OBLIGATIONS AND CONTRACTS

FINALS MASTER REVIEWER

CODALS + COMMENTS + DOCTRINAL JURISPRUDENCE

NOTE: This reviewer is meant for sharing. This is a compilation of my notes from class lectures of Dean
MCG, Jottings and Jurisprudence in Civil Law (ObliCon) by Balane, Comments & Cases in ObliCon by De
Leon, and the reviewers of Isabelle Ginez, KPV, Buhain, and Kat Gaw. I credit these reviewers for the
cases that I did not read in full text. This document is only recommended for Midterms/Finals Review,
please do not substitute it for full text reading for your daily grind. Thanks! — Buens
 OBLIGATIONS AND CONTRACTS KINDS OF PRESCRIPTIONS
Kinderbueno C2026 AS TO WHETHER RIGHTS ARE ACQUIRED OR AS TO THE OBJECT OR SUBJECT MATTER
LOST
Acquisitive Extinctive Prescription of Prescription of Rights
PRESCRIPTION Property
CHAPTER 1 Prescription of “Liberatory Prescription” a. Prescription of
GENERAL PROVISIONS ownership and other real “Prescription of actions” Real Property
rights “Statute of limitations” b. Prescription of
a. Ordinary Personal Rights
CHAPTER 1 – GENERAL PROVISIONS
Prescription
1106 Acquiring and losing rights and actions by prescription
b. Extraordinary
1107 Prescription
Persons capable of acquiring property or rights by prescription
1108
1109 Prescription between husband * wife / parents & children / guardian & ward 1. Acquisitive – “Gaining rights”. The acquisition of a right by the lapse of time in the manner
1110 Married woman and under the conditions laid down by law (Art. 1106, par. 1)
○ Also called adverse possession and usucapcion
1111 Co-proprietors and co-owners ○ Expressly ‘vests the property’ and raised a new title in the occupant
1112 Renouncing prescription ○ Can either be ordinary or extraordinary
1113 Objects of prescription ○ Involves movables or immovables
1114 Availment of creditors of debtor's prescription ■ Movables: Prescribe through an uninterrupted possession for 4 years in
good faith
1115 Specific provisions ■ Immovables: 8 years without any other condition
1116 Transitory provisions before the new Civil Code 2. Extinctive – “Losing right”. Rights and actions are lost by the lapse of time (Arts. 1106, par. 2
and 1139)
○ Also called limitations of Actions/Statute of Limitations
○ Bars the right of action
Article 1106. By prescription, one acquires ownership and other real rights through the lapse of time
in the manner and under the conditions laid down by law.
● Concept most fundamental to a system of title by possession is that the relationship between
the occupant and the land in terms of possession is capable of producing legal
In the same way, rights and actions are lost by prescription (1930a)
consequences. In other words, it is the possessor who is the actor.
● Under statute of limitations, however, one does not look at the act of the possessor but at the
WHAT IS PRESCRIPTION neglect of the owner.
PRESCRIPTION → It is a means of acquiring ownership and other real rights or losing rights or actions
to enforce such rights through the lapse of time. ACQUISITIVE EXTINCTIVE
● Purpose: Regarded as a statute of repose whose object is to suppress fraudulent and stale
As to the Relationship between the occupant and One does not look at the possessor but at
claims from springing up at great distances when the facts have become obscure from the
Operative Act the land in terms of possession is capable the neglect of the owner; Owner out of
lapse of time or the defective memory or death or removal of witnesses. (Sinaon v. Sorongon)
of producing legal consequences it is the possession which he/she controls
● Proof needed: Prescription is an extraordinary mode of acquiring ownership, all the essential
possessor who is the actor
elements, particularly the period of time, must be shown clearly.
● Object: All things within the commerce of men are susceptible of prescription. As to Requisites Requires possession by a claimant who is Requires inaction of the owner or neglect of
○ Property of the State that is not Patrimonial in character shall not be the object of / Elements not the owner one with a right to bring his action
prescription. As to its Applicable to ownership and other real Applies to all kinds of rights, whether real or
Applicability rights personal
As to its Legal Vests ownership or other real rights in the Produces the extinction of rights or bars a
Effect occupants; Results in the acquisition of right of action; Results in the loss of a real
ownership or other real rights in a person or personal right, or bars the cause of
as well as the loss of said ownership or action to enforce said right
real rights in another
As a Defense Can be proven under the general issue Should be affirmatively pleaded and proved
without its being affirmatively pleaded to bar the action or claim of the adverse
party

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 1

PRESCRIPTION VS. LACHES Catholic Bishop of Balanga vs. Court of Appeals
Prescription must be differentiated from the concept of laches which is known as the doctrine of stale Where the alleged landowner questioned the donation of its representative to the donee who, after
demands which is “based upon grounds of public policy which requires, for the peace of society, and such donation, possessed the property peacefully and adversely for 49 years, the SC ruled that
the discouragement of stale claims.” although prescription does not apply to registered property, “a registered landowner may lose his right
● “Estoppel by laches” to recover the possession of his registered property by reason of laches.”
● Is unreasonable delay in the bringing of a cause of action before the courts of justice.
○ Example: If an action prescribes in ten (10) years, it should be brought to court as
soon as possible, without waiting for 8 or 9 years, unless the delay can be Article 1107. Persons who are capable of acquiring property or rights by the other legal modes may
justifiably explained (as when there is search for evidence) acquire the same by means of prescription.
○ While an action has not yet prescribed, it may no longer be brought to court
because of laches. Minors and other incapacitated persons may acquire property or rights by prescription, either
● Supreme Court: personally or through their parents, guardians or legal representatives.
○ Laches is failure or neglect, for an unreasonable and unexplained length of time, to
do that which, by exercising due diligence, could or should have been done earlier
○ It is negligence or omission to assert a right within a reasonable time, warranting a WHO CAN ACQUIRE BY PRESCRIPTION
presumption that the party entitled thereto either has abandoned it or declined to The following can acquire property or rights by means of prescription:
assert it. 1. Persons who are capable of acquiring property or rights by the other legal modes.
2. Minors and other incapacitated persons — personally or through their parents, guardians
or legal representatives
PRESCRIPTION LACHES ○ If acquired by a minor personally — annullable or voidable, but may be ratified
Fact of delay Effect of delay when minor comes of age
Matter of time Principally a question of inequity of permitting a ○ If the acquisition of the minor is through his parents or guardian — completely valid
claim to be enforced; Doctrine of Stale Demands; ○ Emancipation shall terminate parental authority over the person and property of the
Based upon grounds of public policy child which takes place by attainment of majority (18 yrs).

Statutory Not statutory

Article 1108. Prescription, both acquisitive and extinctive, runs against:
Equity Applies independently of prescription
Cannot be availed of unless it is especially Need not be specifically pleaded; Court (1) Minors and other incapacitated persons who have parents, guardians or other legal
pleaded as an affirmative allegation representatives;
(2) Absentees who have administrators, either appointed by them before their disappearance, or
Based on fixed time Not based on fixed time appointed by the courts;
Requisites of laches [C-D-L-I] (3) Persons living abroad, who have managers or administrators;
1. Conduct on the part of the defendant, or of (4) Juridical persons, except the State and its subdivisions.
one under whom he claims, giving rise to the
situation of which complaint is made and for Persons who are disqualified from administering their property have a right to claim damages from
which the complaint seeks a remedy. their legal representatives whose negligence has been the cause of prescription. (1932a)
2. Delay in asserting the complainant’s rights,
the complainant having had knowledge or WHO DOES PRESCRIPTION RUN AGAINST [M-A-P-J]
notice of the defendant’s conduct and having
been afforded an opportunity to institute a Minors and Incapacitated Persons w/ parents, guardians, legal representatives
suit ● XPN: If such person does not have legal representatives or guardians who are supposed to
3. Lack of knowledge or notice on the part of take care of their affairs
the defendant that the complainant would ● Vda. De Alberto vs. Court of Appeals — Illegitimate children cannot claim exemption from the
assert the right on which he based his suit; effects of prescription. The illegitimate child still has a living parent, his mother.
and
4. Injury or prejudice to the defendant in the Absentees with administrators
event relief is accorded to the complainant, or ● Prescription will run against an absentee if:
the suit is not held barred ○ He leaves an administrator or the court appoints an administrator for him.
○ Reason: He cannot manage his affair because he can’t go back to his domicile.
Without any colorable title recognized by law, both rules will never apply to registered lands. Social ○ BUT: If the absentee CAN go back to his domicile but intentionally does not want to
justice and equity cannot be used to justify the grant of property to one at the expense of another who return, prescription will lie against him
may have a better right under the law. ● XPN: If such person does not have a domicile

Persons Living Abroad with managers/administrators

● XPN: If such person does not have administrators or managers
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 2
 ● Must be shown that they cannot return to their domicile within the period when prescription Article 1110. Prescription, acquisitive and extinctive, runs in favor of, or against a married woman. (n)
should have run

Juridical Persons Whether married or unmarried, prescription runs in favor of or against a married woman.
● GR: Juridical persons are endowed by law of the attributes of a natural person and can be
subject to prescription Article 1111. Prescription obtained by a co-proprietor or co-owner shall benefit the others.
● XPN: State and its subdivisions
● BUT: State or subdivision must be acting in sovereign capacity; when it is running a business
or acting in a proprietary capacity, it can be subject to prescription CO-OWNERSHIP — Present when the ownership of an undivided thing or rights belongs to different
persons.
Republic v. PNB
AFP filed a case for recovery of a sum of money that PNB negligently paid to unauthorized persons. Example:
SC ruled that prescription did not run, as this was a case against the State, acting through its ● A, B, and C co-own a particular land, and by virtue of co-ownership they all reside in the
instrumentality, the AFP same
● B occupies a portion of land adjoining the co-owned property, which he adversely and
National Dev’t Company v. Tobia
publicly holds the land continuously for the required period of time
NDC is a GOCC filing a collection case. SC ruled that action had already prescribed. Even if a GOCC
● Valid acquisition for him and also in favor of A and C
is technically still an instrumentality of the government, it is the state acting in a proprietary capacity.
And even if it was made to serve a public purpose, it is still a business corporation. Hence,
prescription can lie against a GOCC. AGAINST WHOM PRESCRIPTION RUNS (Arts. AGAINST WHOM PRESCRIPTION DOES NOT
1108, 1110) RUN (Arts. 1108, 1109, 1111)
Minors and other incapacitated persons who have Minors and other incapacitated persons who do
Article 1109. Prescription does not run between husband and wife, even though there be a parents, guardians, or other legal representatives not have parents, guardians or other legal
separation of property agreed upon in the marriage settlements or by judicial decree. representatives
Neither does prescription run between parents and children, during the minority or insanity of the Absentees who have administrators, either Absentees who do not have administrators, either
latter, and between guardian and ward during the continuance of guardianship. (n) appointed by them before their disappearance, or appointed by them before their disappearance, or
appointed by the courts appointed by the courts
HUSBAND AND WIFE Persons living abroad, who have managers or Persons living abroad, who do not have managers
GR – Prescription does not apply between the husband and wife administrators or administrators
XPN – Unless the law otherwise provides Juridical persons, including the State but only with State and its subdivisions (only with regards to
regard to patrimonial property properties of public dominion)
Pacio v. Billion Married woman Between husband and wife during the marriage
Lesson: There is no prescription between husband and wife, whether acquisitive or extinctive. even though there be a separation of property
Facts: The Supreme Court rejected a contention that, although a husband’s donation to his first wife agreed upon in the marriage settlements or by
was invalid, the first wife acquired the donation through acquisitive prescription considering that the judicial decree
void donation constituted a title and that the first wife possessed the property for about 29 years. The
Between parents and children during the minority
ruling was based on the lack of proof of an adverse possession on the part of the first wife and Article
or insanity of the latter
1109 of the 1950 Civil Code.
Between guardian and ward during the
continuance of guardianship
PARENT AND CHILD
GR — No prescription lies between parent and child during the latter’s insanity or minority In favor of a co-owner or co-heir against his
● Natural bond of filiation co-owners or co-heirs as long as the co-ownership
● Parents are his natural guardians without the need of a court appointment is recognized
XPN — Special cases
● Example: Husband may impugn the legitimacy of the child of his wife
● Upon reaching the age of majority and if the daughter or son is not insane, prescription will Article 1112. Persons with capacity to alienate property may renounce prescription already
apply. obtained, but not the right to prescribe in the future.

