a) As to basis: civil obligations are based on positive law/man-made
LAW ON OBLIGATIONS law, while natural obligations are based on natural law and equity
I. IN GENERAL
A. Definition
-a juridical necessity to give, to do or not to do (1156)
Kinds of Obligations (as to prestations):
1. Obligation to give
2. Obligation to do
3. Obligation not to do
TN: It is essential to identify what kind of obligation because for example,
there are certain rules/principles applicable only to obligations to give and
there are different remedies for a different kind of obligation
B. Kinds of Obligations as to Basis and Enforceability
Relevant provision:
Article 1423. Obligations are civil or natural. Civil obligations give a right of
action to compel their performance. Natural obligations, not being based on
positive law but on equity and natural law, do not grant a right of action to
enforce their performance, but after voluntary fulfillment by the obligor, they
authorize the retention of what has been delivered or rendered by reason
thereof. Some natural obligations are set forth in the following articles.
Kinds of obligations (as to basis and enforceability):
1. Civil – grants a right of action to demand fulfilment through court
action.
2. Natural – do not grant a right of action
TN: The definition in Art. 1156 pertains to civil obligations; the words
“juridical necessity” means that this kind of obligation grants a right of action
to demand fulfilment.
Q: How is civil obligation distinguished from a natural obligation?
Civil obligations can be distinguished from natural obligations in the following
ways:
b) As to enforceability: civil obligations give a right of action to compel
their performance, while natural obligations do not grant a right of
action to enforce their performance, but after voluntary fulfilment by
the obligor, they authorize the retention of what has been delivered
or rendered by reason thereof.
TN: When asked to distinguish, DO NOT EVER GO INTO THE SIMILARITIES.
Unless the examiner will ask you to compare and contrast. When you
distinguish, you always have to consider ONLY ONE PARAMETER at a time.
Example: one is red, the other is black (color). You don’t say one is red, the
other is hard/solid.
Tips: FORMULATE TEMPLATES because it is always how to begin your
answer that is the hardest. And consider the points allotted for the item. If
for 1 point only, do not enumerate all 7. Time is of the essence!
Q: Give an example of natural obligation
A common example of a natural obligation is an obligation where the right of
action had already prescribed. (But there are other natural obligations
mentioned in Arts. 1424-1430)
Tip: When the question is formulated to say “give an example,” you must
give only one. If it says “give examples,” you should at least give two.
Q: Sara borrowed P50,000.00 from Julia and orally promised to pay
it within 6 months. When Sara tried to pay her debt on the 8 th
month, Julia demanded the payment of interest of 12% per annum
because of Sara’s delay in payment. Sara paid her debt and the
interest claimed by Julia. After rethinking, Sara demanded back
from Julia the amount she had paid as interest. Julia claims she has
no obligation to return the interest paid by Sara because it was a
natural obligation which Sara voluntarily performed and can no
longer recover. Do you agree? Explain. (4%) (2015 Bar Exam)
In the aspect of loan, the issue here is whether Sara is liable to pay interest.
There are 2 kinds of interest: (1) compensatory – compensation for the use,
which has to be expressly stipulated in writing; (2) interest by way of
damages – if the debtor is already in delay, even if not stipulated. In this
case, Julia is not claiming for compensatory interest and she is not entitled to
it because the stipulation was made orally. So Julia here was claiming for
interest because according to her Sara is in delay.
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A: No, I do not agree with Julia.Julia has the obligation to return the interest
paid by Sara.The controlling issue in this case is whether the debtor was
really in delay, and the answer is no. As a rule, demand is necessary in order
for delay to set in. No demand, no delay. Since it doesn’t appear from the
facts that there was demand, therefore, the debtor was not yet in delay and
therefore, the debtor doesn’t have the obligation to pay interest and
consequently, there is no natural obligation. Absent any obligation, there is
neither civil nor natural obligation. Thus, under the principle of solution
indebiti, if the creditor received payment which he is not entitled, he is
obliged to return it.
TN: Most questions do not only focus on one topic. Like this question, it does
not only talk about natural obligations, it also talks about loans, as well as
delay.
Tip: Focus on the question. Answer what is asked. In this question, it is
asked if you agree, so just answer I agree/disagree with Julia. If asked to
rule on the motion, do not answer “the action will prosper.”
C. Essential Elements
4 basic elements:
1. Passive subject – debtor
2. Active subject – creditor
3. Prestation – not a thing; the object of the contract. (an object is
often confused with a thing, but it is not a thing, it is a conduct)
4. Juridical tie – binds the parties; any of the sources of obligation
Tip: in every problem, do not confuse the debtor from the creditor because if
you do, even if you perfected all the principles, your answer is still wrong.
You can make markings in your questionnaires. You can write “Jose –
creditor” “Pedro – debtor” so that you will not be confused, especially if there
are other people involved in the problem like guarantors, surety, etc.
D. Sources of Civil Obligations
Relevant provision:
Article 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.
TN: The enumeration is exclusive. In other words, if a person has an
obligation, it has to arise from one of the sources.
Q: Saachi opened a savings bank account with Shanghainese Bank.
He made an initial deposit of P100,000.00. Part of the bank opening
forms that he was required to sign when he opened the account
was a Holdout Agreement which provided that should he incur any
liability or obligation to the bank, the bank shall have the right to
immediately and automatically take over his savings account
deposit. After he opened his account, the Shanghainese Bank
discovered a scam wherein the funds in the account of another
depositor in the bank was withdrawn by an impostor. Shanghainese
Bank suspected Saachi to be the impostor, and filed a criminal case
of esatafaagainst him. While the case was still pending with the
Prosecutor’s office, the bank took over Saachi’s savings deposit on
the basis of the Holdout Agreement.
In this case, did the bank have the right to take over Saachi’s bank
deposit? (2.5%) (2018 Bar Exam)
In a way, the question here is whether the bank have a right to invoke the
holdout clause in the Agreement.
As discussed in the case of Metrobank v. Rosales, if the bank had the right
invoke the holdout clause, respondents must have an obligation arising from
one of the 5 sources of obligations. There is nothing in the contract which
can be the basis of the right of the bank. The possible source of obligation is
delict because a criminal complaint was filed. But the complaint in the
prosecutor’s office was dismissed so there can be no civil liability arising from
delict.
A: No. Considering the facts of this case, the bank took over the deposit
when the case was still pending before the Prosecutor’s office. It is the rule
that a civil liability will arise only if there is already a conviction.
Tip: Most case questions are based on actual decided cases. However, some
examiners change the facts of the case, and sometimes the facts omitted are
the important ones. Thus, your answer may not be the same with the SC
ruling.
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QUASI-CONTRACT
- a juridical relation arising from lawful, voluntary and unilateral acts, and
which has for its purpose the payment of indemnity to the end that no one
shall unjustly enrich himself at the expense of another. (2012 Bar Exam)
Relevant provision:
Article 2142. Certain lawful, voluntary and unilateral acts give rise to the
juridical relation of quasi-contract to the end that no one shall be unjustly
enriched or benefited at the expense of another.
- this provision talks about the requisites of quasi-contract: that the act
which can be the basis of the obligation must be lawful, voluntary and
unilateral. If there is a contract between the parties and there is an
obligation arising from that contract, it cannot be the basis of a quasi-
contractual obligation because it is not unilateral.
TN:There are a many kinds of quasi-contract, most people only know 2 kinds
(negotiorum gestio and solution indebiti) but there are “other quasi-
contracts” mentioned in Arts 2164-2175
Kinds of quasi-contract:
1. Negotiorum Gestio - Whoever voluntarily takes charge of the agency or
management of the business or property of another, without any power
from the latter, is obliged to continue the same until the termination of the
affair and its incidents, or to require the person concerned to substitute
him, if the owner is in a position to do so. This juridical relation does not
arise in either of these instances:
(1) When the property or business is not neglected or abandoned;
(2) If in fact the manager has been tacitly authorized by the owner.
(Art. 2144)
TN: Under the Family Code, abandonment is presumed only after a period of
3months.
Q: In fear of reprises from lawless elements in his brgy, X
abandoned his fishpond, went to Manila and left for Europe. Seeing
that the fish in the fishpond were ready for harvest, Y, who is in the
business of managing fishponds on a commission basis, took
possession of the property, harvested the fish and sold the entire
harvest to Z. Thereafter, Y borrowed money from W and used the
money to buy new supplies of fish pry, to prepare the fishpond for
the next drought.
a. What is the juridical relation between X and Y during X’s
absence?
Clearly, this is an example of negotiorum gestio.
Tip: if the answer to the question is a specific topic/principle, do not just give
as answer the general topic/principle. Example in this case you do not just
answer quasi-contract but you say what kind of quasi-contract it is. The
more specific your answer is, the better.
b. Upon the return of X to the brgy, what are the obligations of Y to
X as regards the contract with Z?
Y is obliged to account for the proceeds of the sale and to deliver the
proceeds to X.
c. Upon return of X, what are the ___ of X as regards Y’s contract
with W?
The contract with W is a contract of loan. Although X is not a privy to the
contract, he is bound by such contract because under the Civil Code, the
owner would be bound by contracts entered into by the gestor which
contracts are necessary for the management of the property. Therefore, X
has the obligation to pay the creditor.
d. What legal effect will result if X will expressly ratify?
By express provision of the law, the rules on agency will apply to this
juridical relationship. Y will be considered as agent of X.
2. Solutio Indebiti - If something is received when there is no right to
demand it, and it was unduly delivered through mistake, the obligation to
return it arises. (Art 2154)
TN: That the person received something when there is no right to demand is
not the only requisite for this principle. Equally important is the requirement
that it was delivered by mistake. Otherwise, if it was not by mistake, maybe
it is a donation or any other juridical relation.
Q: DPO went to a store to buy a pack of cigarettes worth P225.00
only. He gave the vendor, RRA, a P500-peso bill. The vendor gave
him the pack plus P375.00 change. How is this situational
relationship between DPO and RRA denominated? (2004 Bar Exam)
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It is a case of solutio indebiti. Under this principle, if something is received
when there is no right to demand it, and it was unduly delivered through
mistake, the obligation to return it arises.
Relevant case:
CBK Power Company Ltd. v. CIR (GR No. 193720-30, Jan 15, 2014,
Sereno CJ)
Facts: CBK filed an application for the issuance of tax credit certificate in the
BIR claiming excessive input taxes. He argued that if the BIR will not issue
the tax credit certificate, the government will be unjustly enriched at his
expense. Thus his claim is based on the principle of solutio indebiti.
Issue: Whether the principle of solutio indebiti is applicable in this case, thus
entitling petitioner to its claim.
Ruling: No. There are 2 requisites for the applicability of solutio indebiti in
this case. First, did the government receive something which itdoesn’t have
the right to demand? No – the government has all the right to demand
payment from the taxpayer. Second, was the payment made by mistake? No
– because CBK has the obligation to pay for the tax. Whether CBK is entitled
to a tax credit certificate will be determined at the end of the year. Hence,
solutio indebiti does not apply in this case.
TN:While there are 5 sources of obligations, it is not true that an act can be
the basis of a claim under only one source. For instance, if the act is
punished by law, your claim can not only based on delict. A single act can be
the basis of a claim sometimes from 2 or 3 sources. A common example is
quasi-delict, delict and contract.
Q: Simeon was returning to Manila after spending a weekend with
his parents in Sariaya, Quezon. He boarded a bus operated by the
Sabbit Bus Line (SBL) on August 30, 2013. In the middle of the
journey, the bus collided with a truck coming from the opposite
direction which was overtaking the vehicle in front of the truck.
Though the driver of the SBL bus tried to avoid the truck, a mishap
occurred as the truck hit the left side of the bus. As a result of the
accident, Simeon suffered a fractured leg and was unable to report
for work for one week. He sued SBL for actual and moral damages.
SBL raised the defense that it was the driver of the truck who was
at fault, and that it exercised the diligence of a good father of a
family in the selection and supervision of its driver. Is SBL liable for
actual damages? Moral damages? (2.5%) (2018 Bar Exams)
TN:Based on the facts, what Simeon filed was clearly not a criminal case.
The answer to the question would depend on whether what source of
obligation was used in the claim either contract or quasi-delict. You have to
be very careful in determining what the cause of action is, because there are
different rules, requisites and defenses applicable in a different cause of
action.
A: Actual damages – Yes; Moral damages – It depends
In the case of Cangco v. Manila Railroad, the latter also raised the defense of
diligence of a good father of a family in the selection and supervision of its
employees but the SC rejected such defense stating that the action was not
based on quasi-delict but for breach of contract.
The instant case has similarity with the Cangco case. There is no question on
the actual damages – it can be claimed both in quasi-delict and breach of
contract cases. But it is very difficult to claim moral damages in breach of
contract cases because in such cases, it is awarded only if there is bad faith
or wanton disregard of the obligations of the parties to the contract. Here,
there was only negligence. Unless if it be gross negligence, the aggrieved
party is not entitled to moral damages. But in quasi-delict cases, it is very
easy to claim moral damages because if there is injury caused by a quasi-
delictual act, it can be the basis of a claim for moral damages under Art
2219.
TN:Gross negligence amounts to fraud.
II. KINDS OF CIVIL OBLIGATIONS
A. As to Perfection & Extinguishment
1. Pure
2. Conditional
3. With a term – a common question to this kind of obligation is: When
would the obligation arise/demandable? Or extinguished? Or is the
obligation valid?
Q: Are the following obligations valid? Why? And if they are valid,
when is the obligation demandable in each case? (2003 & 2017)
a. If the debtor promises to pay as soon as he has the means to
pay.
To determine if it is valid or not, you first have to determine whether it is
pure, conditional or with a term. This example is an obligation with a term. It
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will be demandable upon the expiration of the period fixed by the court.
Thus, the creditor must go to court and ask the court to fix the period for
this obligation.
b. If the debtor promises to pay when he likes.
This is a conditional obligation. It is dependent on the debtor and it may/may
not happen. This is not a valid obligation because under Art 1182, when the
fulfillment of the condition depends upon the sole will of the debtor, the
conditional obligation shall be void. Thus, it will never be demandable.
TN: The condition here is a suspensive condition. It is not the condition here
that is void, it is the obligation that is rendered void. Condition can never be
void. Do not ever forget that a condition is just an event, but which may or
may not happen. The most common condition used in exam questions is
passing the bar exam.
c. If the debtor promises to pay when he becomes a lawyer.
This is an obligation with a condition, but it unlike the former, it is not
dependent solely on the will of the debtor, or even on the will of anyone. It
is valid and will be demandable upon the fulfilment of the condition.
d. If the debtor promises to pay if his son, who is sick with cancer,
does not die within one year.
This is an obligation containing a negative condition (that something must
not happen). This is a suspensive condition and it may happen. Clearly, this
is a valid obligation but it will only be demandable if upon the expiration of
the one-year period, the son is still alive.
TN: Considering the principles in relation to these kinds of obligations, in
conditional obligations, it is important to note the different kinds of
conditions. And as to these kinds of conditions, the most important are 2
classes: suspensive/resolutory and potestative/casual/mixed.
Suspensive – upon the happening of the condition, the obligation arises.
There is no obligation until the condition is fulfilled. Example: “I will give you
my car if you pass the bar exam.” Until you pass the bar, I am not yet
obliged to give you my car.
Resolutory – upon the happening of the condition, the obligation is
extinguished; has exactly the same effect with obligations with a
term/period. Example: “I will give you my car at the end of the year.” Is
there an obligation already? Yes. But can you demand the giving of the car
tomorrow? No, you must wait until the end of the year because the
obligation will only be due and demandable at the end of the year.
Potestative – dependent solely on the part of either the debtor or the
creditor.
TN:To be void, it must be potestative/dependent only on the part of the
debtor.
Casual – by chance
Mixed – partly potestative, partly casual. Example: passing the bar exam.
Q: Pedro promised to give his grandson a car if the latter will pass
the bar examinations. When his grandson passed the said
examinations, Pedro refused to give the car on the ground that the
condition was a purely potestative one. Is he correct or not? (2000)
A: No, Pedro is not correct because passing the bar exams is not a purely
potestative condition but a mixed one. There are a lot of factors to be
considered in passing the bar exams.
Even if, granting for the sake of argument that passing the bar exam is
purely potestative, still the obligation would not be void because under Art
1182, the potestative obligation shall be void only if it potestative on the part
of the debtor. Herein, the debtor was Pedro, not the grandson. And it was
not Pedro who will take the bar exam. Thus, Art 1182 is inapplicable in this
case, and therefore the obligation is not void.
Q: In 1997, Manuel bound himself to sell Eva a house and lot which
is being rented by another person, if Eva passes the 1998 Bar
Examinations. Luckily for Eva, she passed the said exams.
Assuming that it is Eva who is entitled to buy said house and lot, is
she entitled to the rentals collected by Manuel before she passed
the 1998 Bar exams? Why? (3%) (1999)
Relevant Provision:
Article 1187. The effects of a conditional obligation to give, once the
condition has been fulfilled, shall retroact to the day of the constitution of
the obligation. Nevertheless, when the obligation imposes reciprocal
prestations upon the parties, the fruits and interests during the pendency of
the condition shall be deemed to have been mutually compensated. If the
obligation is unilateral, the debtor shall appropriate the fruits and interests
received, unless from the nature and circumstances of the obligation it
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should be inferred that the intention of the person constituting the same was
