BAR LECTURE: CIVIL LAW not in writing and the law requires that the

OBLIGATIONS AND CONTRACTS obligation to pay interest for the use of

PROF. CRISOSTOMO URIBE money must be in writing. There is no delay
either that would warrant the payment of
LAW ON OBLIGATIONS interest as Julia never made a demand Sara.
The law requires that for the debtor to be in
Civil Obligation delay, the creditor must demand the
A juridical necessity to give, to do or not to do. payment. While the law provides exceptions
(CC1156) to this general rule, none of the exceptions
obtain in this case.
Prestation
→ To give, to do or not to do Since Julia received payment she had no right
→ Importance of distinguishing to demand, she is duty-bound to return the
prestation: different rules apply (e.g interest under the concept of solutio indebiti.
one of the remedies for obligations to The law provides that one who has received
give is specific performance. This payment by mistake is obliged to return such
remedy is not available for payment.
obligations to do)
Elements
Civil Obligations Natural Obligation 1. Creditor
Source or Basis  Obligee
Law Equity and natural law  The one with the right to
Enforcement demand
Grants a right of No right of action but  Agent of the Creditor - Also a
action (CC1143) provides a right to creditor but not in their own
retain what was given right
2. Debtor
provided that the
person voluntarily  Obligor
gave it with the  One bound to give, to do or not
knowledge that he to do
could not have been
compelled to give it. Note: In reciprocal obligations, the
parties are the creditors and debtors
of each other.
*Sara borrowed PhP50,000.00 from Julia and
orally promised to pay it within six months.
3. Prestation
When Sara tried to pay her debt on the 8th
 Object
month, julia demanded the payment of interest
 Conduct that may consist in
of 12% per annum because of Sara’s delay in
giving, doing or not doing
payment. Sara paid her debt and the interest
4. Juridical Tie
claimed by Julia. After rethinking, Sara
 Legal tie, juridical necessity,
demanded back from Julia the amount she had
efficient cause, vinculum juris
paid as interest. Julia claims she has no
 Any of the sources of obligation:
obligation to return the interest paid by Sara
Law, contract, quasi-contract,
because it was a natural obligation which Sara
delict and quasi-delict
voluntarily performed and can no longer recover.
Do you agree? Explain. (2015 Bar)
Sanico v. Calipano (2017)
Julia is not entitled to the interest paid by
WON the employee-driver is liable together
Sara. Payment of interest is not a natural
with his employer-operator for the breach of
obligation. It is governed by law.
contract of carriage? No.
The law provides two kinds of interest: the
The employee cannot be held liable with the
interest for the use of money, which must be
employer as the former is not a party to the
stipulated and the interest for delay in the
contract of carriage.
payment. Neither of the types of interest is
present in this case. The contract of loan was
 If the cause of action had been delict, the
driver could have been held liable, with the d) What legal effects will result if X expressly
employer being subsidiarily liable. ratifies Y’s management and what would
be the obligations of X in favor of Y? (1992
If the cause of action is quasi-delict, both the Bar)
employee and the employer would be
solidarily liable. The law on agency will govern since the
ratification is a form of express agency. X will
Quasi-Contract be liable to pay commissions habitually
→ If the act is punished by law, it cannot received by Y as the manager. (CC2149)
be the basis of a quasi-contract
→ Elements: The act performed must be DPO went to a store to buy a pack of cigarettes
1. Voluntary worth P225.00 only. He gave the vendor, RRA, a
2. Lawful P500-peso bill. The vendor gave him the pack
3. Unilateral plus P375.00 change. Was there a discount, an
→ Negotiorum Gestio: Inofficious oversight, or an error in the amount given?
manager (CC2144) What would be DPO’s duty, if any, in case of an
→ Solutio Indebiti: Payment by mistake excess in the amount of change given by the
vendor? How is this situational relationship
In fear of reprisals from lawless elements between DPO and RRA denominated? Explain.
besieging his barangay, X abandoned his (2004 Bar)
fishpond, fled to Manila and left for Europe.
Seeking that the fish in the fishpond were ready There was an error in the amount given, thus
for harvest, Y, who is in the business of DPO’s duty is to return the excess he has
managing fishponds on a commission basis, recieved.
took possession of the property, harvested the
fish and sold the entire harvest to Z. Thereafter, The relationship is a quasi-contract of solutio
Y borrowed money from W and used the indebiti because DPO received something he
money to buy new supplies of fish fry and to had no right to demand and that the delivery
prepare the fishpond for the next crop. was made by mistake.

a) What is the Juridical relation between X CBK Power v. CIR (2014)

and Y during X’s absence? For solutio indebiti to apply, there must be
delivery and that delivery must be made by
The juridical relation is that of a mistake.
quasi-contract of negotiorum gestio. X is the
owner, who had no knowledge that Y was Quasi-Delict (2176)
managing his fishpond, and Y is the → Fault or negligence
inofficious manager or gestor.
Simeon was returning to Manila after spending
b) Upon the return of X to the barangay, what a weekend with his parents in Sariaya, Quezon.
are the obligations of Y to X as regards the He boarded a bus operated by the Sabbit Bus
contract with Z? Line (SBL) on August 30, 2013. In the middle of
the journey, the bus collided with a truck coming
As the inofficious manager, Y must render an from the opposite direction, which was
account of his operations to X and deliver to overtaking the vehicle in front of the truck.
the latter the price he received for the Though the driver of the SBL bus tried to avoid
harvested fish. (CC2145) the truck, a mishap occurred as the truck hit the
left side of the bus. As a result of the accident,
c) Upon X’s return, what are the obligations Simeon suffered a fractured leg and was unable
of X as regards Y’s contract with W? to report for work for one week. He sued SBL for
actual and moral damages. SBL raised the
Since the contract of loan with W was for the defense that it was the driver of the truck who
management of the fishpond, X must pay the was at fault, and that it exercised the diligence
loan obtained. The owner must answer for of a good father of a family in the selection and
the obligations contracted with third persons supervision of its driver.
by the gestor. (CC22150)
a) Is SBL liable for actual damages? Moral No, the bank did not have the right to take
damages? (2018 Bar) over Saachi’s bank deposit. The Holdout
Agreement only applies if Saachi had an
If the cause of action of Simeon is quasi-delict, obligation to the bank. In this case, the
then under the law, SBL will be liable both for obligation can only arise from delict in
actual and moral damages, unless SBL can relation to the criminal case filed against
prove that it had exercised the diligence Saachi.
required under the law.
However, the criminal case is still pending.
If the cause of action of Simeon is contract There is no conviction yet that is final and
that is contract of carriage, then SBL is only executory and can be the basis of obligation.
liable for actual damages unless Simeon can Thus, the bank had no right to to take over
prove bad faith on the part of SBL, which will Saachi’s bank deposit.
warrant the grant of moral damages. The
exercise of diligence of a good father of a MBTC v. Rosales (2014)
family is not a defense against the breach of The “Hold Out” clause applies only if there is
contract of carriage. The law requires that a valid and existing obligation arising from
common carriers exercise extraordinary any of the sources of obligation enumerated
diligence, a diligence greater than that of the in Article 1157 of the Civil Code, to wit: law,
bonus pater familia. contracts, quasi-contracts, delict, and
quasi-delict. In this case, petitioner failed to
Saachi opened a savings bank account with show that respondents have an obligation to
Shanghainese Bank. He made an initial deposit it under any law, contract, quasi-contract,
of PhP100,000. Part of the bank opening forms delict, or quasi-delict. And although a criminal
that he was required to sign when he opened case was filed by petitioner against
the account was a Holdout Agreement which respondent Rosales, this is not enough reason
provided that, should he incur any liability or for petitioner to issue a “Hold Out” order as
obligation to the bank, the bank shall have the the case is still pending and no final judgment
right to immediately and automatically take of conviction has been rendered against
over his savings account deposit. After he respondent Rosales.
opened his deposit account, the Shanghainese
Bank discovered a scam wherein the funds in the People v. De Chavez, Jr. (2017)
account of another depositor in the bank was W/N civil liability arising from delict survived
withdrawn by an impostor. Shanghainese Bank the death of the defendant considering that
suspected Saachi to be the impostor, and filed a his conviction is pending appeal
criminal case of estafa against him. While the
case was still pending with the Prosecutor's The civil liability arising from delict did not
office, the bank took over Saachi's savings survive his death. But, as held in Bayotas,
deposit on the basis of the Holdout Agreement. accused-appellant’s civil liability may be
based on other sources of obligation other
a) What kind of contract is created when a than ex delicto, in which case the heirs of the
depositor opens a deposit account with a victim may file a separate civil action against
bank? the estate of accused appellant, as may be
warranted by law and procedural rules.
The contract created is a contract of loan,
whereby a one of the parties delivers to Kinds Conditional Obligations
another money upon the condition that the A. As to effect on the obligation
same amount of the same kind and quality
shall be paid. This is also called mutuum. a) Suspensive: Effectiveness of the
(CC1933) obligation and the acquisition of the
creditor’s rights depend upon the
fulfillment of the obligation (CC1181)
b) In this case, did the bank have the right to b) Resolutory: Obligation is immediately
take over Saachi's bank deposit? (2018 effective but its subsitence and
Bar) extinguishment depend upon the
fulfillment of an obligation
B. As to cause of their happening as the condition was purely potestative and
dependent upon the will of his grandson. Is
a) Potestative: Depending on the sole Pedro correct?
act or decision of a party
b) Casual: Depending upon chance or No, Pedro is not correct. The condition is not
the will of a stranger purely potestative as it is not dependent on
c) Mixed: Depending partly on the will the sole will of anyone. CC11821 is not
of a party and partly on chance or the applicable. Even if it were, the obligation is
will of a stranger not void because the grandson is not the
debtor, upon whose will the condition must
C. As to manner of the happening depend before the obligation may be held
a) Positive void. It is Pedro who is the debtor.
b) Negative
In 1997, Manuel bound himself to sell Eva a
D. As to validity or legality house and lot which is being rented by another
a) Licit/illicit person, if Eva passes the 1998 bar examinations.
b) Possible or impossible Luckily for Eva, she passed said examinations.
c) Moral or immoral
a) Suppose Manuel had sold the same house
Negative Impossible Condition and lot to another before Eva passed the
→ Deemed not written 1998 bar examinations, is such sale valid?
→ Demandable at once Why?
→ Obligation considered pure
The sale is valid. The contract between Eva
Suspensive Condition Resolutory Condition and Manuel is a mere promise to sell with the
Before fulfillment of the condition suspensive condition that the former passes
Obligation is not Obligation is effective the 1998 bar exam. Eva had not acquired any
effective. at once. real right to the land since the suspensive
condition has not yet operated. Thus, Manuel
The creditor may only can validly sell the land.
take steps to preserve
his eventual rights b) Assuming that it is Eva who is entitled to
(CC1188) buy said house and lot, is she entitled to
the rentals collected by Manuel before she
The debtor may passed the 1998 bar examinations? Why?
recover what was paid (1999 Bar)
by mistake but not its
fruits and interest. Assuming that Eva is the one entitled to buy
(CC1188) the house and lot, she is not entitled to the
Upon fulfillment of the condition rentals collected by Manuel before she
Obligation is effective Obligation is passes the bar examinations. Whether it is a
and demandable as of extinguished. contract of sale or a contract to sell,
the day the obligation reciprocal prestations are deemed imposed
was constituted. Parties must return to on the seller to deliver the object sold and
(CC1187) each other what they on the buyer to pay the price. Before the
have received. happening of the condition, the fruits of the
(CC1190) thing and the interests on the money are
Upon failure of condition deemed to have been mutually compensated
Obligation is Obligation is under CC1187. In this case the rents which
extinguished consolidated would have been Eva’s is compensated with
permanently