GUARDIAN AND WARD Prescription is deemed to have been tacitly renounced when the renunciation results from acts which
GR — Prescription will not lie during the period of guardianship imply the abandonment of the right acquired. (1935)
● Due to the fiduciary relationship between the guardian and ward
● Give adequate remedy to the ward for the abuses of the guardian RENOUNCING PRESCRIPTION ALREADY OBTAINED
● Unilateral act and does not require the acceptance of the person to be benefited by it

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 3

 ● Where the party acknowledges the correctness of the debt and promises to pay it after the
same has been prescribed and with full knowledge of the prescription, he hereby waives the State Property NOT patrimonial cannot be the object of prescription
benefit of prescription. ● If patrimonial in character, it can be the subject of prescription
○ BUT: A simple promise which contains new and positive promise to pay the debt ● Patrimonial Property: Private property of the government and the person who acquires
which has prescribed does not amount to a renunciation of prescription ownership of patrimonial property under prescription in the Civil Code is required for
● Does not need to be an express renunciation to be a valid one registration but it has to be clear that the property is patrimonial

DPB v. Adil No prescription with respect to public property

Lesson: A debt that has already prescribed cannot be enforced by the creditor. But a new contract ● This rule applies even to privately owned unregistered lands which are presumed to be public
assuming the prescribed debt is valid. Hence, where a party acknowledges the correctness of a debt lands unless the contrary is shown.
& promises to pay it after the same has prescribed & with full knowledge of the prescription, he ● Public dominion. Rivers, roads, canals, torrens, and bridges constructed by the State are
thereby waives the benefit of prescription not subject to prescription.
Facts:
● Feb. 10, 1940: A husband & wife obtain an agricultural loan from DBP, evidenced by a Director of Forest Administration v. Fernandez
promissory note which states they will pay in 10 equal yearly amortizations Lesson: Forestland cannot be acquired by prescription or registered
● Even after the lapse of the 10-year period, the obligation remained unpaid Facts: An application was filed for the registration of a particular forest & timber on the ground of
● April 11, 1961: The couple executed a 2nd promissory note expressly acknowledging the prescription. Will it be granted? NO. Forestlands of the public domain cannot be acquired by
debt & promising to pay on or before June 15, 1961. The note also said that upon failure to prescription; their possession, however long, cannot ripen into private ownership. They are not
pay upon said date, DBP could foreclose on the couple’s mortgage. registrable & can never vest a person with title.
● Sept. 11, 1970: DBP filed a complaint demanding payment.
Given these facts, has the action against the couple prescribed? Republic v. CA
Held: No. The couple waived their right to the prescription of their debt evidenced by the 1st Lesson: (1) A particular area adjacent to a bay, which was at times covered by water due to rain &
promissory note when they made the 2nd promissory note expressly acknowledging their original not due to the rising of the tide, can be registered & subject to prescription.
debt. The 2nd note was not a mere acknowledgement of a debt that has prescribed, but a new (2) Only possession acquired & enjoyed in the concept of an owner can serve as the root of a title
promise to pay the debt. The consideration of the new promissory note is the pre-existing obligation acquired by prescription.
under the 1st promissory note. Facts: A parcel of land by the bay is covered with water 4-5 months a year due to the rain. The
Director of Lands refused to register the title to said land, claiming it is part of the lakebed or
foreshore land. The Director cited Article 74 of the Law of Waters of 1866, which provides that a
REQUISITES [C-PORK] lakebed is the ground covered by the lake’s waters when at their highest ordinary depth. Is the part of
1. The person renouncing must have Capacity to alienate property the lakebed that is submerged only during the rainy season property of public dominion that cannot
2. The renunciation must refer to Prescription already obtained be registered?
3. It must be made by the Owner of the right; hence, administrator, executor, agent, etc. cannot Held: NO. The phenomenon is not a regular daily occurrence in the case of the lake & has nothing to
renounce unless given special power of attorney do with high tides or low tides. Note that the law provides that lakebeds which are non-registrable are
4. It must not prejudice the Rights of creditors or third persons determined by the ground covered by the lake’s water at their highest ordinary depth. The rise &
5. The person renouncing must have Knowledge of the existence of the right. ebbing is caused by the rainy season (which means that the depth during said season is not the
ordinary depth of the water, since the rainy season lasts only 4-5 months in a given year). Hence, the
ADVANCED RENUNCIATION – Void part of the property submerged only during the rainy season may be registered & can be the subject
of prescription.
RENUNCIATION BY REPRESENTATIVES – Only persons with capacity to alienate property can The applicant could also trace his right of title to a public instrument of sale in favor of his father, from
renounce prescription already obtained, not guardians, executors, administrators. whom he inherited the land, & has tax declarations & tax receipts. Tax receipts are merely
declarations of ownership, but become strong evidence of ownership acquired by prescription when
Article 1113. All things which are within the commerce of men are susceptible of prescription, unless accompanied by proof of actual possession of the property.
otherwise provided. Property of the State or any of its subdivisions not patrimonial in character shall
not be the object of prescription. (1936a) EXCEPTIONS: [RSM]
● Lands Registered under the Torrens system (Art 1126)
OBJECT OF PRESCRIPTION ● Properties of Spouses, parents, and children and guardians and wards under certain
GR — All things within the commerce of men may be acquired by prescription conditions as between themselves (Art 1109)
● These can be appropriated under Art. 530 of Civil code; Since possession is required for ● Movables possessed through a crime (Art 1133)
prescription, it follows that things which are not susceptible of being appropriated CANNOT
be the object of prescription. Article 1114. Creditors and all other persons interested in making the prescription effective may avail
● Property of public dominion and common things cannot be acquired by prescription. themselves thereof notwithstanding the express or tacit renunciation by the debtor or proprietor.
● Patrimonial property of the State may be acquired as they are acquired and treated the same (1937)
way as property of private individuals
● Res nullius (property without an owner) is acquired by occupation and not by prescription
because prescription presupposes a previous owner.
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 4
EFFECT OF RENUNCIATION TO CREDITORS for exactly the same kind of case
In the event that the time within which to pay has already prescribed but nevertheless the debtor 3. If the prescriptive period under the old law is The old prescriptive period will apply.
renounces prescription such that the creditor can still collect from him, and should the debtor again fail still running upon the effectivity of the Civil Code In the example given in Scenario No. 2, if the
to pay, thereby prompting the debtor to demand payment from the guarantor, the guarantor can resist and the remaining balance of such period since balance of the period which started under the old
for he shall not be prejudiced by the act of waiving. the effectivity of the Civil Code is shorter than law is 12 years counted from the time of the
● Right of Creditors to Make Use of Prescription that provided in the Civil Code for exactly the effectivity of the Civil Code & the latter provides for
○ While rights may be waived, third persons with a right recognized by law should not same situation 15 years as the prescriptive period for exactly the
be prejudiced. (Art. 6, Civil Code) same case, the prescriptive period under the old law
will prevail.
Own note: Creditors remain superior over debtors even if debtors want to renunciate prescription (?)
FOR 2 AND 3, JUST CHOOSE THE SHORTER PRESCRIPTIVE PERIOD

Article 1115. The provisions of the present Title are understood to be without prejudice to what in this
Code or in special laws is established with respect to specific cases of prescription. (1938) CHAPTER 2
PRESCRIPTION OF OWNERSHIP AND OTHER REAL RIGHTS
● In case of conflict between a period provided in this Title and the period in another portion of the
Civil Code, the more specific provision will prevail. CHAPTER 2 - PRESCRIPTION OF OWNERSHIP & OTHER REAL RIGHTS
● GR: Action on a written contract prescribes in 10 years, while actions on oral contracts prescribe in 1117 Ordinary and Extraordinary Acquisitive Prescription
6 years. 1118 Concept of Possession
○ BUT: Art. 1391 provides that the prescriptive period for annulling a contract if it is defective
due to fraud perpetuated by one of the parties is 4 years from the time the fraud is 1119 Acts of Possessory Character
discovered, which is the rule whether the contract is oral or written. 1120 Interruption of Possession
● BUT if different statutes are involved with conflicting prescriptive periods and causes of action, 1121
they do not exclude each other from being availed of by the parties. Natural Interruption of Possession
1122
1123
Callanta v. Carnation Philippines Civil Interruption of Possession
1124
Held: Though the Labor Code provides that a claim for money in labor cases prescribes in 3 years, it
will not bar the aggrieved party from availing of the 4-year prescriptive period for “injury of the plaintiff” 1125 Express or Tacit Recognition
provided in Art. 1146 of the Civil Code, where the claim is illegal dismissal, since illegal dismissal also 1126 Registered Properties
results in an injury to the plaintiff. 1127 Good faith of the possessor
1128 Conditions of Good faith
Article 1116. Prescription already running before the effectivity of this Code shall be governed by 1129
Just Title
laws previously in force; but if since the time this Code took effect the entire period herein required for 1130
prescription should elapse, the present Code shall be applicable, even though by the former laws a 1131 Just Title is never presumed
longer period might be required.
1132 Period of Ordinary and Extraordinary Acquisitive Acquisition
1133 Movables possessed through crime
Effectivity Date of the Civil Code: Aug 30, 1950
SCENARIO EFFECT 1134 Period of prescription for immovables
1. If the prescriptive period provided under the old The prescriptive period under the old law applies 1135 Possessing an area greater or less than in little
law has already lapsed before the effectivity of the 1136 Possession in wartime
Civil Code 1137 Extraordinary acquisitive prescription for immovables
2. If the prescriptive period under the old law is The Civil Code prevails, provided that such period 1138 Rules for computing prescription
still running upon the effectivity of the Civil Code, counted from the effectivity of the Civil Code has
but the Civil Code provides for a different period already lapsed, although under the old law the
for the same situation period has not yet lapsed. Article 1117. Acquisitive prescription of dominion and other real rights may be ordinary or
extraordinary.
Ex. If under an old law previous to the effectivity of
the Civil Code, X has 30 years to file a particular suit Ordinary acquisitive prescription requires possession of things in good faith and with just title for the
and by the time the 1950 Civil Code takes effect his time fixed by law.
remaining time, pursuant to the period provided by
the old law, is only 12 years, he cannot file the case KINDS OF ACQUISITIVE PRESCRIPTION
on the 12th or even on the 11th year if the 1950 Civil ● Ordinary — uninterrupted possession in good faith and with just title for the required
Code provides only 10 years as prescriptive period statutory period
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 5
 ● Extraordinary — uninterrupted possession for the required statutory period, without good
faith or just title on possessor’s part. Article 1118. Possession has to be in the concept of an owner, public, peaceful, and uninterrupted.