different.
In obligations to do and not to do, the courts shall determine, in each case,
the retroactive effect of the condition that has been complied with.
A: No. The obligation will arise upon the happening of the condition. The
sale is a reciprocal obligation thus according to Art 1187, the rentals which
are the fruits are deemed compensated and the seller (Manuel) is the one
entitled to it, not the buyer. Upon the fulfilment of the condition, the buyer
will pay and the seller will deliver. There is already no issue about the fruits
and interests.
Term – a space in time; it will surely arrive
Relevant Provision:
Article 1197. If the obligation does not fix a period, but from its nature
and the circumstances it can be inferred that a period was intended, the
courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the
will of the debtor.
In every case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once fixed
by the courts, the period cannot be changed by them.
Q: Zeny and Nolan were best friends for a long time already. Zeny
borrowed P310,000.00 from Nolan evidenced by a promissory note
whereby Zeny promised to pay the loan “once his means permit.”
Two months later, they had a quarrel that broke their long-standing
friendship.
Nolan seeks your advice on how to collect from Zenydepite the
tenor of the promissory note. What will your advice be? Explain
your answer. (3%) (2017)
Tip: always try to give your legal basis as accurately as possible. But if you
cannot cite the exact provision, just state “under the Civil Code” or “Under
the rules of civil procedure” instead of citing the exact number of the article
but does not realize that it was not the actual number of the article.
A: This obligation is considered an obligation with a period. And under the
Civil Code, the creditor’s remedy here is to go to court for the court to fix the
period. Then upon the expiration of the period fixed by the court, then he
can demand the payment from the debtor. Thus, Nolan must ask the court
to fix the period of the obligation.
TN:In obligations with a period, there is no period which is past. Example “I
will give you my car yesterday.” Thus, obligations with a period always refer
to the future. But it can be indefinite like passing the bar exam, death of
person.
Q: On Jan 1, 1983, A borrowed P10,000.00 from B payable on Dec
1, 1983. As security therefore, A pledged his car to B with an
agreement that B could use it. On June 30, 1983, A offered to pay
the loan in full and asked for the return of his car. Can A compel B
to accept the payment and to return the car? Why?
TN:There are 2 questions here: (1) whether A can compel B to accept the
payment, and (2) whether A can compel B to return the car. The answer to
the second question would depend on the answer to the first because the 2 nd
question goes into the contract of pledge which is an accessory contract. If
the principal contract has been extinguished, necessarily, the accessory
contract is likewise extinguished.
The real question here is for whose benefit was the period fixed? Because if
the period was fixed solely for the benefit of the debtor, the debtor cannot
be compelled to pay before the arrival of the period. But can the debtor
compel the creditor to accept payment? This is a common question in the
bar exam but it is not a good formulation because even under the Civil Code,
no one can be compelled to accept, not even the creditor. Rather, the right
formulation is: whether the creditor can validly refuse, or whether the
creditor is bound to accept performance because if he refuse to accept
without just cause, he will be in delay. But on the other hand, if the period is
fixed for the benefit of both, then both cannot be compelled before the
arrival of the period. However, the presumption (disputable) is that the
period is fixed for both parties.
A: No. Here, for A to be able to compel B to accept, the period must have
been fixed solely for the benefit of the debtor (A). It is however clear from
the facts that the period is also fixed for the benefit of the creditor and not
only for the debtor, evidenced by the stipulation that “B can use the car.”
Therefore before the arrival of the period (Dec 31, 1983), A cannot compel B
to accept payment, thus, neither can B be compelled to return the car.
TN: The period is said to be fixed for the benefit of the debtor if it is
stipulated that it shall be paid “within” 6 months for example, because before
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the arrival of the period he cannot be compelled to pay, but before the
arrival, he can pay the debt. Also, “on or before” Dec 2019 for example, it is
solely for the benefit of the debtor.
Assuming, for the sake of argument that the period was fixed for the benefit
of the debtor, ordinarily, the debtor cannot be compelled to perform the
obligation. But it is possible under certain circumstances enumerated in Art
1198 that the debtor may lose his right to make use of the period. Thus,
under such circumstances, he can be compelled even before the arrival of
the period.
Article 1198. The debtor shall lose every right to make use of the
period:
(1) When after the obligation has been contracted, he becomes insolvent,
unless he gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the guaranties or securities
which he has promised;
(3) When by his own acts he has impaired said guaranties or securities after
their establishment, and when through a fortuitous event they disappear,
unless he immediately gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in consideration of which the
creditor agreed to the period;
(5) When the debtor attempts to abscond.
Q: A obtained from B a loan payable within a year. As security for
its repayment, A mortgaged his uninsured house. Three months
after the loan was given, A’s house was gutted by an accidental fire.
Thereupon, B demanded immediate payment from A, who refused
to pay contending that the loan was for a one-year period. Is A’s
contention valid? Explain.
A: No.It is clear from the facts that the period was fixed solely for the
benefit of the debtor A. However, A’s contention is not valid. Because the
security given by the debtor was destroyed by an accidental fire and under
Art 1198, one of the circumstances when the debtor may lose the right to
make use of the period is when the security provided was lost due to a
fortuitous event unless he can provide for another security acceptable to the
creditor. But since it does not appear that A provided another security to
replace the burnt house, she cannot claim for the one-year period.
Tip:Be responsive to the question. Answer immediately the categorical
question – yes or no then explain. If you have to answer “it depends”, then
write “it depends.” If you have to qualify, then qualify. The first answer that
comes to your mind is most likely the correct answer so panindigan mo.
Unless you become very sure that your first answer was wrong, do not erase
it because it will just affect the neatness of your booklet.
B. As to Plurality of prestations
Alternative obligations
- only a few of the conditions have to be performed
Relevant case:
ARCO Pulp and Paper Co. Inc., and Candida Santos v. Dan Lim (GR
No. 206806 June 25, 2014, Leonen, J)
General Rule:In an alternative obligation, the debtor has the right to
choose as to the prestations to be performed.
Exception:when expressly granted to the creditor.
Issue: If the debtor chose or in fact already performed one of the
prestations, like when he paid in check but the same bounced, can he still
choose to perform the other prestation which is to deliver goods?
Ruling: No. The law provides that when the party who has the right to
choose communicates his choice, the obligation is already converted into a
simple obligation. Thus, the debtor can no longer perform the other
prestation/prestations.
C. As to Liability of Multiple parties
- there are 2 or more debtors and/or 2 or more creditors.
Joint obligation – each obligor answers for a part of the whole liability and to
each obligee belongs only a part of the correlative rights.
Solidary obligation – the relationship between the active and the passive
subjects is so close that each of the former or of the latter may demand the
fulfillment of or must comply with the whole obligation.
Q: Juancho, Don and Pedro borrowed P150,000.00from their friend
Cita to put up an internet cafe orally promising her the full amount
after one year. Because of their lack of business know-how, their
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business collapsed. Juancho and Don ended up penniless but Pedro
was able to borrow money and put up a restaurant which did well.
Can Cita demand that Pedro pay the entire obligation, since he
together with the two others promised to pay the amount in full
after one year? Defend your answer. (2%) (2015)
Whether Pedro can be obliged to pay the entire obligation depends upon the
kind of obligation whether it is joint or solidary.
Relevant provision:
Article 1207. The concurrence of two or more creditors or of two or more
debtors in one and the same obligation does not imply that each one of the
former has a right to demand, or that each one of the latter is bound to
render, entire compliance with the prestation. There is a solidary liability only
when the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity.
General Rule: joint obligation
Exceptions:
1. When there is a stipulation in the contract that the obligation is
solidary
2. When the law declares the obligation to be solidary
3. When the nature of the obligation requires liability to be solidary
A: No, Cita cannot demand that Pedro pay the entire obligation because
neither was there stipulation that the obligation is solidary, nor is there a law
declaring such obligation of Pedro, Juanchoad Don to be solidary, nor the
nature of the obligation requires solidarity.
TN:To know whether there was a stipulation for solidarity, it is not always
the case that the word “solidary” is used in the question. There are other
words which connotes solidarity. Example in the case of Ronquillo v. CA,
“individually” “collectively” “joint and several” “in solidum”
The most common lawused to determine solidary liability is Art. 2194. Also in
the Family Code, when the conjugal property is insufficient to cover the
liability, they can be held solidarily liable as to their separate properties.
Article 2194. The responsibility of two or more persons who are liable for
quasi-delict is solidary.
Q: The liability of the school, its administrators and teachers, or the
individual, entity or institution engaged in child care over the minor
child or damage caused by the acts or omissions of the
unemancipated minor while under their supervision, instruction or
custody shall be:
a. Joint and subsidiary
b. Principal and solidary
c. Principal and joint
d. Subsidiary and solidary
A: b.
Relevant Provisions:
Family Code
Art. 218. The school, its administrators and teachers, or the individual,
entity or institution engaged in child are shall have special parental authority
and responsibility over the minor child while under their supervision,
instruction or custody.
Authority and responsibility shall apply to all authorized activities whether
inside or outside the premises of the school, entity or institution.
Art. 219.Those given the authority and responsibility under the preceding
Article shall be principally and solidarily liable for damages caused by the
acts or omissions of the unemancipated minor. The parents, judicial
guardians or the persons exercising substitute parental authority over said
minor shall be subsidiarily liable.
The respective liabilities of those referred to in the preceding paragraph shall
not apply if it is proved that they exercised the proper diligence required
under the particular circumstances.
All other cases not covered by this and the preceding articles shall be
governed by the provisions of the Civil Code on quasi-delicts.
TN:The parents cannot be held solidarily liable with the school because they
are only subsidiarily liable.
Relevant case:
RuksKonsult and Construction v. Adworld Sign and Advertising
Corporation and Transworld Media Ads (GR No. 204558, Jan 21, 2015,
Perlas-Bernabe, J.)
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Issue: whether petitioner is jointly and severally liable with Transworld
Ruling: Yes. Both were held liable under quasi-delict as provided in Art 2180
in relation to 2194.
Effects in joint/solidary obligations of insolvency, condonation, minority etc
Q: Buko, Fermin and Toti bound themselves solidarily to pay Ayee
the sum of P10,000.00. When the obligation became due and
demandable, Ayee sued Buko for the payment of the
P10,000.00.Buko moved to dismiss on the ground that there was
failure to implead Fermin and Toti who are indispensable parties.
Will the motion to dismiss prosper? Why? (2012)
A: No. Because in a solidary obligation, all debtors are not indispensable
parties, as the creditor may proceed from any one, or some, or all of them
simultaneously.
Relevant Provision:
Article 1216. The creditor may proceed against any one of the solidary
debtors or some or all of them simultaneously. The demand made against
one of them shall not be an obstacle to those which may subsequently be
directed against the others, so long as the debt has not been fully collected.
Q: A, B and C solidarily promised to pay D the amount of P3,000.00
Unfortunately, C became insolvent.
What recourse does D have against A and B? What are the rights of
A and B as against each other?
A: Because the obligation is solidary and one of the debtors became
insolvent, D can demand payment from A and/or B the sum of P3,000.00.
The insolvency of one of the debtors in a solidary obligation will not result in
the reduction of the obligation because the share of the insolvent debtor will
be shouldered by all the other debtors who are not insolvent.
If one of them, for example, A was compelled to pay the entire P3,000.00,
he can demand reimbursement from B as to the latter’s share which is
P1,500.00. Originally as a debtor, B’s share is P1,000.00 pursuant to Art.
1208. (Article 1208. If from the law, or the nature or the wording of the
obligations to which the preceding article refers the contrary does not
appear, the credit or debt shall be presumed to be divided into as many
shares as there are creditors or debtors, the credits or debts being
considered distinct from one another, subject to the Rules of Court governing
the multiplicity of suits.) But because one of the debtors is insolvent, the
share of such insolvent debtor shall likewise have to be divided in equal
portions to the remaining debtors. Therefore, B can be compelled by A to
contribute/reimburse P1,500.00. But of course both of them can proceed to
C once the latter is already capable of paying.
Q: Joey, Jovy and Jojo are solidary debtors under a loan obligation
of P300,000.00 which has fallen due. The creditor has, however,
condoned Jojo’s entire share in the debt. Since Jovy has become
insolvent, the creditor makes a demand on Joey to pay the debt.
1. How much, if any, may Joey be compelled to pay? (2%)
2. To what extent, if at all, can Jojo be compelled by Joey to
contribute to such payment? (3%)
A: P200,000.00. It is clear from the facts that the condonation is to the
extent of Jojo’s share (P100,000.00) only, thus, partial condonation. Hence,
there remains the obligation to pay P200,000.00. But because Jovy is
insolvent, Joey may be compelled to pay the entire P200,000.00 because the
insolvency of one of the debtors in a solidary obligation will not result in the
reduction of the obligation.
A: P50,000.00. Just because the share of a debtor has already been
condoned, that does not exempt him from his obligation as to his co-debtors.
Thus, when one of the debtors in this kind of obligation became insolvent, all
the other debtors who are not insolvent will have a share, including the
debtor whose share was condoned. Therefore, out of the P100,000.00 share
of Jovy, P50,000.00 thereof will be shouldered by Jojo and the other
P50,000.00 by Joey.
Q: Rudolf borrowed P1million from Rodrigo and Fernando who
acted as solidary creditors. When the loan matured, Rodrigo wrote
a letter to Rudolf demanding payment of the loan directly to him.
Before Rudolf could comply, Fernando went to see him personally
to collect and he paid him. Did Rudolf make a valid payment? (2011)
Relevant Provision:
Article 1214. The debtor may pay any one of the solidary creditors; but if
any demand, judicial or extrajudicial, has been made by one of them,
payment should be made to him.
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A: No. In a solidary obligation, the debtor has to pay the creditor, if there Relevant Provision:
are 2 or more creditors, the creditor who was the first to make the demand.
Article 1220. The remission of the whole obligation, obtained by one of the
In this case, Rodrigo already made a prior demand of payment and was the
solidary debtors, does not entitle him to reimbursement from his co-debtors.
first one to demand thus, Rudolf must have paid to Rodrigo instead of
Fernando. A: No. Because when there is a condonation of the entire obligation in favor
of one of the debtors, the debtor in whose favor the condonation was made
Q: A, B, C, D and E made themselves solidarily indebted to X for the
doesn’t have the right to seek reimbursement because he did not spend any
amount of P50,000.00. When X demanded payment from A, the
amount.
latter refused to pay on the following grounds:
Q: Kevin signed a loan agreement with ABC Bank. To secure
 B is only 16 years old
 C has already been condoned by X payment, Kevin requested his girlfriend Rosella to execute a
 D is insolvent document entitled “Continuing Guaranty Agreement” whereby she
 E was given by X an extension of 6 months without the expressly agreed to be solidarily liable for the obligation of Kevin.
consent of the other four co-debtors.
Can ABC Bank proceed directly against Rosella upon Kevin’s default
State the effects of the above defenses put up by A on his
even without proceeding against Kevin first? Explain your answer.
obligation to pay X, if such defenses are found to be true. (2003)
(3%) (2017)
On the defense of minority, you must first consider who is invoking the
This question is an example of some questions which can be answered in 2
defense; whether the minor or his co-debtors.
or more ways. Thus, you can answer about joint and solidary obligations but
A: If the minor is the one invoking his minority as a defense, it is always a you can also answer about guaranty and suretyship.
total defense regardless whether the obligation is joint or solidary. As to its
A: Yes. Because Rosella bound herself solidarily liable then when the
effects, the contract may be annulled and whatever the minor party received
obligations becomes due, ordinarily, he can already be held liable directly by
pursuant to the contract, he is obliged to return the same.
the creditor.
However, if the minor’s co-debtor is the one invoking minority of one of the
A: Yes. Because the document Rosella executed was one of suretyship, not
parties, such is not a defense in joint obligations because in this kind of
of guaranty. The title of the document is not binding because the intention
obligation, the debts are distinct and separate from each other. If the
prevails. In contracts of suretyship, the surety binds himself solidarily liable
obligation is solidary, the co-debtor may invoke the minority of his co-debtor
with the principal debtor. When the principal debtor defaults, the creditor can
but only as a partial defense – as to the share of the minor. Hence, A cannot
go directly to the surety without the need to exhaust the properties of the
validly refuse to pay P40,000.00 (excluding B’s share) this being a solidary
principal debtor because in suretyship, there is no benefit of excussion.
obligation, he can only refuse to pay as to the minor’s share in the
obligation.
D. Obligation with a penal clause
Q: Iya and Betty owed Jun P500,000.00 for advancing their equity Relevant case:
in a corporation they joined as incorporators. Iya and Betty bound
themselves solidarily liable for the debt. Later, Iya and Jun became Robes-Francisco v. CFI
sweethearts so Jun condoned the debt of P500,000.00. May Iya Facts: There was a stipulation in the contract of sale stating that despite full
demand from Betty P250,000.00 as her share in the debt? Explain payment by the buyer, the seller/developer failed to deliver the certificate of
with legal basis. (2%) (2015) title because it was still in the GSIS. The trial court ruled that the buyers are
The main question in this case is whether the debtor in whose favor there entitled to the return of the amounts paid plus 4% interest and nominal
was condonation has the right to seek reimbursement from his co-debtor. damages.