Pedro promised to give a car to his grandson, if 1

When the fulfillment of the condition depends upon
the latter passes the bar. His grandson passed the sole will of the debtor, the conditional obligation
the bar but Pedro refused, alleging that he shall be void. If it depends upon chance or upon the
cannot be made to comply with the obligation will of a third person, the obligation shall take effect
in conformity with the provisions of this Code.
 the interest Manuel could have earned on the
price of the house and lot. A cannot compel B to accept the payment.
The period, considering the absence of any
Zeny and Nolan were best friends for a long time indication to the contrary, is deemed to
already. Zeny borrowed ₱10,000.00 from Nolan, have been agreed upon for the benefit of
evidenced by a promissory note whereby Zeny both A and B. Thus, neither can compel the
promised to pay the loan "once his means other to demand their respective
permit." Two months later, they had a quarrel obligations before the arrival of the period.
that broke their long-standing friendship.
Obligations with a Period
Nolan seeks your advice on how to collect from → GR: If the period was made solely for the
Zeny despite the tenor of the promissory note. debtor’s benefit, the creditor cannot
What will your advice be? Explain your answer. validly demand before the arrival of such
(2017 Bar) period. (CC1198)
 EXCEPTIONS: The debtor has lost his
My advice would be for Nolan to go to court right to make use of the period.
and pray that a period be fixed, as provided
under CC1180 in relation to CC1197. A. Debtor becomes insolvent
a) Insolvency need not be judicially
The law provides that one of the instances declared
where the court may fix a period for the b) Inability to meet current
fulfillment of an obligation is when the obligations sufficient, but must
debtor binds himself to pay when his means be proved.
permit him to do so. This case falls squarely c) EXCEPTION: Debtor provides
under the rule. Thus, the remedy to have the security
court fix a period is available to Nolan. B. Debtor does not furnish the securities
which he has promised
Once the period is fixed, Nolan has to wait for a) Creditor cannot be compelled to
the expiration of such period before he can accept securities different from
demand the payment from Zeny. that which were promised
C. Debtor impaired the securities
Araneta v. Philippine Sugar Estate D. Through a fortuitous event, the
When a contract provides that the parties are securities disappear
given “reasonable time” to comply with their a) The securities must disappear or
obligation, the court is not empowered to fix become worthless in their
a period. Rather, the court need only entirety
determine whether reasonable time has E. Debtor violates any undertaking in
elapsed when suit was filed if it had passed, consideration of which the creditor
then the court should declare that petitioner agreed to the period.
had breached the contract, as averred in the F. Debtor attempts to abscond.
complaint, and fix the resulting damages. On G. Stipulation of an acceleration clause
the other hand, if the reasonable time had and debtor fails to pay the
not yet elapsed, the court perforce was installment due
bound to dismiss the action for being
premature. A loaned PhP100,000 to B, secured by a
mortgage over an uninsured house. They agreed
In no case can it be logically held that the that payment will be made a year thereafter.
intervention of the court to fix the period for Before the period lapsed, the house burned
performance was warranted, for CC1197 is down. B then demanded payment from A. Does
precisely predicated on the absence of any B have a right to demand payment even though
period fixed by the parties. the loss was due to a fortuitous event?
Yes, Be has a right to demand payment. The
A pledged his car to B for PhP10,000 on January Civil Code provides that the debtor loses the
1, 1983, with a stipulation that the latter can right to make use of the period when the
use the car. They agreed that the PhP10,000 is security disappears through a fortuitous
payable on December 1, 1983. Can A compel B event.
to accept payment before December 1, 1983?
Arco Pulp v. Lim (2014) against any or all of the responsible persons
W/N the debtor can still perform another although under the circumstances of the case,
prestation despite having communicated it may appear that one of them was more
their choice to the other party. culpable, and that the duty owed by them to
the injured person was not same. No actor’s
The debtor can no longer perform another negligence ceases to be a proximate cause
prestation when they have already merely because it does not exceed the
communicated their choice to the creditor. negligence of other actors. Each wrongdoer is
Upon such communication, the alternative responsible for the entire result and is liable
obligation becomes a pure, simple obligation, as though his acts were the sole cause of the
injury. (CC2194)
Juancho, Don and Pedro borrowed P150,000.00
from their friend Cita to put up an internet café There is no contribution between joint
orally promising to pay her the full amount after tortfeasors whose liability is solidary since
one year. Because of their lack of business both of them are liable for the total damage.
know-how, their business collapsed. Juancho Where the concurrent or successive negligent
and Don ended up penniless, but Pedro was able acts or omissions of two or more persons,
to borrow money and put up a restaurant which although acting independently, are in
did well. Can Cita demand that Pedro pay the combination the direct and proximate cause
entire obligation since he, together with the two of a single injury to a third person, it is
others, promised to pay the amount in full after impossible to determine in what proportion
one year? Defend your answer. (2015 Bar) each contributed to the injury and either of
them is responsible for the whole injury.
No, Cita can not demand payment of the
entire obligation from Pedro. Buko, Fermin and Toti bound themselves
solidarily to pay Ayee the sum of P 10,000.00.
The concurrence of two or more creditors or When the obligation became due and
of two or more debtors in one and the same demandable, Ayee sued Buko for the payment of
obligation does not imply that each one of the P 10,000.00. Buko moved to dismiss on the
the former has a right to demand, or that ground that there was failure to implead Fermin
each one of the latter is bound to render, and Toti who are indispensable parties. Will the
entire compliance with the prestation. There motion to dismiss prosper? Why? (2012 Bar)
is a solidary liability only when the obligation
expressly so states, or when law or the nature No, the motion will not prosper. The creditor
of the obligation requires solidarity (CC1207). may proceed against any one of the solidary
debtors or some of them or all of them
In this case, there is no indication that they simultaneously.
bound themselves solidarily to pay Cita, nor
does the law or nature of the obligation A, B and C obtained a loan from D and bound
require solidarity. Hence, Juancho, Don and themselves jointly and severally. C later
Pedro’s obligation is joint, and Cita can only becomes insolvent. Can D hold A and B liable for
demand payment of 1/3 of the obligation the entire debt?
from Pedro, which is presumed to be his
share in the obligation in the absence of Yes, D can hold A and B liable for the entire
stipulation to the contrary (CC1208). debt. The insolvency of one of the solidary
debtors does not reduce the debt but makes
Solidary Obligations the other solidary debtors liable.
Other terms: individually and collectively,
collectively, distinctively, joint and severally, If C eventually becomes solvent, A and B
in solidum, separately would then have a right to demand from C
reimbursement but only with respect to the
Ruks Consult v. Adworld (2015) latter’s share, divided equally between A and
Where several causes producing an injury are B. (CC1217)
concurrent and each is an efficient cause
without which the injury would not have
happened, the injury may be attributed to all
or any of the causes and recovery may be had
Buko, Fermin and Toti are solidary debtors A,B,C,D, and E made themselves solidarity
under a loan obligation of PHp300,000.00 which indebted to X for the amount of P50,000.00.
has fallen due. The creditor has, however, When X demanded payment from A, the latter
condoned Fermin’s entire share in the debt. refused to pay on the following grounds.
Since Toti has become insolvent, the creditor
makes a demand on Buko to pay the debt. How a) B is only 16 years old.
much, if any, may Buko be compelled to pay?
(2012 Bar) b) C has already been condoned by X

Buka may be compelled to pay PhP200,000. c) D is insolvent.

The PhP100,000 share of Fermin should be
reduced from the total obligation since the d) E was given by X an extension of 6 months
creditor has condoned the same. From this, without the consent of the other four
the share of Toti remains demandable as co-debtors.
insolvency of one solidary debtor does reduce
the obligation but merely makes the other State the effect of each of the above defenses
solidary debtors liable for the share of the put up by A on his obligation to pay X, if such
former. defenses are found to be true. (2003 Bar)