ORDINARY EXTRAORDINARY
CHARACTERISTICS OF POSSESSION TO BE THE BASIS OF PRESCRIPTION [O-P-P-U]
Requisites: [G-J-10] Requisites: [C-T-P-T] 1. Concept of an Owner
1. In Good faith – a reasonable belief that the 1. Capacity to acquire by prescription ○ Possessor must assert dominion on the property to the exclusion of all others
person from who the thing is received has 2. A Thing capable of acquisition by ○ Must be an adverse, continuous, and notorious possession
been the owner thereof, and can transmit prescription ■ A mere lessee or a mere mortgagee or an agent does not hold the property in the
ownership 3. Possession of thing under certain concept of an owner since it cannot ripen into ownership by acquisitive prescription
2. With Just Title – adverse claimant comes into conditions ■ Acts of possessory character which are merely tolerated do not constitute possession.
possession through one of the modes 4. Lapse of Time provided by law ○ Ramirez v. CA – An antichretic creditor cannot ordinarily acquire by prescription the land
recognized by law for the acquisition of surrendered to him by the debtor, because his possession is not in the concept of owner.
ownership or other real rights, but the grantor ○ Republic v. CA – The U.S. Navy’s possession of a property for recreational purposes only,
is not the owner or cannot transmit any right resembling commodatum, can never translate to acquisitive prescription.
3. Within statutory period of 10 years ○ Ramos v CA – Acquisitive prescription has set in especially when the claimant has
Possession is 10 years Possession is for 30 years undertaken acts clearly showing his claim of ownership.
In either case, possession must be [O-P-P-U] — 2. Public
1. In the concept of Owner, ○ Notorious holding of the property known to the community
2. Peaceful ○ Not surreptitious [or kept in secret]
3. Public ○ Manifest or visible to all, especially to the person against whom the possession is being
4. Uninterrupted adversely affected
○ Must be known to the owner of the thing.
3. Peaceful
Godinez v. CA ○ Acquired and maintained without any violence, physical or moral
Lesson: When one is in holding the property in the concept of an Owner, Publicly, Peacefully, & in an ■ Unless force used is reasonably necessary to repel or prevent an actual or physical
Uninterrupted manner (OPPU), possession of a piece of land for more than the period of time invasion of the property
prescribed by law, & acquired such land in good faith & with just title, acquisitive prescription can ○ No valid interference from other claiming their rights to the property
apply despite a registered title. ○ For the period of years required by law.
Facts: Felix divided his lot, Lot 665, in favor of his 7 children. 4. Uninterrupted
● The judge ordered the adjudication of the lot for a 1/6 share instead of the1/7 share through ○ Continuity in holding of the property
a clerical error. ○ Not understood in the absolute sense; no acts of deprivation of enjoyment of the things by a
● 5/7 of the land (Lot 665-A) was sold to the Igot spouses while 2/7 (Lot 665- B) of the land third person, or any other act which interrupts prescription.
remained with Felix’s heirs
● 39 years later, the judge corrected the original clerical error, & title to the land of Lot 665
was officially issued as OCT No. 8. Article 1119. Acts of possessory character executed in virtue of license or by mere tolerance of the
The heirs of Felix once again claimed that Lot 665-A was theirs due to the title granted in OCT No. 8. owner shall not be available for the purposes of possession.
Will the claim of the heirs of Felix prosper?
Held: NO. The Igots had been in OPPU possession for more than half a century after they bought the ACTS OF POSSESSORY CHARACTER
land from the Magsumbols, who had bought the land from the heirs. The laws as well as common ● Holding the property by virtue of consent of the owner shows acknowledgment of the part of
sense favored the Igots. OCT No. 8 did not nullify the original sale. the possessor that somebody else owns the property.
SUMMARY CHART FOR ACQUISITIVE PRESCRIPTION ● Possession by tolerance does not imply an assertion of ownership.
MOVABLES ○ Example: Informal settlers
IMMOVABLES IMMOVABLES
REQUISITES MOVABLES (w/o other
(Ordinary) (Extraordinary) License — Positive act of the owner in favor of the holder of the thing
conditions-BF)
Tolerance — Passive acquiescence of the owner to acts being performed by another which appear to
Years 4 8 10 30 be contrary to the rights of the former.
Uninterrupted
✔ ✔ ✔ ✔
Possession
Article 1120. Possession is interrupted for the purposes of prescription, naturally or civilly.
Good Faith ✔ ✔
Just title ✔ INTERRUPTION OF POSSESSION
● No continuity in the holding of the property
● Possession must be uninterrupted for it to strengthen the adverse right of the possessor
● Interruption is distinct from discontinuity. Former is a positive act of third person, while the
latter is a negative act or abstention on the part of possessor himself.
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 6
 (2) If the plaintiff should desist from the complaint or should allow the proceedings to lapse;
KINDS OF INTERRUPTION (3) If the possessor should be absolved from the complaint.
1. Natural (Arts. 1121–1122)
2. Civil (Arts. 1123–1124) In all these cases, the period of the interruption shall be counted for prescription.
EFFECT OF INTERRUPTION — All the benefits acquired so far from the possession cease. When the
prescription runs again, it will be an entirely new one. CIVIL INTERRUPTION
● GR — It is NOT the filing of the complaint in court which interrupts the possession. It is
DISTINGUISH PRESCRIPTION FROM SUSPENSION — If prescription is merely suspended, the old interrupted upon receipt of the possessor of the judicial summons after the filing of the
possession will be added such as when civil courts are closed during the war or where there is a complaint.
moratorium on payment of debts. ● XPN — However, for the following instances, judicial summons shall be deemed not issued &
will not give rise to interruption, when:
1. When the judicial summons lack legal solemnities such as when the copy of the
Article 1121. Possession is naturally interrupted when through any cause it should cease for more complaint has been served by a person not authorized by the court.
than one year. The old possession is not revived if a new possession should be exercised by the 2. When the plaintiff should desist from the complaint thus voluntarily having the case
same adverse claimant. dismissed while allowing the proceedings to lapse
3. When the possessor is absolved, thus the complaint has not been fully
Article 1122. If the natural interruption is for only one year or less, the time elapsed shall be counted substantiated to support any adverse claim by the complainant.
in favor of the prescription ● If the possession is recovered, it can be connected to the time that has elapsed as if it were
in fact continuous, the period of interruption is to be counted for the prescription.
NATURAL INTERRUPTION — When through any cause prescription should cease for more than one
year. If less than one year, there is no interruption Article 1125. Any express or tacit recognition which the possessor may make of the owner’s right
● Old possession loses all its juridical effects, and even if the possession is reacquired, the old also interrupts possession.
possession cannot be tacked to the new possession

Possession de facto — Lost if new possession of another has lasted longer than 1 year EXPRESS OR TACIT RECOGNITION
● If for 1 year or less, it is counted in favor of prescription ● Interrupts possession because possession must always be in the concept of an owner
● Reason: Possession here must be continuous and not interrupted ○ One cannot consider himself as an owner if he recognized somebody else as
having a superior right as an owner
Illustrative Example ● Corpus v. Padilla — One cannot recognize the right of another at the same time claim
● A is in possession of an unregistered property in the concept of an owner in good faith and adverse possession which can ripen to ownership, through acquisitive prescription.
with a just title for a period of 4 years. The land is formerly owned by B and was acquired by
A as the successful bidder in a public auction. Z claims that the property is his and requests A REDEMPTION PERIOD. When there is a redemption period, acquisitive prescription only begins to run
to vacate the premises. To avoid complications, A left the place. However, it turns out that Z is after the expiry of said redemptive period.
a defrauder and it is actually M who has previously bought the property from B before A did.
Upon learning that Z’s claim is fraudulent, A returned to the property and stayed there for Diñoso v. CA
another 7 years. M now claims the property and requests A to leave. Lesson: When there is a redemption period, acquisitive prescription only begins to run after the
● Can A invoke Acquisitive Prescription? No. expiry of said redemption period.
○ While he may have possession of the property for a total of 11 years, it was Facts: The seller & the buyer executed a contract of sale on Apr. 6, 1940 giving the seller the right to
interrupted. repurchase the property on or before Apr. 6, 1950. The buyer immediately took possession of the
○ His subsequent possession of 7 years cannot be added to his previous 4 years property. In 1952, the seller filed a suit for recovery, asserting ownership over the property. Is there
○ In effect, his period of possession for purposes of prescription is only 7 years which already a prescription for this case?
obviously has not complied with the 10-year period required by law for ordinary Held: NO. The possession of the buyer under the sale a retro2 did not actually become adverse until
acquisitive prescription. the expiration of the redemption period, since until then he recognized the superior right of the vendor
● Assuming the interruption is not two years but only one year or less, can A invoke Acquisitve to oust him, & his claim of ownership was not absolute. Since the redemption period expired only in
Prescription? Yes. 1950, & the case was filed in 1952, there was no acquisitive prescription yet.
○ Prescription will be set in favor of A because the law clearly provides that if the
natural interruption is for one year or less, the time elapsed shall be counted in
favor of prescription. REQUISITES [PT-VaB]
1. Recognition must be made by the Possessor himself, or if made by a Third person, the
recognition must be authorized or ratified by the possessor
Article 1123. Civil interruption is produced by judicial summons to the possessor 2. Recognition must be Valid and efficacious in law
a. If the act of recognition was obtained through violence, intimidation, fraud, or any
Article 1124. Judicial summons shall be deemed not to have been issued and shall not give rise to other cause which vitiates consent, it will not interrupt possession
the interruption: 3. Recognition must have been made Before prescription has already been obtained
(1) If it should be void for lack of legal solemnities;
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 7
Article 1126. Against a title recorded in the Registry of Property, ordinary prescription of ownership or of this Code are likewise necessary for the determination of good faith in the prescription of ownership
real rights shall not take place to the prejudice of a third person, except in virtue of another title also and other real rights.
recorded; and the time shall begin to run from the recording of the latter. As to lands registered under
the Land Registration Act, the provisions of that special law shall govern. DETERMINING GOOD FAITH ON MATTERS OF PRESCRIPTION
(from provisions of the 1950 Civil Code)
Dimayuga v. CA ● Art 526: He is deemed a possessor in good faith who is not aware that there exists in his title
Lesson: No title to registered land in derogation to that of the registered owner shall be acquired by or mode of acquisition any flaw which invalidates it. He is deemed a possessor in bad faith
prescription or adverse possession. who possesses in any case contrary to the foregoing. Mistake upon a doubtful or difficult
Facts: A couple acquired a 13-hectare household registered under the Torrens system in 1928. The question of law may be the basis of good faith.
illegitimate children claimed ½ of the same on the ground that they acquired it by acquisitive ● Art. 527: Good faith is always presumed, and upon him who alleges bad faith on the part of a
prescription having been in the property since 1948. Will the claim of the children prosper? possessor rests the burden of proof.
Held: NO. No portion of the homestead, a registered land, may be acquired by prescription. ● Art. 528: Possession acquired in good faith does not lose this character except in the case
and from the moment facts exist which show that the possessor is not unaware that he
Reyes v. CA possesses the thing improperly or wrongfully.
Lesson: There is no prescription when parcel of land is titled property; it belongs to the registered ● Art. 529: It is presumed that possession continues to be enjoyed in the same character in
owner & his successors-in-interest which it was acquired, until the contrary is proved.
Facts: The petitioner acquired a registered property through a forged document. Said petitioner ACTUAL OR CONSTRUCTIVE NOTICE
claimed acquisitive prescription against the heirs of the original owners. Can the petitioner’s case ● Good faith cannot be invoked if the claimant has actual or constructive notice of the legal and
prosper? valid rights of possession of another during the prescriptive period.
Held: NO. The parcel of land in dispute is titled in the name of the late Bernardino Reyes, the father
of both the petitioner Florentino & the private respondents. This fact, petitioners do not deny. Hence, Negrete v. CFI Marinduque
even if they allege adverse possession that would ripen into ownership due to acquisitive prescription, Lesson: (1) When the possessor is aware of any flaw in his possession, such as when the deed of
their title cannot defeat the real rights of respondents who stepped into the shoes of their father as sale giving him his right to a property stated a different property from the one he possesses, he is in
successors-in-interest. As it is, petitioners cannot even claim adverse possession as they admit that bad faith and cannot acquire by ordinary acquisition the property in question. (2) A deed of sale, to
the respondents continue to reside on the subject property. constitute a just title and to generate good faith for ordinary acquisitive prescription, should refer to
the same parcel of land which is adversely possessed.
Catholic Bishop of Balanga v. CA
Facts: A person claimed a particular property by virtue of ordinary acquisitive prescription of 10 years
Lesson: Although prescription will not apply to registered property, the doctrine of laches is
based on a deed of sale which he knew involved a different property. Is the property his by acquisitive
applicable
prescription?
Facts: The petitioner donated registered property to a person who, including his
Held: NO. The deed of sale covers a parcel of land patently different from the disputed land owned as
successors-in-interest, took possession of the same adversely, continuously, publicly and peacefully
to area, location, and boundary owners. To claim ordinary acquisitive prescription, one must have just
for 49 years. Thereafter, the petitioner filed a case to recover the property contending that the
title and be in good faith. If the possessor’s position were to be sustained, it would be easy for anyone
donation is invalid, and that, in either case, the property is registered and hence not susceptible to
to acquire ownership of an untitled land belonging to another person in 10 years on the basis of a
prescription. Will the claim of the petitioner prosper?
document of sale covering a distinct parcel executed by a person who is a stranger to the land.
Held: NO. Even if there is no prescription due to the registered title, the petitioner was guilty of
laches. Laches is an impediment to the assertion or enforcement of a right which has become, under
the circumstances, inequitable or unfair to permit. In this case, 49 years had lapsed since the Article 1129. For the purposes of prescription, there is just title when the adverse claimant came into
supposedly void donation and there is no explanation for the long delay. Even if the petitioner is the possession of the property through one of the modes recognized by law for the acquisition of
registered owner under the Torrens system, he has lost his right to recover the possession by reason ownership or other real rights, but the grantor was not the owner or could not transmit any right.
of laches.
● But laches will not apply if there is no evidence of mode of acquisition or colorable title to Article 1130. The title for prescription must be true and valid.
assert the claim.
● Although prescription will not apply to registered property, the doctrine of laches is applicable Article 1131. For the purposes of prescription, just title must be proved; it is never presumed.
in cases where the possessor or transferee can prove that he apparently obtained the
property from some apparent mode of conveyance such as donation or sale. Proof is JUST TITLE
important Colorable title; Adverse claimant came into possession of the property through one of the modes
● Lands registered under the Torrens system cannot be acquired by prescription but this rule recognized by law for the acquisition of ownership or other real rights but the grantor was not the owner
can be invoked only by one under whose name it was registered. or could not transmit any right.
● When a person buys a thing, in good faith, from one whom he believes to be the owner
Article 1127. The good faith of a possessor consists in the reasonable belief that the person from ● Acts for acquisition required by law are performed, but there is a flaw in that the grantor was
whom he received the thing was the owner thereof, and could transmit his ownership. not the owner and could not transmit the right

