repudiated before the purpose has been accomplished or
before any damage has been caused to a third person.
3. The court considers that public interest will be subserved by allowing Art. 1417 – Recovery of Amount Paid in Excess of Ceiling Price
recover. When the price of any article or commodity is determined by statute, or by
Ex. De leon v. Court of Appeals − the Supreme Court allowed the authority of law, any person paying any amount in excess of the maximum price
recovery of ®380, 000 pesos paid by the husband’s mother who allowed may recover such excess.
resisted the wife’s attempt to enforce the other provisions of the
void contract (as its consideration is the termination of marital It is illegal to charge a price higher than the statutory ceiling. Any payment
status between the husband and the wife). in excess of such may be recovered.
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Art. 1418 – Recovery of Additional Compensation Ex. An annual subscription to a weekly magazine where X pays ®1,000 is a
When the law fixes, or authorizes the fixing of the maximum number of hours of divisible obligation (for the publisher) but is an indivisible contract of
labor, and a contract is entered into whereby a laborer undertakes to work longer subscription.
than the maximum thus fixed, he may demand additional compensation for service
If the agreement is that the publisher will deliver magazine every week
rendered beyond the time limit.
and X will pay ®20 upon delivery, the contract is divisible.
If a contract provides that an employee shall work only for 8 hours at a
certain legal rate, any work done beyond the 8 hour period should be paid Art. 1421 – Persons Entitled to Raise Defense of Illegality or Nullity
for extra time. The defense of illegality of contract is not available to third persons whose interests
Articles 1418 and 1419 are general provisions on labor. The Labor Code of are not directly affected.
the Philippines (PD. 442) provides for the specific rights and remedies of
employees.  General Rule − Only parties to the void contract can raise the defense of
illegality or nullity because contracts are mutual obligations between the
Art. 1419 – Recovery of Amount of Wage Less than Minimum Fixed parties.
When the law sets, or authorizes the setting of a minimum wage for laborers, and a o Exception − 3rd persons are may avail the defense of illegality or
contract is agreed upon by which a laborer accepts a lower wage, he shall be set up its nullity as long as his interest is directly affected by the
entitled to recover the deficiency. contract.
Ex. A sold a parcel of land, which he does not own, to B. X, the owner of
 If an employee receives less than the minimum wage rate, sƒhe can still
the land which is encroached by said illegal sale, may go to court and
recover the deficiency with legal interest (PD. 442).
seek nullification of the contract.
Art. 1420 – Effect of Illegality where Contract is Indivisible/Divisible

Art. 1422 – Void Contract Cannot be Novated
In case of a divisible contract, if the illegal terms can be separated from the legal
A contract which is the direct result of a previous illegal contract, is also void and
ones, the latter may be enforced.
inexistent.
Effects of illegality where contract is inƒdivisible:

 A subsequent contract which proceeds from a void contract is likewise
1. When the consideration is entire and single, the whole contract is void and
void.
unenforceable
2. Where contract is divisible or severable, the illegal ones can be separated Ex. A contract of repurchase is dependent of the validity of the original
from the legal portions, the latter may be enforced subject to the intention contract of sale. If the latter is void, then there is no right of
of the parties. repurchase.
Ex. Pactum commisorium is void but the loan agreement is valid
Usurious rate is illegal but the loan is valid.
Divisible contracts distinguished from divisible obligation:

Divisible contracts refer to divisibility of cause while divisibility of
obligation refer to susceptibility to partial fulfilment.
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If a third person pays the prescribed debt of the debtor without his
Title III – NATURAL OBLIGATIONS knowledge or against his will, the latter is not legally bound to pay him
(Art. 1236, par. 2). But the debtor cannot recover what he has paid in case
he voluntarily reimburses the third person.
Art. 1423 – Concept of Natural Obligations
Obligations are civil or natural. Civil obligations give a right of action to compel their Ex. A debt has already prescribed but X, a third person, pays the debt, and
performance. Natural obligations, not being based on positive law but on equity later on, the original debtor pays X, such payment shall be considered valid
and natural law, do not grant a right of action to enforce their performance, but and original debtor cannot recover such amount from the creditor on the
after voluntary fulfillment by the obligor, they authorize the retention of what has ground that X should not have paid him.
been delivered or rendered by reason thereof. Some natural obligations are set
forth in the following articles. Art. 1426 – Restitution by Minor After Annulment of Contract
When a minor between eighteen and twenty−one years of age who has entered
Concept of Natural Obligations: into a contract without the consent of the parent or guardian, after the annulment
 These obligations rest upon morality and are recognized in leading civil of the contract voluntarily returns the whole thing or price received,
codes. notwithstanding the fact the he has not been benefited thereby, there is no right to
 It is based on equity and natural law. demand the thing or price thus returned.
Civil Obligations and Natural Obligations distinguished:

 When a contract is annulled, a minor is not legally obliged to make
restitution except insofar as he has been benefited (Art. 1399). But if he
1. Civil obligations arise from law, contracts, quasi contracts, delicts, and
nevertheless returns the thing or price although he has not been
quasi−delicts, while natural obligations are based on equity and natural law
benefited, he cannot recover.
2. The former gives a right of action to compel performance while the latter
do not grant such right of action.  A “minor” pursuant to RA 6809 means below 18 years.
Ex. If a minor sold his car for ®100,000 without consent of his parent but the
Art. 1424 – Performance After Civil Obligation has Prescribed minor lost ®30,000 due to negligence but was able to deposit the rest in a
When a right to sue upon a civil obligation has lapsed by extinctive prescription, the bank, he is legally obliged to return only ®70,000 in case the contract is
obligor who voluntarily performs the contract cannot recover what he has delivered later annulled. However, if he returns the whole ®100,000 amount, there is
or the value of the service he has rendered. no right to demand the same.
Ex. If a debtor, despite the lapse of the prescriptive period and knowing that
Art. 1427 – Delivery by Minor of Money or Fungible Thing
the debt had already prescribed, pays the creditor, such debtor can no
When a minor between eighteen and twenty−one years of age, who has entered
longer recover such payment.
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)
Art. 1425 – Reimbursement of Third Person for Prescribed Debt
When without the knowledge or against the will of the debtor, a third person pays a
 After annulment, the parties are generally obliged to make mutual
debt which the obligor is not legally bound to pay because the action thereon has
restitution (Art. 1398). However, the obligee who spent or consumed in
prescribed, but the debtor later voluntarily reimburses the third person, the obligor
good faith the money or consumable thing voluntarily paid or delivered by
cannot recover what he has paid.
the minor, is not bound to make restitution.
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 This article refers not only to fungible things but also to things that are therefore void as such should be wholly hand−written by the testator. If
non−consumable. despite this, N’s heir, Y, still voluntarily gives the legacy of the ab−roller to J,
it shall be valid and cannot be revoked anymore.
Art. 1428 – Performance After Action to Enforce Civil Obligation Failed
When, after an action to enforce a civil obligation has failed the defendant
voluntarily performs the obligation, he cannot demand the return of what he has
delivered or the payment of the value of the service he has rendered. Title IV – ESTOPPEL
Ex. A is indebted to B for ®50,000 and a civil suit is filed to collect the amount
but such is dismissed, A is not legally obliged to pay the said amount Art. 1431 – Estoppel Defined
because he won. However, if he voluntarily makes payment, he can no Through estoppel an admission or representation is rendered conclusive upon the
longer recover such payment. person making it, and cannot be denied or disproved as against the person relying
thereon.
Art. 1429 – Payment by Heir of Debt Exceeding Value of Property Inherited
When a testate or intestate heir voluntarily pays a debt of the decedent exceeding General Rule – Doctrine of Estoppel applies to any particular case and its
the value of the property which he received by will or by the law of intestacy from applicability depends largely on the special circumstances of the case (Beronilla
the estate of the deceased, the payment is valid and cannot be rescinded by the v. GSIS) after careful consideration of the material facts in order to avoid
payer. injustice (Kalalo v. Luz).
 The heir is not liable beyond the value of the property he received from Exceptions (G-P-Q):
the decedent (Art. 1311, par. 1). But if he pays the difference voluntarily, 1. Estoppel is not applicable against the government suing in its
payment is valid and cannot be rescinded by him. capacity as sovereign or asserting governmental rights
 It follows that the government cannot be estopped by
Ex. A is indebted to X for ®10,000. A later dies, with B as his heir who is the mistake and errors of its officers (Collector of Internal
entitled only to ®5,000 from the estate of A. If B voluntarily pays X Revenue v. McGrath).
P10,000, B can no longer recover such an amount. 2. If law and public policy will be violated, there is no estoppel
(Republic v. Go Bon Lee).
Art. 1430 – Payment of Legacy After Will has been Declared Void 3. Estoppel does not apply to questions of law, as it applies only to
When a will is declared void because it has not been executed in accordance with questions of fact
the formalities required by law, but one of the intestate heirs, after the settlement  In Kalalo v. Luz, if the act, conduct, or misrepresentation
of the debts of the deceased, pays a legacy in compliance with a clause in the of party sought to be estopped is due to ignorance
defective will, the payment is effective and irrevocable. founded on an innocent mistake, estoppels will not arise.
 Legacy − the act of disposition by the testator in separating from the  Estoppel is characterized as harsh and odious, and not favoured in law. It
inheritance for definite purposes, things, rights or a definite portion of his can only be sustained by clear and convincing evidence.
property. Its purpose is to reward friends, servants, and others for services
they rendered, etc.
Ex. N provided in his holographic will that his ab−roller shall go to his friend J.
Later, the holographic will turns out to be partly type−written and
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Art. 1432 – Application of Estoppel Art. 1434 – Sale by Person not the Owner
The principles of estoppel are hereby adopted insofar as they are not in conflict When a person who is not the owner of a thing sells or alienates and delivers it, and
with the provisions of this Code, the Code of Commerce, the Rules of Court and later the seller or grantor acquires title thereto, such title passes by operation of
special laws. law to the buyer or grantee.
Art. 1433 – Kinds of Estoppel Ex. A, who without authority of the owner, sold B’s car to C. This sale is
Estoppel may be in pais or by deed. unenforceable because A is not the owner. If later on A buys the car of B, A
can no longer claim the property as his own on the ground that when he
Kinds of Estoppel: sold it to C, he was not the owner of the same.
1. Estoppel by Deed − A bar which precludes one party to a deed and his
privies from asserting as against the other party and his privies any right or Art. 1435 – Sale by a Person Representing Another
title in derogation of the deed, or from denying the truth of any material If a person in representation of another sells or alienates a thing, the former cannot
facts asserted in it. subsequently set up his own title as against the buyer or grantee.
 It is technical in nature and such an estoppel may conclude a
party without reference to the moral equities of his conduct. Ex. A constituted B as his agent to sell a car and the car was in fact sold by B. A
 It is generally limited to an action on the deed itself; in a collateral cannot later on claim that he was the owner to invalidate the transaction.
action, there is ordinarily no estoppel (28 Am Jur 2d 602 − 603)
 Requisites: (RKIA) Art. 1436 – Lessee or Bailee Estopped from Asserting Title
1. There must have been a representation or concealment A lessee or a bailee is estopped from asserting title to the thing leased or received,
of material facts as against the lessor or bailor.
2. The representation must have been with knowledge of
the facts  Both the lessee and the bailee are not the owner. They merely enjoy
3. The party to whom it was made must have been ignorant possession of the property or thing leased or loaned.
of the truth of the matter
4. It must have been made with the intention that the other Art. 1437 – Estoppel in Contracts where One Party is Mislead
party would act upon it When in a contract between third persons concerning immovable property, one of
2. Equitable Estoppel or Estoppel in pais − situation where the party is them is misled by a person with respect to the ownership or real right over the real
denied the right to plead or prove a fact because of his own act or estate, the latter is precluded from asserting his legal title or interest therein,
omission provided all these requisites are present:
 Rests on the facts and circumstance of the case in which it is
urged (1) There must be fraudulent representation or wrongful concealment of facts
 Requisites: (CIK) known to the party estopped;
1. Conduct amounting to false representation or (2) The party precluded must intend that the other should act upon the facts as
concealment of material facts or at least calculated to misrepresented;
convey the impression that the party subsequently (3) The party misled must have been unaware of the true facts; and
attempts to assert (4) The party defrauded must have acted in accordance with the misrepresentation.
2. Intent, or at least expectation that this conduct shall be
acted upon, or at least influenced by the other party Ex. A leased the apartment of B. Said contract of lease gave A preferential
3. Knowledge, actual or constructive, of the actual facts right to buy the apartment in case B decides to sell.
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A approaches X and misrepresented that the former has already exercised
his preferential right to buy and that another person, Y, is interested in
Title V – TRUSTS
What is a Trust?
buying although in fact there is none. A proposes a scheme where X will
purchase said apartment from A and then sell the same to Y for a higher
 Trust in its technical legal sense, it is the right enforceable solely in equity,
price. Because A is a great broker, X agrees to purchase. B, the owner
to the beneficial enjoyment of property, the legal title of which is vested in
ratified the sale.
another.
Later on, A cannot assert a claim on the property contending that the sale  It is a fiduciary relationship with respect to property, subjecting the person
is unenforceable for not having the consent of the true owner, B. holding it to deal with the property for the benefit of another
Characteristic of a Trust:
Art. 1438 – Estoppel where Personal Property is Pledged
One who has allowed another to assume apparent ownership of personal property 1. Fiduciary
for the purpose of making any transfer of it, cannot, if he received the sum for 2. Created by law or agreement
which a pledge has been constituted, set up his own title to defeat the pledge of 3. Where the legal title is held by one, the equitable title or beneficial title is
the property, made by the other to a pledgee who received the same in good faith held by another
and for value.
Kinds of Trust:
Ex. P owns a BMW but does not want to be known as the owner. He tells
everybody that X is the owner and even gives X authority to sell, TRUST
encumber, or alienate said BMW. X knows this and goes along. EXPRESS IMPLIED
 Intention is expressly present; the  Intention is not expressly present,
Later, P instructs X to pledge the BMW as collateral for a loan from Y. The intent is created by the direct and but it is deducible from the nature
money goes to P. On due date, Y warned X of foreclosure in case of non positive acts of the parties, some of the transaction (resulting trust);
payment. P cannot resist the foreclosure by claiming that the pledge of the writing or deed or will or words the law may also induce the intent
BMW is invalid because X is not the actual owner. P is estopped. evidencing the intention to create a in the transaction and thus, this
trust. kind of trust works by operation of
Art. 1439 – Between Parties and Successors in Interest  No form is required for the words. law (constructive trust).
Estoppel is effective only as between the parties thereto or their successors in  Trusts over immovable property  May be barred by laches.
interest. cannot be proved by oral evidence.  May be proved by oral evidence.
 Estoppel does not operate in favour nor against a stranger (persons who Prescription: 2 kinds:
are neither parties not privies to the transaction out of which the estoppel GR: The trustee cannot acquire the 1. Resulting Trust:
arose). thing in trust by prescription o Intent is presumed to be
 Castrillo v. CA − The SC did not permit the heirs to assail the validity of EXC: contemplated by the parties.
estoppel because it is only the person against whom it may be invoked 1. The trustee has performed o Imprescriptible, as long as the
who is allowed to assail it. unequivocal acts of repudiation trustee has not repudiated the
2. Such acts were made known to the trust.
beneficiary 2. Constructive trust:
3. The evidence thereon us clear and o No intention presumed from
conclusive any of the acts of the parties,
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but is a mere construction of Kinds of Trust:

Acceptance of Trust equity. 1. Express Trust – those which are created by the direct and positive acts of
A. Trustee: Not necessary, unless the o Prescription may supervene. the parties, by some writing or deed, or will, or by words either expressly
appointment of such trustee is o Substantially an appropriate or impliedly evincing an intention to create a trust.
material and is provided in the remedy against unjust 2. Implied Trust – those which, without being expressed, are deducible from
instrument constituting the trust. In enrichment. the nature of the transaction as matters of intent, or which are
case the trustee refuses to accept, superinduced on the transaction by operation of law as matters of equity,
the court will appoint a trustee  Examples of implied trust in the independently of the particular intention to create a trust; two kinds:
provisions below are not exclusive. a. Resulting Trust – a trust raised by implication of law and
B. Beneficiary: It is necessary. Such  Also, even if a trust takes the form presumed always to have been contemplated by the parties, the
acceptance will be presumed in of any of the provisions under intention as to which is to be found in the nature of their
cases where the trust imposes no implied trust, it will be considered transaction, but not expressed in the deed or instrument of
onerous condition to the an express trust if there is express conveyance.
beneficiary. intention of the trustor to create a o Simply, it is imposed by law to carry out the actual or
trust. presumed intent of the parties, where the express trust
fails.
o Articles 1448 − 1455 are Resulting trusts.
b. Constructive Trust – trusts arising from the construction of law, or
Chapter 1: General Provisions arising by operation of law. It is established by law, regardless of
intention of parties, in order to prevent fraud, oppression or
unjust enrichment.
Art. 1440 – Trustor, Trustee and Beneficiary
A person who establishes a trust is called the trustor; one in whom confidence is Rules on Prescription of Express Trust:
reposed as regards property for the benefit of another person is known as the  Express trusts do not prescribe because possession of trustee is not
trustee; and the person for whose benefit the trust has been created is referred to adverse. Thus:
as the beneficiary. o A trustee cannot acquire by prescription the ownership of
property entrusted to him
 Trustor – person who establishes a trust o There is no prescription on an action to compel a trustee to
 Trustee – person in whom confidence is reposed for the benefit of another convey property registered in his name in trust for the benefit of
person the beneficiary
 Beneficiary – person for whose benefit the trust has been created. Also o No prescription in an action to recover property held by a person
called cestui que trust in trust for the benefit of another
o Property held in trust can be recovered by the beneficiary
Art. 1441 – Kinds of Trusts regardless of the laps of time
Trusts are either express or implied. Express trusts are created by the intention of  However, acquisitive prescription may bar the action of the beneficiary
the trustor or of the parties. Implied trusts come into being by operation of law. against the trustee in an express trust for the recovery of the property held
in trust where:
o The trustee has performed unequivocal acts of repudiation
amounting to an ouster of the beneficiary
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o Such positive acts of repudiation have been made known to the Art. 1445 – When Trustee Declines Designation
beneficiary
No trust shall fail because the trustee appointed declines the designation, unless
o The evidence thereon is clear and conclusive
the contrary should appear in the instrument constituting the trust.
Rules on Prescription of Implied Trust:
 For Resulting Trust, imprescriptibility may apply as long as the trustee has  In case of refusal to accept the trust by the trustee, the court will appoint a
not repudiated the trust. trustee.
 Constructive Trust prescribes.  If the appointment of the trustee is a material provision, the trustor can
 The enforcement of both may, however, be barred by laches. provide that a refusal of the trustee to accept the trust shall result in the
failure or nullification of the same.
Art. 1442 – Application of the Principles of the General Law of Trusts