While Fermin is liable for the entire a. A may avail the minority of B as a defense,
PhP200,00, he has the right to seek but only for B’s share of PhP 10,000.00. A
reimbursement of PhP50,000 from Fermin. solidary debtor may avail himself of any
The condonation of Fermin’s debt by the defense which personally belongs to a
creditor only extinguishes his liability insofar solidary co-debtor, but only as to the
as his share is concerned but does not share of that co- debtor.
exempt him from his obligation to the other
debtors. b. A may avail of the condonation by X of C’s
share of P 10, 000.00. A solidary debtor
Iya and Betty owed Jun PhP500,000.00 for may, in actions filed by the creditor, avail
advancing their equity in a corporation they himself of all defenses which are derived
joined as incorporators. Iya and Betty bound from the nature of the obligation and of
themselves solidarily liable for the debt. Later, those which are personal to him or pertain
Iya and Jun became sweethearts so Jun to his own share. With respect to those
condoned the debt of P500,000.00. May lya which personally belong to others, he
demand from Betty P250,000.00 as her share in may avail himself thereof only as regards
the debt? Explain with legal basis. (2015 Bar) that part of the debt for which the latter
are responsible. (CC1222)
Iya has no right to demand. The condonation
of her share of the debt by Jun was gratuitous. c. A may not interpose the defense of
It would be unjust enrichment on the part of insolvency of D as a defense. Applying the
Iya if she were allowed to obtain PhP250,000 principle of mutual guaranty among
from her co-debtor. solidary debtors, A guaranteed the
payment of D’s share and of all the other
Rudolf borrowed PhP1 million from Rodrigo and co-debtors. Furthermore, CC1217 provides
Fernando who acted as solidary creditors. When that the other solidary debtors are liable
the loan matured, Rodrigo wrote a letter to for the share of their insolvent co-debtor.
Rudolf, demanding payment of the loan directly Hence, A cannot avail of the defense of D’s
to him. Before Rudolf could comply, Fernando insolvency.
went to see him personally to collect and he
paid him. Did Rudolf make a valid payment? d. The extension of 6 months given by X to E
(2011 Bar) may be availed of by A as a partial defense
but only for the share of E, there is only an
No, since Rodrigo, the other solidary creditor, act of liberality granted to E alone and not
already made a prior demand for payment to the rest of the co-debtors.
from Rudolf. There can only be valid payment
when payment is made to the creditor who
makes the demand first.
Kevin signed a loan agreement with ABC Bank. obliged to pay under the law, it is
To secure payment, Kevin requested his inconceivable that the penal clause will
girlfriend Rosella to execute a document entitled preclude an award of damages.
"Continuing Guaranty Agreement" whereby she
expressly agreed to be solidarily liable for the In any case, nominal damages can be
obligation of Kevin. awarded on top of that in the penal clause as
nominal damages are not intended for
Can ABC Bank proceed directly against Rosella indemnification of loss suffered but for the
upon Kevin's default even without proceeding vindication or recognition of a right violated
against Kevin first? Explain your answer. (2017 or invaded. They are recoverable where some
Bar) injury has been done the amount of which
the evidence fails to show, the assessment of
Yes, ABC Bank can proceed directly against damages being left to the discretion of the
Rosella first. The contract is one of suretyship, court according to the circumstances of the
Rosella having bound herself solidarily with case.
Kevin. Thus, upon Kevin’s default, Rosella has
the obligation to pay for the entire obligation. Spouses Poon v. Prime Savings Bank (2016)
There is no need for the bank to go after The reasonableness of a penalty depends on
Kevin’s assets first. the circumstances in each case, because what
is iniquitous and unconscionable in one may
PNB v. Independent Planters Association be totally just and equitable in another. In
(1983) resolving this issue, courts may consider
CC1216 grants the creditor the substantive factors including but not limited to the type,
right to seek satisfaction of his credit from extent and purpose of the penalty; the nature
one, some or all of his solidary debtors, as he of the obligation; the mode of the breach and
deems fit or convenient for the protection of its consequences; the supervening realities;
his interests; and if, after instituting a and the standing and relationship of the
collection suit based on contract against parties.
some or all of them and, during its pendency,
one of the defendants dies, the court retains If the penal clause is clear as to how much
jurisdiction to continue the proceedings and the penalty imposed will be, it cannot be
decide the case in respect of the surviving reduced by the courts unless there is partial
defendants. performance of the obligation or the penalty
imposed is unconscionable
The creditor has, however, the option to file
with the estate. The Betis Furniture Co. undertook to deliver to
Mr. Bagongkasal specified pieces of living room,
Spouses Lam v. Kodak (2016) dining room and bedroom furniture, all made of
If the intent of the parties is for the obligation narra, for a price stated in the contract. The
to be indivisible, this intent must prevail even agreement had a penal clause that any violation
though the articles involved are physically of the contract would entitle the aggrieved
separable and capable of being paid for and party to damages in the amount of
delivered individually. CC1225 provides that PhP100,000.00.
even though the object or service may be
physically divisible, an obligation is indivisible The furniture delivered by Betis was made, not
if so provided by law or intended by the of narra, but of inferior wood. In a suit to
parties. recover damages, Bagongkasal was able to
prove that the actual damages he sustained
Robes-Francisco Realty v. CFI (1978) amounted to PhP200,000.00. He demanded that
In obligations with a penal clause, the penalty amount plus the PhP100,000.00 penalty or a
shall substitute the indemnity for damages total of P300,000.00. Betis, however, countered
and the payment of interests in case of that if it were liable for damages at all, the
noncompliance, if there is no stipulation to maximum award should not exceed
the contrary. (CC1226) PhP100,000.00 as stated in the penal clause of
the contract. Whose claim would you sustain?
However, if the penal clause provides for Why?
damages less than what the debtor would be
 I shall sustain the claim of the defendant highest bidder. Title was later registered in the
Betis Furniture Co. The Civil Code is explicit. It name of the bank. When Ellen was notified that
provides that in obligations with a penal she should vacate the premises, she filed a
clause, the penalty shall substitute the complaint to nullify the loan with mortgage, the
indemnity for damages and the payment of auction sale and the title of Mega Bank on the
interests in case of non-compliance. ground that the bank is not a mortgagee in
good faith. Decide the case with reasons. (2016
There are only three exceptions to this rule. Bar)
They are: first, when there is a stipulation to
the contrary: second, when the creditor is I will decide in favor of Ellen. Banks, their
compelled to sue the debtor because of the business being impressed with public interest,
latter's refusal to pay the agreed penalty; and are expected to exercise a higher degree of
third, when the debtor is guilty of fraud. It is care and prudence than private individuals in
clear that the instant case does not fall within their dealings, even those involving registered
the purview of any of the three exceptions lands.
Therefore, the award in favor of the plaintiff
should be for PhP100,000.00 only As a general rule, a mortgagee can rely on
what appears on the certificate of title
Pamintuan v. CA (1979) presented by the mortgagor. An innocent
In case of fraud the difference between the mortgagee is not expected to conduct an
proven damages and the stipulated penalty exhaustive investigation on the history of the
may be recovered. mortgagor’s title. This rule is, however,
strictly applied against banking institutions. In
Justice would be adequately done by allowing this case, the bank failed to exercise the
petitioner to recover only the actual damages diligence demanded by law as it did not
proven and not to award to it the stipulated investigate further on the possession and
liquidated damages for any breach of the ownership of the lot.
contract. The proven damages supersede the
stipulated liquidated damages. Neither can the bank be considered a
mortgagee in good faith as it failed to inspect
Negligence the disputed property when offered to it as
→ Failure to observe the diligence security for the loan, which could have led it
required by law to discover the forged SPA.
→ GR: Bonus pater familias (diligence of
a good father of a family; reasonable Jovencio operated a school bus to ferry his two
man) sons and five of their schoolmates from their
 EXCEPTIONS: houses to their school, and back. The parents of
A. Banks the five schoolmates paid for the service. One
B. Common Carriers morning, Porfirio, the driver, took a short cut on
C. Public Utilities the way to school because he was running late,
D. Realty Firms with respect to land and drove across an unmanned railway crossing.
titles and deeds (i.e. they are At the time, Porfirio was wearing earphones
required to go beyond the four because he loved to hear loud music while
corners of the title and inquire driving. As he crossed the railway tracks, a
further as to the ownership and speeding PNR train loudly blared its horn to
possession of the land) warn Porfirio, but the latter did not hear the
horn because of the loud music. The train
Ellen entrusted her title over the lot where she is inevitably rammed into the school bus. ‘The
residing to Patrick, her nephew, for safekeeping strong impact of the collision between the
because of her poor eyesight. Patrick, a gambler, school bus and the train resulted in the instant
prepared a Special Power of Attorney (SPA) death of one of the classmates. of Jovencio’s
empowering him to mortgage the lot. Ellen’s younger son.
signature was forged. With the help of Julia who
represented herself as Ellen; Mega Bank granted The parents of the fatality sued Jovencio for
a loan to Patrick secured by a mortgage on damages based on culpa contractual alleging
Ellen’s lot. Due to non-payment, Mega Bank that Jovencio was a common carrier, Porfirio for
foreclosed the mortgage and was declared the
being. negligent; and the PNR for damages left side of the bus. As a result of the accident,
based on culpa aquiliana. Simeon suffered a fractured leg and was unable
to report for work for one week. He sued SBL for
Jovencio denied being a common carrier. He actual and moral damages. SBL raised the
insisted that he had exercised the diligence of a defense that it was the driver of the truck who
good father of a family in supervising Porfirio, was at fault, and that it exercised the diligence
claiming that the latter had had no history of of a good father of a family in the selection and
negligence or recklessness before the fatal supervision of its driver.
accident.
(a) Is SBL liable for actual damages? Moral
(a) Did his operation of the school bus service for damages? (2018 Bar)
a limited clientele render jovencio a common
carrier? Explain your answer. Yes, SBL is liable for actual damages.