Article 1128. The conditions of good faith required for possession in Articles 526, 527, 528 and 529

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 8

TRUE AND VALID the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying
Doliendo v. Biarnesa — A “true and valid” title does not mean one which is “sufficient to transfer the seller’s authority to sell.
ownership without the necessity of the lapse of the prescriptive period.” Rather, it is one “which a
person has when he buys a thing, in good faith, from one whom he believes to be the owner.” Nothing in this Title, however, shall affect:
1. The provisions of any factor’s acts, recording laws or any other provisions of law enabling the
Examples of Just and Valid Titles apparent owner of goods to dispose of them as if he were the true owner thereof;
Adverse possession can apply even when the one who claims ownership by adverse possession has 2. The validity of any contract of sale under statutory power of sale or under the order of a court
the following “title” of competent jurisdiction
● Title acquired via a transaction at a public auction, even if the vendor had no authority to sell 3. Purchases made in a merchant’s store, or in fairs, or markets, in accordance with the Code of
the property at the auction (Doliendo v. Biarnesa) Commerce and special laws.
● Title acquired by a void donation (Solis v. CA)
Both statutes apply in the ff. Cases: [L-I-P]
Solis v. CA 1. The right of the owner to recover personal property Lost
Lesson: A donation propter nutias is sufficient to create or establish just title of the possessors of the 2. The right of the owner to recover that which he has been Illegally deprived
land as donees. 3. The right of the owner over movables acquired in a Public sale, fair, market or merchant’s
● Even a void donation may be the basis of a claim of ownership. Thus, prescription can store
apply on void donations.
● The right given by ordinary acquisitive prescription is not dependent upon, and has no Summary
necessary connection, with the validity of the claim under which the possession is held. GR: If the owner has been deprived of his movable property, he may recover the same without need of
NOTE: This is different from the Catholic Bishop case, because there, the contention was more about reimbursement.
the fact that the property was registered. If the property is registered, prescription cannot apply, but XPN:
laches can apply. 1. If the movable was acquired by the buyer in good faith in a public sale, the owner may
reacquire the property after reimbursing the buyer
2. If the buyer acquired the property in a merchant’s store, or in fairs, or markets, the owner can
Article 1132. The ownership of movables prescribes through uninterrupted possession for four years no longer recover.
in good faith. The ownership of personal property also prescribes through uninterrupted possession
for eight years, without need of any other condition. Article 1133. Movables possessed through a crime can never be acquired through prescription by the
offender.
With regard to the right of the owner to recover personal property lost or of which he has been illegally
deprived, as well as with respect to movables acquired in a public sale, fair, or market, or from a
merchant’s store, the provisions of Article 559 and 1505 of this Code shall be observed. RATIONALE — No one must benefit from an evil act.
SCOPE — True for both ordinary and extraordinary prescription
AS TO THIRD PERSONS — Benefit of prescription is denied to the offender. If the thing was passed to
ORDINARY EXTRAORDINARY a subsequent holder, the prescription begins to run.
Requisites: Requisites:
1. Good faith 1. Uninterrupted possession Article 1134. Ownership and other rights over immovable property are acquired by ordinary
2. In the concept of owner, public, adverse, and 2. Within the statutory period prescription through possession of ten years.
uninterrupted
3. Within the statutory period ORDINARY ACQUISITIVE PRESCRIPTION FOR IMMOVABLES
4 years 8 years ● 10 years of possession
● Possession must be by virtue of a just and valid title
Good faith or bad faith. These are no longer relevant once eight (8) years have passed. ● In the concept of an owner
● Uninterrupted, Adverse, and Public
PROPERTY LOST OR OF WHICH HE HAS BEEN ILLEGALLY DEPRIVED
Art. 559 — The possession of movable property acquired in good faith is equivalent to a title. Article 1135. In case the adverse claimant possesses by mistake an area greater, or less, than that
Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it expressed in his title, prescription shall be based on the possession.
from the person in possession of the same. If the possessor of a movable lost or of which the owner
has been unlawfully deprived, has acquired it in good faith at a public sale, the owner cannot obtain its
ACTUAL POSSESSION
return without reimbursing the price paid therefor.
● The extent of the property subject to prescription is that which is actually possessed by the
claimant, regardless of the size of the lot in the title.
Art. 1505 — Subject to the provision of this Title, where goods are sold by a person who is not the
● When someone buys or sells a property, they do so as they see it, in its actual setting and in
owner thereof, and who does not sell them under authority or with the consent of the owner, and who
its physical metes & bounds, not by the lot number in the certificate of title.
does not sell them under authority or with the consent of the owner, the buy acquires no better title to

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 9

Article 1136. Possession in wartime, when the civil courts are not open, shall not be counted in favor Prescription will be extraordinary but the possession in good faith shall be computed in the proportion
of the adverse claimant. that the period of extraordinary prescription bears to that of ordinary prescription.

POSSESSION IN WARTIME CHAPTER 3

● Possession of adverse during wartime will not count in acquisitive prescription PRESCRIPTION OF ACTIONS
○ Because when the civil courts are closed, there is no way by which any person
claiming title over a certain property can file a case to recover the same CHAPTER 3 - PRESCRIPTION OF ACTIONS
● If there is a war BUT courts are functioning, possession of adverse claimants will be counted
1139 Prescription of Actions
in his favor.
1140 Actions to recover movables
Article 1137. Ownership and other real rights over immovables also prescribe through uninterrupted 1141 Real actions over immovables
adverse possession thereof for thirty year, without need of title or of good faith. 1142 Actions of Mortgage
1143 Not extingushed by prescription
ORDINARY ACQUISITIVE PRESCRIPTION FOR IMMOVABLES
● 30 years 1144 Period for Contracts/Law/Judgment
● No other condition 1145 Period for Oral Contracts and Quasi-Contracts
1146 Period for Injuries and Quasi-delicts
Article 1138. In the computation of time necessary for prescription the following rules shall be
observed: 1147 Period for Forcible entry and defamation
1. The present possessor may complete the period necessary for prescription by tacking his 1148 Special Laws: Limitations of Actions in 1140–1147
possession to that of his grantor or predecessor in interest;
1149
2. It is presumed that the present possessor who was also the possessor at a previous time, Period for Other Actions
has continued to be in possession during the intervening time, unless there is proof to the 1150
contrary; 1151
3. The first day shall be excluded and the last day included. Actions for Payment
1152
RULE 1: Tacking possession to grantor or predecessor in interest 1153 Actions on Accounting
● Present possessor may complete the period necessary for prescription by tacking his 1154 Fortuitous Event
possession to that of his grantor/predecessor in interest
1155 Interruption of Prescription of Actions
● Use of “grantor” and “predecessor in interest” show that transfer of property must be in a
manner provided by law
● Article 1139. Actions prescribe by the mere lapse of time fixed by law.
Examples: B donated a property to A which has been in B’s possession for years. If A has been
occupying the property for 3 years, A can add B’s possession of the property on top of A’s own
possession. PRESCRIPTION OF ACTIONS
● 8 years possession by B + 3 years possession by A = 11 years → A can be said to have Concept — Prescription of action/limitation of action is the time within which an action may be brought
been in possession of the property for 11 years already, for purposes of prescription. or some act done to preserve the right. Legal and not natural cause of the extinguishment of
obligations.
RULE 2: Presumption
● Presumption is based on facts Statute of Limitations — Acts limiting the time within which actions shall be brought; do not confer any
● It must be proven that the person presently possessing the property also was in possession right of action, but are enacted to restrict the period within which the right, otherwise limited, might be
of the same property before that asserted
● The presumption can be destroyed by evidence to show that he was not in possession of it
during the interval. GENERAL RULE — If period prescribed by law lapses, action cannot be filed anymore.
● Law fixes time within action may be filed
Example: A person was in possession of a property in 1997. It was shown he also possessed it in 1998 ● The set of provisions dealing with prescription of actions is known as the Statute of
→ there is a presumption that he was in possession of it from 1989 to 1996. Limitations
● No extinctive prescription unless period provided by law expires
RULE 3: First Day Excluded, Last Day Included
Example: A person possesses property from Jan. 1, 1980 to Jan. 15, 1990 → Count the prescriptive GR — Law fixes the time within which an action may be filed
period from Jan. 2, 1980 to Jan. 15, 1990 XPN — Contractual stipulation for the period of time to file action prevail over rules of prescription of
actions.
What if possession begins in good faith but is later converted to bad faith?
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 10
APPLICABILITY — Apply only to civil actions and not to special proceeds nor criminal actions.
Prescription of actions and penalties in criminal cases are governed by the RPC. Article 1142. A mortgage action prescribes after ten years.
PRESCRIPTION TO BE PLEADED
● Obligation subsists until he avails himself of prescription. Courts of justice will not supply the MORTGAGE
defense if the debtor himself does not do so. ● Secures a debt, so that if a debtor fails to pay the principal obligation, the creditor can
● Right to prescription may be waived or renounced. It is deemed waived if not raised before or foreclose on the mortgage by selling the same in a public sale or bidding; the proceeds will
during the hearing of the case. pay off the principal debt and interest if any
● Even if not pleaded, if it is apparent on the face of the complaint, it may be favorably ● If there is any deficiency after the bidding, creditor can still go after the debtor.
considered.
DBP v. Tomeldan
Effect of Death on Prescription. Except where a statute provides otherwise, one disability CANNOT Lesson: A suit for recovery of the deficiency after the foreclosure of a mortgage is in the nature of a
be tacked on to another’s disability. Nor can a party avail himself of several disabilities, unless they all mortgage action & prescribed after 10 years after the date of extrajudicial foreclosure.
existed at the same time when the right of action accrued. This is in obedience to the universal rule that Facts: The creditor extrajudicially foreclosed the property of the debtor on Sept. 15, 1967. The
when a Statute begins to run, no subsequent disability can stop its operation unless specially so creditor then filed suit on Mar. 14, 1977 to claim the deficiency. The debtor claimed that the action
provided in the statute. was already prescribed; was he correct?
Held: NO. The action did not yet prescribe, because the prescriptive period was 10 years from the
Article 1140. Actions to recover movables shall prescribe eight years from the time the possession time the cause of action accrued, which was on Sept. 16, 1967. The prescriptive period to claim a
thereof is lost, unless the possessor has acquired the ownership by prescription for a less period, deficiency starts to run after the mortgage property has been foreclosed.
according to Article 1132, and without prejudice to the provisions by Article 559, 1505, and 1133.