The principles of the general law of trusts, insofar as they are not in conflict with Art. 1446 – Acceptance by the Beneficiary
Acceptance by the beneficiary is necessary. Nevertheless, if the trust imposes no
this Code, the Code of Commerce, the Rules of Court and special laws are hereby
onerous condition upon the beneficiary, his acceptance shall be presumed, if there
adopted.
is no proof to the contrary.
Chapter 2: Express Trusts If there is no onerous condition, the law presumes acceptance unless
there is proof to the contrary.
Art. 1443 – Immovable Cannot be Proven by Parol Evidence o Thus, when the beneficiary is required to perform something to
No express trusts concerning an immovable or any interest therein may be proved make the trust effective, there is an onerous condition.
by parol evidence. Beneficiary needs to accept.
o If there is no such condition, the trust is a liberality or gratuity
Parole evidence refers to oral evidence and acceptance is presumed.
 Pascual v. Meneses − To prove an express trust over immovable properties  This presumption is rebuttable by proof to the contrary.
or any interest therein, there must be a showing of some document
proving the same. Chapter 3: Implied Trusts
 Ramos v. Ramos − A trust may be proven by clear, satisfactory, and
convincing evidence. Art. 1447 – Application of Implied Trusts Enumerated
The enumeration of the following cases of implied trust does not exclude others
Art. 1444 – No Words Required established by the general law of trust, but the limitation laid down in Article 1442
No particular words are required for the creation of an express trust, it being shall be applicable.
sufficient that a trust is clearly intended.
The situations giving rise to implied trust provided under this chapter are
 Cuaycong v. Cuaycong − No form is required, for as long as the intent to not exclusive.
establish trust is very clear from the proofs, whether by some writing or Even if the situation falls under any of the provisions of this chapter, it will
deed or will or by words. be considered an express trust if there is an express intention of the
trustor to create a trust.
An implied trust is not created when the purpose is to evade the law.
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o Saltiga v. CA − trust will not be created when for the purpose of of the debt, a trust arises by operation of law in favor of the person to whom the
evading the law prohibiting one from taking real property, he money is loaned or for whom its is paid. The latter may redeem the property and
takes conveyance thereof in the name of a 3rd person. compel a conveyance thereof to him.
The principles of general law of trust, in so far as they are not contrary to
the Civil Code, Code of Commerce, Rules of Court, and special laws are Ex. A wants to buy land from B but A has no money. So A asks C to pay for the
applicable as limitations to implied trust. land. The land is then given in C’s name. This is supposed to be C’s security
o Policarpio v. CA − an implied trust is created when a until the debt of A is paid. Here, an implied trust is created. C is a trustee
representative is tasked to negotiate the sale of an apartment on and the beneficiary is A. When A has the money, he may redeem the
behalf of the tenants. When such representative buys the property from C and compel a conveyance to A
apartment for himself to the detriment of the tenants, the
implied trust is breached. NOTE: This is not the same as mortgage. Mortgage is when A borrows money
from C and A later buys land in his own name. A then executes a mortgage
Art. 1448 – When a Third Party Pays for a Property on the land in favor of C. This is not an implied trust.
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 Art. 1451 – When Land Passes by Succession
interest of the property. The former is the trustee, while the latter is the When land passes by succession to any person and he causes the legal title to be
beneficiary. However, if the person to whom the title is conveyed is a child, put in the name of another, a trust is established by implication of law for the
legitimate or illegitimate, of the one paying the price of the sale, no trust is implied benefit of the true owner.
by law, it being disputably presumed that there is a gift in favor of the child.
Ex. B is the only compulsory heir of M who dies. After payment of the debts of
Ex. A sold his share of stock to B. While it is in the name of B, it is X who pays M, the net estate will go to B. However, if B causes the title to the estate to
for the stocks such that X is the one who receives the dividends. There is be placed in the name of X, an implied trust is created for the benefit of B.
an implied trust; B is the trustee and X is the beneficiary.
Art. 1452 – When Legal Title is Named after One of Many Purchasers
If B is the legitimate or illegitimate child of X, no trust is implied by law, it If two or more persons agree to purchase property and by common consent the
being disputably presumed that a gift has been made to B by X. 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. 1449 – When a Donation is Made but Donee has Partial Interest
There is also an implied trust when a donation is made to a person but it appears Ex. A, B and C are co−owners of a particular land with a clubhouse in equal
that although the legal estate is transmitted to the donee, he nevertheless is either parts but, by agreement of all of them, the whole of the property is
to have no beneficial interest or only a part thereof. registered under the name only of C. In this case, C is the trustee of the
respective 1ƒ3 shares of A and B. C is the trustee for the other co−owners.
Ex. A donated to B a lot and the apartment on it. Despite this, B still has to pay Thus when the clubhouse is rented, C is obliged to make proper accounting
rentals to for the apartment to A. This is an implied trust where the trustee for profit sharing as he is merely a trustee.
is the donee and the beneficiary is the donor.
Art. 1453 – When Property is Conveyed to Hold or Transfer
Art. 1450 – When a Person Acquires Property through a Loan When property is conveyed to a person in reliance upon his declared intention to
If the price of a sale of property is loaned or paid by one person for the benefit of hold it for, or transfer it to another or the grantor, there is an implied trust in favor
another and the conveyance is made to the lender or payor to secure the payment of the person whose benefit is contemplated.
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Ex. A told B (the seller) that the property should be in his (A) name because he Art. 1457 – May be Proved by Oral Evidence
shall only hold it for the benefit of X, the real owner. An implied trust is
An implied trust may be proved by oral evidence.
created in favour of X.
Because it is deducible from the nature of the transaction as matters of
Art. 1454 – When Property is Conveyed to Fulfill an Obligation intent or which are superinduced on the transaction by operation of law,
If an absolute conveyance of property is made in order to secure the performance independently of the particular intention of the parties.
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.
Title XVII – EXTRA-CONTRACTUAL OBLIGATIONS
Ex. A is indebted to B. A conveyed a particular property to B to secure such
indebtedness. B holds the property only in trust for A. B is the trustee.
Upon payment by A, he can demand that the property be returned. Chapter 1: Quasi-Contracts
Art. 1455 – When Trust Fund is Used to Purchase Property
When any trustee, guardian or other person holding a fiduciary relationship uses Art. 2142 – Quasi-Contracts Defined
trust funds for the purchase of property and causes the conveyance to be made to Certain lawful, voluntary and unilateral acts give rise to the juridical relation of
him or to a third person, a trust is established by operation of law in favor of the quasi−contract to the end that no one shall be unjustly enriched or benefited at the
person to whom the funds belong. expense of another. (n)
Ex. X created a trust fund for the benefit of A of which, Y is the trustee. If Y  A quasi−contract is not an implied contract.
uses the fund to purchase a property and places it under his name or  It is not properly a contract at all because there is no meeting of minds.
under the name of Z (a third person), an implied trust is created and the  A juridical relation is created by a quasi−contract so that nobody shall
trustee is either X or Z and the trust is in favor of Z. enrich himself at the expense of another.
NOTE: Acquisition by an agent inures to the benefit of the principal. Severino v. Art. 2143 – Other Quasi-Contracts
Severino The provisions for quasi−contracts in this Chapter do not exclude other quasi−
contracts which may come within the purview of the preceding article. (n)
Art. 1456 – When Property is Acquired through Mistake or Fraud
If property is acquired through mistake or fraud, the person obtaining it is, by force  This article provides that the number of quasi−contracts is indefinite and
of law, considered a trustee of an implied trust for the benefit of the person from not only confined to the two kinds specified by the Civil Code in Section 1
whom the property comes. and 2 of this Chapter.
Ex. X fraudulently made Y sign an alleged loan agreement which actually  Two obligations treated in the chapter devoted to Quasi−contracts:
turned out to be an absolute sale of X’s property. The sale is voidable and a 1. Negotiorum Gestio – the voluntary management of the property or
trust is deemed created by force of law. The trustee is X and is merely affairs of another without the knowledge or consent of the latter.
holding the property for the benefit of X. 2. Solutio Indebiti – the juridical relation which is created when
something is received when there is no right to demand it and it was
NOTE: This refers to mistake by a third person and fraud is extra−contractual unduly delivered through mistake.
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Section 1 – Negotiorum Gestio The courts may, however, increase or moderate the indemnity according to the
circumstances of each case. (1889a)
Art. 2144 – Negotiorum Gestio Defined and Its Exceptions  An officious manager is in a sense an intruder in the business or that
Whoever voluntarily takes charge of the agency or management of the business or property of the owner.
property of another, without any power from the latter, is obliged to continue the
 However, if his intrusion is with the objective of preserving, managing, and
same until the termination of the affair and its incidents, or to require the person
taking care of the property without any intent to gain, a quasi−contract is
concerned to substitute him, if the owner is in a position to do so. This juridical
created.
relation does not arise in either of these instances:
 Ordinary diligence is required by law; once quasi−contract is created, he
(1) When the property or business is not neglected or abandoned; cannot escape liability if the owner suffers damages due to negligence or
fault.
(2) If in fact the manager has been tacitly authorized by the owner.
In the first case, the provisions of Articles 1317, 1403, No. 1, and 1404 regarding Art. 2146 – Liability of Officious Manager upon Delegation
unauthorized contracts shall govern. If the officious manager delegates to another person all or some of his duties, he
shall be liable for the acts of the delegate, without prejudice to the direct obligation
In the second case, the rules on agency in Title X of this Book shall be applicable. of the latter toward the owner of the business.
(1888a)
The responsibility of two or more officious managers shall be solidary, unless the
 Negotiorum Gestio − a quasi−contract which should not be performed for management was assumed to save the thing or business from imminent danger.
profit (1890a)
Circumstances under which one may undertake to carry out a business
matter for another: The liability of two or more officious managers is solidary; the owner may
1. They relate to determined things or affairs, and that there be no seek full payment of damages from anyone of them.
administrator or representative of the owner who is charged with
the management thereof. Art. 2147 – When Officious Manager shall be Liable for Fortuitous Event
2. That it be foreign to all idea of express or tacit mandate on the The officious manager shall be liable for any fortuitous event:
part of the owner, for it very often may happen even without his
knowledge. (1) If he undertakes risky operations which the owner was not accustomed to
3. That the actor be inspired by the beneficent idea of averting embark upon;
losses and damages to the owner or to the interested party (2) If he has preferred his own interest to that of the owner;
through abandonment of the things that belong to him or of the (3) If he fails to return the property or business after demand by the owner;
business in which he may be interested, that is, the administration (4) If he assumed the management in bad faith. (1891a)
is not for profit.
Art. 2148 – Liability for Fortuitous Event as to Manager’s Capacity
Art. 2145 – Diligence Required of an Officious Manager Except when the management was assumed to save property or business from
The officious manager shall perform his duties with all the diligence of a good father imminent danger, the officious manager shall be liable for fortuitous events:
of a family, and pay the damages which through his fault or negligence may be
(1) If he is manifestly unfit to carry on the management;
suffered by the owner of the property or business under management.
(2) If by his intervention he prevented a more competent person from taking up the
management. (n)
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General Rule – No person shall be liable in case of fortuitous event. Art. 2150 – Officious Manager Entitled to Reimbursement
Exception – (1) ARTICLE 2147
Although the officious management may not have been expressly ratified, the
1. First case: The business is simply providing a warehouse for
owner of the property or business who enjoys the advantages of the same shall be
dolls, the officious manger stored highly flammable materials
liable for obligations incurred in his interest, and shall reimburse the officious
2. Second case: same business, but the officious manager also
manager for the necessary and useful expenses and for the damages which the
stored some of his goods in the warehouse. During a flood,
latter may have suffered in the performance of his duties.
he chose to save his goods first before that of the owner, the
officious manager will be liable for the loss The same obligation shall be incumbent upon him when the management had for
3. Third case: same business, but the officious manager did not its purpose the prevention of an imminent and manifest loss, although no benefit
return the warehouse despite demand by owner. The may have been derived. (1893)
warehouse is destroyed by an earthquake and so the officious
manager will be held liable for his act of unduly retaining Art. 2151 – Reimbursement when there is No Benefit or Danger
what is not his. Even though the owner did not derive any benefit and there has been no imminent
4. Fourth case: same business, but the officious manager took and manifest danger to the property or business, the owner is liable as under the
over in bad faith such as when he does so to get the clients of first paragraph of the preceding article, provided:
the owner for his (officious manager’s) own warehousing
business. (1) The officious manager has acted in good faith, and
(2) ARTICLE 2148 (2) The property or business is intact, ready to be returned to the owner. (n)
1. First case: A farmer takes over a Nuclear Power plant
business of another General Rule – Reimbursement is required when (Art. 2150):
2. Second case: Such farmer prevents another person who is a 1. When owner is benefited by officious management of property or business
nuclear scientist from taking over the Nuclear Power plant Ex. The manager pays taxes on the property so that it will not be
business. foreclosed, owner must reimburse payment made by officious
o EXC to 2148: When management was assumed to manager.
save property or business from imminent danger 2. When officious management is made to prevent loss
such as when the farmer enters the Nuclear Plant in Ex. A is the neighbor of B. One day, B’s kitchen was on fire. A entered
order to avert a meltdown. the house and extinguished the fire using his (A’s) fire
extinguisher. B is obliged to reimburse A for the fire price of the
fire extinguisher used.
Exception: Benefit or imminent danger is not required when the manager
Art. 2149 – Ratification of Owner results to Agency acted in good faith and the business is intact, ready to be returned to the
The ratification of the management by the owner of the business produces the owner (Art. 2151).
effects of an express agency, even if the business may not have been successful.
(1892a) Art. 2152 –Officious Manager as to Contracts with Third Persons
The officious manager is personally liable for contracts which he has entered into
When the owner ratifies management, the manager becomes the agent with third persons, even though he acted in the name of the owner, and there shall
and all the defects made by the latter are cured. be no right of action between the owner and third persons. These provisions shall
not apply:
(1) If the owner has expressly or tacitly ratified the management, or
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(2) When the contract refers to things pertaining to the owner of the business. (n) Prescriptive period is 6 years.
General Rule -- Officious manager is liable for contracts entered with 3rd persons. Art. 2155 – Applicable to Doubtful or Difficult Question of Law
Thus, when the manager buys a photocopying machine, he is liable. Payment by reason of a mistake in the construction or application of a doubtful or
difficult question of law may come within the scope of the preceding article. (n)
Exceptions – (1) When the owner ratifies management in which case
manager becomes agent and (2) When the contract refers to things Genearal Rule − Solutio Indebiti involves only a mistake of fact
pertaining to the business. Thus, where the owner is engaged in
Exception − A mistake of law is allowed if the mistake is brought about by
photocopying business, the purchase of photocopying machine must be
the construction or application of a doubtful or difficult question of law
shouldered by the owner.
 Puyat v. Manila − There is solutio indebiti when tax is paid by mistake due
Art. 2154 – The management is extinguished: to complicated correlation and application of various municipal and
(1) When the owner repudiates it or puts an end thereto; national laws. Voluntariness is incompatible with protest and mistake.
(2) When the officious manager withdraws from the management, subject to the
provisions of Article 2144;
Art. 2156 – Doubt on whether the Debt was Due
(3) By the death, civil interdiction, insanity or insolvency of the owner or the
If the payer was in doubt whether the debt was due, he may recover if he proves
officious manager. (n)
that it was not due. (n)
Ex. A debtor can recover what he has paid prior to the due date provided that
1. Benedicto v. Board of Administrators − The PCGG may not lawfully
the demand for reimbursement is not made after the debt has become
intervene and participate in the management of a private mass media
due.
where the owner demands the return of the same.
2. The officious manager can withdraw from the property only after
substitution, otherwise he may only withdraw upon termination of the Art. 2157 – Solidary Responsibility of Two or More Payees
affair and its incidents pursuant to Article 2144. The responsibility of two or more payees, when there has been payment of what is
3. Death, civil interdiction, insanity or insolvency incapacitates the officious not due, is solidary. (n)
manager or owner.
Ex. A owes B and C ®2,000 who are solidary creditors. A pays B ®2,000 before
due date. A can recover from B or C the amount he has paid (even if C has
Section 2 – Solutio Indebiti not yet received his share of the ®2,000) provided demand is made before
debt becomes due.
Art. 2154 – Solutio Indebiti Defined
If something is received when there is no right to demand it, and it was unduly Art. 2158 – Property or Money Delivered Belongs to Third Person
delivered through mistake, the obligation to return it arises. (1895) When the property delivered or money paid belongs to a third person, the payee
shall comply with the provisions of article 1984. (n)
Requisites (N-M):
o That he who paid was not under obligation to do so Art. 2159 – Acceptance of Undue Payment in Bad Faith
o That payment was made by reason of an essential mistake of fact
Principles of equity cannot be applied if there is a provision of law
specifically applicable to a case.
107
Whoever in bad faith accepts an undue payment, shall pay legal interest if a sum of Ex. A is indebted to B in the amount of ®1,000. It is an oral contract which
money is involved, or shall be liable for fruits received or which should have been prescribes in 6 years. X is the guarantor of the loan and is liable to pay the
received if the thing produces fruits. ®1,000 only when B has exhausted all means to collect from A.
He shall furthermore be answerable for any loss or impairment of the thing from Believing that he is principally liable, X pays on the 5th year and B accepts
any cause, and for damages to the person who delivered the thing, until it is the payment in good faith. After the lapse of the 6 year prescriptive period,
recovered. (1896a) X may not recover from B what he has paid by mistake. Instead, X can only
recover from A the ®1,000 who was the original debtor.
Ex. If the creditor knows that payment is not yet due, yet he accepted such
without informing the debtor that it is not yet due, he is therefore in bad Art. 2163 – Presumed Mistake
faith and shall be liable for interest from the time he accepts payment up It is presumed that there was a mistake in the payment if something which had
to the time he returns it upon demand of the debtor. never been due or had already been paid was delivered; but he from whom the
return is claimed may prove that the delivery was made out of liberality or for any
Art. 2160 – Acceptance of Undue Payment in Good Faith other just cause. (1901)
He who in good faith accepts an undue payment of a thing certain and determinate
shall only be responsible for the impairment or loss of the same or its accessories Ex. The person to whom the payment has been made can show that such
and accessions insofar as he has thereby been benefited. If he has alienated it, he payment is a gift or a donation by showing the proper evidence like a valid
shall return the price or assign the action to collect the sum. (1897) deed of donation.
Ex. A is obliged to give B a house on Dec. 1. Believing it was due on July, A Section 3 – Other Quasi-Contracts
delivered the house. B likewise did not know that the house is only due on
Dec. 1 and accepted it. On Sept., the house was rented but the kitchen was Art. 2164 – Support Given by a Stranger
accidently burned. On Nov., A discovered that the delivery was not yet due When, without the knowledge of the person obliged to give support, it is given by a
and demandable for its return. B can return the house and pay the amount stranger, the latter shall have a right to claim the same from the former, unless it
of the Kitchen which has been impaired, because B has been benefited by appears that he gave it out of piety and without intention of being repaid. (1894a)
the house when it had been rented.
This is under Article 206 of the Family Code:
When, without the knowledge of the person obliged to give support, it is