Yes, the operation of the school bus service While the problem is silent as to whether the
for a limited clientele rendered Jovencio a cause of action of Simeon was for breach of
common carrier. contract of carriage or for quasi-delict, in
either case, SBL will be liable for actual
The test of a common carrier is whether he damages incurred by Simeon.
undertaking is a part of the activity engaged
in by the carrier that he has held out to the The defense of exercise of bonus pater
general public as his business or occupation. familias in the selection and supervision of its
It is immaterial that the service was for a driver will not lie because a common carrier is
limited clientele. Jovencio operated a school required to exercise extraordinary
bus business. He transported students in diligence--a higher standard of care than the
established routes to and from school and for diligence of a good father of a family.
which he collected a fee. It was not a mere
casual transaction that would have made it Moral damages can be obtained if the cause
beyond the ambit of the concept of a of action is quasi-delict should Simeon be
common carrier. able to prove that he suffered sleepless
nights and emotional anguish as required
b) In accordance with your answer to the under the Civil Code.
preceding question, stațe the degree of diligence
to be observed by Jovencio, and the If the cause of action is the breach of contract
consequences thereof. Explain your answer. of carriage, then Simeon must prove that SBL
(2017 Bar) acted in bad faith for the former to be
awarded moral damages.
As a common carrier, Jovencio is required by
law to observe extraordinary diligence in the Delay
vigilance over the goods and for the safety of → Sets in upon demand or when the
the passengers transported by them, creditor, despite a valid tender,
according to all the circumstances of each refused to accept without cause
case. A common carrier should carry the → Demand is dispensed with if it is
passengers safely as far as human-care and expressly provided by law, stipulated
foresight can provide, using the utmost by the parties, or when the demand
diligence of very cautious persons, with a due would be useless (e.g. Debtor is
regard for all the circumstances. insolvent)
→ Types of Delay
Simeon was returning to Manila after spending A. Mora Solvendi: Delay on the
a weekend with his parents in Sariaya, Quezon. part of the debtor
He boarded a bus operated by the Sabbit Bus B. Mora Accipiendi: Delay on the
Line (SBL) on August 30, 2013. In the middle of part of the creditor
the journey, the bus collided with a truck coming C. Compensatio Morae: Delay of
from the opposite direction, which was both the debtor and creditor
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
Solar Harvest v. Davao Corrugated Carton the thing due and subsequently the thing is
(2010) lost due to force majeur, the obligor is liable
In reciprocal obligations, as in contract of sale, for the loss of the thing.
the general rule is that the fulfillment of the
parties respective obligation should be Since the defendant was already in default
simultaneous. Hence, no demand is generally not having delivered the ring when delivery
necessary because, once a party fulfills his was demanded by plaintiff at due date, the
obligation and the other party does not fulfill defendant is liable for the loss of the thing
his, the latter automatically incurs delay. and even when the loss was due to force
majeure.
But when different dates for performance of
the obligation are fixed, the default for each Force Majeure
obligation must be determined, that is, the → GR: Obligor is not liable for the loss of the
other party would incur in delay only from thing due.
the moment the other party demands  EXCEPTIONS:
fulfillment of the former’s obligation. Thus, A. Law expressly provides
even in reciprocal obligations, if the period otherwise
for the fulfillment of the former’s obligation is a) Bailee in commodatum is
fixed, demand upon the obliged is still not liable for the loss of the
necessary before the obligor can be thing (CC1942)
considered in default and before a cause of i. EXC: They lend the
action for rescission will accrue. thing without the
bailor’s consent
Mere follow up is not the demand required B. Stipulation to the contrary
under the law that would render the obligor C. Nature of the obligation requires
in delay. the assumption of risk
D. Obligor was already in delay
Rodrigo Rivera v. Spouses Salvador and Chua prior to the loss of the thing due
(2015) (CC1165)
For demand to be dispensed with, the parties
must expressly agree that the obligee need Samantha sold all her business interest in a sole
not make a demand when the obligation falls proprietorship to Sergio for the amount of PhP1
due. It is insufficient that the parties agree to million. Under the sale agreement, Samantha
a due date for the performance of an was supposed to pay for all prior unpaid utility
obligation as this will still require that the bills incurred by the sole proprietorship. A month
obligee make a demand before the obligor after the Contract to Sell was executed,
can be rendered in delay. Samantha still had not paid the PhP50,000
electricity bills incurred prior to the sale. Since
Kristina brought her diamond ring to a jewelry Sergio could not operate the business without
shop for cleaning. The jewelry shop undertook electricity and the utility company refused to
to return the ring by February 1, 1999. When the restore electricity services unless the unpaid bills
said date arrived, the jewelry shop informed were settled in full, Sergio had to pay the unpaid
Kristina that the Job was not yet finished. They electricity bills. When the date for payment
asked her to return five days later. On February arrived, Sergio only tendered PhP950,000
6, 1999, Kristina went to the shop to claim the representing the full purchase price, less the
ring, but she was informed that the same was amount he paid for the unpaid utility bills.
stolen by a thief who entered the shop the night Samantha refused to accept the tender on the
before. Kristina filed an action for damages ground that she was the one supposed to pay
against the jewelry shop which put up the the bills and Sergio did not have authorization to
defense of force majeure. Will the action pay on her behalf.
prosper or not? (2000 Bar)
a) What is the effect of payment made by
The action will prosper. Force majeure cannot Sergio without the knowledge and consent
be invoked as defense in this case because of Samantha?
the defendant was already in default prior to
the loss of the diamond. The Civil Code The payment is valid and subject to
provides that when the obligor fails to give Sergio’s right of reimbursement from
 Samantha. However, since Sergio is also a (d) the obligor must be free from any
debtor of Samantha and both debts are participation in the aggravation of the injury
liquidated, due and demandable, the debt or loss.
of the latter can be legally compensated
with the debt of the former. The burden of proving that the loss was due
to a fortuitous event rests on him who
b) Is Samantha guilty of mora accipiendi? invokes it. And, in order for a fortuitous event
(2018 Bar) to exempt one from liability, it is necessary
that one has committed no negligence or
Yes, Samantha is guilty of mora accipienda as misconduct that may have occasioned the
creditor. Sergio had made a valid tender of loss.
payment and he was justified in subtracting
what was owed to him by Samantha. It is It has been held that an act of God cannot be
immaterial that Samantha did not consent to invoked to protect a person who has failed to
the payment of utility bills as it was a take steps to forestall the possible adverse
necessary expense for the operation of consequences of such a loss. One's
Sergio’s business. negligence may have concurred with an act of
God in producing damage and injury to
Fil-Estate, Inc. v. Spouses Ronquillo (2014) another; nonetheless, showing that the
A real estate enterprise engaged in the immediate or proximate cause of the damage
pre-selling of condominium units is or injury was a fortuitous event would not
concededly a master in projections on exempt one from liability. When the effect is
commodities and currency movements and found to be partly the result of a person's
business risks. The fluctuating movement of participation --whether by active intervention,
the Philippine peso in the foreign exchange neglect or failure to act -- the whole
market is an everyday occurrence, and occurrence is humanized and removed from
fluctuations in currency exchange rates the rules applicable to acts of God.
happen everyday, thus, not an instance of
caso fortuito. Torres-Madrid Brokerage v. Feb Mitsui Marine
(2016)
Sicam v. Jorge Under CC1734, common carriers are held
Fortuitous events by definition are responsible for the loss, destruction, or
extraordinary events not foreseeable or deterioration of the goods it transports
avoidable. It is therefore, not enough that the unless it results from:
event should not have been foreseen or
anticipated, as is commonly believed but it a) Flood, storm, earthquake, lightning,
must be one impossible to foresee or to avoid. or other natural disaster or calamity;
The mere difficulty to foresee the happening
is not impossibility to foresee the same. b) Act of the public enemy in war,
whether international or civil;
To constitute a fortuitous event, the following
elements must concur: c) Act of omission of the shipper or
owner of the goods;
(a) the cause of the unforeseen and
unexpected occurrence or of the failure of d) The character of the goods or defects
the debtor to comply with obligations must in the packing or in the containers;
be independent of human will;
e) Order or act of competent public
(b) it must be impossible to foresee the event authority.
that constitutes the caso fortuito or, if it can
be foreseen, it must be impossible to avoid; For all other cases - such as theft or robbery -
a common carrier is presumed to have been
(c) the occurrence must be such as to render at fault or to have acted negligently, unless it
it impossible for the debtor to fulfill can prove that it observed extraordinary
obligations in a normal manner; and, diligence.
 the theft or the robbery of the goods is not
considered a fortuitous event or a force CC1380 CC1191
majeure. Nevertheless, a common carrier True rescission Resolution
may absolve itself of liability for a resulting Lesion/Economic Breach or
loss: injury; Breach not non-compliance
required
a) if it proves that it exercised Subsidiary remedy Principal remedy
extraordinary diligence in May be invoked even
transporting and safekeeping the if both parties
goods; or complied with their
obligations
b) if it stipulated with the
shipper/owner of the goods to limit Nissan Car Lease Philippines, Inc. V. Lica
its liability for the loss, destruction, or Management, Inc. (2016)
deterioration of the goods to a Art. 1191 provides that the power to rescind
degree less than extraordinary is implied in reciprocal obligations, in cases
diligence. where one of the obligors should fail to
comply with what is incumbent upon him.
However, a stipulation diminishing or Otherwise stated, an aggrieved party is not
dispensing with the common carrier's liability prevented from extrajudicially rescinding a
for acts committed by thieves or robbers who contract to protect its interests, even in the
do not act with grave or irresistible threat, absence of any provision expressly providing
violence, or force is void under CC1745 for for such right.
being contrary to public policy.
Otherwise, the party injured by the other's
Jurisprudence, too, has expanded CC1734's breach will have to passively sit and watch its
five exemptions. De Guzman v. Court of damages accumulate during the pendency of
Appeals47 interpreted CC1745 to mean that a the suit until the final judgment of rescission
robbery attended by "grave or irresistible is rendered when the law itself requires that
threat, violence or force" is a fortuitous event he should exercise due diligence to minimize
that absolves the common carrier from its own damages (CC2203).
liability.
Whether a contract provides for it or not, the
Universal Food Corporation v. CA (1970) remedy of rescission is always available as a
The remedy of rescission in reciprocal remedy against a defaulting party. When
obligations is available only to one who has done without prior judicial imprimatur,
complied or is ready to comply with their own however, it may still be subject to a possible
obligation. court review. If the other party denies that
rescission is justified, it is free to resort to
Rescission in CC1191 judicial action in its own behalf, and bring the
A. Fulfillment with damages matter to court. Then, should the court, after
B. Rescission with damages due hearing, decide that the resolution of the
contract was not warranted, the responsible
Note: If the obligee chose fulfillment but it party will be sentenced to damages; in the
has become impossible for the obligor to contrary case, the resolution will be affirmed,
fulfill the obligation due to the latter’s fault, and the consequent indemnity awarded to
the former can choose rescission with the party prejudiced.
damages.
In other words, the party who deems the
contract violated may consider it resolved or
rescinded, and act accordingly, without
previous court action, but it proceeds at its
own risk. For it is only the final judgment of
the corresponding court that will conclusively
and finally settle whether the action taken
was or was not correct in law.
 particularly designated, which makes the
Olivarez Realty Corporation v. Castillo (2014) obligation a determinate one. In obligations
CC1191 on the right to rescind reciprocal involving determinate things, the remedy
obligations does not apply to contracts to sell. available is to ask for specific performance
Failure to fully pay the purchase price in and, in addition, damages.
contracts to sell is not the breach of contract
under CC1191. Failure to fully pay the The court cannot compel A to repair the
purchase price is "merely an event which piano as this would be tantamount to
prevents the [seller’s] obligation to convey involuntary servitude, which is prohibited
title from acquiring binding force." This is under the Constitution. It is a personal act
because "there can be no rescission of an that the courts cannot compel compliance.
obligation that is still nonexistent, the The remedy of B is to have the piano be
suspensive condition not having [happened]." repaired by another at the expense of A. He
can likewise ask for damages. (cf. CC1165,
Swire Realty v. Jayne (2015) 1167 and 1170)
The right of rescission of a party to an
obligation under CC1191 is predicated on a Modes of Extinguishment (CC1231)
breach of faith by the other party who → Presupposes a valid obligation. If the
violates the reciprocity between them. The the obligation was not valid in the
breach contemplated in the said provision is first place, there is no obligation to be
the obligor’s failure to comply with an extinguished.
existing obligation. When the obligor cannot → Note that CC1231 is not exclusive.
comply with what is incumbent upon it, the There are other modes to extinguish
obligee may seek rescission and, in the an obligation
absence of any just cause for the court to  Mutual desistance
determine the period of compliance, the  Arrival of resolutory period
court shall decree the rescission.
X and Y are partners in a shop offering portrait
A bound himself to deliver to B a 21-inch 1983 painting. Y provided the capital and the
model TV set, and the 13 cubic feet White marketing while X was the portrait artist. They
Westinghouse refrigerator, with Motor No. accepted the 50,000.00 payment of Kyla to do
WERT-385, which B saw in A’s store, and to her portrait but X passed away without being
repair B’s piano. A did none of these things. able to do it. Can Kyla demand that Y deliver the
portrait she had paid for because she was
a) May the court compel A to deliver the TV dealing with the business establishment and not
set and the refrigerator and repair the with the artist personally? Why or why not?
piano? Why? (2015 Bar)

b) If not, what relief may the court grant B? No, she cannot validly demand that Y deliver
Why? (1983 Bar) the portrait. While she may be correct that it
is the partnership she contracted with, Kyla
The court cannot compel A to deliver the TV cannot demand that Y deliver the portrait if
set. The obligation involves the delivery of the intention of the parties was that the
generic thing since the object is designated portrait should be done by X personally and
by its class without any particular designation that this precisely why the obligation was
or physical segregation from others of the constituted. With the death of X, the
same class. Thus, under CC1460, an action for obligation was extinguished since personal
specific performance is impossible. The obligations, such as painting a portrait, are
remedy of B is to ask for the delivery of a extinguished upon the death of the obligor.
21-inch 1983 model TV set which is neither of
superior nor inferior quality. He can likewise
ask for damages. Both remedies are available
under the Civil Code.