Rules on Movable Property Article 1143. The ff. rights, among others specified elsewhere in this Code, are not extinguished by
GR — A person can recover lost personal or movable property which he claims belong to him within a prescription:
period of eight years (1) To demand a right of way, regulated in Article 649;
XPN — If all the requisites of an ordinary acquisitive prescription of movable property are present, the (2) To bring an action to abate a public or private nuisance.
possessor of the same becomes the owner of the movable property after only 4 years of uninterrupted
possession in good faith. The action shall likewise be without prejudice to the provisions of Articles 559,
1505, and 1133. ACTIONS WHICH DO NOT PRESCRIBE
[V-RN-QT-P; V Right Now, Cutie Pie!]
(1) To declare a contract null & Void
Article 1141. Real actions over immovables prescribe after 30 years. (2) To demand a Right of way, as regulated in Art. 649
This provision is without prejudice to what is established for the acquisition of ownership and other (3) To abate a public or private Nuisance
real rights by prescription. (4) To Quiet title initiated by a person having possession of the property
(5) Implied Trusts, unless when expressly repudiated by the trustee
GR — The prescriptive period in connection with immovables is thirty years. (6) To Partition a property among co-heirs (intestate)
● In extraordinary acquisitive prescription, if the immovable property is adversely in the
possession of the possessor for thirty years, the right to sue prescribes with the acquisition of Article 1144. The ff. Actions must be brought within 10 years from the time the right of action
the title. accrues:
XPN — If within the thirty year period, all the requisites for ordinary acquisitive prescription are already 1. Upon a written contract
present in favor of the possessor, then the possessor shall be considered the owner of the property 2. Upon an obligation by law
after 10 years of uninterrupted, adverse, public, possession of the property in the concept of an owner 3. Upon a judgment.
in good faith.

PERIOD OF PRESCRIPTION TABLE CONTRACTS IN WRITING

● For a contract to fall under this article, the agreement must be in writing.
MOVABLES IMMOVABLES ○ For example, a purchaser of a real estate evidenced by a written contract of sale
Good faith (Ordinary Prescription) may file a case for delivery of the property to him. Barring the applicability of
4 years 10 years laches, the purchaser has ten years within which to file the case for delivery.
○ The cause of action on a written contract accrues when a breach or violation
Bad faith (Extraordinary Prescription) thereof occurs.
8 years 30 years
RIGHT TO ACTION
● Accrues when there exists a cause of action, which consists of 3 elements:
a. A right in favor of the plaintiff, by whatever means and under whatever law it arises
or is created
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 11
 b. An obligation on the part of such defendant to respect such right Virgillio Callanta v. Carnation Phil., Inc.
c. An act or omission on the part of such defendant violative of the right of the plaintiff Lesson: “Injury to rights of plaintiff” includes legal dismissal cases filed by employees who ere
■ It is only when this last element occurs that it can be said in law that a unjustly dismissed by employers.
cause of action has arisen. Facts: Employee was illegally dismissed by his employer on June 1, 1979 and filed a case with NLRC
for illegal dismissal on July 5, 1982. NLRC dismissed the case on the ground that it had prescribed,
IMPLIED TRUSTS as the Labor Code provides that such claim should be filed within 3 years. Has the action prescribed?
(Doctrines from Huang v. CA) Held: NO. The prescriptive period is 4 years, not 3. One’s employment is also considered a property
● This is an example of an obligation created by law. right. Employee has 4 years fro June 1, 1979 to file a case for illegal dismissal. Also, the action
● Art. 1450: A situation where a person, using his own funds, buys property on behalf of cannot be barred by laches because the employer threatened to file a case of estafa against the
another, who in the meantime may not have the funds to purchase it — title to the property is employee. This justifies the employee’s delay to file suit.
for the time being placed in the name of the trustee, the person who pays for it, until he is
reimbursed by the beneficiary, the person for whom the trustee bought the land.
● An implied trust, whether a constructive or resulting one, is normally NOT subjectto QUASI-DELICT
prescription: Article 2176 of the Civil Code provides that “whoever by act or omission causes damage to another,
○ BUT: If the trustee openly & repudiates the trust, it is only from that time when there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there
prescription can set in, because that is the time when possession becomes is no pre-existing contractual relation between the parties, it is called quasi-delict.”
adverse. ● Governed by Book IV, Title XVII, Chapter 2 of the 1950 Civil Code.
● Before the period of prescription can tart, it must be shown that:
○ The trustee performed unequivocal acts of repudiation amounting to an ouster of EXAMPLE
the cestui que trust ● The fault or negligence resulting in the liability of manufacturers and processors of foodstuffs,
○ Such positive acts have been made known to the cestui que trust drinks, toilet articles and similar goods. They shall be liable for death or injuries caused by
○ Evidence thereon is clear & convincing any noxious or harmful substances used, although no contractual relations exists between
them and the consumer.
Article 1145. The following actions must be commenced within six years:
1. Upon an oral contract Coca-Cola Bottlers Philippines, Inc vs. CA
2. Upon a quasi-contract Lesson: The prescriptive period for quasi-delict begins to run from the day the quasi-delict occurred
or is committed
Facts: A restaurant filed a complaint on May 7, 1990 against Coca-Cola, because of the reckless and
Example: A orally borrowed P2,000 from B to be paid on June 1, 1997 and B failed to pay on such date negligent manufacture of some Coke bottles, which contained “fiber-like matter & other foreign
despite demand from A. A has six years from June 1, 1997 to file the case for collection against B. substances” in them. The restaurant had served the drinks to customers on Aug. 1989, damaging its
reputation as those who drank them suffered sickness. Coca-Cola contends that action had
Quasi-contracts prescribed, since the period should be 6 months from the delivery of the thing sold pursuant to Article
● Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contracts 1571 of the Civil Code. Is Coca-Cola correct?
to the end that no one shall be unjustly enriched or benefited at the expense of another Held: NO. The allegations in the complaint established a quasi-delict, the action of which prescribes
● Governed by Book IV, Title XVII, Chapter 1 of the 1950 Civil Code in 4 years.
○ Solutio indebiti
■ Kind of quasi-contract
■ Occurs if something is received when there is no right to demand it, and Article 1147. The following actions must be filed within 1 year:
it has been unduly delivered through mistake, thereby giving rise to the 1. For forcible entry
obligation to return what has been unduly received 2. For defamation
■ Municipality of Opon vs. Caltex – 13 where a taxpayer mistakenly paid
an amount which is not due, the SC ruled that the prescriptive period
was 6 years as it is a quasi-contract of solutio indebiti. Vda. de Borromeo v. Pogoy
Lesson: The period for filing actions for forcible entry is 1 year, and is counted from demand to
Article 1146. The following actions must be commenced within four years: vacate the premises
1. Upon an injury to the rights of the plaintiff Facts: X wrote a letter against occupant Y on Aug. 28, 1982, demanding that the later vacate the
2. Upon a quasi-delict property. Later, X filed the complaint for ejectment on Sept. 16, 1982. X did not avail of the barangay
conciliation process required, but justified such omission by citing PD 1508, which allows the direct
filing of an action in court where the same may otherwise be barred by the Statute of Limitations. Are
UPON AN INJURY TO THE RIGHTS OF THE PLAINTIFF X’s actions of skipping barangay conciliation justified?
When one is arbitrarily and unjustly deprived of his job or means of livelihood, the action instituted to Held: NO. The process under PD1508 for Barangay Conciliation only takes 60 days. X would have
contest the legality of one’s dismissal from employment constitutes, in essence, an action predicated had ample time within which to bring his case before the court should the conciliation fail, because
“upon injury to the rights of the plaintiff,” as contemplated under Art. 1146 of the New Civil Code, which there were at least 11 months between the letter-demand and the complaint for ejectment. Hence, X
must be brought within 4 years. should not have skipped the barangay conciliation process.

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 12

Article 1148. The limitation of actions mentioned in Articles 1140–1142, and 1144–1147 are without Tolentino v. CA
prejudice to those specified in other parts of this Code, in the Code of Commerce and in special laws. Lesson: (1) in civil cases, when there is no special provisions, the general rule for prescription is 5
years. All actions, unless an exception is provided, have a prescriptive period. (2) The use of
WITHOUT PREJUDICE someone else’s surname is not a crime, and therefore is not imprescriptible.
The phrase “without prejudice” means that, in proper cases, the prescriptive period in this chapter may Facts: C is the 2nd Spouse of B. C filed an action in 1971 against A, B’s former spouse, to prevent A
be availed of notwithstanding other special provisions in other parts of the Civil Code, in the Code of from using the surname of her husband. C knew about the use of the name since 1951. Has the
Commerce and in special laws action prescribed?
● Virgilio Callanta vs. Carnation Phil., Inc. — Illegal and unlawful dismissal suffered by the Held: YES. The mere fact that the supposed violation of C’s right is continuous, in that A constantly
plaintiff in the said case falls within the ambit of “injury to the rights of the plaintiff,” uses B’s name, does not change the principle that the moment the breach of duty occurs, the right of
actions accrues and the action from that moment can be legally instituted.

Article 1149. All other actions whose periods are not fixed in this Code or in other laws must be
brought within 5 years from the time the right of action accrues Article 1151. The time for the prescription of actions which have for their object the enforcement of
obligations to pay principal with interest or annuity runs from the last payment of the annuity or of the
Article 1150. The time for prescription for all kinds of actions, when there is no special provision interest.
which ordains otherwise, shall be counted from the day they may be brought.
Article 1152. The period for prescription of actions to demand the fulfillment of obligations declared
by a judgment commences from the time the judgment became final.
ACTIONS MOVABLE IMMOVABLE
8 years from the time
Action to recover (Art 1140–1141) 30 years ACTIONS REGARDING PAYMENT
possession is lost
Period begins to run from the last payment of the annuity or interest.
Foreclosure of mortgage (Art. 1142) 10 years ● It is only when the judgment becomes final that the same can be effectively enforced. Hence,
All other actions whose periods are not fixed the prescriptive period is not counted from the time the judgment was rendered but from the
Within 5 years from the time the right of action accrues
in this Code (Art. 1149) time it became final.
1. Upon a written contract;
2. Upon an obligation by law; FINAL JUDGMENT
10 years from the time the right of action accrues ● The prescription period is not counted from the time the judgment was rendered but from the
3. Upon a judgment.
(Art. 1144) time it became final
1. Upon an oral contract; ● Revival of judgment – gives the creditor a new right of enforcement from the date of revival
2. Upon a quasi-contract 6 years ○ Prevents wily debtors who conceal assets to evade attachment until statute of
(Art. 1145) limitations sets in.
1. Upon an injury to the rights of the
plaintiff; Article 1153. The period for prescription of actions to demand accounting runs from the day the
2. Upon a quasi-delict (Art. 1146) persons who should render the same cease in their functions.
3. Revoke or reduce donation based on The period for the action arising from the result of the account runs from the date when said result
the birth, appearance or adoption of a was recognized by agreement of the interested parties.
child (Art. 763) 4 years
4. Revoke donation based Article 1152. The period during which the obligee was prevented by a fortuitous event from enforcing
non-compliance with a condition (Art. his right is not reckoned against him. (n)
764)
5. Rescission of contracts (Art. 1389) ACTIONS IN RELATION TO ACCOUNTING
6. Annul a contract (Art. 1391) ● Actions to demand accounting – from the day the person who should render the same
1. Forcible entry and detainer (Art. 1147) ceases in his functions
2. Defamation (Art. 1147) ● Actions rising from the result of accounting – from the date when the result was recognized
3. Recover possession de facto (Art by agreement of the interested parties
1147)
4. Revoke a donation on the ground of FORTUITOUS EVENT
ingratitude (Art. 769) 1 year ● Unseen event or seen even which is inevitable; an act of God
5. Rescind or recover damages if ● When, due to some fortuitous event, the prescription is interrupted, an entirely new one will
immovable is sold with non-apparent commence when there is no longer a fortuitous event.
burden or servitude (Art 1560) ○ Past period is not resumed
6. Enforce warranty of solvency in
assignment of credits (Art. 1629)