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On appeal, the developer Robes-Francisco claimed that the obligation
involved is an obligation with a penal clause, therefore, the court does not
have the power to award the nominal damages based on the rule that the
penalty shall substitute the indemnity for damages and the payment of
interest. In other words, if there is non-compliance with the obligation, the
injured cannot recover more than the penalty. He doesn’t even have to prove
how much was the loss he sustained because they have agreed to a penalty
under the contract.
Issue: whether the obligation was an obligation with a penal clause
Ruling: No. Because the 4% interest is not even the legal rate. In a
monetary obligation and the debtor is already in delay, ordinarily he will be
liable for interest which is at the legal rate (6%). So if the legal rate is 6%
and the stipulation was only 4%, how can the 4% be a penalty when a penal
clause is supposed to provide for a greater liability in case of non-
compliance? Thus, it can never be a penal clause. Therefore, the lower court
did not err in awarding not only 4% interest but nominal damages as well
because the rule that the penalty shall substitute the indemnity for damages
and the payment of interest, shall not apply.
However, there are exceptions or instances wherein the injured party can
recover more than stipulated penalty: (1) when it is so stipulated; (2) there
was fraud; (3) the debtor refuses to pay the penalty.
Q: The Betis Furniture Co. undertook to deliver to Mr.Bagongkasal
specified pieces of living room, dining room and bedroom furniture
all made of narra for a price stated in the contract. The agreement
had a penal clause that any violation of the contract would entitle
the aggrieved party to damages in the amount of P100,000.00. The
furniture delivered by Betis was made, not of narra, but of inferior
wood.
In a suit to recover damages, Bagongkasal was able to prove that
the actual damages he sustained amounted to P200,000.00. He
demanded the amount plus the P100,000.00 penalty or total of
P300,000.00. Betis, however, countered that if it were liable for
damages at all, the maximum award should not exceed
P100,000.00 as stated in the penal clause of the contract.
Whose claim would you sustain? Why?
General Rule: The penalty in the penal clause shall substitute the indemnity
for damages and the payment of interest.
Exceptions: (1) when it is so stipulated; (2) there was fraud; (3) the debtor
refuses to pay the penalty.
Just because Betis delivered furniture not made of narra, but of inferior
wood, does not mean that there was fraud. Fraud is a subjective concept. It
is not presumed. Under the circumstances, there is no basis to conclude that
there was fraud. If Bagongkasal will assert that there was fraud on the part
of Betis, then he has the burden to prove that Betis knew that the furniture
was indeed not made of narra, because herein, Betis claim that it was made
of narra thus he delivered them.
But even assuming that there was fraud, Bagongkasal’s claim of P300,000.00
is without basis, pursuant to the case of Pamintuan v. CA. Aside from the
penalty, he will be entitled only to the excess of the penalty. The actual
damages was P200,000 and the penalty was P100,000, the excess is only
P100,000. It is not the penalty plus the actual damages, but the actual
damages minus the penalty, plus the amount of penalty. Thus, P200,000 –
100,000 = 100,000 (excess) + 100,000 (penalty) = P200,000. Bagongkasal
is entitled to a claim of P200,000.00 not P300,000.00.
III. SPECIFIC CIRCUMSTANCES AFFECTING OBLIGATIONS IN GENERAL
Breach of Obligations/Excuse for Non-performance
1. Fraud
TN:this pertains to fraud in the performance of the obligation. Thus, it
presupposes that there is already an obligation.
Relevant Provisions:
Article 1171. Responsibility arising from fraud is demandable in all
obligations. Any waiver of an action for future fraud is void.
Article 1338. There is fraud when, through insidious words or machinations
of one of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to.
Article 1344. In order that fraud may make a contract voidable, it should
be serious and should not have been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages.
TN: Art. 1171 applies to all sources of obligations whereas Arts 1338 and
1344 only applies to contracts as the source of the obligation. In 1171, the
waiver must be prior to the fraud. For, if fraud precedes the waiver, it is
already a condonation.
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2. Negligence– omission of that diligence which is required by the nature of
the obligation and corresponds with the circumstances of the persons, of the
time and of the place.
1. Negligence in the performance of the obligation (example, in relation to a
contractual obligation: breach of contract)
2. Negligence which constitute an independent source of obligation (culpa
aquiliana or culpa criminal)
TN:Identify the extent of negligence because for example when the plaintiff
claims moral damages but his cause of action is breach of contract, in order
to be entitled to moral damages, there has to be bad faith or wanton
disregard. However, if what he has proved was only negligence, he will not
be entitled to moral damages.
Relevant Provision: Memorize!
Article 1173. The fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the obligation
and corresponds with the circumstances of the persons, of the time and of
the place. When negligence shows bad faith, the provisions of articles 1171
and 2201, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in
the performance, that which is expected of a good father of a family shall be
required.
- This definition of negligence is also applicable to quasi-delict.
TN: If you consider the nature of the obligation, you would, ordinarily, know
the diligence required of the person in the performance of his obligation. In
other words, while ordinarily, the diligence of a good father of a family is
required to be observed, there are certain persons who are required to
exercise a higher degree of diligence (extraordinary or utmost diligence)
sometimes also described as the highest degree of diligence. Hence, the
mirror doctrine in LTD does not apply to these people who are required to
observe extraordinary diligence.
Persons/entities required to exercise extraordinary diligence:
1. Banks
2. Common carriers
3. Realty firms
4. Public utility company (e.g. Meralco, PLDT)
Q: Ellen entrusted her title over the lot where she is residing to
Patrick, her nephew, for safekeeping because of her poor eyesight.
Patrick, a gambler, prepared a Special Power of Attorney
empowering him to mortgage the lot. Ellen’s signature was forged.
With the help of Julia who represented herself as Ellen, Mega Bank
granted a loan to Patrick secured by a mortgage on Ellen’s lot. Due
to non-payment, Mega Bank foreclosed the mortgage and was
declared the highest bidder. Title was later registered in the name
of the bank. When Ellen was notified that she should vacate the
premises, she filed a complaint to nullify the loan with mortgage,
the auction sale and the title of Mega Bank on the ground that the
Bank is not a mortgagee in good faith. Decide the case with
reasons. (5%) (2016)
A: No, because banks are required to exercise the highest degree of
diligence. It is clear from the facts that the bank relied solely on the
certificate of title, instead of going beyond it. They should investigate who is
in actual possession of the land, because the possessor is oftentimes the real
owner of the property. Should the bank investigated, it could have found out
that Ellen was the real owner and that her consent was not obtained by
Patrick in mortgaging the lot. Thus in this case, Mega bank cannot claim that
it is a mortgagee in good faith because banks are require to exercise
extraordinary diligence in its transactions.
Q: Simeon was returning to Manila after spending a weekend with
his parents in Sariaya, Quezon. He boarded a bus operated by the
Sabbit Bus Line (SBL) on August 30, 2013. In the middle of the
journey, the bus collided with a truck coming from the opposite
direction which was overtaking the vehicle in front of the truck.
Though the driver of the SBL bus tried to avoid the truck, a mishap
occurred as the truck hit the left side of the bus. As a result of the
accident, Simeon suffered a fractured leg and was unable to report
for work for one week. He sued SBL for actual and moral damages.
SBL raised the defense that it was the driver of the truck who was
at fault, and that it exercised the diligence of a good father of a
family in the selection and supervision of its driver. Is SBL liable for
actual damages? Moral damages? (2.5%) (2018)
A: Yes, SBL is liable for actual damages. The facts shows that SBL, a
bus company, only raised the defense that it exercised the diligence of a
good father of a family which is not the proper diligence required of common
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carriers. SBL should have exercised extraordinary diligence, thus, it is
negligent in this case.
3. Delay
General Rule:demand is required for delay to set in.
Exceptions: if there is a stipulation; the law so provides; time is a
controlling motive; demand is useless.
Article 1169. Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or extrajudicially demands
from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that
delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears
that the designation of the time when the thing is to be delivered or the
service is to be rendered was a controlling motive for the establishment of
the contract; or
(3) When demand would be useless, as when the obligor has rendered it
beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent
upon him. From the moment one of the parties fulfills his obligation, delay by
the other begins.
Kinds of delay
Q: This term refers to a delay on the part of both debtor and
creditor in reciprocal obligations.
a. Mora accipiendi
b. Mora solvendi
c. Compensatiomorae
d. Solutio indebiti
A: c.
TN:In the case of Agcaoilli v. GSIS, the Supreme Court stated that if both
parties are in delay, the effect is that as if no one was in delay.
Q: Samantha sold all her business interest in a sole proprietorship
to Sergio for the amount of P1million. Under the sale agreement,
Samantha was supposed to pay for all prior unpaid utility bills
incurred by the sole proprietorship. A month after the contract to
sell was executed, Samantha still had not paid the P50,000.00
electricity bills incurred prior to the sale. Since Sergio could not
operate the business without electricity and the utility company
refused to restore electricity services unless the unpaid bills were
settled in full, Segio had to pay the unpaid electricity bills. When
the date for payment arrived, Sergio only tendered P950,000.00
representing the full purchase price, less the amount he paid for the
unpaid utility bills. Samantha refused to accept the tender on the
ground that she was the one supposed to pay the bills and Sergio
did not have authorization to pay on her behalf.
Is Samantha guilty of Mora Accipiendi? (2013)
TN: Mora accipiendi is delay on the part of the creditor. In reciprocal
obligation, both parties are creditors to each other.You must first identify in
order to determine whether there was delay on the part of the creditor, if
there was tender to the creditor and the creditor refused without just cause.
A: Herein, was the refusal of Samantha to accept the P950,000.00 without
just cause? Yes, because it was actually her duty to pay the P50,000.00 but
she refused to pay the unpaid bills thus the buyer had the right to credit the
amount he paid for the unpaid electricity bills in order to start the business.
The buyer had an interest on the fulfillment of the obligation thus, he can
pay for the unpaid bills.
TN:A reminder is not a demand. Likewise, follow-up is not a demand. It has
to be a demand for the performance of the obligation.
Q: Mr.Mekanico leased some automobile repair equipment to
Mr.Masipag who was opening his auto repair shop. The lease
agreement was executed on Feb 15, 1985. It stipulated that the
period was one month only, at the expiration of which Masipag was
to return the equipment of Mekanico. The equipment was delivered
on Feb 15, 1985. On March 15, 1985, Mekanico, in a telephone call,
asked Masipag to return the leased property that same day.
Because his truck broke down, Masipag was unable to comply. Early
the next morning, the equipment was burned in an accidental fire
that started in a nearby restaurant and gutted Masipag’s auto
repair shop. Mekanico seeks to hold Masipag liable for the value of
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the lost property plus damages on the ground that he did not return
it as agreed upon. Is Mekanico’s claim tenable? Explain.
A: No. In Article 13 of the Civil Code, “one month” is equivalent to 30 days.
Ordinarily, February is a 28-day month. Thus, the demand on March 15 was
not valid because the due date for the return of the leased equipment was
March 17 (30th day). Also it is stated in the NCC that in computing the period,
the first day is to be excluded, the last day included. Thus, the demand on
March 15 was of no effect.
TN:For demand to be valid, it must be made when the obligation is already
due and demandable.
4. Fortuitous Event
Relevant Provisions:
Article 1165. When what is to be delivered is a determinate thing, the
creditor, in addition to the right granted him by article 1170, may compel the
debtor to make the delivery. If the thing is indeterminate or generic, he may
ask that the obligation be complied with at the expense of the debtor. If the
obligor delays, or has promised to deliver the same thing to two or more
persons who do not have the same interest, he shall be responsible for any
fortuitous event until he has effected the delivery.
Article 1174. Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen, or which, though foreseen, were
inevitable.
Article 1942. The bailee is liable for the loss of the thing, even if it should
be through a fortuitous event:
(1) If he devotes the thing to any purpose different from that for which it
has been loaned;
(2) If he keeps it longer than the period stipulated, or after the
accomplishment of the use for which the commodatum has been constituted;
(3) If the thing loaned has been delivered with appraisal of its value, unless
there is a stipulation exempting the bailee from responsibility in case of a
fortuitous event;
(4) If he lends or leases the thing to a third person, who is not a member of
his household;
(5) If, being able to save either the thing borrowed or his own thing, he
chose to save the latter.Tip: Do not just know the general rule. Know also
the exceptions. Because at least 85% of questions revolve on the exceptions.
(TN: This is a bar favorite article)
General Rule: no person shall be responsible for those events which could
not be foreseen, or which, though foreseen, were inevitable. (Art 1174)
Exceptions:(1) when the law provides, (2) when there is a stipulation, (3)
when the nature of the obligation requires the assumption of risk.
Examples of “law” as an exception: Art 1165, Art 1942
Q: Is robbery a fortuitous event?
A: Not necessarily. Because for example it is a bank which was robbed,
most people know that banks are prone to robbery, thus it is not really
“unforeseen”
Q: How about an explosion of a gas tank in a restaurant?
A: No. The Supreme Court in a case held that it was only through the
negligence of the persons entrusted with the management and control of the
tank/restaurant.
In a list of cases involving Asian financial crisis, so many condominium
projects were shelved. The common issue in such cases was whether this
financial crisis is a fortuitous event which would justify delay by petitioners in
the performance of the contractual obligation to deliver the condo units. The
Supreme Court said; “We cannot generalize that the Asian financial crisis in
1997 was unforeseeable and beyond the control of a business corporation. It
is unfortunate that petitioner apparently met with considerable difficulty e.g.
increase of cost material and labor, even before the scheduled
commencement of its real estate project as early as 1995. However, a real
estate enterprise engaged in the pre-selling of condominium units is
concededly a master in projections on commodities and currency movements
and business risks. The fluctuating movement of the Philippine peso in the
foreign exchange market is an everyday occurrence, and fluctuations in
currency exchange rates happen everyday, thus, not an instance of
casofortuito.
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The SC in this case ruled that it depends on who is invoking the defense.
Herein, the petitioners, a real estate engaged in the pre-selling is considered
a master in projection. Thus, petitioners cannot claim fortuitous event as a
defense.
Q: Kristina brought her diamond ring to a jewelry shop for cleaning.
The jewelry shop undertook to return the ring on Feb 1, 1999.
When the said date arrived, the jewelry shop informed Kristina that
the job was not yet finished. They asked her to return five days
after. On Feb 6, 1999, Kristina went to the shop to claim the ring,
but she was informed that the same was stolen by a thief who
entered the shop the night before. Kristina filed an action for
damages against the jewelry shop which put up the defense of
force majeure. Will the action prosper or not? (5%) (2000)
A: Yes, the action for damages against the jewelry shop will prosper. In a
similar case, the Supreme Court held the pawnshop liable because by the
testimony of the owner himself, he was aware that there is a possibility of
robbery of their shop that’s why he maintained a vault in a nearby bank.
However it was suspicious because the owner did not even present a witness
to corroborate his testimony that there was indeed robbery. Not even the
employees were made to testify as to that matter. The SC rejected the
defense of fortuitous event because by the nature of their business, it is not
unusual that theft or robbery will happen. Furthermore, in order that
fortuitous event may be a valid defense, there must be no concurring
negligence on the part of the obligor, in this case the jewelry shop.
Otherwise, if he is also guilty of negligence, notwithstanding the fact that
there was also a fortuitous event, he will still be liable.
IV. REMEDIES FOR BREACH OF OBLIGATIONS
TN:Remedies are provided only to the injured. Not in all cases, the plaintiff is
the injured party. He is only called “plaintiff” because he was the one who
initiated the action in court, but that does not mean that the plaintiff is the
injured. Likewise, if the plaintiff is the injured party, it does not necessarily
mean that the action will prosper.
Rescission and Fulfillment
There are 2 kinds of rescission: that in Art 1191, and in 1381.
Relevant Provisions:
Article 1191. The power to rescind obligations is implied in reciprocal ones,
in case one of the obligors should not comply with what is incumbent upon
him.
The injured party may choose between the fulfillment and the rescission
of the obligation, with the payment of damages in either case. He may
also seek rescission, even after he has chosen fulfillment, if the latter
should become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who
have acquired the thing, in accordance with articles 1385 and 1388 and the
Mortgage Law.
Article 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom
they represent suffer lesion by more than one-fourth of the value of the
things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the
lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any
other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered
into by the defendant without the knowledge and approval of the litigants or
of competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission.
Article 1383. The action for rescission is subsidiary; it cannot be instituted
except when the party suffering damage has no other legal means to obtain
reparation for the same.
TN:The rescission in Art 1191 is a principal remedy. It can be invoked at any
time even if the injured has other available legal remedies. In jurisprudence,
it is often referred to as “resolution.” On the other hand, the rescission under
Art 1381 is a subsidiary remedy expressly provided by law, and can only be
invoked if there are no other available legal remedies.
Tip: In questions involving rescission, it is important to first identify the
cause of action. Because if it based on Art 1191, rescission is a principal
remedy, but if it based on Art 1381, rescission can only be availed if no other
15 | P a g e
remedy is available to plaintiff. The cause of action is based on Art 191 if
there is a breach – substantial or fundamental breach. On the other hand, it
is based on Art 1381 if there was lesion (subject to its requisites) or
economic injury under specific circumstances.
Q: Can rescission based on Art 1191 be made extrajudicially?
A: Yes.
Relevant case:
Nissan Car Lease Phil v. Lica Management Inc. and Proton Pilipinas
Inc.
Issue: Whether a valid extrajudicial rescission of the Nissan without
contractual stipulation.
Ruling: Yes, the SC stated that whether the contract provides for it or not,
the remedy of rescission is always available as a remedy against a defaulting
party. When done without prior judicial imprimatur, however, it may still be
subject to a possible court review. The only practical effect of a contractual
stipulation allowing extrajudicial rescission is “merely to transfer to the
defaulter the initiative of instituting suit, instead of the rescinder.”
TN:In 1191, if the injured already invoked fulfillment, he may later on be
allowed to invoke rescission as a remedy if the fulfillment becomes
impossible. However, it is not stated in the law the grounds for which the
fulfillment may be impossible. If it became impossible due to the fault of the
plaintiff, of course he cannot anymore invoke rescission, likewise if it became
impossible due to a fortuitous event. Because the provision of 1191 states
that such plaintiff is the “injured party.” HOWEVER, if the injured already
invoked rescission, may he thereafter invoke the remedy of fulfillment? No.
First, because the law does not provide. Secondly, under Art 1231, rescission
is one of the modes of extinguishment of an obligation. Therefore, if the
obligation is already extinguished, there is nothing more to be fulfilled. Thus,
fulfillment can no longer be remedy if rescission has been already availed of.
Q: A bound himself to deliver to B a 21-inch 1983 model TV set, and
the 13 cubic feet White Westinghouse refrigerator with Motor No.
WERT-385 which B saw in A’s store, and to repair B’s piano. A did
none of these things.
May the court compel A to deliver the TV set and the refrigerator
and repair the piano? Why? If not, what relief may the court grant
B? Why?
Tip: There are 2 questions here, and you must answer both, and answer
them in the order that they were asked. In a question which begins with
“May,” it must not be answered by “It depends,” but only either a Yes or a
No. Because “May” in tagalog means “Pwedeba” thus, “Yes” if it is allowed
but you just state “not all circumstances” if it is so, otherwise if it is not
allowed under any circumstance, then the answer is “No.”
A: The court cannot compel A to deliver the TV set. The obligation to
deliver the 21-inch 1983 model TV set is an obligation to give a generic
thing. In these kinds of obligations, when the debtor fails to comply with his
obligation, specific performance is not a remedy, therefore the court cannot
compel the debtor. The law does not provide the remedy of specific
performance in an obligation to deliver a generic thing. Since A cannot be
compelled to deliver, the relief which may be sought is substitute
performance. The creditor may have a thing of the same kind be delivered
by another person at the expense of the debtor, plus damages.
With respect to the refrigerator, the court can compel A to deliver it to B,
because it is an obligation to deliver a specific or determinate thing. It is
clear from the facts that the refrigerator is a determinate thing because it is
particularly designated – having a specific motor number, and also physically
segregated from all others of the same class, that is, which B saw at A’s
store. Thus, in this kind of obligation, specific performance is a remedy,
therefore, the court can compel the debtor to deliver the same, provided it is
still possible to deliver it.
However, the court cannot compel A to repair the piano. The obligation to
repair the piano is clearly an obligation to do. In such kind of obligation, the
Courts cannot compel the debtor or any person to do a thing, based on the
rule that no one can be compelled to do anything against his will because to
compel him would be to violate his right against involuntary servitude which
is protected by the Constitution. The relief that the court can grant to B is to
have the piano repaired by a third person at the expense of A, plus
damages. This is because the obligation is not a personal obligation, thus,
the debtor can be substituted.
TN: A thing is considered determinate if: either it is (1) particularly
designated, or (2).
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 - this is the remedy for voidable contracts, also called annullable contracts.