Art. 2161 – Reimbursement for Improvements and Expenses given by a stranger, the latter shall have a right to claim the same from the
As regards the reimbursement for improvements and expenses incurred by him former, unless it appears that he gave it without the intention of being
who unduly received the thing, the provisions of Title V of Book II shall govern. reimbursed.
(1898)  De Marcaida v. Redfern − For one to recover under this, it must be alleged
and proved that:
Art. 2162 – Exemption from Obligation to Restore 1. Support has been furnished a dependent of one bound to give
He shall be exempt from the obligation to restore who, believing in good faith that support but who fails to do so
the payment was being made of a legitimate and subsisting claim, destroyed the 2. The support was supplied by a stranger
document, or allowed the action to prescribe, or gave up the pledges, or cancelled 3. The support was given without the knowledge of the person
the guaranties for his right. He who paid unduly may proceed only against the true charged with the duty
debtor or the guarantors with regard to whom the action is still effective. (1899)
108
Art. 2165 – Funeral Expenses Borne by a Third Person refuses to support or fails to give support to the child when urgently
When funeral expenses are borne by a third person, without the knowledge of needed.
those relatives who were obliged to give support to the deceased, said relatives
shall reimburse the third person, should the latter claim reimbursement. (1894a) Art. 2167 – Services Given by a Physician in an Accident
When through an accident or other cause a person is injured or becomes seriously
The following are obliged to support each other: ill, and he is treated or helped while he is not in a condition to give consent to a
1. Spouses contract, he shall be liable to pay for the services of the physician or other person
2. Legitimate ascendants and descendants aiding him, unless the service has been rendered out of pure generosity.
3. Parents and their legitimate children, and the legitimate and illegitimate
children of the latter Ex. X was a victim of a hit−and−run incident and is seriously injured. He is
4. Parents and their illegitimate children, and the legitimate and illegitimate brought to the hospital and needs operation. However he is in a coma and
children of the latter cannot give consent. Dr. House nevertheless treats his injuries lest it
5. Legitimate brothers and sisters, whether full or half blood becomes more serious. When X recovers, he has the obligation to pay Dr.
House unless the latter does not want to be paid.
Whenever two or more persons are obliged to give support, the liability shall
devolve upon the following persons in the following order: Art. 2168 – Property is Saved from Fire, Flood, Storm or Calamity
1. Spouses When during a fire, flood, storm, or other calamity, property is saved from
2. Descendants in the nearest degree destruction by another person without the knowledge of the owner, the latter is
3. Ascendants in the nearest degree bound to pay the former just compensation.
4. Brothers and sisters
Ex. During Ondoy, The village where X’s house is located began flooding. X was
Ex. A was the son of X and Y. A died. Z shouldered the cost of the funeral. If Z did abroad during the typhoon. When the flood reached X’s house, Y pushed
this as an act of charity, X and Y need not reimburse him. Otherwise, Z can the car of the former to higher grounds such that it was saved from
demand payment from X and Y. destruction. X is bound to pay Y just compensation unless Y does not
wasn’t to accept it.
Art. 2166 – Support Given to an Orphan, Insane or Indigent Person
When the person obliged to support an orphan, or an insane or other indigent
Art. 2169 – Government Work regarding Health and Safety Regulations
person unjustly refuses to give support to the latter, any third person may furnish
When the government, upon the failure of any person to comply with health or
support to the needy individual, with right of reimbursement from the person
safety regulations concerning property, undertakes to do the necessary work, even
obliged to give support. The provisions of this article apply when the father or
over his objection, he shall be liable to pay the expenses.
mother of a child under eighteen years of age unjustly refuses to support him.
Ex. An ordinance requires residents to segregate trash into recyclable and
This has been adopted by Article 207 of the Family Code:
non−recyclable. Mr. X refuses to comply with this ordinance and throws all
When the person obliged to support another unjustly refuses or fails to his trash in one plastic bag. The city government may segregate his trash
give support when urgently needed by the latter, any third person may and provide him with two trash cans at his own expense.
furnish support of the needy individual with a right of reimbursement from
the person obliged to give support. This article shall apply particularly
when the father or the mother of a child under the age of majority unjustly
109
Art. 2170 – Rules of Co-Ownership in Accident or Fortuitous Event Article 1237. Whoever pays on behalf of the debtor without the knowledge or
When by accident or other fortuitous event, movables separately pertaining to two against the will of the latter cannot compel the creditor to subrogate him in his
or more persons are commingled or confused, the rules on co−ownership shall be rights, such as those arising from a mortgage, guaranty or penalty.
applicable.
Art. 2174 – Measures for Protection Against Lawlessness
Ex. Brothers X and Y each bought a black 32Gb Ipad3. Upon reaching their When in a small community a nationality of the inhabitants of age decide upon a
home and after opening the boxes, a magnitude 8.7 earthquake hit their measure for protection against lawlessness, fire, flood, storm or other calamity, any
locality. Luckily both of them survived but their home was completely one who objects to the plan and refuses to contribute to the expenses but is
destroyed. In the rubble, they found two Ipad3’s but not knowing which benefited by the project as executed shall be liable to pay his share of said
belongs to whom, the rules on co−ownership will apply. expenses.
Art. 2171 – Finder of Lost Property Ex. People of Barrio X decided to engage in a security force to protect their
community. For this reason, the people of X agreed to contribute for the
The rights and obligations of the finder of lost personal property shall be governed
expenses of this security force. Mr. K however refused to make any
by Articles 719 and 720.
contribution. In the event the security force apprehends robbers intending
Article 719. Whoever finds a movable, which is not treasure, must return it to its to rob the house of Mr. K, he should pay his share in the expenses for the
previous possessor. community’s engagement of the security force to protect the people.
Article 720. If the owner should appear in time, he shall be obliged to pay as reward Art. 2175 – Person Paying for Taxes of Another
to the finder, 1ƒ10 of the sum or of the price of the thing found. Any person who is constrained to pay the taxes of another shall be entitled to
reimbursement from the latter.
Ex. X who pays the real estate taxes of G (whose land will be forfeited if he
Art. 2172 – Right to Reimbursement of Possessor in Good Faith fails to pay taxes) must be reimbursed by the latter.
The right of every possessor in good faith to reimbursement for necessary and
useful expenses is governed by Article 546.
Art. 2173 – Third Person Paying a Debt