The court can compel the delivery of the

refrigerator as it involves the obligation to
deliver a specific thing. The refrigerator was
Payment surety or guarantor in
→ GR: Payment made not to one the obligation
enumerated in CC1240 is void
 EXCEPTIONS: Scenario 2: A and C are joint debtors and C
A. Redounded to the wants to pay for the entire amount
creditor’s benefit → Creditor must accept. It will be
B. Creditor ratified the considered payment.
payment → In joint obligations, anyone of the
C. Creditor’s acts estopped debtors may pay.
him from denying that
payment was made Scenario 3: C is a third party who has no
D. Payee acquired the rights interest in the fulfillment of the obligation and
of creditor after the the payment was made against A’s will
payment → C can only be reimbursed to the
E. In good faith possession of extent that A was benefited by the
the credit (CC1242) payment. (CC1236)
F. Debtor paid without the → Note that if the obligation was one
knowledge of the with securities such as a mortgage, C
assignment made by the cannot go after such securities. C was
creditor never a party to the contract
→ Payor is not necessarily the debtor. between A and B. Thus, he has no
 E.g. Third party payment interest in the securities involved in
→ Payee said contract based on the principle
 To whom payment was made of privity of contracts. In addition,
 Not necessarily the creditor when C paid the obligation, the
 E.g. Consignment, accessory contract securing the
successors-in-interest, obligation was likewise extinguished.
authorized representative, in Lastly, the payment made by C does
whose favor the obligation was not subrogate him to the rights of the
constituted (i.e. stipulation pour creditor as the case is not a legal
atrui) subrogation as provided in CC1302.
 One with the power to demand
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? (2011 Bar)

No, the bank's action is not correct. Y, as the

owner of the collateral, has an interest in the
payment of the obligation.

Scenario 1: B accepts payment without the Asiong borrowed P1 million from a bank,
knowledge of the A secured by a mortgage on his land. Without his
→ This is considered payment. consent, his friend Boyong paid the whole loan.
→ Note that the creditor is not bound to Since Asiong benefited from the payment, can
accept payment from another person Boyong compel the bank to subrogate him in its
other than the debtor. right as mortgagee of Asiong's land? (2011 Bar)
 EXCEPTIONS:
A. Express stipulation among No, Boyong cannot compel the bank to
the parties concerned subrogate him. The payment was made
B. Third party has an interest without the consent of Asiong. CC1236
in the transaction or provides that a third person who pays the
fulfillment of the obligation obligation without the consent of the debtor
a) E.g. Third party is can only be reimbursed to the extent that the
subsidiarily liable as a debtor was benefited. Thus, Boyong can only
be reimbursed the amount of what he paid.
 The bank cannot subrogate him in its rights as Azcona v. Jamandre (1987)
a mortgagee. The words "as per contract" are especially
significant as they suggest that the parties
NAPORCOR v. Ibrahim (2015) were aware of the provisions of the
Payment made to another instead of the agreement, which was described in detail
creditor in compliance with a final and elsewhere in the receipt. The rental
executory order of a court is a valid payment stipulated therein was P7,200.00. The
made in good faith. Furthermore, the person payment being acknowledged in the receipt
favored by the said court order is in was P7,000.00 only. Yet no mention was
possession of the credit and thus has a right made in the receipt of the discrepancy and,
to the payment. on the contrary, the payment was
acknowledged "as per contract." The
A owes B P20,000 which became due and provisions of the contract were being
payable last October 1, 1983. On that date, A maintained and respected except only for the
offered B P10,000 the only money he then had, reduction of the agreed rental. Thus, the
but refused to accept the payment. A thereafter applicable provision is CC1235, which
met C, B's 22-year old son, to whom he gave the provides that when the obligee accepts the
P10,000 with the request that he return the performance, knowing its incompleteness or
money over to B. The money was stolen while in irregularity, and without expressing any
C's possession. protest or objection, the obligation is deemed
fully complied with.
a) Was B justified in refusing to accept the
payment of A?
If the parties agreed that the debt be paid in
Yes, B was justified in refusing the payment currency other than Philippine Peso, can the
because the Civil Code provides that a debtor be compelled to pay in foreign currency
creditor is not bound to accept partial as stipulated?
payment.
Yes, the debtor can be compelled to pay in
b) May he still recover the full amount of his such foreign currency. (cf. CC1249; RA 8183)
debt of P20,000? Why? (1983 Bar)
Mr. Magaling obtained a judgment against Mr.
Yes, B may still recover the full amount. There Mayaman in the amount of P500,000.00. A writ
is payment to a wrong party and none of the of execution was issued pursuant to which
exceptions provided under CC1241 obtains in various personal properties of Mayaman were
this case that would have made the payment levied upon by the sheriff. An auction sale was
valid. Nothing in the case shows that B scheduled. Before the appointed day of the
assigned his rights as creditor to C or that he auction, Mayaman delivered to the sheriff a
had ratified the payment to C. Neither was cashier’s check of Far East Bank in the amount
there any conduct on the part of B that would of P200,000.00 and enough cash to cover the
lead A to believe that C had the authority to remainder of the total amount due. Magaling
receive payment. In addition, the money was refused to accept the check and asked the
stolen while in possession of C, thus the sheriff to proceed with the auction sale.
payment did not redound to the benefit of B.
Did Magaling have the right to refuse the
J.M. Tuason v. Javier (1970) payment of part of the obligation with a
In the interest of justice and equity, when the cashier’s check? Explain. (1986 Bar)
obligor has substantially complied with what
is incumbent upon him, especially when he In 1986: No.
has offered to pay all of the installments The effective ruling of the SC in New Pacific
overdue including the stipulated interest, Timber vs. Seneris is that manager’s check,
apart from reasonable attorney’s fees and certified check and cashier’s check are as
the costs, rescission cannot be granted. (cf. good as cash. As such, the creditor does
CC1234) not have a right to refuse.

Today: Yes.
 The SC reverted to earlier decisions that Special Forms of Payment
checks of whatever kind do not have legal
tender power. A creditor cannot be Dacion en
Cession Consignation
compelled to accept payment through Pago
checks. Consent of creditor
Required Required Cannot be
As to the cash component of the payment: obtained and
Yes. Magaling is not compelled to receive is therefore
partial payment. Partial payment is no not required
payment. Effect of Delivery
Ownership Ownership If court
passes to the won’t pass to declares it
Evangelista v. Screenex, Inc. (2017) creditor the creditor. proper,
→ WON the petitioner can still be held Creditor ownership
liable considering that the check was merely passes to the
not presented 10 years from its constituted as creditor
issuance--No. agent to sell
→ GR: A check can only be considered a the thing
valid payment if it is encashed. delivered
 EXCEPTIONS: Extinguishment
A. Impaired by the creditor Obligation is Obligation is Obligation is
B. Action to present the check extinguished extinguished extinguished
has prescribed only insofar
as the net
Anne owed Bessy P1 million due on October 1, proceeds
2011 but failed to pay her on due date. Bessy
sent a demand letter to Anne giving her 5 days Dacion en Pago
from receipt within which to pay. Two days after → If there is a variance in the value of
receipt of the letter, Anne personally offered to the original object and that which
pay Bessy in manager's check but the latter replaces it, the intent of the parties
refused to accept the same. The 5 days lapsed. shall govern as to the extinguishment
May Anne’s obligation be considered of the obligation.
extinguished? (2011 Bar) → If there is a variance in the value and
the creditor accepts without
No, her obligation cannot be considered reserving the right to the balance, the
extinguished since tender of payment even in obligation is deemed fulfilled. (cf.
cash, if refused, will not discharge the CC1235)
obligation without proper consignation in
court. Butch got a loan from Hagibis Corporation
(Hagibis) but he defaulted in the payment. A
Dina bought a car from Jai and delivered a check case for collection of a sum of money was filed
in payment of the same. Has Dina paid the against him. As a defense, Butch claims that
obligation? Why? (2012 Bar) there was already an arrangement with Hagibis
on the payment of the loan. To implement the
She has not paid the obligation. For a check same, Butch already surrendered five (5) service
to be considered payment, it must be utility vehicles (SUVs) to the company for it to
encashed or when through the fault of the sell and the proceeds to be credited to the loan
creditor, they have been impaired or if the as payment. Was the obligation of Butch
action has prescribed. (cf: CC1249 and extinguished by reason of dacion en pago upon
Evangelista v. Screenex, Inc.) the surrender of the SUVs? Decide and explain.
(2016 Bar)

The mere return of the mortgaged motor

vehicle by the mortgagor to the mortgagee
does not constitute dation in payment or
dacion en pago in the absence, express or
 implied of the true intention of the parties. In iv. Cannot be made when the
this case there was no consent on the part of period has not arrived and
Hagibis Corporation to the proposed novation such period was
of Butch. constituted in favour of the
creditor, except with the
Filinvest v. Acetelyne (1982) consent of the creditor (Art.
Dacion en pago, according to Manresa, is the 1252)
transmission of the ownership of a thing by v. When there is agreement
the debtor to the creditor as an accepted as to which debt must be
equivalent of the performance of obligation. paid first
In dacion en pago, as a special mode of
payment, the debtor offers another thing to B. If no designation as to who may
the creditor who accepts it as equivalent of choose
payment of an outstanding debt. The a) If the debts are of different
undertaking really partakes in one sense of nature and burden to that debt
the nature of sale, that is, the creditor is which is most onerous to the
really buying the thing or property of the debtor;
debtor, payment for which is to be charged b) If the debts are of the same
against the debtor's debt. As such, the nature and burden, apply
essential elements of a contract of sale, payment proportionately.
namely, consent, object certain, and cause or
consideration must be present. Allan bought Billy’s property through Carlos, an
agent empowered with a special power of
In its modern concept, what actually takes attorney (SPA) to sell the same. When Allan was
place in dacion en pago is an objective ready to pay as scheduled, Billy called, directing
novation of the obligation where the thing Allan to pay directly to him. On learning of this,
offered as an accepted equivalent of the Carlos, Billy's agent, told Allan to pay through
performance of an obligation is considered as him as his SPA provided and to protect his
the object of the contract of sale, while the commission. Faced with two claimants, Allan
debt is considered as the purchase price. In consigned the payment in court. Billy protested,
any case, common consent is an essential contending that the consignation is ineffective
prerequisite, be it sale or innovation to have since no tender of payment was made to him. Is
the effect of totally extinguishing the debt or he correct?
obligation.
No, he is not correct. Consignation without
Governing Law in Dation in Payment tender of payment is allowed when there is
→ If there is a pre-existing debt, the law conflicting claims as to the thing consigned.
on sales will govern
→ If otherwise, it is governed by the law Rules on Loss of the Thing Due/Impossibility of
on novation. Performance
→ GR: Obligation is extinguished
Rules in Application of Payment  EXCEPTION: Loss was due to the fault
A. GR: Debtor designates which debt of the debtor or when the thing was
should be paid in his possession at the time it was
a) Limitations: lost
i. Creditor cannot be  EXCEPTION: The thing was lost
compelled still to accept during a calamity
partial payment (CC1248) - EXCEPTION: He was already
ii. Debtor cannot apply in delay before the
payment to principal if the calamity struck
interest has not yet been  EXCEPTION: When the
paid (CC1253) obligor can show that
iii. The debt must be the thing would have
liquidated, except when been lost even
the parties agree without his delay
otherwise; → In case of partial loss, the intent of the
parties shall govern
Rebus Sic Stantibus (CC1276) if the obligation condoned is more
A court may release the debtor from the than P5,000, etc.)
obligation in whole or in part if an event,
unforeseen, has made it difficult for the Arturo borrowed P500,000.00 from his father.
debtor to comply with the obligation. After he had paid P300,000.00, his father died.
When the administrator of his father’s estate
Note: The court is not authorized to change requested payment of the balance of
the terms and conditions of the contract in P200,000.00. Arturo replied that the same
cases of rebus sic stantibus. It is only had been condoned by his father as evidenced
authorized to release the debtor in whole or by a notation at the back of his check payment
in part. for the P300,000.00 reading: “In full payment of
the loan”. Will this be a valid defense in an
For value received, Pedro promised to deliver to action for collection? (2000 Bar)
Juan on or before August 15, 1984 a Mercedes
Benz with Plate No. 123 which he (Pedro) had It depends on who wrote the notation. If the
just brought home from Germany, as well as a notation “in full payment of the loan” was
1984 18" Sony television set. written by Arturo’s father, there was an
implied condonation of the balance that
Unfortunately, before the scheduled delivery discharges the obligation. In such case, the
date, the Mercedes Benz and the television set notation is an act of the father from which
which Pedro had intended to deliver to Juan condonation may be inferred. The
were destroyed in an accidental fire. condonation being implied, it need not
comply with the formalities of a donation to
Has the obligation of Pedro been extinguished? be effective. The defense of full payment will,
Explain. (1984 Bar) therefore, be valid.