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 13

 Action Reckoning Point of Computation of Period of BOOK IV - OBLIGATIONS AND CONTRACTS
Prescription TITLE I - OBLIGATIONS
When there is no special provision which ordains From the day they may be brought
the time for prescription for all kinds of action CHAPTER 1
GENERAL PROVISIONS OF OBLIGATIONS
Actions which have for their object the enforcement From the last payment of the annuity or of the
of obligations to pay principal with interest or interest
annuity CHAPTER 1 – GENERAL PROVISIONS
Actions to demand the fulfillment of obligations From the time the judgment became final 1156 Definition of an Obligation
declared by a judgment
1157 Sources of Obligations
Actions to demand accounting From the day the persons who should render the
same cease in their functions 1158 Law as a Source of Obligations
Action arising from the result of the accounting From the date when said result was recognized by 1159 Contracts as a Source of Obligations
agreement of the interested parties 1160 Quasi-Contracts as a Source of Obligations
1161 Delicts as a Source of Obligations
Article 1155. The prescription of actions is interrupted when they are filed before the court, when
there is a written extrajudicial demand by the creditors, and when there is any written 1162 Quasi-Delicts as a Source of Obligations
acknowledgment of the debt by the debtor. (1973a)
INTERRUPTION OF PRESCRIPTION Article 1156. An obligation is a juridical necessity to give, to do or not to do. (n)
1. When they are filed before the court
○ The dismissal or voluntary abandonment by the plaintiff of a civil action takes no DEFINITION OF AN OBLIGATION
time out of the period of prescription because it would be as if no action had been ● Gives the definition in its passive aspect and merely stressed the duty under the law
commenced at all. ● Derived from “obligatio” which means a tying or binding
○ The prescriptive period is interrupted from the date of filing, regardless of the date
when the summons is received. BALANE — Criticized on two grounds
2. When there is a written extrajudicial demand by the creditors 1. Advisability of defining — Definitions are best left to tribunals, treatises, and teachers
○ Must be made before the expiration of the period fixed by law 2. Inadequacy of definition — Only views obligations from the debt side
○ A written extrajudicial demand wipes out the period that has already elapsed and
starts anew the prescriptive period. Same rule applies for a written Alternative definitions:
acknowledgement of debt. ● Manresa — An obligation is a legal relation created between one person (the creditor) and
3. When there is any written acknowledgment of the debt by the debtor another (the debtor), in which the latter is bound to comply with a prestation which the former
○ Not all acts of acknowledgment of a debt interrupt prescription; the has a right to demand from him.
acknowledgment must be written ● Arias Ramos — A juridical relation whereby a person (called the creditor) may demand from
○ Can be implied but it must be in writing another (called the debtor) the observance of a determinate conduct, and, in case of breach,
○ The acknowledgment must be such as to apply to a particular and specific debt to may obtain satisfaction from the assets of the latter.
interrupt prescription ● Diaz Pairo — A juridical relation whereby a person should engage or refrain from engaging in
○ Can be made by a legal representative a certain activity for the satisfaction of the private interest of another who, in case of
○ If obligation is acknowledged after the prescription period, it is not sufficient to non-fulfillment of such duty, may obtain
renew the period of prescription ● Roman Law (defined in the Institutes, from Justinian) — An obligation is a legal tie, by which
■ There must be a renunciation of the prescription already acquired for the we are bound to the performance of something, in accordance with the laws of the State.
action to be acquired
○ Example: A letter acknowledging the validity of a deed of sale and promising to Etymology and History — All terms used in early Roman law connote a bond, or a tying together
comply with its commitments interrupts the period and begins it anew for another which underscored the idea of a highly personal relationship between creditor and debtor.
10 years (written contract)
○ Payment interrupts the running of the prescription period. MEANING OF JURIDICAL NECESSITY
■ But if acknowledgement is written BUT payment is not accompanied by Juridical Necessity — Debtor must comply with this obligation, his failure will bring undesirable
communication signed by the payor, payment would not interrupt the consequences (i.e., the courts of justice may be called upon to enforce its fulfillment or, in default
running of the prescription period. thereof, the economic value that it represents)
○ Agent. A letter sent by the agent, on behalf of the principal, acknowledging the ● There are some obligations that can’t be enforced because they are not recognised as
debt, binds the principal, and is enough to interrupt the prescriptive period. binding by the law
Likewise, a letter sent to the agent, making a demand, interrupts the prescriptive ● If an obligation cannot be legally enforced, it may be only a natural obligation → does not
period. (Republic v. Banez) give action

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 14

CHARACTERISTICS OF OBLIGATIONS OBLIGATION RIGHT WRONG
1. It represents an exclusively private interest The act of performance which the The power which a person has Cause of Action; It is an act or
2. It creates ties which are by nature transitory law will enforce under the law, to demand fromomission of one party in violation of
a. Because obligations are extinguished. But the period is relative — could be another any prestation the legal right or rights of another,
between seconds and years causing injury to the latter
3. It involves the power to make the juridical tie defective in case of non-fulfillment through
satisfaction of the debtor’s property *Source: De Leon (2014). Comments and Cases on Obligations and Contracts

NATURE OF OBLIGATIONS UNDER CIVIL CODE Existence of Cause of Action

● Civil Obligations – grants the creditor/obligee a right of action in courts of justice to enforce Elements [L-C-AO]
their performance 1. A Legal Right in favor of a person by whatever means and under whatever law it arises or is
● Natural Obligations – Not being based on positive law but on equity law; do not grant a right created
of action to enforce their performance although in case of voluntary fulfillment by the debtor, 2. A Correlative legal obligation on the part of another (debtor/defendant) to respect or not to
the latter may not recover what has been delivered or rendered by reason thereof violate said right
3. An Act or Omission in breach or violation of said right by the defendant with consequential
ESSENTIAL REQUISITES [P-A-O-J] injury or damage to the plaintiff for which he may maintain an action for the recovery of
1. Passive Subject (debtor/obligor) damages or other appropriate relief.
○ The person who is bound to the fulfillment of the obligation; he who has a duty
○ Must be determinate and determinable at the time of the constitution of the If one of the elements is absent:
obligation ● Vulnerable to getting dismissed
2. Active subject (creditor/obligee) ● Important to complete all essential elements
○ Person who is entitled to demand the fulfillment of the obligation.
○ Must be the determinate and determinable at the time of the constitution Kinds of Obligations
3. Object or prestation (subject matter of the obligation) 1. Personal or Real
○ Conduct required to be observed by the debtor a. Personal - obligation to do or not to do
○ Without the prestation, there is nothing to perform. b. Real - obligation to give
○ Kinds of prestation: 2. Pure and Conditional
i. To give (Real Obligation) – obligation to deliver a movable/immovable in order a. Pure - not subject to a condition or period; demandable at once
to create a real right, or for the use of the recipient (e.g. sale, deposit, b. Conditional - depends on a future and uncertain event
donation, pledge) 3. With a period/term - depends on a future and certain event
ii. To do (Positive personal Obligation) – covers all kinds of works or services 4. Joint and Solidary
whether physical or mental a. Joint - each can be made to pay only his share in the obligation
iii. Not to do (Negative Personal Obligation) – consists in abstaining from doing b. Solidary - one can be made to pay for the whole obligation subject to
some act. Includes the obligation “not to give” reimbursement
○ Requisites of object or prestation: 5. Alternative and Facultative
i. Has to be legal/licit a. Alternative - involves multiple prestations but debtor will only perform one or
ii. Must be possible (in fact and in law) some but not all, depending whose choice it is
iii. Must be determinate or determinable b. Facultative - multiple prestations with a principal obligation and substitute
4. Juridical or legal tie (also called the efficient cause) prestations, choice is generally given to the obligor
○ Binds or connects the parties to the obligation 6. Divisible and Indivisible
○ Established by law, contracts, quasi-contracts, delicts, and quasi-delicts a. Divisible - may be partially performed
○ It consists of the enforceability of the obligation. If the debtor does not conform, the b. Indivisible - cannot be partially performed
creditor has the power to go to court to make the debtor perform — coercive. 7. With a penal clause - an accessory undertaking to assume greater liability in case of
breach
MCG’s class notes: 8. Determinate or Generic
If substitution is not possible, one can always go for damages. If obligation is reached to you, you a. Determinate - particularly designated or physically segregated from all others of
always have a right to damages — this is what we call equivalent performance. Not specific, because the same class
it’s different but it’s equivalent if its economic value is equivalent. b. Generic - referred by the class, kind or genus
9. Accessory or Principal
FORMS OF OBLIGATIONS a. Accessory - existence depends on another
GR: Law does not require any form for obligations arising from contracts to be valid. These may be b. Principal - can stand alone
oral, in writing, or partly both. 10. Unilateral or Bilateral
● Obligations arising from other sources do not have any form at all. a. Unilateral - only one party is bound
b. Bilateral - both parties are bound; reciprocal obligations
i. Both obligation arise from the same source
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 15
 LAW AS A SOURCE OF OBLIGATIONS
ii. Each prestation is equivalent to the other ● Not presumed because they’re considered a burden on the obligor. It’s the exception, not the rule.
iii. Performance of one is conditions to performance of the other ● To be demandable, they must be clearly set forth in the law
11. Civil/Natural/Moral ● How can we determine W/N an obligation arises from law or from another source?
a. Civil Obligations - an obligation, which if not fulfilled when it becomes due and ○ When the law establishes the obligation and the act or condition upon which it is based is
demandable, may be enforced in court through an action; give a right of action nothing more than a factor for determining when it becomes demandable = LAW
to compel their performance ○ However, when the law merely recognizes or acknowledges the existence of an obligation
b. Natural Obligations - not based on positive law but on equity and natural law; generated by an act which may constitute a contract, quasi-contract, criminal offense, or
do not grant a right of action to enforce their performance, but after voluntary quasi-delict and its only purpose is to regulate such obligation, then the act itself is the
fulfillment by the obligor, they authorize retention of what has been delivered or source of the obligation and not the law. (Manresa)
rendered by reason thereof [1423].
c. Moral Obligations - those that cannot be enforced by action but which are Law as ultimate source
binding on the party who makes it in conscience and natural law ● BALANE — Law is the ultimate source of all obligations
● Without law, there is no legal tie
Article 1157. Obligations arise from: Law as proximate source
(1) Law; ● Many obligations arise directly or proximately from law, without any contractual transaction,
(2) Contracts; or tortious or criminal act, or any conduct which may constitute a quasi-contract
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and MCG’s class notes:
(5) Quasi-delicts. (1089a) The law is going to proximate and approximate the source of obligation. Legal obligations are not
SOURCES OF OBLIGATIONS presumed. Meaning those that are expressly determined in the NCC and Special Laws are
1. Law – when they are imposed by the law itself demandable. If you’re saying that there is an obligation to pay taxes, you have to be able to point to the
○ Ultimate source of all obligations provision (Chances are there are in the Internal Revenue Code that talks about this). It cannot be a
○ Examples: obligation to pay taxes, obligation to support one’s family matter of a particular tax at this particular rate. If the taxpayer says that the law is supposed to pay tax
2. Contracts – arise from the stipulation of the parties (Art. 1306) X at 38%, the executive needs to point at a particular statute.
○ Example: The obligation to repay a loan by virtue of an agreement
3. Quasi-contracts – When they arise from lawful, voluntary and unilateral acts and which Article 1159. Obligations arising from contracts have the force of law between the contracting parties
are enforceable to the end that no one shall be unjustly enriched or benefited at the expense and should be complied with in good faith. (1091a)
of another
○ Example: The obligation to return money paid by mistake or which is not due CONTRACTUAL OBLIGATIONS
○ Negotiorum gestio (Unauthorized Management) - the voluntary admission of the A contract is a metering of minds between two persons whereby one binds himself to give something
property, business or affairs of another without his consent or authority. It creates or to render some service.
the obligation to reimburse the gestor for necessary and useful expenses VALID CONTRACT INVALID/VOID CONTRACT
○ Solutio indebiti (Undue Payment) - refers to payment by mistake of an obligation Not contrary to law, morals, good customs, public Contrary to law, morals, good customs, public
which was not due when paid. It creates the obligation to return the payment. order or public policy order or public policy
4. Acts or omissions punished by law (Delicts/Crime) – Arise from civil liability which is the A source of obligation. HOWEVER, a contract may In the eyes of the law, a void contract does not
consequence of criminal offense. be valid but CANNOT be enforced. (Unenforceable exist. Thus, no obligations will rise.
○ Example: Obligation of a thief to return the car stolen by him contracts)
5. Quasi-delicts or torts - when they arise from damage caused to another through an act or
omission due to negligence, but no contractual relation exists between the parties
1. Force of law between the parties – means that they have the same binding effect of obligations
○ Example: Obligation of the possessor of an animal to pay for the damage which it
imposed by laws. The law stresses the obligatory nature of a binding and valid agreement absent
may have caused
any allegation that is contrary to law, morals, good customs, public order, or public policy.
2. Compliance in Good faith – means performance in accordance with the stipulations, clauses,
Notes:
terms and conditions of the contract / agreement
● The enumeration by the law is exclusive; hence, no obligation exists if its source is not one of
3. Liability for breach of contract (Culpa Contractual) – Although the contract imposes no penalty
those enumerated under Art. 1157
for its violation, a party cannot breach it with impunity. Our law on contracts recognizes the
● Either emanates from law or private acts which can be either licit or illicit
principle that actionable injury inheres every contractual breach.
○ Licit - contracts quasi-contract
4. Unreasonable delay in demanding performance – The failure of either party to a contract to
○ Illicit - crime, quasi-delict
demand performance of the obligation of the other for an unreasonable length of time may render
the contract ineffective where the contract does not provide for the period within which the parties
Article 1158. Obligations derived from law are not presumed. Only those expressly determined in this may demand the performance of their respective undertakings but the parties did not contemplate
Code or in special laws are demandable, and shall be regulated by the precepts of the law which that the same could be made indefinitely.
establishes them; and as to what has not been foreseen, by the provisions of this Book. (1090) 5. Preservation of interest of promisee – A breach upon the contract confers upon the injured
party a valid cause for recovering that which may have been lost or suffered.
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 16
 ● BALANE — The same felonious act resulting in damage, can, in certain cases, also
Article 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, constitute a quasi-delict, or possibly, a breach of contract.
Title XVII, of this Book. (n) ○ The injured party under present jurisprudence, can elect which cause of action to
pursue, subject to the restriction that double or multiple recovery cannot be made.
A quasi-contract is that juridical relation resulting from certain, lawful, voluntary and unilateral acts by
virtue of which the parties become bound to each other to the end that no one will be unjustly enriched Criminal liability without civil liability
or benefited at the expense of another. ● A person not criminally responsible may still be liable civilly when the obligation arises from
● Not properly a contract at all. In a contract, there is a meeting of minds. In a quasi-contract, quasi-delict or tort not alleged and proved as constituting a criminal offense.
there is no consent but the same is supplied by fiction of law. ● GR: Every person criminally liable for a felony is also civilly liable
● If one who claims having enriched somebody has done so pursuant to a contract with a third Criminally: You committed something against the State (Public Interest)
party, his cause of action should be against the latter who, in turn, may seek relief against the Civilly: Private offended person (Private interest)
party benefited. ○ Scope of Civil Liability – Civil liability may be in the form of:
■ Restitution
KINDS OF QUASI-CONTRACTS ■ Reparation of the damage caused
1. Negotiorum Gestio (unauthorized management) ■ Indemnification of consequential damages [104, RPC]
○ The voluntary management of the property or business of another without the knowledge or ● XPN: Victimless Crimes
consent of the latter ● Art. 12 of RPC, providing for exempting circumstances exempts only the Criminal liability, not
○ Reimbursement must be made for necessary and useful expenses, as a rule civil liability.
○ Note: This juridical relation does not arise in either of these instances: ● NOTE: As a general rule, whenever a criminal action is instituted, the civil action for recovery
i. When the property or business is NOT neglected/abandoned of the civil liability is also impliedly instituted together with the criminal action.
ii. IF in fact the manager has been tacitly authorized by the owner
○ Essential Requisites of Negotiorum Gestio: RIGHT TO RECOVER CIVIL LIABILITY
i. No meeting of the minds GR: Only the civil liability arising from the offense charged is deemed instituted with the criminal action.
ii. Taking charge of another’s business or property XPN:
iii. Property or business not abandoned or neglected 1. Offended party waives the civil action
iv. Officious manager (gestor) must NOT have been expressly or impliedly authorized 2. Reserves his right to institute it separately
v. Officious manager must have VOLUNTARILY taken charge (there must be no vitiated 3. Institutes civil action prior to the criminal action
consent, such as error in thinking that he owned the property or business)
2. Solutio Indebiti (undue payment) Injured parties can elect which cause of action to pursue (civil liability arising from criminal action
○ Juridical relation which is created when something is received when (1) there is no right to OR independent civil action), subject to the restriction that double or multiple recovery cannot be had.
demand it and (2) it was unduly delivered through mistake.
○ The obligation to pay the money or return something mistakenly paid or delivered arises from
the moment said payment or delivery was made, and not from the time the payee admits the Article 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2,
obligation to reimburse. Title XVII of this Book, and by special laws. (1093a)
○ Based on the ancient principle that no one shall enrich himself unjustly at the expense of A quasi-delict is an act or omission by a person (tortfeasor) which causes damage to another in
another. person, property, or rights giving rises to an obligation to pay for the damage done, there being fault or
○ For solutio indebiti to apply, there must be some evidence establishing the frame of mind of negligence but there is no pre-existing contractual relation between the parties.
the payor at the time the payment was made.
○ Essential Requisites of Solutio Indebiti: Essential Requisites of a Quasi-Delict [A-N-D-D-N]
i. Receipt (not mere acknowledgement) 1. There is an Act or omission
ii. There was no right to demand it (because the giver had no obligation) 2. There is fault or Negligence of the defendant
iii. Undue delivery was because of mistake (either of fact or of law) 3. There must be Damage caused to the plaintiff
○ Note: Other examples of quasi-contracts are provided in Art. 2164–2175 of the Civil Code. 4. There is a Direct Relation of cause and effect between the act or omission and the damage
The enumeration is NOT exclusive. 5. There is No Pre-Existing contractual relation