When a third person, without the knowledge of the debtor, pays the debt, the
rights of the former are governed by Articles 1236 and 1237.
Article 1236. The creditor is not bound to accept payment or performance by a

third person who has no interest in the fulfilment 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.
110
Art. 1139 − Lapse of Time
CODAL MEMORY AID Art. 1140 − Prescription of Movables
Art. 1141 − Prescription of Immovables
TITLE. IV. – PRESCRIPTION
Art. 1142 − Prescription of Mortgages
Chapter 1: General Provisions
Art. 1143 − Rights Not Extinguished by Prescription
Art. 1106 − Prescription Defined
Art. 1144 − 10 Years
Art. 1107 − Acquisition by Capable Persons and Minors
Art. 1108 − Persons Exempt from Prescription
Art. 1109 − Between Husband and Wife, Children and Guardian
Art. 1147 − 1 Year
Art. 1110 − Married Woman
Art. 1148 − Code of Commerce and Special Laws
Art. 1111 − Co−Proprietor or Co−owner
Art. 1149 − No Fixed Period = 5 Years
Art. 1112 − Renunciation
Art. 1150 − Prescription for All Kinds of Actions
Art. 1113 − Subjects of Prescription
Art. 1151 − Prescription for Actions regarding Payment
Art. 1114 − Right to Enforce Prescription
Art. 1152 − Prescription of Actions declared by Judgment
Art. 1115 − Special Laws
Art. 1153 − Prescription for Accounting
Art. 1116 − Transition
Art. 1154 − Fortuitous Event
Chapter 2: Prescription of Ownership and Other Real Rights
Art. 1155 − Interruption of Prescription for Actions
Art. 1117 − Acquisitive Prescription
Art. 1118 − Possession
TITLE. I. - OBLIGATIONS
Art. 1119 − Possession through License or Tolerance
Chapter 1: General Provisions
Art. 1120 − Interruption
Art. 1156 − Definition
Art. 1121 − Natural Interruption
Art. 1157 − Sources of Obligations
Art. 1122 − One Year or Less
Art. 1158 − Obligations from Law
Art. 1123 − Civil Interruption
Art. 1159 − Obligations from Contracts
Art. 1124 − Judicial Summons
Art. 1160 − Obligations from Quasi Contracts
Art. 1125 − Possessor’s Recognition of Owner’s Right
Art. 1161 − Obligations from Crimes or Delicts
Art. 1126 − Titles
Art. 1162 − Obligations from Quasi−delicts
Art. 1127 − Good Faith
Chapter 2: Nature and Effect of Obligations
Art. 1128 − Other Conditions of Good Faith
Art. 1163 − Required Diligence
Art. 1129 − Just Title
Art. 1164 − Right Over Fruits
Art. 1130 − True and Valid Title
Art. 1165 − Delivery of a Determinate or Indeterminate Thing
Art. 1131 − Just Title Must Be Proved
Art. 1166 − Accessories
Art. 1132 − Acquisition of Movables or Personal Property
Art. 1167 − Obligation To Do
Art. 1133 − Movables from Crime
Art. 1168 − Obligation Not To Do
Art. 1134 − Acquisition of Immovables
Art. 1169 − Delay
Art. 1135 − Mistake in Area
Art. 1170 − Sources of Liabilities
Art. 1136 − Wartime
Art. 1171 − Responsibility from Fraud
Art. 1137 − Extraordinary Prescription of Immovables
Art. 1172 − Responsibility from Negligence
Art. 1138 − Computation of Prescription
Art. 1173 − Fault or Negligence
Art. 1174 − Fortuitous Events
Chapter 3: Prescription of Actions
111
Art. 1175 − Usurious Transactions Art. 1207 − Solidary Obligations
Art. 1176 − Presumption in Payment Art. 1208 − Joint Obligations
Art. 1177 − Rights of the Creditor Art. 1209 − When Division is Impossible
Art. 1178 − Transmissibility Art. 1210 − Indivisibility and Solidarity
Chapter 3: Different Kinds of Obligations Art. 1211 − Not Bound in the Same Manner
SECTION 1. − Pure and Conditional Obligations Art. 1212 − Acts of Solidary Creditors
Art. 1179 − Pure Obligations Art. 1213 − Mutual Trust among Solidary Creditors
Art. 1180 − Payment Depends on Debtor’s Means Art. 1214 − Judicial or Extrajudicial Demand by a Solidary Creditor
Art. 1181 − Conditional Obligations Art. 1215 − Extinguishment by a Solidary Creditor
Art. 1182 − Potestative and Casual Conditions Art. 1216 − Rights of Creditor Against Solidary Debtors
Art. 1183 − Void Conditions Art. 1217 − Payment by Solidary Debtors
Art. 1184 − Positive Condition Art. 1218 − When Payment has Prescribed or become Illegal
Art. 1185 − Negative Condition Art. 1219 − Remission of a Solidary Debtor’s Liability
Art. 1186 − Constructive Fulfillment Art. 1220 − Remission of the Whole Obligation
Art. 1187 − Retroactive Effects of the Fulfillment of a Suspensive Art. 1221 − Loss or Impossibility of Prestation in Relation to
Condition Solidary Debtors
Art. 1188 − Rights Pending Fulfillment of Suspensive Condition Art. 1222 − Solidary Debtor’s Defenses
Art. 1189 − Loss, Deterioration or Improvement Pending the SECTION 5. − Divisible and Indivisible Obligations
Condition Art. 1223 − Nature and Effect of Divisible and Indivisible
Art. 1190 − Effects of Fulfillment of Resolutory Condition Obligations
Art. 1191 − Remedies in Reciprocal Obligations Art. 1224 − Liabilities in Joint Indivisible Obligations
Art. 1192 − Breach by Both Parties Art. 1225 − Divisible and Indivisible Obligations
SECTION 2. − Obligations with a Period SECTION 6. − Obligations with a Penal Clause
Art. 1193 − Obligations with a Period Art. 1226 − Penalties
Art. 1194 − Loss, Deterioration or Improvement before Day Art. 1227 − Penalty and Fulfillment
Certain Art. 1228 − Proof is Not Necessary
Art. 1195 − Debtor May Recover Payment Art. 1229 − Court Intervention
Art. 1196 − Period Benefits Both Creditor and Debtor Art. 1230 − Nullity of the Penal Clause
Art. 1197 − Court May Fix a Period Chapter 4: Extinguishment of Obligations
Art. 1198 − When Debtor Cannot Make Use of the Period GENERAL PROVISIONS
SECTION 3. − Alternative Obligations Art. 1231 − Modes of Extinguishment
Art. 1199 − Alternative Obligations SECTION 1. − Payment or Performance
Art. 1200 − Debtor’s Right of Choice Art. 1232 − Payment Defined
Art. 1201 − Choice Communicated Art. 1233 − Payment must be Complete
Art. 1202 − Only One Choice is Practicable Art. 1234 − Substantial Performance
Art. 1203 − Debtor Cannot Choose due to Creditor’s Acts Art. 1235 − Creditor Accepts Incompleteness or Irregularity
Art. 1204 − Through Debtor’s Fault, All Choices are Lost Art. 1236 − Payment by a Third Person
Art. 1205 − Choice Given to Creditor Art. 1237 − No Subrogation
Art. 1206 − Facultative Obligations Art. 1238 − Donation
SECTION 4. − Joint and Solidary Obligations Art. 1239 − Payment by an Incapacitated Person
112
Art. 1240 − To Whom Payment Should be Made Art. 1274 − Accessory Obligation of Pledge
Art. 1241 − Payment to Incapacitated or Third Persons SECTION 4. − Confusion or Merger of Rights
Art. 1242 − Payment to Possessor of Credit Art. 1275 − When Obligation is Extinguished
Art. 1243 − Judicial Order to Retain the Debt Art. 1276 − Effect on Guarantors
Art. 1244 − Creditor Cannot be Compelled to Receive a Different Thing Art. 1277 − Confusion in Joint Obligations
Art. 1245 − Dation in Payment SECTION 5. − Compensation
Art. 1246 − Delivery of a Generic Thing Art. 1278 − Compensation Defined
Art. 1247 − Extrajudicial Expenses Art. 1279 − Requisites of Compensation
Art. 1248 − Partial Receipt and Payment Art. 1280 − Set−up by Guarantor
Art. 1249 − Currency Art. 1281 − Total or Partial Compensation
Art. 1250 − Inflation or Deflation Art. 1282 − Debts Not Due
Art. 1251 − Place of Payment Art. 1283 − Claim for Damages
SUBSECTION 1. − Application of Payments Art. 1284 − Voidable Debts
Art. 1252 − Application of Payments Art. 1285 − Assignment of the Creditor’s Rights to a Third Person
Art. 1253 − Interest Art. 1286 − Different Places
Art. 1254 − Most Onerous Debt Art. 1287 − No Compensation
SUBSECTION 2. − Payment by Cession Art. 1288 − Civil Liability
Art. 1255 − Cession Art. 1289 − Several Debts
SUBSECTION 3. − Tender of Payment and Consignation Art. 1290 − By Operation of Law
Art. 1256 − Tender of Payment and Consignment SECTION 6. − Novation
Art. 1257 − Announcement Art. 1291 − Kinds of Novation
Art. 1258 − Consignation Process Art. 1292 − Express and Implied Novation
Art. 1259 − Expenses Borne by the Creditor Art. 1293 − Substituting a New Debtor
Art. 1260 − Judicial Declaration Art. 1294 − Insolvency of the New Debtor in Expromision
Art. 1261 − Creditor Authorizes Debtor to Withdraw Art. 1295 − Insolvency of the New Debtor in Delegacion
SECTION 2. − Loss of the Thing Due Art. 1296 − Effect on Accessory Obligations
Art. 1262 − Loss Art. 1297 − New Obligation is Void
Art. 1263 − Loss of a Generic Thing Art. 1298 − Original Obligation was Void
Art. 1264 − Partial Loss Art. 1299 − Subject to a Suspensive or Resolutory Condition
Art. 1265 − Loss of Thing in the Possession of the Debtor Art. 1300 − Legal or Conventional Subrogation
Art. 1266 − Legal or Physical Impossibility Art. 1301 − Conventional Subrogation
Art. 1267 − Difficult Beyond Contemplation Art. 1302 − When Legal Subrogation is Presumed
Art. 1268 − Proceeds from a Criminal Offense Art. 1303 − Rights Transferred Upon Subrogation
Art. 1269 − Creditor’s Right of Action Art. 1304 − Partial Payment and Preference