The obligation of Pedro to deliver the When, however, the notation was written by
Mercedes Benz is extinguished while the Arturo himself. It merely proves his intention
obligation to deliver the TV set has not been in making that payment but in no way does it
extinguished. bind his father (Yam v. CA, G.R. No. 104726,
11 February 1999). In such case, the notation
As regards the obligation to deliver the was not the act of his father from which
Mercedes Benz, it is an obligation to deliver a condonation may be inferred. There being
determinate thing since the vehicle was no condonation at all the defense of full
specifically designated by its plate number. payment will not be valid.
The Civil Code provides when the
determinate thing is lost through a fortuitous Compensation
event, as in the case of fire, the obligation is  Essential Requisite: Mutual debtors and
extinguished. creditors of each other

On the obligation to deliver the television set, Kinds of Compensation

the obligation involved is an obligation to  According to Extinguishment
deliver a generic thing. The television set in A. Total
question was not particularly designated and B. Partial
only the kind of television set was agreed C. Note: Determination of type of
upon. Consistent with the latin maxim genus compensation relevant in
nunquam perit, the obligation to deliver a determining liability to pay
generic thing, a television set in this case, interest
subsists.  According to Origin
A. Legal: By operation of law
Condonation B. Voluntary: By agreement
→ A kind of donation of credit, the form C. Judicial: Through counterclaim
of which is prescribed by law. D. Facultative: By unilateral choice
→ Non-compliance with form prescribed of one party to claim or oppose
by law will not extinguish the compensation; no mutual
obligation (e.g. no written acceptance agreement needed
 Note: Sir Uribe contends that this then return. Only the bailor can invoke
kind of compensation is a specie or oppose compensation. (cf. CC1287
of voluntary compensation par. 2 and CC1933)

X, who has a savings deposit with Y Bank in the C. One of the debts arises from a claim for
sum of P1M incurs a loan obligation with the support due to gratuitous title, which
said Bank in the sum of P800.000.00 which has are deemed “vital to the life of the
become due. When X tries to withdraw his recipient." This only applies to support
deposit, Y Bank allows only P200.000.00 to be in arrears, but not to future support.
withdrawn, less service charges, claiming that This can only be invoked or opposed by
compensation has extinguished its obligation the one entitled to support. (cf. CC1287
under the savings account to the concurrent par. 1 and CC301 par. 1)
amount of X's debt. X contends that
compensation is improper when one of the debts, D. One of the debts consists in civil liability
as here, arises from a contract of deposit. arising from a criminal/penal offense;
Assuming that the promissory note signed by X the fulfilment of such obligation is
to evidence the loan does not provide for imperative or necessary. (cf.
compensation between said loan and his savings Metropolitan Bank & Trust Company v.
deposit, who is correct? Tonda; CC1288)

Y Bank is correct. Jurisprudence provides that Stockton is a stockholder of Core Corp. He desires
the relation of a depositor and a bank is not a to sell his shares in Core Corp. In view of a court
contract of deposit but a contract of loan. suit that Core Corp. has filed against him for
Thus, Y Bank and X are mutual creditors and damages in the amount of P10 million, plus
debtors of each other and under CC1279, attorney’s fees of P 1 million, as a result of
compensation can take place. statements published by Stockton which are
allegedly defamatory because it was calculated
Furthermore, jurisprudence also provides that to injure and damage the corporation’s
as a general rule, a bank has a right to set off reputation and goodwill.
of deposits in its hands for the payment of any
indebtedness to it on the part of a depositor. The articles of incorporation of Core Corp.
(cf. Gullas v. PNB) provide for a right of first refusal in favor of the
corporation. Accordingly, Stockton gave written
Facultative Compensation notice to the corporation of his offer to sell his
 The party who has such debts cannot shares of P 10 million. The response of Core corp.
use compensation but the other party was an acceptance of the offer in the exercise of
has the option to claim or oppose its rights of first refusal, offering for the purpose
compensation payment in form of compensation or set-off
 Rationale: To prevent breach of trust against the amount of damages it is claiming
and confidence or where fulfilment of against him, exclusive of the claim for attorney’s
civil liability is imperative (the latter fees. Stockton rejected the offer of the
applicable to civil liability arising from corporation, arguing that compensation between
penal offenses) the value of the shares and the amount of
damages demanded by the corporation cannot
A. One of the debts arises from a legally take effect. Is Stockton correct? Give
depositum or deposit, wherein one reason for your answer. (2002 Bar)
receives a thing belonging to another,
with the obligation of safely keeping it Yes, Stockton is correct. There is no right of
and of returning the same. compensation between his price of P10
Compensation can only be claimed or million and Core Corporation’s unliquidated
opposed by the depositor. (cf. CC1287 claim for damages. The Civil Code provides
par 1 and CC1962) that in order that compensation may be
proper, the two debts must be liquidated and
B. One of the debts arises from a bailee demandable. The case for the P10million
(agent) in commodatum, wherein one damages being still pending in court, the
gratuitously delivers something to the corporation has as yet no claim which is due
other to be used for a certain time and and demandable against Stockton.
B borrowed from C P1,000 payable in one year. Novation
When C was in the province, his 17 year old son  Extinguishes and creates obligations
borrowed P500 from B for the payment of the  Test: Wheter the two obligations can
former's tuition. However, the son spent it stand together
instead nightclubbing. When the debt to C fell  Kinds of Novation
due, B tendered only P500, claiming o Subjective
compensation on the P500 borrowed by C's son. A. Active: Change in
creditor
a) Is there legal compensation? Why? B. Passive: Change in
debtor
No, there is no legal compensation. For legal o Objective/Real
compensation to take place, there must be A. Change in the Object
two parties who are, in their own right, the B. Change in the
creditors and debtors of each other. In this Principal Condition
case, C cannot be considered a party to the o Mixed
act of his son borrowing P500 from B. Thus, C
cannot be said to be the debtor of B and Active Novation; Effects and Origin
neither was B the creditor of C. → Effects
 Subrogation into the right of creditor
In addition, there is no showing that the loan  Prescriptive period resets as of the
obtained by C’s son redounded to C’s benefit time of the novation
that would make him liable to B as a debtor. → Kind According to Origin
A. By express agreement
b) Suppose the minor son actually used the B. Legal active novation (cf. CC1302)
money for tuition, would the answer be different? a) Third party paid with the consent
Reasons. (1981 Bar) of the debtor
b) Third party interested in the
The answer would be different. In this case, fulfillment of the obligation
since parents are legally obliged to support c) Payment of a preferred creditor
the education of their children, it can be
argued that the loan would redound to the Baldomero leased his house with a telephone to
benefit of C. Having benefited from the loan Jose. The lease contract provided that Jose shall
obtained by his son, C can be deemed a third pay for all electricity, water and telephone
party who has an interest in the fulfilment of services in the leased premises during the period
the obligation from whom payment may be of the lease. Six months later, Jose surreptitiously
demanded by B. Thus, B and C would be the vacated the premises. He left behind unpaid
creditor and debtor of each other in their own telephone bills for overseas telephone calls
right and legal compensation can take place. amounting to over P20,000.00. Baldomero
refused to pay the said bill on the ground that
Note: This is Sir Uribe’s answer. Some Bar Q Jose had already substituted him as the customer
and As provide that the answer should be the of the telephone company. The latter maintained
same as C was not a party to the loan that Baldomero remained, as his customer as far
between B and C’s son, applying the principle as their service contract was concerned,
of privity of contracts but considers Sir Uribe’s notwithstanding the lease contract between
answer as an alternative answer. Baldomero and Jose.

Who is correct, Baldomero or the telephone

company? Explain. (1996 Bar)

The telephone company is correct because

there is no substitution in this case since the
consent of the creditor was never obtained,
which is required under CC1293. (cf. Arco Pulp
v. Lim)
J.C. Construction (J.C.) bought steel bars from Passive Subrogation
Matibay Steel Industries (MSI) which is owned by Expromision Delegacion
Buddy Batungbacal. J.C. failed to pay the Without knowledge or With consent or
purchased materials worth P500,000.00 on due against the will of the knowledge but
date. J.C. persuaded its client Amoroso with original debtor without objection of
whom it had receivables to pay its obligation to the old debtor
MSI. Amoroso agreed and paid MSI the amount Consent of the creditor is always required
of P50,000.00. After two (2) other payments, Reimbursement
Amoroso stopped making further payments. New debtor can only The whole amount
recover up to the paid regardless of the
Buddy filed a complaint for collection of the extent that the old extent the old debtor
balance of the obligation and damages against debtor was benefited. was benefited
J.C. J.C. denied any liability claiming that its (cf. CC1293, CC1236
obligation was extinguished by reason of and CC1237)
novation which took place when MSI accepted New debtor is insolvent
partial payments from Amoroso on its behalf. Creditor cannot run Creditor can only run
after the old debtor after the old debtor if
Was the obligation of J.C. Construction to MSI the insolvency was
extinguished by novation? Why? (2014 Bar) already existing and of
public knowledge, or
The obligation is not extinguished by novation. known to the debtor
CC1292, for an obligation to be extinguished
by another, which substitute the same, it is
required that it is declared in unequivocal Upon the proposal of a third person, a new
terms or that the old and new obligation be debtor substituted the original debtor without
incompatible in every point. Novation is not the latter’s consent. The creditor accepted the
presumed. In this case, there was no clear substitution. Later, however, the new debtor
agreement that the old obligation has been became insolvent and defaulted in his obligation.
extinguished and substituted by another. What is the effect of the new debtor’s default
upon the original debtor? (2011 Bar)
Mere receipt of payment by the creditor from
a third person does not constitute novation The original debtor is freed of liability since
and does not extinguish the obligation of the novation took place and this relieved him of
original debtor. Since there was no novation, his obligation.
the obligation of the original debtor is not
extinguished. Thus, the obligation of J.C. Millar v. CA
Construction to MSI subsists. (cf. Magdalena Where the new obligation merely reiterates
Estates, Inc. v. Rodriguez) or ratifies the old obligation, although the
former effects but minor alterations or slight
modifications with respect to the cause or
object or conditions of he latter, such
changes do not effectuate any substantial
incompatibility between the two obligations.