Article 1161. Civil obligations arising from criminal offenses shall be governed by the penal laws, Negligence (Culpa)
subject to the provisions of article 2177, and of the pertinent provisions of Chapter 2, Preliminary Title, ● Negligence – the omission of that diligence which is required by the circumstances of person,
on Human Relations, and of Title XVIII of this Book, regulating damages. (1092a) place, and time. [1173]
● Test for Determination of Negligence
CIVIL LIABILITY ARISING FROM CRIMES OR DELICTS ○ Would a prudent man (in his position) foresee harm to the person injured as a
Civil Liability in addition to criminal liability reasonable consequence of the course about to be pursued?
● Two Aspects of Crimes ○ If so, the law imposes a duty on the actor to refrain from that course, or to take
○ Public Aspect – Offense against the State precaution, and the failure to do so constitutes negligence.
○ Private Aspect – Within premises of civil law since it is concerned with civil
indemnification

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 17

CIVIL LIABILITY ARISING FROM QUASI-DELICTS such already existing bound by any other
● Moral evil and material damages – every person criminally liable for an act is also civilly liable obligation obligation
for damages
● Others, failure to pay contractual debt. Relationship There exists a pre-existing No pre-existing contractual
of Parties contractual relation relation between the parties
between the parties
BREACH OF CONTRACT QUASI-DELICT
Negligence is merely incidental to the performance Negligence is direct, substantive, and independent Who May be Employer/owner/operator Employer alone/employee Employee, where employer
of the contractual obligation; there is a Sued only alone/ both as solidary can be subsidiarily liable
pre-existing contract of obligation obligors
The defense of “good father of a family” is not a The defense of “good father of a family” is a Quantum of Mere breach raises a Employer – Rebuttable Proof beyond reasonable
complete defense in the selection and supervision complete and proper defense insofar as parents, Proof rebuttable presumption of presumption of vicarious doubt
of employees guardians and employers are concerned fault or negligence liability (Failure to select or
Negligence is presumed so long as it can be supervise properly the
proved that there was breach of the contract person in charge; Direct
and the burden is on the defendant to prove that and primary liability; Can
there was no negligence in the carrying out of the be rebutted with convincing
terms of the contract the rule of respondeat proof of due diligence for
superior is followed both selection and
supervision)
(Orient Freight Intl. v. Keihin-Everett Co., Inc., GR No. 1919837)
Employee – Need to prove
DELICT (CRIME) QUASI-DELICTS with preponderance of
Whom it is Affect public interest; wrong against the Private interests; wrong against the individual evidence
committed State and the individual Damages Depends on extend and kind of cause of action chosen by injured party.
Existence of Criminal/malicious intent or criminal Only negligence
Criminal Intent negligence
Liability Criminal and civil liability Civil liability CHAPTER 2
NATURE AND EFFECT OF OBLIGATIONS
Purpose Punishment Indemnification of offended party
Scope Can be punished only when there is a Actionable in any act or omission wherein
penal law clearly penalizing it fault or negligence intervenes 1163 Proper Diligence of a Good Father of the Family
Redress Fine or imprisonment or both Compensation or indemnification 1164 Right of the Creditor to the Fruits of the Thing
Proof Required The guilt of the accused must be proved Preponderance (i.e., superior/greater weight) 1165 Remedies of Creditor in Real Obligation
beyond reasonable doubt of evidence
Compromise Can’t be compromised or settled by Can be compromised as any other civil 1166 Accessions and Accessories
parties themselves liability 1167 Positive Personal Obligation
Employer’s Employer’s liability is subsidiary. The Employer’s liability is primary; can be sued
Liability employee must have first been directly by the injured party and may recover
1168 Negative Personal Obligation
convicted and sentenced to pay civil from his employee. 1169 Delay; When demand is not necessary
indemnity and it must be shown that he
is insolvent 1170 Guilty of fraud, negligence, or delay
Employee’s Employer is liable only when he is All employers whether they are engaged in 1171 Waiver of Fraud
Engagement engaged in some kind of business or some enterprise or not are liable, this
industry includes house helpers
1172 Responsibility arising from Negligence
1173 The standard Diligence Required
CULPA CONTRACTUAL CULPA AQUILIANA DELICT 1174 Fortuitous Events
(Contracts) (Extra-Contractual)
1175 Usurious Transactions
Obligation The fault of negligence The wrongful or negligent
incident in the act or omission which 1176 Presumptions that interest has been paid
performance of an creates a vinculum juris
obligation which already and gives rise to an
1177 Remedies of Creditors
existed, and which obligation between two 1178 Transmissibility of Rights
increases liability from persons not formally
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 18
 3. Simple Diligence
Article 1163. Every person obliged to give something is also obliged to take care of it with the proper ○ The reasonable care a prudent man can be expected to exert
diligence of a good father of a family, unless the law or the stipulation of the parties requires another
standard of care. (1094a) GR: Every person should take care of a thing with the proper diligence of a good father of a family
XPN:
● Determinate Thing – one that is particularly designated or physically segregated from all 1. Law / Stipulation of parties requires another standard of care (e.g. slight/extraordinary
others of the same class diligence)
● Indeterminate/Generic Thing – refers only to a class or genus to which it pertains and 2. Common Carriers – extraordinary diligence over goods and safety of passengers transported
cannot be pointed out with particularity by them is required
3. Banks – duty bound to treat deposit accounts of their depositors with the highest degree of
SPECIFIC V. GENERIC OBLIGATION care (Reyes v. CA)
SPECIFIC (Determinate) GENERIC (Indeterminate)
Obligor may deliver anything from Reason: Absent the duty of the obligor to take care of the thing, the obligation to deliver would be
As to Obligation to Obligor must deliver the very thing illusory (as the thing might not be in the same condition as when the obligation was contracted). Failure
the same class which is neither
Deliver promised to preserve the SPECIFIC thing would give rise to liability for damages unless it is due to a fortuitous
superior nor inferior in quality
event.
Can never be affected because
Loss of the thing due extinguishes things of the same class, kind, and
Note: The parties may agree upon diligence which is MORE or LESS than that of a good father of a
As to Effect of Loss the obligation to deliver without quality can be delivered based on
family but NOT to stipulate for absolute exemption from liability of the obligor for any fault or negligence
prejudice to Art. 1170 the principle that a generic thing
on his part (this is contrary to public policy). [1306]
never perishes
Right to compel delivery or right to
As to Remedy in case of Right to compel delivery of the thing Article 1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver it
charge the expense of compliance
delay or Breach itself arises. However, he shall acquire no real right over it until the same has been delivered to him. (1095)
by another
1. To preserve or take care of the 1. To deliver a thing which is of the DIFFERENT KINDS OF FRUITS
thing due quality intended by the parties taking 1. Natural Fruits – the spontaneous products of the soil and the young and other products of
2. To deliver the fruits of the thing into consideration the purpose of the animals (e.g. grass)
As to Duties of Debtor in 3. To deliver its accessions and obligation and other circumstances. 2. Industrial Fruits – those produced by land of any kind through cultivation of labor (e.g. rice,
Obligation to Give accessories 2. To be liable for damages in case corn, other crops through intervention of human labor)
4. To deliver the thing itself, and of fraud, negligence, or delay in the 3. Civil Fruits – fruits which are the result of a juridical relation such as the rent of a building,
5. To answer for damages in case of performance of his obligation, or price of a lease of land and other property and the amount of perpetual or life annuities.
nonfulfillment or breach contravention of the tenor thereof.
Note: Delivery of the thing involves placing the thing in the possession or control of the creditor either
OBLIGATION TO GIVE A DETERMINATE THING actually or constructively. Ownership and other real rights are acquired in certain contracts by
Obligation to give (or real obligation) – Delivery of a thing which the debtor must transfer to the DELIVERY. In sale, for example, although there might have already been a meeting of the minds and
creditor because of some right which the latter may have acquired over the same. PERFECTION of the contract, the creditor does not become the owner of the thing until the specific
● In the obligation to give a determinate thing, the object of prestation is determinate, specific, thing has been delivered to him.
individualized. Substitution is NOT allowed.
○ In contractual obligations, this is called the element of requisite of identity. KINDS OF DELIVERY
1. Actual Delivery – where physically, the property changes hands. (ex: If A sells B a fountain pen,
DILIGENCE OF A GOOD FATHER OF A FAMILY the giving by A to B of the fountain pen is actual tradition)
● Means the ordinary care that an average (reasonably prudent) person exercises in taking 2. Constructive Delivery – that where the physical transfer is implied. This may be done by:
care of his property a. Symbolical Tradition – use of token / symbol to represent (e.g. keys)
● Incidental duty of the obligor in an obligation to give pending delivery. b. Traditio Longa Manu – pointing out the thing which is in sight
● The obligation of due diligence arises from the time of the constitution of the obligation to the c. Traditio Brevi Manu – kind of delivery whereby a possessor of a thing not as an
time of delivery. owner, becomes the possessor as owner (ex: when a tenant already in possession
buys the house he is renting, rent-to-own)
HIERARCHY OF STANDARDS OF DILIGENCE d. Traditio Constitutum Possessorium – the opposite of brevi manu; thus, the
1. Extraordinary Diligence delivery whereby a possessor of a thing as an owner, retains possession no longer
○ That extreme measure of care and caution which persons of unusual prudence and as an owner, but in some other capacity (ex: like a house owner, who sells a
circumspection use for securing and preserving their own property (applies to house, but remains in possession as tenant of the same house).
banks and common carriers) e. Tradition by Public Instrument – substitution of real delivery of possession by a
2. Ordinary Diligence or Bonus Pater Familias public writing with the delivery of a document which evidences the transaction (ex:
○ The reasonable care a prudent man can be expected to exert to protect his own like the execution of a public instrument selling land).
property