SECTION 3. − Condonation or Remission of the Debt Title II – CONTRACTS
Art. 1270 − Condonation Defined Chapter 1: General Provisions
Art. 1271 − Delivery of a Credit to the Debtor Art. 1305 − Contracts Defined
Art. 1272 − Presumption when Credit is in the Possession of the Art. 1306 − Guarantee of Freedom to Contract
Debtor Art. 1307 − Innominate Contracts
Art. 1273 − Extinguishment of Accessory Obligations Art. 1308 − Mutuality of Contracts
113
Art. 1309 − Determination of Performance by a Third Person Art. 1346 − Absolute and Relative Simulation of Contracts
Art. 1310 − When Determination is Inequitable Section 2 − Object of Contracts
Art. 1311 − Stipulation Pour Atrui Art. 1347 − Object of a Contract
Art. 1312 − Contracts Creating Real Rights Bind Third Persons Art. 1348 − Impossible Things or Services
Art. 1313 − Right of Creditors to Impugn Fraudulent Contracts Art. 1349 − Quantity Need Not be Determinate
Art. 1314 − Liability of Third Persons Responsible for Breach of Contract Section 3 − Cause of Contracts
Art. 1315 − Perfection of Contracts and Implied Terms Art. 1350 − Cause Defined
Art. 1316 − Real Contracts are Perfected upon Delivery Art. 1351 − Motive Defined
Art. 1317 − Unauthorized Contracts are Unenforceable Art. 1352 − Absence of Cause
Chapter 2: Essential Requisites of Contracts Art. 1353 − False Cause
General Provisions Art. 1354 − Cause Presumed to Exist and Lawful
Art. 1318 − Elements of a Contract Art. 1355 − Lesion Defined
Section 1 − Consent Chapter 3: Form of Contracts
Art. 1319 − Consent Defined Art. 1356 − Form of Contracts
Art. 1320 − Acceptance Art. 1357 − Form for the Convenience of the Parties
Art. 1321 − Offerer Fixes Manner, Time and Place of Acceptance Art. 1358 − Contracts Which Must Appear in a Public Document
Art. 1322 − Communication of Acceptance to Agent Chapter 4: Reformation of Instruments
Art. 1323 − When Offer Becomes Ineffective Art. 1359 − Reformation
Art. 1324 − Contract of Option, Option Period, Option Money Art. 1360 − Principles of the General Law on Reformation
Art. 1325 − Business Advertisements Art. 1361 − Mutual Mistake as Basis of Reformation
Art. 1326 − Advertisements for Bidders Art. 1362 −Mistaken, Fraud and Inequitable Conduct
Art. 1327 − Persons who Cannot Give Consent Art. 1363 − Concealment of Mistake by the Other Party
Art. 1328 − Lucid Intervals, Drunkenness, Hypnotic Spell Art. 1364 −Ignorance, etc. on the Part of Third Person
Art. 1329 − Incapacity Subject to Modifications Art. 1365 − Mortgage or Pledge Stated as a Sale
Art. 1330 − Characteristics of Consent Art. 1366 −Cases when Reformation Not Allowed
Art. 1331 − Mistake or Error Art. 1367 − Party who Brought Action to Enforce Cannot Reform
Art. 1332 − Burden of Proof in case of Fraud or Mistake Art. 1368 − Party Entitled to Reformation
Art. 1333 − Knowledge of Risk Art. 1369 − Procedure for Reformation
Art. 1334 − Mistake of Law May Vitiate Consent Chapter 5: Interpretation of Contracts
Art. 1335 − Violence or Force Art. 1370 − Interpretation of Contracts Defined
Art. 1336 − Violence or Intimidation by a Third Person Art. 1371 − Contemporaneous and Subsequent Acts Determine Intent
Art. 1337 − Undue Influence Art. 1372 − Special Intent Prevails Over General Intent
Art. 1338 − Causal Fraud Art. 1373 − Interpretation of Stipulation with Several Meanings
Art. 1339 − Fraud by Concealment Art. 1374 − Interpretation of Various Stipulations
Art. 1340 − Usual Exaggerations in Trade Art. 1375 − Interpretation of Words with Different Significations
Art. 1341 − Expert Opinion Art. 1376 − Usage or Custom as Aid in Interpretation
Art. 1342 − Fraud by a Third Person Art. 1377 − Interpretation of Obscure Words
Art. 1343 − Misrepresentation Made in Good Faith Art. 1378 − Rules in Case Doubts are Impossible to Settle
Art. 1344 − Causal Fraud may make a Contract Voidable Art. 1379 − Rules of Court Applicable
Art. 1345 − Simulation of a Contract Chapter 6: Rescissible Contracts
114
Art. 1380 − Rescissible Contracts Defined Art. 1417 − Recovery of Amount Paid in Excess of Ceiling Price
Art. 1381 − Cases of Rescissible Contracts Art. 1418 − Recovery of Additional Compensation
Art. 1382 − Payments Made in State of Insolvency Art. 1419 − Recovery of Amount of Wage Less than Minimum Fixed
Art. 1383 − Nature of Action for Rescission Art. 1420 − Effect of Illegality where Contract is IndivisibleƒDivisible
Art. 1384 − Extent of Rescission Art. 1421 − Persons Entitled to Raise Defense of Illegality or Nullity
Art. 1385 − Rescission Creates Obligation of Mutual Restitution Art. 1422 − Void Contract Cannot be Novated
Art. 1386 − Contracts Approved by the Courts
Art. 1387 − When Alienation Presumed in Fraud of Creditors Title III – NATURAL OBLIGATIONS
Art. 1388 − Liability of Purchaser in Bad Faith Art. 1423 − Concept of Natural Obligations
Art. 1389 − Period for Filing Action for Rescission Art. 1424 − Performance After Civil Obligation has Prescribed
Chapter 7: Voidable Contracts Art. 1425 − Reimbursement of Third Person for Prescribed Debt
Art. 1390 − Voidable Contracts Defined Art. 1426 − Restitution by Minor After Annulment of Contract
Art. 1391 − Period for Filing Action for Annulment Art. 1427 − Delivery by Minor of Money or Fungible Thing
Art. 1392 − Effect of Ratification Art. 1428 − Performance After Action to Enforce Civil Obligation Failed
Art. 1393 − Forms of Ratification Art. 1429 − Payment by Heir of Debt Exceeding Value of Property Inherited
Art. 1394 − Who May Ratify Art. 1430 − Payment of Legacy After Will has been Declared Void
Art. 1395 − Conformity of Guilty Party to Ratification Not Required
Art. 1396 − Retroactive Effect of Ratification Title IV – ESTOPPEL
Art. 1397 − Party Entitled to Bring an Action to Annul Art. 1431 − Estoppel Defined
Art. 1398 − Duty of Mutual Restitution upon Annulment Art. 1432 − Application of Estoppel
Art. 1399 − Restitution by an Incapacitated Person Art. 1433 − Kinds of Estoppel
Art. 1400 − Effect of Loss of Thing to be Returned Art. 1434 − Sale by Person not the Owner
Art. 1401 − Extinguishment of Action for Annulment Art. 1435 − Sale by a Person Representing Another
Art. 1402 − Effect where a Party Cannot Restore Object Art. 1436 − Lessee or Bailee Estopped from Asserting Title
Chapter 8: Unenforceable Contracts Art. 1437 − Estoppel in Contracts where One Party is Mislead
Art. 1403 − Unenforceable Contracts Defined Art. 1438 − Estoppel where Personal Property is Pledged
Art. 1404 − Rules Governing Unauthorized Contracts Art. 1439 − Between Parties and Successors in Interest
Art. 1405 − Modes of Ratification under Statutes of Fraud
Art. 1406 − Right of a Party where Contract Enforceable Title V – TRUSTS
Art. 1407 − When Uneforceable Contract becomes Voidable Chapter 1: General Provisions
Art. 1408 − Right of Third Persons to Assail an Unforceable Contract Art. 1440 − Trustor, Trustee and Beneficiary
Chapter 9: Void and Inexistent Contracts Art. 1441 − Forms of Trusts
Art. 1409 − Void Contracts Defined Art. 1442 − Application of the Principles of the General Law of Trusts
Art. 1410 − Action or Defense is Imprescriptible Chapter 2: Express Trusts
Art. 1411 − Rules where Contract is Illegal and Act is Criminal Offense Art. 1443 − Immovable Cannot be Proven by Parol Evidence
Art. 1412 − Rules where Contract is Illegal but Act is not Criminal Offense Art. 1444 − No Words Required
Art. 1413 − Recovery of Usurious Interest Art. 1445 − When Trustee Declines Designation
Art. 1414 − Recovery where Contract Entered Into for Illegal Purpose Art. 1446 − Acceptance by the Beneficiary
Art. 1415 − Recovery by an Incapacitated Person Chapter 3: Implied Trusts
Art. 1416 − Recovery where Contract is Not Illegal per se Art. 1447 − Application of Implied Trusts Enumerated
115
Art. 1448 − When a Third Party Pays for a Property Art. 2167 − Services Given by a Physician in an Accident
Art. 1449 − When a Donation is Made but Donee has Partial Interest Art. 2168 − Property is Saved from Fire, Flood, Storm or Calamity
Art. 1450 − When a Person Acquires Property through a Loan Art. 2169 − Government Work regarding Health and Safety Regulations
Art. 1451 − When Land Passes by Succession Art. 2170 − Rules of Co−Ownership in Accident or Fortuitous Event
Art. 1452 − When Legal Title is Named after One of Many Purchasers Art. 2171 − Finder of Lost Property
Art. 1453 − When Property is Conveyed to Hold or Transfer Art. 2172 − Right to Reimbursement of Possessor in Good Faith
Art. 1454 − When Property is Conveyed to Fulfill an Obligation Art. 2173 − Third Person Paying a Debt
Art. 1455 − When Trust Fund is Used to Purchase Property Art. 2174 − Measures for Protection Against Lawlessness
Art. 1456 − When Property is Acquired through Mistake or Fraud Art. 2175 − Person Paying for Taxes of Another
Art. 1457 − May be Proved by Oral Evidence
Title XVII – EXTRA-CONTRACTUAL OBLIGATIONS