Only those essential and principal changes

introduced by the new obligation producing
an alteration or modification of the essence
of the old obligation result in implied
novation.

The mere reduction of the amount due in no

sense constitutes a sufficient indictum of
incompatibility, especially in the light of (a)
the explanation by the petitioner that the
reduced indebtedness was the result of the
partial payments made by the respondent
 before the execution of the chattel mortgage that, while there was a delay in the service of
agreement and (b) the latter's admissions the meals, the same was occasioned by the
bearing thereon. sudden increase of guests to 450 from the
guaranteed expected number of 350, as
Japan Airlines v. Simangan stated in the Banquet and Meeting Services
Since novation implies a waiver of the right of Contract. In the action for damages for
the creditor had before the novation, such breach of contract instituted by the couple,
waiver must be express. they claimed that the Banquet and Meeting
Services Contract was a contract of adhesion
A change in one of the principal conditions is since they only provided the number of guests
a novation that requires the consent of the and chose the menu. On the other hand, the
creditor. hotel's defense was that the proximate cause
of the complainant's injury was the
LAW ON CONTRACTS unexpected increase in their guests, and this
was what set the chain of events that resulted
CC1305 in the alleged inconveniences.
→ One of the sources of obligations
→ Definition in law is inaccurate. It does Was the Banquet and Meeting Services
not consider auto-contracts, where Contract a contract of adhesion? If yes, is the
only one person represents two contract void? (2018 Bar)
opposite parties, but in different
capacities Yes, it is a contract of adhesion. A contract
of adhesion is one where there is already a
Fundamental Characteristics prepared form containing the stipulations
A. Mutuality: Binds the contracting desired by one party whereby the latter
parties and its validity or compliance only asks the other party to agree to them
cannot be left to the will of one of if he wants to enter into a contract. In this
them (CC1308) case, Sangria Hotel fixed the terms and
conditions of the contract and the couple
B. Relativity: Takes effect only between merely affixed their signature thereto.
the parties, their assigns and heirs,
except in case where the rights and The contract is not void. Jurisprudence
obligations arising from the contract holds that contracts of adhesion are not
are not transmissible by their nature, void per se as the other party is free to
or by stipulation or by provision of reject it entirely. However, the Supreme
law.(CC1311) Court has held that a contract of adhesion
is void where the the weaker party is
C. Autonomy: Parties are free to imposed upon in dealing with the
stipulate the terms and conditions dominant party and is reduced to the
provided that it is not contrary to law, alternative of accepting the contract or
morals, good customs, public order or leaving it, completely deprived of the
public policy (CC1306). opportunity to bargain on equal footing.

D. Consensuality: A contract is a meeting The circumstances herein does not show

of minds between two persons that the contract should be declared void
whereby one binds himself, with as the couple was not imposed upon by the
respect to the other, to give hotel and were free to choose another
something or to render some service. hotel for their wedding reception.
(CC1305)
Escalation Clause
Newlyweds Sam and Sienna had contracted → Where one increases or decreases
with Sangria Hotel for their wedding compensation of one of the parties upon
reception. The couple was so unhappy with the happening of a contingency
the service, claiming, among other things, → Valid if the increase or decrease is
that there was an unreasonable delay in the dependent on valid and reasonable
service of dinner and that certain items standards (e.g. market rates)
promised were unavailable. The hotel claims
→ Void if the increase or decrease is Non-Involvement Clause
dependent upon the sole will of one of the → Prohibiting an employee, during his
parties because this will violate the employment and after separation,
principle of mutuality of contracts from engaging or being involved with
→ For loans, an escalation clause must be any corporation, association or entity,
accompanied by a de-escalation clause to whether directly or indirectly,
be valid engaged in the same business or
belonging to the same industry.
On July 1, 1998, Brian leased an office space in a → This clause is valid, provided there are
building for a period of five years at a rental rate limitations as to the period, the
of P1,000.00 a month. The contract of lease industry or the area or location where
contained the proviso that “in case of inflation the prohibition applies. (cf. Tiu v.
or devaluation of the Philippine peso, the Platinum Plans)
monthly rental will automatically be increased
or decreased depending on the devaluation or Alma was hired as a domestic helper in
inflation of the peso to the dollar.” Starting Hongkong by the Dragon Services, Ltd., through
March 1, 2001, the lessor increased the its local agent. She executed a standard
rental to P2,000 a month, on the ground of employment contract designed by the Philippine
inflation proven by the fact that the exchange Overseas Workers Administration (POEA) for
rate of the Philippine peso to the dollar had overseas Filipino workers. It provided for her
increased from P25.00 = $1.00 to P50.00 = employment for one year at a salary of
$1.00. Brian refused to pay the increased rate US$1,000.00 a month. It was submitted to and
and an action for unlawful detainer was filed approved by the POEA. However, when she
against him. Will the action prosper? Why? arrived in Hongkong, she was asked to sign
(2001 Bar) another contract by Dragon Services, Ltd. which
reduced her salary to only US$600.00 a month.
The action will not prosper because Brian can Having no other choice, Alma signed the contact
validly refuse to pay the increasd rate. but when she returned to the Philippines, she
Extraordinary inflation or deflation is defined demanded payment of the salary differential of
as the sharp decrease in the purchasing US$400.00 a month. Both Dragon Services, Ltd.
power of the peso. It does not necessarily and its local agent claimed that the second
refer to the exchange rate of the peso to the contract is valid under the laws of Hongkong,
dollar. Whether or not there exists an and therefore binding on Alma. Is their claim
extraordinary inflation or deflation is for the correct? (1996 Bar)
courts to decide. However, nothing in the
case shows that there was a tremendous No, their claim is not correct. A contract is
decrease in the purchase power of the peso the law between the parties but the contract
that would justify the increase in the rent. can be disregarded if it is contrary to public
policy. In this case, the stipulation reducing
Del Rosario v. Shell the salary is contrary to the Philippines'
When the contract provides that rent shall be public policy to afford full protection to labor
adjusted in the event of devaluation or as provided by the Constitution. Thus, the
appreciation of the Philippine Peso, the rent stipulation is void and cannot be binding on
shall be adjusted in accordance with the Alma.
official act of the government delcaring such
devaluation or in accordance with the As to the contention that the contract is valid
decrease in the value of the currency. under the laws of Hongkong, a contract valid
under the laws of the place where it is
Note: This case is different from celebrated is not necessarily valid and
extraordinary inflation or deflation in CC1250 enforceable under Philippine law. In this case,
as the former is arises from the contract itself the application of Hongkong law will be
and does not require court intervention. disregarded because it likewise runs counter
to the public policy of the Philippines to
afford full protection to labor.
Donna pledged a set of diamond ring and Other examples: CC1731 on work upon a
earrings to Jane for P200.0 She was made to movable, CC1994 on the right of the
sign an agreement that if she cannot pay her depositary to retain the thing deposited
debt w six months, Jane could immediately
appropriate the jewelry for herein After six Raymond Son v. UST
months, Donna failed to pay. Jane then A stipulation in a Collective Bargaining
displayed the earring and ring set in her jewelry Agreement that is contrary to the rules
shop located in a mall. A buyer, Juana, bought promulgated by a government agency (in
the jewelry set for P300,000.00. this case, DECS) is void.

a) Was the agreement which Donna signed Security Bank Corporation v. Spouses Mercado
with Jane valid? Explain with legal basis. The principle of mutuality of contracts is
found in CC1308, which states that contracts
No, the agreement that if Donna cannot must bind both contracting parties, and its
pay her debt within 6 months, Jane could validity or compliance cannot be left to the
immediately appropriate the jewelry for will of one of them.
herself is void as it constitutes pactum
commissorium, which is void under the The binding effect of any agreement between
law. parties to a contract is premised on two
settled principles: (I) that any obligation
Under CC2088, pactum commissorium is a arising from contract has the force of law
provision in a pledge or mortgage between the parties; and (2) that there must
agreement where the property pledged or be mutuality between the parties based on
mortgaged by the debtor automatically their essential equality. As such, any contract
becomes the property of the creditor in the which appears to be heavily weighed in favor
event the debtor fails to pay the debt or of one of the parties so as to lead to an
commits a breach of the loan agreement. unconscionable result is void.

b) Can Donna redeem the jewelry set from Likewise, any stipulation regarding the
Juana by paying the amount she owed validity or compliance of the contract that is
Jane to Juana? Explain with legal basis. potestative or is left solely to the will of one
of the parties is invalid. This holds true not
No. Donna cannot redeem the jewelry set only as to the original terms of the contract
from Juana because there is no privity of but also to its modifications. Consequently,
contract between Donna and Juana. any change in a contract must be made with
the consent of the contracting parties, and
Moreover, Juana is a third person who must be mutually agreed upon. Otherwise, it
purchased the thing in good faith from a has no binding effect.
merchant store. Under CC1505, even if the
seller does not have the right to sell, the Stipulations as to the payment of interest are
buyer acquires absolute ownership over subject to the principle of mutuality of
the thing if he bought it in a merchant contracts. As a principal condition and an
store in good faith, the owner neither important component in contracts of loan,
having been unlawfully deprived thereof, interest rates are only allowed if agreed upon
nor was the thing lost by express stipulation of the parties, and only
when reduced into writing. Any change to it
c) Give an example of a pledge created by must be mutually agreed upon, or it produces
operation of law. (2015 Bar) no binding effect.