Relevant Provisions:
Article 1165. When what is to be delivered is a determinate thing, the
creditor, in addition to the right granted him by article 1170, may compel the
debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be
complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or
more persons who do not have the same interest, he shall be responsible for
any fortuitous event until he has effected the delivery.
Article 1460. A thing is determinate when it is particularly designated or
physically segregated from all others of the same class.
The requisite that a thing be determinate is satisfied if at the time the
contract is entered into, the thing is capable of being made determinate
without the necessity of a new or further agreement between the parties.
V. MODES OF EXTINGUISHMENT OF OBLIGATIONS
TN:Art 1231 mentions 10 modes, not only 6. And this enumeration is not
exclusive. Example in a case, the SC said that mutual dissent or mutual
desistance is a mode of extinguishing an obligation, because if an obligation
would arise by the mutual agreement of the parties, it may likewise be
extinguished by their mutual disagreement.
Death
Q: X and Y are partners in a shop offering portrait painting. Y
provided the capital and the marketing while X was the portrait
artist. They accepted the P50,000.00 payment of Kyla to do her
portrait but X passed away without being able to do it. Can Kyla
demand that Y deliver the portrait she had paid for because she
was dealing with the business establishment and not with the artist
personally? Why or why not? (3%) (2015)
A: It depends. If it is true that Kyla was dealing with the establishment and
not with the artist personally, then she can still demand for the portrait.
However, if she actually dealt with the artist personally, that would be a
purely personal obligation and consequently, with the death of the artist, the
obligation is extinguished. In other words, death, as a mode of
extinguishment, will not always extinguish an obligation. It depends whether
the obligation is a purely personal obligation or not.