Chapter 1: Quasi-Contracts SOURCES
Art. 2142 − Quasi−Contracts Defined  Sta. Maria, Obligations and Contracts (2003)
Art. 2143 − Other Quasi−Contracts  De Leon, The Law on Obligations and Contracts (2008)
Section 1 − Negotiorum Gestio  Salanga RA, Obligations and Contracts Reviewer
Art. 2144 − Negotiorum Gestio Defined and Its Exceptions  Civil Law Obligations and Contracts Reviewer
Art. 2145 − Diligence Required of an Officious Manager  http:ƒƒlegal−dictionary.thefreedictionary.comƒ
Art. 2146 − Liability of Officious Manager upon Delegation
Art. 2147 − When Officious Manager shall be Liable for Fortuitous Event
Art. 2148 − Liability for Fortuitous Event as to Manager’s Capacity
Art. 2149 − Ratification of Owner results to Agency
Art. 2150 − Officious Manager Entitled to Reimbursement
Art. 2151 − Reimbursement when there is No Benefit or Danger
Art. 2152 −Officious Manager as to Contracts with Third Persons
Section 2 − Solutio Indebiti
Art. 2154 − Solutio Indebiti Defined
Art. 2155 − Applicable to Doubtful or Difficult Question of Law
Art. 2156 − Doubt on whether the Debt was Due
Art. 2157 − Solidary Responsibility of Two or More Payees
Art. 2158 − Property or Money Delivered Belongs to Third Person
Art. 2159 − Acceptance of Undue Payment in Bad Faith
Art. 2160 − Acceptance of Undue Payment in Good Faith
Art. 2161 − Reimbursement for Improvements and Expenses
Art. 2162 − Exemption from Obligation to Restore
Art. 2163 − Presumed Mistake
Section 3 − Other Quasi−Contracts
Art. 2164 − Support Given by a Stranger
Art. 2165 − Funeral Expenses Borne by a Third Person
Art. 2166 − Support Given to an Orphan, Insane or Indigent Person
116