A pledge is created by operation of law

when a possessor in good faith has spent
for the necessary expenses of the thing
owned by another. Such a possessor is
allowed to retain the thing until he is
reimbursed for the necessary expenses by
the owner. (CC546)
Relativity of Contracts Merle offered to sell her automobile to Violy for
→ GR: Contracts take effect between P60,000.00. After inspecting the automobile,
parties, their assigns and heirs Violy offered to buy it for P50,000.00. This offer
 EXCEPTIONS: was accepted by Merle. The next day, Merle
A. Intransmissible offered to deliver the automobile, but Violy
a) Rights that are personal in being short of funds, secured postponement of
nature the delivery, promising to pay the price “upon
b) Stipulation arrival of the steamer, Helena”. The steamer
c) Law (e.g. usufruct) however never arrived because it was wrecked
B. Third persons by a typhoon and sank somewhere off the Coast
a) The contract is entered into of Samar.
fraud of creditors. In which
case, the creditors have a Is there a perfected contract in this case? Why?
cause of action, depsite not (1988 Bar)
being made parties to the
contract Yes. In this case, the contract involved is one
b) Stipulations pour atrui of sale. Sale is not a real or a formal contract
wherein the acceptance of which would require delivery or compliance
the benefit conferred has with a certain form for its perfection; it is a
been communicated to the consensual contract which is perfected at the
obligor before the offer can moment there is meeting of the minds.
be revoked. In this case, there was meeting of the minds
c) Malicious Interference: the moment the counter-offer or offer to buy
Third parties who induce was accepted. As such, there is a perfected
the contracting party to contract.
breach the latter’s
obligation (CC1314) The condition "upon arrival of the steamer
Helena" was only for the performance of the
Francis Albert, a citizen and resident of New obligation and for its perfection. It is a
Jersey U.S.A., under whose law he was still a condition as to the payment but not as to
minor, being only 20 years of age, was hired by whether the contract would be perfected or
ABC Corporation of Manila to serve for two not.
years as its chief computer programmer. But
after serving for only four months, he resigned Mr. and Mrs. X migrated to the US with all their
to join XYZ Corporation, which enticed him by children. As they had no intention of coming
offering more advantageous terms. His first back, they offered their house and lot for sale to
employer sues him in Manila for damages their neighbors, Mr. and Mrs. A (the buyers)
arising from the breach of his contract of who agreed to buy the property for 8 Million.
employment. He sets up his minority as a Because Mr. and Mrs. A needed to obtain a loan
defense and asks for annulment of the contract from a bank first, and since the sellers were in a
on that ground. The plaintiff disputes this by hurry to migrate, the latter told the buyers that
alleging that since the contract was executed in they could already occupy the house, renovate it
the Philippines under whose law the age of as it was already in a state of disrepair, and pay
majority is 18 years, he was no longer a minor only when their loan is approved and released.
at the time of perfection of the contract. While waiting for the loan approval, the buyers
spent P1 Million in repairing the house. A month
Suppose XYZ Corporation is impleaded as later, a person carrying an authenticated special
co-defendant, what would be the basis of its power of attorney from the sellers demanding
liability, if any? (1998 Bar) that the buyers either immediately pay for the
property in full now or vacate it and pay
The basis of its liability would be its malicious damages for having made improvements on the
interference, as governed by CC1314. Under property without a sale having been perfected.
the Civil Code, XYZ Corporation will be liable
together with the debtor who was induced to
not comply with the obligation.
a) What are the buyers’ options or legal Option Agreement Option Contract
rights with respect to the expenses they CC1324 CC1479
incurred in improving the property under The offeror may There is already a
the circumstances? withdraw the offer perfected contract of
before acceptance is option. Here, there is
The sale was perfected and Spouses A communicated to him, a consideration
acquired ownership over the house and lot and he would not be distinct and separate
upon delivery. Payment is not required for liable for damages. from the price.
the perfection of the sale. As owners, they
have the right to make improvements on the Offeror is not bound, The offeror cannot
said properties, and to retain the same. he may withdraw validly withdraw
anytime before before the period
Even assuming for the sake of argument that acceptance is agreed upon without
the sale was not perfected and Spouses A had conveyed to him. being liable for
not acquired ownership over the house and damages. This does
lot because of a notarized deed of sale, or in not, however, entitle
case or rescission, they may be considered the offeree the right
builders in good faith since they entered into to demand specific
the property believing in good faith that they performance since
were the owners of the property in question. there is no perfected
contract of sale yet.
As builders in good faith, they are entitled to
reimbursement for necessary and useful Marvin offered to construct the house of Carlos
expenses incurred upon the property, and for a very reasonable price of P900,000.00,
may retain the property until reimbursement giving the latter 10 days within which to accept
therefore (CC448 and CC546). The or reject the offer. On the fifth day, before
improvements in question are necessary and Carlos could make up his mind, Marvin
useful since the house was already in a state withdrew his offer.
of disrepair.
a) What is the status of the withdrawal of
b) Can the buyers be made to immediately Marvin’s offer?
vacate on the ground that the sale was not
perfected? Explain briefly. (2015 Bar) The withdrwal is valid. Offeror may validly
withdraw before acceptance is
No, the buyers may not be made to vacate communicated to him.
the properties. A contract of sale is a
consensual contract which is perfected at the b) Will your answer be the same if Carlos paid
moment there is a meeting of the minds Marvin P10,000.00 as consideration for
upon the thing which is the object of the that option? Explain.
contract and upon the price (CC1475). In this
case, the sale was already perfected since No. Here there is an option contract. Offeror
there was already a meeting of the minds as cannot validly withdraw the offer. Otherwise,
to the object of the sale, which is the house there would be breach of the option contract.
and lot, and as to the price, which is P8 Remedy is action for damages.
Million. The fact that there was no payment
yet is immaterial since it is not a requisite for c) Supposing that Carlos accepted the offer
the perfection of the contract. before Marvin could communicate his
withdrawal thereof? Discuss the legal
Even assuming that the sale was rescinded, consequences. (2005 Bar)
the buyers may still not be made to vacate
the properties. Since the buyers made There would be a perfected contract. A
necessary and useful improvements upon the contract for a piece of work is a consensual
properties, they have the right to retain the contract perfected by the meeting of the
properties in question until the full minds of the parties. As such, the contract
reimbursement of such expenses (CC448 and was already perfected when the acceptance
CC546). was communicated to Marvin before he
could communicate his withdrawal.
Consent b) If there was fraud, mistake, violence,
A. No consent of one or both parties: intimidation or undue influence –
Contract is void. Voidable.
i. Those affecting COGNITION or
a) Fictitious Contracts: where one of the the awareness of certain facts:
parties did not actually gave his mistake and fraud.
consent. (e.g. a party’s signature in a
deed of sale is forged) ii. Those affecting VOLITION or
voluntariness of the act:
b) Simulated Contracts: where the Violence, Intimidation or Undue
parties would make it appear that Influence.
they entered into a contract when in If violence was employed on the wife of
fact they did not. the contracting party to force him to
enter into a contract, the same would be
i. Absolutely Simulated Contracts voidable.
– they did not intend to be
bound by the contract or any Even though CC1335 only mentions
contract for that matter. Usually intimidation on the person or property
to defraud someone. of the spouse, ascendants or
descendants, the party may still invoke
ii. Relatively Simulated Contracts – vitiation of consent due to the violence
the parties intended another employed on the person of his spouse.
contract. This is because they have the same
effect (i.e. they affect volition or
Proof of relatively simulated sale: voluntariness of giving consent).
capacity of the buyer to buy. If he
does not have capacity to buy, it Moreover, if the law would already
would be proof of simulation. consider as ground for vitiation of
consent, the intimidation, there is more
B. Both parties gave their consent, but one is reason to consider if violence is
incapacitated employed.

a) Absolute Incapacity – the party D. Both parties gave their consent, but both
cannot give consent in any contract, of the parties’ consent is vitiated or both
with anyone, in whatever capacity, are incapacitated – Unenforceable
over anything. CC1403(3).

b) Relative Incapacity – a person may be Briefly explain whether the following contracts
prohibited from entering specific are valid, rescissible, unenforceable; or void
contracts or that in a contract, he (2017 Bar):
may be prohibited in a certain
capacity, i.e., prohibited to be the a) A contract of sale between Lana and Aridy
buyer, or to specific things, or to wherein 16-year old Lana agreed to sell her
specific persons. grand piano for 25,000.00.

C. Both parties gave their consent The contract of sale is voidable, because Lana
is a minor, and is thus incapable of giving
a) If consent is given in behalf of consent to a contract.
another without authority –
Unenforceable b) A contract of lease of the Philippine Sea
i. UNLESS the person acting has entered by and between Mitoy and Elsa.
authority under the law (e.g.,
guardians, sheriff, executor, The contract of sale is void, because its object,
administrator, etc.) the Philippine Sea, is outside the commerce
of men.
c) A barter of toys executed by 12-year old Second, Jackie may be considered to have
Clarence and 10 year old Czar actively misrepresented as to her age. Thus,
she will be bound to the contract under the
The contract is unenforceable, because both principle of estoppel.
parties, being minors, are incapable of giving
consent. Joven and Juliana are the owners of a
30-hectare plantation in Cotabato, covered by a
d) A sale entered by Barri and Garri, both title. One day, a group of armed men forcibly
minors, which their parents later ratified. entered their house and, at gun point, forced
them to sign a Deed of Absolute Sale in favor of
The contract is valid and may not be annulled Romeo. Romeo got the title from them and they
by either party due to the ratification by the were ejected from the house and threatened not
parents of Barri and Garri, if done while both to come back or else they will be killed. The
were still minors. Ratification extinguishes spouses went to Manila and resided there for
the action to annul a voidable contract, or an more than 35 years. They never went back to
unenforceable contract, as in this case were Cotabato for fear of their lives. Word came to
both parties were minors and may be done them that peace and order have been restored
by the parents, as guardians of the minor in their former place of residence and they
children (CC1407). decided to reclaim their land for the benefit of
their grandchildren: Joven and Juliana filed a
e) Jenny’s sale of her car to Celestine in order suit for reconveyance of their property. This was
to evade attach ment by Jenny’s creditors. opposed by the grandson of Romeo to whom
the title was eventually transferred, on the
The contract is rescissible because it is in ground of laches and prescription. Decide the
fraud of creditors (CC1381). case and rule on the defenses of laches and
prescription. Explain your answer. (2016 Bar)
Jackie, 16, inherited a townhouse. Because she
wanted to study in an exclusive school, she sold The right of the registered owners, Joven and
her townhouse by signing a Deed of Sale and Juliana, to file suit to recover their property,
turning over possession of the same to the buyer. is not barred by prescription. Under the law,
When the buyer discovered that she was still a no title to registered land in derogation of the
minor, she promised to execute another Deed of title of the registered owner shall be acquired
Sale when she turns 18. When Jackie turned 25 by prescription or adverse possession. Proof
and was already working, she wanted to annul of possession by the owner in an action for
the sale and return the buyer’s money to recover reconveyance is immaterial and
her townhouse. Was the sale contract void, inconsequential. The right to recover
voidable or valid? Can Jackie still recover the possession is equally imprescriptible since
property? Explain. (2015 Bar) possession is a mere consequence of
ownership (cf. Section 47 of P.D. No. 1529
The contract of sale is voidable. The Civil and Republic v. Mendoza, 2010).
Code provides that where one of the parties
is incapable of giving consent to a contract, The right of Joven and Juliana to recover is
the contract is voidable. (CC1390) In this case, not barred by laches. Laches deals with
only Jackie was incapacitated because of her unreasonable delay in filing the action. The
minority. owners’ delay, if any, cannot be construed as
deliberate and intentional. They were simply
Jackie cannot recover the property. First, coerced out of Cotabato and threatened with
since the contract is voidable, Jackie had only death if they returned, and, thus, could not
4 years from the time she attained the age of have filed the action.
majority to bring the action for annulment of
the contract (CCArt. 1391). In this case, Jackie In Pari Delicto
should have brought the action for → Presupposes that the contract entered into
annulment of the contract within four years is illegal or unlawful
after turning eighteen years old, or up until → GR: Parties are left as they are
the age of twenty-two. Since she is already 25  EXC: One of the parties repudiates
years old, the period for bringing the action before the contract is consummated
has prescribed. or before damage is done