TN: This presupposes that there is a valid obligation. Otherwise, there is Payment
nothing to extinguish. - the questions mostly revolve on payment by third persons. Because if the
Relevant Provision: debtor was the one who paid, there is no problem with that. If it is a third
person who paid, there will also be an extinguishment of the obligation. But
Article 1231. Obligations are extinguished: if the third person offers to pay the debt:
(1) By payment or performance; General Rule: Creditor is not obliged to accept such payment, and it
(2) By the loss of the thing due; doesn’t matter what kind of obligation it is.
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor; Exceptions: (1) if it is agreed upon that the third person will perform the
(5) By compensation; obligation, or (2) if such third person has an interest in the fulfillment of the
(6) By novation. obligation.

Other causes of extinguishment of obligations, such as annulment,
rescission, fulfillment of a resolutory condition, and prescription, are
governed elsewhere in this Code.
Annulment
TN: Those persons who have an interest in the fulfillment of the obligation
are generally those subsidiarily liable with the debtor, e.g. mortgagor,
pledger, antichretic debtor, one liable under a penal clause, etc.
Relevant Provisions:
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Article 1236. The creditor is not bound to accept payment or performance
by a third person who has no interest in the fulfillment of the obligation,
unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the
debtor, he can recover only insofar as the payment has been beneficial to
the debtor.
Article 1237. Whoever pays on behalf of the debtor without the knowledge
or against the will of the latter, cannot compel the creditor to subrogate him
in his rights, such as those arising from a mortgage, guaranty, or penalty.
Q: X borrowed money from a bank, secured by a mortgage on the
land of Y, his close friend. When the loan matured, Y offered to pay
the bank but it refused since Y was not the borrower. Is the bank‘s
action correct?
A: No, the bank cannot validly refuse because Y is not just a friend, he is the
owner of the collateral, he is actually the mortgagor. A mortgagor has an
interest in the fulfillment of the obligation, the creditor is bound to accept
performance from such payor.
Q: Samantha sold all her business interest in a sole proprietorship
to Sergio for the amount of P1million. Under the sale agreement,
Samantha was supposed to pay for all prior unpaid utility bills
incurred by the sole proprietorship. A month after the contract to
sell was executed, Samantha still had not paid the P50,000.00
electricity bills incurred prior to the sale. Since Sergio could not
operate the business without electricity, and the utility company
refused to restore electricity services unless the unpaid bills were
settled in full, Segio had to pay the unpaid electricity bills. When
the date for payment arrived, Sergio only tendered P950,000.00
representing the full purchase price, less the amount he paid for the
unpaid utility bills. Samantha refused to accept the tender on the
ground that she was the one supposed to pay the bills and Sergio
did not have authorization to pay on her behalf.
What is the effect of payment made by Sergio without the
knowledge and consent of Samantha?
A: The payment extinguished the obligation to pay the P50,000.00.
Also, he was subrogated to the creditor’s rights. The rule under Art
1236 and 1237 would state that if a person has no interest in the fulfillment
of the obligation, and he paid without the knowledge and consent of the
debtor, or against the latter’s will, he can only recover from the debtor to the
extent that the debtor was benefited, and he cannot compel the creditor to
have him subrogated in the creditor’s rights. However, such rules does not
apply in this case because Sergio has an interest in the fulfillment of the
obligation. Therefore, when he paid even without the knowledge or consent
of the debtor, he was subrogated. This is expressly provided in Art 1302.
Thus, Sergio can claim compensation on the amount he paid for the bills.
Article 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without the
debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with the
express or tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a person interested in
the fulfillment of the obligation pays, without prejudice to the effects of
confusion as to the latter's share.
Q: To whom should payment be made in order for the obligation to
be extinguished?
A: To the creditor: (1) person in whose favor the obligation has been
constituted, (2) his successor in interest, or (3) any person authorized. Every
one of them has the right to demand fulfillment, but the agent is not a
creditor in his own right.
Article 1240. Payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in interest, or any person
authorized to receive it.
Q: What if the payment was made to a third party or to the wrong
party?
General Rule: it will not extinguish the obligation
Exceptions: (1) if it redounded to the benefit of the creditor, (2) payment
was made in good faith to a person in possession of the credit, (3) payment
was made to the creditor before the assignment of the credit, without
knowledge of the assignment.
TN: If there is already an assignment, the payment must necessarily be
made to him because he is the successor in interest of the creditor, unless it
falls within the 3rd exception.
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Relevant Case:
National Power Corporation v. Lucman M. Ibrahim, et al. (GR No.
175863, Feb 18, 2015, J. Perez)
Napocor has paid to the first claimant but Ibrahim and the other claimants
argue that they are the true owners.
Issue: Whether NPC can be held liable to the Ibrahims and the Maruhoms.
Ruling: No. NPC cannot be compelled the second claimants because even if
the Ibrahims and Maruhoms will be declared the real owners (because the
case of ownership is still pending before the SC), still, there was a payment
in good faith to the person in possession of the credit and at the time of the
payment, there was already a court order for NPC to pay the claimants – the
first claimants.
Relevant Case:
Article 1242. Payment made in good faith to any person in possession of
the credit shall release the debtor.
Q: A is indebted to B in the amount of Php 20,000.00. A offered to
pay B Php 10,000.00, the only money he had, but he refused to
accept the payment. A therefore met C, B’s 22 years old son to
whom he gave the Php 10,000 with the request to return the
money over to B. The money was stolen while in C’s possession.
Was B justified in refusing to accept the payment of A? May he still
recover the full amount of his debt of Php 20,000?
A: As to the 1st question, the obligation involves the sum of Php 20,000 but
the offer was only for Php 10,000, in this jurisdiction, as a rule partial
performance is non-performance. The rule provides that as a creditor, he is
not bound to accept partial performance. But there are exceptions, such as
when it has been stipulated in their agreement that partial performance is
allowed. But, in the absence of such exception, B was justified in refusing to
accept the payment of only Php 10,000.
As to the 2nd question, the debtor was paid Php 10,000 but it was paid to the
son of the creditor, is that a valid payment even if partial? No. As discussed
earlier, payment must be made to one of those enumerated in Art. 1240, but
the son is not one of those mentioned in the said article and neither would
he fall under one of the exceptions. The nearest possible exception here is
that the payment redounded to the benefit of the creditor because B is the
father of C, but this is not applicable here because from the facts, it is clear
that it was stolen from C’s possession therefore it did not redound to the
creditor’s benefit, so B could still recover the full amount of Php 20,000.
Q: The debtor has an obligation to pay in installment for a period of
10 years, he already paid for 8 years before he defaulted so the
creditor filed an action for rescission, will the action prosper?
A: No. Under Article 1234 (Rule on Substantial Performance), this is exactly
the effect of Art. 1191, for rescission to be a remedy, the breach must be
substantial, therefore if the performance is substantial, meaning, the breach
is only light and rescission cannot be a remedy.
Q: If the creditor accepted knowing fully well that the performance
is incomplete and irregular or not only that, he accepted without
any objection or protest, is the obligation totally deemed
extinguished?
A: Yes, under Art. 1235, which pertains to a unique rule that even if there is
an irregular or incomplete performance, the obligation maybe deemed to
have been totally extinguished and this happen only if the creditor accepted
knowing fully well that the performance is incomplete or irregular and he
accepted without any objection or protest to such performance.
Q: Are creditors bound to accept payment trough checks (if there is
no stipulation)?
A: If the check is a manager’s check (a certified check) the creditor cannot
validly refuse because they are deemed as cash (in a 1980’s case). (This rule
is no longer applicable since the SC reverted back to its original position that
checks no matter what kind do not have legal tender power. In other words,
the creditor cannot be compelled to accept checks as payments - Roman
Catholic Church of Malolos vs. Intermediate Appellate Court).
Q: What if the check became stale, does that mean that the
obligation has been extinguished?
A: No. It’s just that you cannot have the check in cash, but the obligation is
not extinguished in fact. If the check (or any evidence of debt) is still in the
possession of the creditor, that raises the presumption that the debt had not
yet been paid.
Q: What are the different special forms of payment?
A: There are 4 special forms of payment.
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 1. Application of payment - the consent of creditor is required; he
cannot be compelled to accept another thing (i.e. carabao instead of
money)
2. Payment by cession – consent of creditor is also required
3. Consignation – consent of the creditor is not required because
whether or not the creditor accept the thing or the money delivered
to the court by way of consignation, the court will declare whether
the consignation is proper or not.
4. dation in payment - (PNB vs. Dee et. al.) The SC ruled that the
obligation is totally extinguished even if the value of the thing
delivered is less than the value of the amount of the obligation if the
parties are silent (Art. 1235). Dation in payment extinguishes the
obligation to the extent of the value of the thing delivered either as
agreed upon or as may be proved unless the parties to the
agreement specifies or by their silence, consider the thing as
equivalent to the obligation, in which case the obligation is totally
extinguished.
Q: Butch got a loan from Hagibis Corporation but he defaulted the
payment.
A case for collection of sum of money was collected against him. As a
defense, Bucth claimed that there was already an arrangement with Hagibis
with the payment of the loan. To implement the same, Butch already
surrendered 5 service utility vehicles to the company for it to sell and the
proceeds to be credited to the loan as payment. Was the obligation of Butch
extinguished by reason of dacion en pagoupon the surrender of the SUV?
Decide and explain.
A: No. In dacion en pago upon the delivery of the thing, the ownership
passes to the creditor. In this case, despite the delivery of the SUVs to the
company, ownership did not pass to the creditor because the latter was
merely only appointed as an agent for the sale of the vehicles.
Q: In application of payment, to which debt the payment should be
applied?
A: To the debt designated by the debtor, but subject to certain limitations
such as: a. when the debtor wants to make partial payment, it should not be
allowed; b. when the court itself provides that if interests accrued, debtor
cannot have his payment applied to the principal first and then the interest,
it has to be applied to the interest first; c. if the debtor did not designate,
then the creditor can designate.
Q: Is tender of payment required for a consignation to be valid?
A: Yes. But only on one ground (from grounds enumerated in Art. 1256) and
that is when the creditor refuse to accept the payment without just cause. All
other grounds mentioned in the article need not tender of payment.
Q: A sold to B a parcel of land with the right to repurchase the same within 3
years. A tended to repurchase the price to B within the prescribed period but
B refused to accept it. A then brought an action for specific performance, but
since A did not deposit the money in court within the stipulated period for
repurchase and the period has now lapsed, A can no longer repurchase the
property. Is the contention correct?
A: No. Because A does not have an obligation to B, he has a right that he
wanted to exercise. Consignation is an extinguishment of an obligation and
therefore it is only applicable if there is an obligation to be extinguished. In
the case at bar, there was none, so if B did not accept the money, A does
not have to deliver it to the court by way of consignation.
Q: Allan bought Billy’s property through Carlos, an agent empowered with an
SPA to sell the same. When Allan was ready to pay as scheduled, Billy called
directing Allan to pay directly to him. On learning of this Carlos the agent
told Allan to pay through him as his SPA provided and he is concerned with
his commission. Facing two claimants, Allan consigned the payment in court.
Billy protested contending that the consignation is ineffective since no tender
of payment was made to him. Was he correct?
A: No. Billy is not correct. Tender of payment is not required for a
consignation to be valid. Consignation is valid even without tender of
payment when two or more persons are claiming for the payment or in case
of conflicting claims.
Loss of the thing due
Q: Can the debtor be held liable if the thing due was lost?
A: Yes. If the loss was due to his fault. But if it was due to a fortuitous
event, then it depends. Because he can still be liable under the exceptions
provided by law. But there is a disputable presumption that the debtor was
at fault when the thing lost was in his possession before it was lost. Except
when it was lost on occasion of a calamity.
Q: When there is a partial loss, is the obligation extinguished?
20 | P a g e
A: It depends on the intention of the parties. If the thing lost was so
important that they would not have constituted the obligation without the
said thing, then the obligation will be considered totally extinguished.
Q: In case of fortuitous event, when the performance became so
difficult, is the obligation extinguished?
A: No. Since the performance was only difficult and not impossible. However,
the debtor may have the option to go to the court to request for him to be
released, in whole or in part, from the obligation if the difficulty in the
performance is due to an event which could not have been foreseen by the
parties. But (under Art. 1267) the court cannot change the terms and
conditions agreed upon by the parties, it can only release the debtor, in
whole or in part, from his obligation.
Q: For value received, Pedro promised to deliver to Juana on or
before August 3, 1984 a Mercedes Benz with Plate No. 123 which
Pedro had just brought home from Germany as well as 1984, 18
inch Sony Television set. Unfortunately, before the scheduled
delivery date, the said car and tv set were destroyed by an
accidental fire. Has the obligation of Pedro been extinguished?
A: Not both were extinguished. The Mercedes Benz, since it has a plate
number, is a determinate thing while the 1984, 18 inch Sony Television set is
a generic thing. When the thing lost is a generic thing, the obligation is not
extinguished because it can still be replaced by a thing of the same kind. But
as to the specific (determinate) car, the obligation was totally extinguished.
Condonation
Q: Arturo borrowed Php 500,000 from his father. After he has
payed Php 300,000 his father died. His father’s estate requested for
the payment of the balance of Php 200,000. Arturo replied that the
same had been condoned by his father as evidenced by annotation
at the back of his check … will this be a valid defense in an action
for collection?
A: To answer this question, we have to answer first the question: who wrote
the annotation at the back of the check? Because if it was the son who wrote
the annotation, his obligation was not condoned. But if it was the father,
then we have to consider this time whether the condonation was expressed
or implied. In this case, since the condonation was annotated at the back of
the check, it can be considered as an express condonation. Hence, the
defense of Arturo was not valid because this is an obligation to pay Php
200,000, so this is a donation of a movable and this is more than Php 5,000
so it is required to be in writing. The acceptance should also be in writing,
but in this case, there was no written acceptance at the back of the check,
therefore, there was no valid donation of credit or valid condonation.
*Condonation is also known as a donation of credit and the rules on express
donation must also apply on express condonation.
Confusion or Merger of Rights
*Confusion - (no bar exam question about this) merger of rights. In other
words, when the characters of the creditor and the debtor is already in one
person, then the obligation is extinguished. This happens through agreement
or by operation of law. i.e. merger agreement
Compensation
Kinds of Compensation as to nature or cause of extinguishment
1. Legal
2. Conventional/voluntary
Facultative
3. Judicial
Q: What are the 2 classifications of compensation?
A: 1. Extent of extinguishment: partial and total – this important in relation
to interest or accessory contracts, whether there can still be a valid
compensation after foreclosure (partial) but when all the debts have been
paid then there is a total extinguishment.
2. cause of extinguishment – legal, conventional, judicial and voluntary
(facultative)
Q: (facultative) X has a saving deposit with Y Bank the sum of 1M.
He has an obligation with the said bank with the sum of Php
800,000 which has become due. When he tried to withdraw on his
deposit, Y Bank allowed only Php 200,000 to be withdrawn, less of
the charges etc. to the contrary amount of X’s debt (partial
compensation). X contends that the compensation is improper
when one of the debts arises from the contract of deposit… is he
correct?
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A: No. Under the facts, there is no contract of deposit. When one opens a
saving deposit, the contract is not a contract of deposit, it is a loan, which is
governed by the rules on simple loan. But assuming, in this case, there is
really a contract of deposit, what will apply is not the rule on legal
compensation but the rule on facultative compensation. Under this, only the
depositor, and not the bank has the right to invoke compensation.
Q: What are the requisites of legal compensation?
Article 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at
the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if
the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
debtor. (1196)
1. Each obligor is bound principally, and at the same time a principal creditor
of the other 2. Both debts must consist in a sum of money, or if the things
due are FUNGIBLE, of the same kind & quality 3. Both debts are due 4.
Debts are liquidated and demandable 5. There must be no retention or
controversy over either of the debts, commenced by 3rd persons and
communicated in due time to the debtor 6. Compensation is not prohibited
by law.
Q: B borrowed from C Php 1,000 payable in one year. When C was
in the province, his 17-year old son borrowed Php 500 from B for
his school tuition. However, the son spent it instead in a night club.
When the debt became due, B tendered only Php 500, claiming
compensation of the Php 500 to B’s son. Is there a legal
compensation? Supposed the minor had actually used the money
for his school tuition, would your answer be the same?
A: No. because they are not mutual debtors and creditors. B has a debt to C
and C’s son has a debt to B. C and C’s son are not the same person, so B’s
contention is not correct, there is no legal compensation in this case because
there is no mutual debtor and creditor.
As to the second question, there could be a legal compensation because if
C’s son actually used the money for his school tuition, then benefit could
have been redounded to C since he has the obligation to support his son.
Novation
Q: What are the 2 classifications of novation?
A: 1. manner of extinguishment: express or implied
2. kinds: subjective or personal, objective or real and mixed
A. subjective or personal – can be active or passive. The former pertains
to the creditor, here a third person is subrogated in the rights of the creditor.
The latter pertains to the substitution of the person of the debtor.
Two kinds of passive-subjective novation
1. expromision – when the substitution is without the knowledge or
against the will of the original debtor.
2. Delegacion – when the original debtor has knowledge about the
substitution.
*The original debtor can be held liable despite the novation if he was the one
who initiated the substitution at the time when the new debtor was already
insolvent and he has an actual knowledge of the insolvency or the insolvency
of the new debtor is publicly known.
Q: Can there be a valid substitution of the person of the debtor
without the consent of the debtor himself?
A: Yes (expromision)
Q: Q: Can there be a valid substitution of the of the person of the
debtor without the consent of the creditor?
A: No
Problem: A is a creditor of B, but B is also a creditor of C. Instead of B
paying A, he instructed C to be the one to pay A. So C agreed and paid A
with two installments. A accepted the payment of C, but C failed to pay the
full amount. A then went to B for the unpaid amount. B contended that his
22 | P a g e
obligation had been extinguished by the substitution of C as the debtor. Was 2. With regard to the installments, there was no change in the obligation but
there and extinguishment by novation? rather there was change in the manner of the performance of the obligation;