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OBLIGATIONS AND CONTRACTS REVIEWER ATTY. MEL STA.

MARIA CROMBONDS 2011-2012

OBLIGATIONS Chapter 3: Different Kinds of Obligations

AND SECTION 4. − Joint and Solidary Obligations

ATTY. MEL STA. MARIA

Art. 1120 – Interruption No civil interruption in the following cases: (S.A.D.)

Art. 1130 – True and Valid Title

Art. 1131 – Just Title must be Proved

Grounds for liability:

Art. 1176 – Presumption in Payment Art. 1178 - Transmissibility

Presupposes the happening of a suspensive condition.

When debtor cannot make use of the period: (G.A.V.I 2.)

SECTION 3. - Alternative Obligations Ex.

 Presumption of law − obligation is always a joint one.

Art. 1221 – Loss or Impossibility of Prestation in Relation to Solidary

Art. 1219 – Remission of a Solidary Debtor’s Liability

Penalty is an accessory obligation, not a substitute.

 First Exception − substantial performance

Art. 1246 – Delivery of a Generic Thing

Art. 1254 – Most Onerous Debt

 Creditor is responsible because it is his fault that consignation was

Art. 1261 – Creditor Authorizes Debtor to Withdraw Ex. If he is in delay

 Contemplates a situation where there has already been a finding by the

Art. 1279 – Requisites of Compensation

Art. 1288 – Civil Liability  See Arts 1252−1254.

SECTION 6. - Novation Art. 1292 – Express and Implied Novation

Art. 1297 – New Obligation is Void, Old one shall subsist

Art. 1303 – General Effect of Subrogation

Art. 1304 – Effect of Partial Subrogation

 Contemplates a situation where the original creditor has been partially

Art. 1307 – Innominate Contracts Cases:

Relativity of Contracts (General Rule):

4 Exceptions to the Relativity of Contracts:

General Provisions  Offer – a manifestation of a willingness to enter into a bargain so made as

Art. 1362 –Mistaken, Fraud and Inequitable Conduct o Lack of skill

Both A and B will be prosecuted and the car will be

Art. 1420 – Effect of Illegality where Contract is Indivisible/Divisible

Effects of illegality where contract is inƒdivisible:

Divisible contracts distinguished from divisible obligation:

Civil Obligations and Natural Obligations distinguished:

but is a mere construction of Kinds of Trust:

Art. 1442 – Application of the Principles of the General Law of Trusts

(1) If the owner has expressly or tacitly ratified the management, or

When, without the knowledge of the person obliged to give support, it is

Art. 2173 – Third Person Paying a Debt

Article 1236. The creditor is not bound to accept payment or performance by a

Title XVII – EXTRA-CONTRACTUAL OBLIGATIONS

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