No. There was no extinguishment by novation in this case but only a third
party payment. It was not clear to the Creditor A, that B had been
substituted by C as the debtor, without a clear agreement between the
creditor and the original debtor that the latter will be substituted by a new
debtor, then there is no novation. (art. 1293)
Problem: Upon a proposal of a third person, a new debtor substituted the
original without the latter’s consent. The creditor agreed to the substitution.
The new debtor however subsequently becomes insolvent and defaulted in
his obligation. What is the effect of the new debtor’s default? Can the
creditor run after the original debtor?
A: No. The original debtor cannot be held liable because the substitution
here was without the knowledge of the original debtor by way of expromison
and therefore, clearly he was not the one who initiated the substitution, so
despite the fact of the insolvency of the new debtor, the creditor cannot run
after the original debtor.
B. Objective or Real
Kinds:
3. The security only secured the fulfillment, it doesn’t change the obligation,
it even recognizes the existence of the obligation;
4. Attorney’s fees doesn’t change the obligation, it only recognizes the
possibility that the debtor would not be able to comply with the obligation,
thus he may be held liable.
Problem: (JAL vs. Simangan) Simangan was on board JAL on his way to the
US to donate a kidney to his relative but while he was already seated on the
plane, he was forced to disbar from the plane on the pretext that his
documents are not complete. When he sued JAL, one of the latter’s defenses
was there was a novation because it rebooked the flight of Simangan on the
next day, and that it was Simangan who refused the said flight to the US.
Was there a novation?
A: No. There can be no novation without the consent of the creditor. In this
case, Simangan was the creditor and JAL was the debtor. The change of
flight is definitely a major aspect of the contract between the two parties, so
without the consent of Simangan, there is no valid novation.

1. change in the object of the obligation (no bar exam questions)

-i.e. delivery of pigs instead of carabaos
2. change in the principal condition of the obligation

Problem: (Cua vs. Yao) There was a judgement for the debtor to pay. But
before the date of the execution sale (the sheriff had already levied the
property of the debtor) the parties had an agreement which has 4 aspects:
1. Reduction of the amount; 2. Payable in 4 installments; 3. Debtor will
provide real estate mortgage (security); 4. If the debtor fails to comply with
this agreement, he will be liable to attorney’s fees. Was there a novation?

A: The SC ruled that yes, there was a novation. But there was no discussion
why. (The lecturer agrees with the dissenting opinion that there was no
novation) citing Villar vs. Court of Appeals – despite the changes in the
condition, there was no novation:

1. The amount was reduced because there was already partial payment
made by the debtor, so there was no change in the condition;

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LAW ON CONTRACTS
Fundamental Characteristics
1. consensual
2. mutual
3. obligatory
4. autonomy
5. relativity
Case: (Ejercito vs. Oriental Assurance) Petitioner contends that the
indemnity contract prepared by Oriental is a contract of adhesion and
therefore is a void contract. Is the contention correct?
A: Yes, the indemnity agreement is a contract of adhesion because the terms
and conditions of this contract were prepared by one of the parties and the
other party was just asked to adhere to this contract. But just because the
contract is a contract of adhesion does not necessarily make it a void
contract. In general, the contract of adhesion is valid. It will only be
considered as a void contract if one of the parties never really had the
opportunity to bargain. The defect in this scenario is that there was no
consent given.
Problem: Newlyweds Sam and Sheena contracted with the Shangri-la Hotel
for the wedding reception. The couple was so unhappy with the service.
They contend that there was an unreasonable delay of the service of dinner
and that certain items promised were unavailable. The hotel claims that
while there was a delay in the service the same was occasioned by the
sudden increase of guests. In the action for damages for the breach of
contract instituted by the couple, they claimed that the banquet and the
wedding services was a contract of adhesion since they only provided the
number of guests and chose the menu … is the contract a contract of
adhesion? Is the contract void?
A: Yes, the contract was a contract of adhesion because the only role of the
couple was to provide the number of guests and the menu. However, the
contract being a contract of adhesion is not void because the couple had all
the opportunity to bargain with the hotel as to the terms and conditions of
the contract.
Q: What would primarily govern the rights and obligations of the
parties to a contract?
A: Stipulations of the contracting parties. (Read Art. 1306)
Relevant Provision:
Article 1306. The contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order, or public policy.
Problem: On July 1, 1998, Ryan leased an office space in a building for a
period of 5 years with a rental rate of Php 1,000 a month. The contract of
lease contains a proviso that in case on inflation of the valuation of the peso,
the monthly rental will automatically be increased or decreased depending
on the devaluation or inflation of the peso to dollars. Starting March 1, 2001,
the lessor increased the rental to Php 2, 000 a month on the ground of
inflation … Ryan refused to pay the increased rate and an action for unlawful
detainer was filed against him. Will the action prosper?
A: Yes, the action will prosper if the escalation clause is valid. The
fundamental requirement for an escalation clause to be a valid clause is
there must be a valid and reasonable standard. In the case at bar, the
devaluation of peso was a valid and reasonable standard.
*The Central Bank issued a memorandum giving the requisites for an
escalation clause to be given effect but this is only applicable to a contract of
loan and not to contract of lease.
Problem: An employment contract contains a non-involvement clause which
provides that “The employees further attestation during his engagement with
the employer and in case of separation from the company shall not for the
next 2 years engage in or involve with any corporation engaged in the same
business or belong to the same industry. Any breach of the foregoing shall
render the employee liable in the amount of Php 100,000. Despite of these
provisions of the contract, Ms. Daisy Chu transferred to another company
engaged in the same industry, so her former employer demanded the
amount of Php 100,000. Ms. Chu refused to pay the same so the company
filed a suit against her. May the non-involvement clause be considered a void
clause?
A: Yes. If it amounts to an unreasonable restraint of trade, hence violative of
the constitution, then it is a void clause. In the case at bar, the non-
involvement clause is a valid limitation on the rights of the employee as
much as it is a valid protection to the rights of the employer. Not only
24 | P a g e
because the prohibition is only limited to 2 years, but also because it is only
limited in the Philippines and lastly because of the nature of the position of
Ms. Daisy Chu as an Assistant Vice President for the Asia Pacific Region.
Hence, the SC ruled that the prohibition was reasonable and the non-
involvement clause was valid.
*a stipulation of a contract of pledge or mortgage prohibiting the pledgor or
mortgagor form alienating the property without the consent of the mortgage-
creditor is a void stipulation.
*a stipulation excluding one or some of the partners from the sharing in the
profits is a void stipulation.
*a stipulation contrary to public policy is a void stipulation
Problem: These persons wanted to be the official candidates of the
Nationalista Party for the District of Pangasinan. They had an agreement that
the losing candidate would not run as an independent or a rebel candidate.
Despite this, some losing candidates violated the agreement and run and
won the election. Actions were filed against them. Is the stipulation that the
losing candidate would not run as an independent or a rebel candidate, a
valid stipulation?
A: No. SC ruled that such stipulation is void because it is contrary to public
policy because the right of the electorate to choose if who among the parties
is fit for the position cannot be limited by the agreements of the parties.
Q: Does a stipulation in a contract of lease that either of the parties
can terminate the contract by merely giving notice and the
termination will take effect after 15 days from the time notice were
received violates the mutuality of contract principle?
A: No. Because the mutuality of contract principle pertains to the validity and
compliance not to the termination of the contract.
Q: When would a contract have the force of law between the
contracting parties?
A: In general, upon its perfection because it is the only time that one party
can already demand performance by the other party in relation to the
contract.
Q: Who will be bound to a contract? (See art. 1312)
A: Article 1312. In contracts creating real rights, third persons who come
into possession of the object of the contract are bound thereby, subject to
the provisions of the Mortgage Law and the Land Registration Laws. (i.e. a
real estate mortgage over a parcel of land
Problem: A and B are parties to a contract. An action to rescind the
contract was filed by X against A and/or B. Will the action prosper?
A: Ordinarily, it will not. Because X is not privy to the contract. Under the
privity of contract principle, contracts take effect only between the
contracting parties their assigns and heirs. If X is neither a party to the
contract, nor an assignee or an heir, then he is not a privy to the contract
and he has no cause of action in relation to the said contract.
However, if this is an Accion Pauliana, the action may actually
prosper. If the action was to impugn a contract because it is on fraud of the
creditors (Art. 1313)
Q: Is it possible that the contract may take effect only as to the
parties, not into the assigns and not into the heirs?
A: Yes. The general reason is when the rights and obligations arising from
the contract are intransmissible. When are they intransmissible? (See art.
1311) When there is a stipulation, when the law so provides and by the
nature of the rights and obligation.
TN: A third person may actually be liable even if he is not a party to the
contract if he maliciously induced a party to violate the contract. This is
considered to be an extension of a concept known as quasi-delict. (Art.
1314) But the liability of the third person cannot be greater than the liability
of the party who violated the contract.
Problem: If A and B agreed that each one will contribute 1M, the
total amount contributed will be given to C, a third person on a
monthly basis for a period of 1 year. Is this a stipulation for Atrui?
A: No. Because the principal purpose of the parties in entering the
agreement is practically a donation. A stipulation for Atrui must only pertain
to a secondary matter of the contract, not to the principal purpose.
Q: When would the right of the beneficiary or the third person be
vested?
A: The beneficiary should communicate his acceptance to the obligor and it
would only be from that time that his rights will be vested. In other words,
25 | P a g e
before the communication of acceptance, the parties can still revoke the
rights vested to the beneficiary.
Q: What if before the beneficiary could communicate his acceptance
to the obligor, he received a letter of revocation signed by the
obligor which states “the benefits in your favor under this contract
is hereby revoked.” May the beneficiary be still entitled to his
benefits?
A: Yes. If the revocation is a unilateral act of one of the parties. Otherwise, it
would violate the mutuality of contract principle. For revocation to be
effective, it has to be with the consent of both parties.
Q: When there is a vehicular mishap or accident, can the driver and
the operator be held liable under contract?
A: Yes. Under the contract of Carriage. But only between the operator and
the passenger, not between the driver and the passenger, because the driver
is not a party to the contract of carriage.
Problem: Shasha purchased a ticket from SAL covering Manila-Bangkok-
Hanoi-Manila. The ticket was exclusively endorsable to SMA. The contract of
air transport was between Shasha and SAL with the latter endorsing to SMA
the Hanoi and Manila segment. All her flights were confirmed by SAL before
she left. Shasha took the flight from Manila to Bangkok on board SAL, when
she arrived Bangkok she went to the SAL counter confirming her flight from
Hanoi to Manila … on the date of her return trip she checked in for SMA
flight but before she could even settle in her assigned seat, she was
offloaded and treated rudely by the crew. She lost her luggage, missed an
important meeting. She thereafter filed a complaint solely against SAL and
argued that it was solidarily liable with SMA for the damages she suffered for
the latter was only an agent of the former. Could either or both SAL and SMA
be held liable for the damages that Shasha suffered?
A: Only SAL can be held liable. How can SMA be held liable when it was not
even impleaded as a party to this case? Elementary due process that a party
should be impleaded in an action to determine whether or not he is liable
and to give him the chance to defend himself. SMA was not privy to the
contract, under the privity of contracts principle, the third person cannot be
held liable if he or she is not a privy to the contract.
*Alternative answer: Yes, they can be held solidarily liable under torts.
Because the very act that violates or breaches the contract may itself be a
tortuous act.
CLASSIFICATION OF CONTRACTS
1. consensual/real/ formal – based on the perfection of the contract
2. onerous – based on the cause of the contract
3. bilateral – based on whether or not both parties are obliged
Q: In a contract of deposits, does the depositary have the right to
demand for reimbursement of the expenses incurred for the
preservation of the goods delivered to him.
A: It depends on whether the contract of deposit is onerous or gratuitous.
He will only have the right to seek reimbursement if the contract is
gratuitous, because it is understandable that if the contract is onerous, he
gets paid and he can simply ask that the expenses for preservation be
included on the rent.
Q: A is a debtor of B, and he also have other creditors aside from B.
A sold his only property of value to Y. Does the sale of the land raise
the presumption that such was in fraud of creditors?
A: It depends if under what circumstances did he sell the land. If at the time
of the sale, there was already a judgment rendered against him or even if
there was no judgment yet, there was an order of garnishment against him,
a presumption would arise that the sell was in fraud of creditors.
Q: A has properties worth 10M, he has several debts, but despite
this, he donated his properties worth 7M. Would this give rise to a
presumption that such donation is in fraud of creditors?
A: It depends on the total amount of his debts. If the total amount of his
debts is lesser than 3M, then such presumption will not arise. But if his debts
total to 5M and the amount he had left was just 3M, then the presumption
will arise. Because in gratuitous alienation, if the debtor did not preserve
sufficient properties to cover his debts, a presumption will arise that his act
was in fraud of creditors.
Q: What if the contract involved is commodatum, what will apply?
The greatest reciprocity of interest or the least transmission of
rights?
26 | P a g e
A: The least transmission of rights. Because commodatum is an essentially
gratuitous contract, but if the contract is onerous, the greatest reciprocity of
interest will apply.
*these principles may only apply if the ambiguity pertains to a secondary
matter in the contract and that the ambiguity cannot be resolved by
considering the intention of the parties and the other principles under the
code.
Bilateral
TN: In relation to a conditional obligation, if sale is involved, the fruits from
such sale belongs to the seller. Because in reciprocal obligations, the fruits
and interests are deemed mutually compensated.
Q: In relation to a contract of sale, what if the seller delivered the
property (rice field) last year. But the buyer only paid today. Can
the seller validly demand for interest in relation to this sale? (Art.
1169)
A: Yes. Under Art 1169 “In reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins.” If the buyer was
already in delay such as in this case, then he is already liable for interest.
But the SC had warned in several cases that this rule is subject to
the stipulation of the parties. The parties may have stipulated that the buyer
can pay only after one year from the delivery of the property. In this case,
he is not liable for interest.
Consensual
Consensual contract is perfected by mere consent. In other words, it only
requires the meeting of the minds of the parties as to the object and the
cause in order for the contract to be perfected.
Real Contract (Art. 1316)
1. deposit
2. pledge
3. commodatum
4. mutuum
Problem: Merly offered to sell automobile to Violly for Php 60,000. Violly
offered to buy it for Php 50,000. This offer was accepted by Merly. The next
day, Merly offered to deliver but Violly being short of funds seek
postponement of the delivery, promising to pay the price upon the arrival of
the Steamer Helena, Steamer however never arrived because it was wrecked
by a typhoon. Is there a perfected contract in this case?
A: Yes. Because a contract of sale is a consensual contract and there was a
meeting of the minds already as to the thing and the price. The contract was
only perfected when the offer of Violly to buy for Php 50,000 was accepted
by Merly. It was not the offer of Merly to sell which was perfected. It was the
offer of Violly to buy which was perfected. However, there was a condition
involved in this case which was the arrival of Steamer Helena but such
condition is not a condition for the perfection but a condition for the
performance of the obligation. Hence, the contract was still perfected despite
the nonfulfillment of the condition.
*a donation is not a contract because it is an act. But a donation may be an
onerous donation and may be governed by the rules on contract.
*in sale of land to an agent, authority must be in writing (art. 1874)
otherwise the sale is void. Take note: the provision speaks of “land” and not
“immovables” in general.
Option agreement
- the offeree may not be in the position to decide immediately
whether he would accept or reject the offer. So he may actually
request a period within which to decide. Although the offeror himself
may also give the offeree a period within which to decide.
- the offeror can withdraw the offer any time before the acceptance
was communicated to himp
Option contract
- the offeror cannot validly withdraw the offer because he is bound to
such offer because of a consideration separate and distinct from the
price.
Problem: Marvin offered to contract the house for a very reasonable price of
Php 300,000 giving the latter 10 days to accept or reject. On the 5 th day,
before Carlos could make up his mind, Marvin withdraw his offer. What is the
effect of the withdrawal of Marvin’s offer? Will your answer be the same if
Carlos paid Php 10,000?
27 | P a g e
Answer: As to the first question, there was a valid withdrawal because there -No. If the time the action was filed, the land was already owned by a
was no perfected contract here. Because the withdrawal was made before Filipino citizen (i.e. the son of the former natural born Filipino citizen)
the acceptance could be made to the offeror.
*vitiation of consent will only make the contract voidable.
As to the second question, the answer would be different. Because if
*if the consent was given by a person in representation of another without
there would be a withdrawal of this offer despite the consideration, there
authority, or even if he has authority but he exceeded the scope of his
would be a breach of contract. It would be a breach of the option contract,
authority, the contract is unenforceable.
to which the offeror could be held liable.

A. A contract of sale between Lana and Anthony, wherein 16-year old Lana
ELEMENTS:
agreed to sell her grand piano for Php 25,000. What kind of contract is this?
1. Consent of the contracting parties
- Fictitious contract is void Ans: voidable contract. Because one of the parties is not capable of giving
- Simulated contract is void consent.

B: A contract of lease of the Philippine Sea was entered between Bitoy and
*even if the consent is given, it does not guarantee that the contract
Elsa.
is valid, because we still have to consider the capacity of the party to
enter into a contract. (absolute and relative) Ans: The contract is void because the Philippine Sea is outside the commerce
of men
*if the incapacity pertains to juridical capacity, in other words, no
juridical personality, clearly, the contract is void. (example: one of C. A barter of toyswas entered by a 12-year old Clarenceand 12-year Old
the parties to the contract is a corporation which is not registered Sara
with the SEC)
Ans: unenforceable. because if both parties are minors, they are both
incapable of giving consent.
*if one of the parties is a minor, the contract is merely voidable
D. A sale entered by Barry which the parents later ratified
*if both parties were incapacitated when they entered into the
contract, the contract is unenforceable Ans: Valid because of ratification (alternative: the contract is unenforceable
but because of the ratification, it can now be enforced)
In relation to a sale of a parcel of land, the constitution does not prohibit
aliens from owning a private land. The constitution prohibits aliens from E. Jenny sold her car to Celine in order to prevent attachment
acquiring private lands. (examples: former Filipinos who were already owners
Ans: Rescissible. Because it is in fraud of creditors
of lands here in the Philippines before they became citizens of another
country)

Even assuming that a person is a Chinese citizen, but he was a former
natural born Filipino citizen, he can validly purchase a parcel of land only for
residential purposes.
Q: If years after the purchase/sale of land, an action to recover was filed,
will the action prosper?
FORM OF CONTRACTS (Art. 1356)
Contracts shall be obligatory, in whatever form they may have been entered
into provided all the essential requisites for their validity are present.
Unless: - the law requires that a contract be in some forms for their validity

28 | P a g e
 - the law requires that a contract be in some forms for their valid is because of lesion, wherein there is an economic prejudice to one of
enforceability the parties.

- the law requires a particular form as to how the contract may be *Voidable appears to be in the center, in fact, it is subject to ratification.
proved (for the greater efficacy of the contract – Art. 1358)
*Void contract is not just a defective contract, because it is an inexistent
*sale of large cattle is required to be in a public instrument to be valid contract

Problem: A land was already registered in the name of a buyer. But the *Rescissible, Voidable and Unenforceable contracts are contracts which are
sellers questioned the validity of the sale on the ground of forged signatures valid but defective
among others.
Rescissible Contracts
The SC found that there was an improper notarization because the law
Rescissible (Art. 1381)
requires that in order for a notary public to notarize the document, the
person must appear personally before him, but it turned out that the party Valid unless rescinded (there has to be a law providing that the contract is
concerned did not appear personally before the notary public. But improper rescissible)
notarization does not affect the validity of the contract. Because a contract of
sale of a parcel of land is only required to be in writing to be enforceable Defect: Lesion
between the parties. The SC only ordered the sellers to execute the proper
*rescission would not be a remedy if the thing is in the possession of a third
notarization of the documents.
person in good faith
REFORMATION OF INSTRUMENTS:
Voidable Contracts
In relation to a deed of sale. It is possible that the title of the document is
Valid until annulled
“Deed of Sale with a right to repurchase” but the real purpose of the parties
to secure the fulfillment of a pre-existing obligation, so the transaction is Defect: consent (incapacity or vitiated consent)
called equitable mortgage. The contract does not reflect the real intention of
the parties, therefore, the remedy is reformation of the instrument. *Only the injured party or the incapacitated party would have the right to
institute the action for annulment of the contract.

Bars to an action for annulment:

CLASSIFICATION OF CONTRACTS
1. Ratification (express or implied)
1. Valid 2. Estoppel (i.e. if a minor actively misrepresented his age)
2. Rescissible 3. The plaintiff cannot return what he received from the party (i.e.
3. Voidable fortuitous event)
4. Unenforceable 4. Prescription (if the law provides for the period, consider the
5. Void reckoning point)
*Between voidable and unenforceable, unenforceable is nearer to void, Problem: An extrajudicial settlement of the estate was entered into by the
because if one of the parties is incapacitated, it is voidable, but if both heirs, but some of the parties to the contract was minors. Can the minority
parties to a contract are incapacitated, then it is unenforceable. of the parties be the basis to nullify the partition?
*But the nearest to valid is the rescissible contract because the latter has no
defect in the essential elements of the contract, the only reason why it is not

29 | P a g e
Ans: Yes. Certain provisions on the rules of succession provides that the
rules on contract will be applicable in the extrajudicial settlement of the
estate.
Problem: Jackie, 16, owns a townhouse. Because she wanted to study in an
exclusive school she hold her townhouse by signing a deed of sale turning
over her possession to the buyer. When the buyer discovered that she was
just a minor, she promised that she will execute another deed when she
turns 18. When Jackie turned 25, already working, she wanted to annul the
sale to recover her townhouse. Was the sale contract void, voidable or valid?
Can Jackie still recover the property.
Ans: As to the first question, the contract was voidable because Jackie was
incapable of giving consent as a minor at the time the contract was entered
into.
As to the second question, the answer is No. Because the period for
the filing of the action for annulment has already prescribed. The law
provides for 4 years from the time the defect ceases. (18+4=22 y.o.)
Problem: One day a group of armed men forcibly the house of the spouse
and with a gunpoint forced them to sign a deed of sale. But the spouses
went from Cotabato to Manila and lived there for more than 35 years, and
returned only after the peace and order was restored in Cotabato. They
decided to reclaim the land for the benefit of their grandchildren. They filed a
suit for re-conveyance but the grandson of Romeo (the person who used
intimidation) raised the ground of laches and prescription. Decide
Ans: The defenses are untenable. The action can be filed 4 years from the
time when the intimidation ceases. Based on the facts, intimidation can be
said to have ceased only at the time when the peace and order was restored
in Cotabato. So the filing of the action was reasonable since they filed the
same only after the peace and order on the said place had been restored.
Problem: A condo unit which is the object of a foreclosure sale, was acquired
by the Union Bank as the highest bidder from the original buyer. The Bank
advertise the sale of the condo unit. In their advertisement, they put that the
area of the condo unit is 94 square meter. Joseph, relying on the
advertisement, bought the condo unit form the bank. But thereafter, he
discovered that the area of the condo unit turned out to be 70 square meters
only. He claimed for the proportional reduction of the price paid but the bank
refused. So he then filed an action for annulment of the sale. Will the action
prosper?
Ans: Yes. The action will prosper. The SC considered the sale to be a fraud
which resulted to a voidable contract. The defense of Union Bank that the
measure included the common areas is untenable because under the
Condominium Act, the area of a condo unit only includes its interior and it
does not include those in the common areas.
Unenforceable Contracts
Unenforceable (Art. 1403)
Cannot be enforced unless there is a proper objection or unless ratified
Defects: 1. Both parties are incapacitated
2. consent was given by a person in excess or outside the scope of his
authority
3. failure to comply with the rule on contracts covered by statute of
frauds
4. failure to comply with the rule on contracts covered by Art. 1878
under the law on Agency
Q: What is statute of frauds?
A: It’s a rule requiring certain contracts to be in writing it does not require
the contracts to be in public instruments. (not for its validity but for its
enforceability)
*statute of frauds does not just go into the weight of the evidence but to its
admissibility
*an oral partnership is binding
*an oral promise of guarantee is not binding because under statute of
frauds, it is one of the contracts required to be in writing (Art. 1403 2(b)- a
special promise to answer for the debt, default or miscarriage of another
*an agreement in consideration of marriage must not be in writing except a
mutual promise to marry
Problem: X come across the advertisement of Manila Daily Bulletin about the
rushed sale of 3 slightly used Toyota cars, with a price of Php 200,000 each.
To be ahead of others, X immediately call the advertiser Y and placed an
order for one car. Y accepted the order and promise to deliver the ordered
unit on July 15, 1989. On the said day however, Y did not deliver the unit. X
filed an action to compel Y to deliver. Will the action prosper.
30 | P a g e
Ans: No. If the object of the contract is a movable property, the price is
relevant. It has to be Php 500 or more in order to be covered by the statute
of frauds. Thus, in this case, the price of the car (movable) is Php 200,000,
hence subject to the statute of frauds. The contract has to be in writing to
be enforceable and since the agreement between X and Y was only oral, X
cannot compel Y to deliver the car.
Problem: In a sale of land not in writing, is the sale valid?
Ans: Yes, the sale is valid if all the requisites of a contract are present
(consent, object, consideration and the prohibition of the law does not
appear to be present).
*The doctrine of part performance is one of the very important concepts in
relation to statute of frauds. The statute of frauds is only applicable to
wholly, executory contracts. In other words, if there is already partial
fulfillment of the obligation arising from the contract, that contract will be
taken out of the operation of the statute of frauds. Therefore, it becomes
enforceable even with oral testimony used as the basis to prove the
existence of the contract.
Case: Simon bought a townhouse that he rented out to Shannon, a flight
attendant at SPA They had no written contract but merely agreed on a 3-
year lease. Shannon had been using the townhouse and had been paying the
rental for more than a year when she had accepted a better job offer from
another airline. Since Singapore is going to be her new base, she decided
without informing Simon to sub-lease the townhouse to Sylvia, an office clerk
in SPA. Can Simon compel Shannon to reduce the lease agreement into
writing?
Ans: Yes. Although this covered by the statute of frauds because this is a
lease of a real property for more than one year, however, this contract is
taken out of the operation of the statute of frauds under the doctrine of part
performance because of the fact that Shannon had already been paying for
rentals for more than a year and she had stayed in this townhouse for the
said period.
Case: Paredes wanted to buy a parcel of land located in Puerto Princessa
owned by Spino. Somehow, Paredes and Spino had a conversation vial
letters and telegrams. An in one of the letters of Spino, he mentioned that he
and his wife agreed to sell the parcel of land in Puerto Princessa to
Paredes ... all the requisites of a contract of sale was contained in the letter.
But the parties agreed that the signing of the deed of sale will be upon the
arrival of Spino in Puerto Princessa. But when he arrived, he refused to sign
the deed of sale in favor of Paredes. So the latter filed an action to compel
Spino to execute the deed of sale, accept the price agreed upon and he
raised the defense of Statute of Frauds. Decide
Ans: Under the statute of frauds, although the contract is not in writing, a
note or memorandum signed by the party in charged will be considered a
sufficient compliance with the requirement. The SC considered the letter as a
sufficient note and memorandum and obviously it was signed by Spino, so
there was in a way compliance with the statute of frauds because of such
letter. So the case was remanded back to the trial court for further
proceedings.
Void Contracts
Void Contracts (Art. 1409)
1. those whose cause, object or purpose is contrary to law, morals,
good customs etc.
2. simulated or fictitious
3. cause or object did not exist at the time of the transaction
4. those whose object outside the commerce of men
5. those which contemplate an impossible service
6. those whose intention of the parties cannot be ascertained
7. those expressly prohibited or declared void by law
Problem: What if the action is an action filed by a party against another party
for recovery of the money or the property which he delivered to the other
party, will the action prosper?
Ans: Under the Pari delicto rule, the SC will tell the trial court not to give aid
to the either party, they should be left as they are because they entered into
this contract. For Pari delicto to apply, the contract must be illegal, it must
have an unlawful cause or unlawful objet. So if the parties entered to this
unlawful contract, they cannot have any remedy under the law.
EXCEPTIONS TO PARI DELICTO RULE:
1. if one of the parties to the illegal contract was incapacitated at the
time the contract was entered into, he may be allowed to recover if
public policy would be in hand
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 2. if the party to the illegal contract repudiated the contract before the
consummation of the contract or before damages cause to a third
person

Question: Which of the following contract is void?

a. Oral sale of a parcel of land

b. A sale of land by an agent in a public instrument where his authority
from the principal is oral
c. A donation of a wrist watch worth Php 4,500
d. A relatively simulated contract

Answer: B (Art. 1874)

Question: In 1950 the Bureau of Lands issued a homestead patent to A.

Three years later A sold the homestead patent to B. In 1990, A’s heirs filed
an action to recover the property on the ground that its sale by their father
to the latter is void. B contends that A’s heir cannot recover the property
because the action had already prescribed and furthermore, A was in pare
delicto. Decide

Ans: The contention about prescription is not correct because an action for
declaration of nullity does not prescribe.

Moreover, the pare delicto does not apply to prohibitions under the
constitution.

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