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 19

WHEN OBLIGATION TO DELIVER ARISES 2. Specific performance of the obligation, with damages under Article 1170
1. Generally, the obligation to deliver the thing due and the fruits thereof, arises from the time of
the perfection of the contract. Perfection refers to the birth of the contract. Loss Due to Fortuitous Event
a. In a pure obligation – from the time of its creation or constitution GR: Loss due to a fortuitous event exempts debtor from responsibility.
2. If obligation with a suspensive condition – only upon happening of the suspensive condition XPN:
or period, unless expressly stipulated by the parties. ● Law
3. In obligations with a suspensive term – before the arrival of the term, the obligation has ● Stipulation to contrary
arisen but the obligation to deliver has not yet arisen. ● Nature of the obligation requires the assumption of risk
4. In contract of sale, the obligation arises from the perfection of the contract even if subject to a ● Debtor promised to deliver the same thing to two or more persons who do not have the
suspensive condition or period where the price has been paid same interest
● Debtor was already in delay when the fortuitous event took place [1165]
PERSONAL AND REAL RIGHT DISTINGUISHED ● Obligation arises from a criminal offense [1623]
PERSONAL RIGHT REAL RIGHT ● Object is lost and the loss is partly the fault of the debtor
The right or power of a person (obligee) to demand The right or interest of a person over a specific
from another (obligor) the fulfillment of the latter’s thing without a definitive passive subject Note: An indeterminate thing cannot be the object of destruction by fortuitous event because genus
obligation to give, to do, or not todo never perishes.
There is a definitive active subject and a definitive There is only a definite active subject without any ALTERNATIVE REMEDY AVAILABLE TO CREDITOR
passive subject definitive passive subject The remedy of rescission is available in the proper cases if, in a reciprocal obligation, one of the parties
Both obligor and obligee No obligor; obligee only is guilty of breach
Binding or enforceable only against a particular Indirected against the whole world ● Whether the creditor elects the remedy of performance or resolution, damages consistent
person with the remedy chosen are demandable by the creditor.
● These alternative remedies of resolution and damages are available not only in obligations to
Note: From this it is clear that before the delivery of the thing and the fruits thereof, the creditor has give, but also, in proper cases, in obligations to do or not to do.
merely a personal right against the debtor – a right to ask for the delivery of the thing and the fruits.
Once the thing and the fruits are delivered, then he acquires a real right over them, a right which is Article 1166. The obligation to give a determinate thing includes that of delivering all its accessions
enforceable against the whole world. and accessories, even though they may not have been mentioned. (1097a)
● Accessions – fruits of a thing or additions to or improvements upon a thing. These
OWNERSHIP ACQUIRED BY DELIVERY
include alluvium (soil gradually deposited by the current of a river on a river bank) and
Ownership and other real rights over property are acquired and transmitted by:
whatever is built, planted, or sown on a person’s parcel of land
● Law
● Accessories – those joined to or included with the principal for the latter’s better use,
● Donation
perfection, or enjoyment (Ex: The keys to a house, the dishes in a restaurant)
● Testate and intestate succession
● Effect of Stipulation: Of course, if there is a stipulation to said effect, accessions and
● In consequence of certain contracts by tradition
accessories do not have to be included
● Delivery
GR: All accession and accessories are considered included in the obligation to deliver a determinate
Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right thing, although they may not have been monitored.
granted him by article 1170, may compel the debtor to make the delivery. XPN: Stipulation of parties

If the thing is indeterminate or generic, he may ask that the obligation be complied with at the ACCESSION AS A RIGHT
expense of the debtor. Accession is also used in the sense of a right. It may be defined as the right pertaining to the owner of a
thing over its products and whatever is incorporated or attached thereto, either naturally or artificially.
If the obligor delays, or has promised to deliver the same thing to two or more persons who do not ● Accession includes, therefore, the right to the fruits and the right to the accessory.
have the same interest, he shall be responsible for any fortuitous event until he has effected the ● It is one of the rights which go to make up dominion or ownership.
delivery. (1096)
REMEDIES OF CREDITOR IN REAL OBLIGATION Article 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.
In SPECIFIC real obligations (obligation to deliver a determinate thing)
1. Demand specific performance (or compliance) of the obligation (whether determinate or This same rule shall be observed if he does it in contravention of the tenor of the obligation.
generic obligation) Furthermore, it may be decreed that what has been poorly done be undone. (1098)
2. Demand rescission or cancellation (in some case)
● This talks about positive personal obligations (to do)
3. Demand the payment of damages only where it is the only feasible remedy.
● Specific Performance is not a remedy in personal obligations (as compared to real obligations
where the debtor can be compelled to deliver the specific thing); otherwise, this may amount
In GENERIC real obligations (obligation to deliver a generic thing)
to involuntary servitude, which as a rule is prohibited under our Constitution.
1. Performed by 3rd person, with damages under Article 1170

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 20

REMEDIES OF CREDITOR IN POSITIVE PERSONAL OBLIGATION 3. To pay damages [1170-1172, 2201-2202]
1. If the debtor fails to comply with his obligation to do, the creditor has the right: OBLIGATION NOT TO DO (NEGATIVE PERSONAL OBLIGATION)
a. To have the obligation performed by himself, or by another unless personal
considerations are involved DEBTOR CREDITOR
b. To recover damages As to Primary Obligation
2. In case the obligation is done in contravention of the terms of the same or is poorly done, it Not to do a specific act [1168]
may be ordered (by the court upon complaint) that it be undone if it is still possible to undo As to Liability in Case of Breach
what was done
1. To shoulder the costs of undoing what has 1. To ask to undo what should not be done at
been done in BOC, if possible [1168] the debtor’s expense [1168]
Article 1168. When the obligation consists in not doing, and the obligor does what has been 2. To pay damages [1170-1172] 2. To recover damages, where it would be
forbidden him, it shall also be undone at his expense. (1099a) physically or legally impossible to undo what
● This talks about negative personal obligations (to not do). should not have been done because of the
● There is no specific performance requires since the duty is to abstain from the act. very nature of the act itself, rights acquired by
● There is no delay since the obligation fulfilled is not doing what is forbidden. 3rd persons who acted in GF, when the
● Substitute performance – done by someone else (perform at the expense of the debtor) effects of the prohibited are definite in
● Equivalent performance – payment of damages character and will not cease even if the thing
○ Damages may be obtained exclusively or in addition to the 1st two actions prohibited be undone
● Specific performance – is the performance of the prestation itself
○ In obligations to do or not to do, specific performance is not available since it SUMMARY OF REMEDIES/RIGHTS IN REAL AND PERSONAL OBLIGATIONS
will go against the constitutional prohibition against involuntary servitude. OBLIGATION TO GIVE (REAL OBLIGATION)
● Substitute performance is when someone else performs or something else is DETERMINATE/SPECIFIC INDETERMINATE/SPECIFIC
performed at the expense of the debtor
1. Action for specific performance in addition to 1. He may file an action for specific performance
REMEDIES OF CREDITOR IN NEGATIVE PERSONAL OBLIGATIONS damages under Art. 1170 [1165] with damages only [1165] OR
1. As a rule, the remedy is the undoing of the prohibited thing plus damages. 2. Rescission or cancellation, also with right to 2. He may ask the obligation to be complied with
2. However, if it is not possible to undo what was done (physically/legally) or because of third damages under Art. 1170 [1165] at the expenses of the debtor with damages
persons in good faith, or some other reason, the remedy would be an action for damages. 3. Payment of damages only [1170] only [1165]
OBLIGATION TO DO (POSITIVE PERSONAL OBLIGATION)
When a Thing May Be Ordered Undone DEBTOR CREDITOR
1. If made poorly (here performance by another and damages may be demanded) The creditor or 3rd person may do it in a proper Action for indemnification for damages [1167]
2. If the obligation is a negative (NOT to do) one (provided the undoing is possible) manner at the expense of the debtor [1167]
SUMMARY OF DUTIES IN REAL AND PERSONAL OBLIGATIONS If specific performance, it consists of involuntary servitude
OBLIGATION TO GIVE (REAL OBLIGATION) — DEBTOR OBLIGATION NOT TO DO (NEGATIVE PERSONAL OBLIGATION)
DETERMINATE/SPECIFIC INDETERMINATE/SPECIFIC 1. Have it undone at the expense of the debtor [1168]
2. To ask for Damages [1168], where it would be physically or legally impossible to undo what
1. To preserve and take care of the thing due 1. To deliver a thing which is of the quality
has been done because of:
2. To deliver the fruits of the thing [1164] intended by the parties taking into
a. The very nature of the act itself
3. To deliver its accessions and accessories consideration the purpose of the obligation
b. Rights acquired by third persons who acted in good faith
4. To deliver the thing itself and other circumstances. [1246]
c. When the effects of the acts prohibited are definite in character and will not cease
5. To answer for damages in case of 2. To be liable for damages in case of fraud,
even if the thing prohibited be undone
non-fulfillment of breach negligence, or delay in the performance of his
obligation, or contravention of the tenor CONTRAVENTION OF THE TENOR DID IT POORLY
thereof [1170] 1. The creditor or 3rd person may do it in a proper manner at the expense of the debtor [1167]
OBLIGATION TO DO (POSITIVE PERSONAL OBLIGATION) OR
2. May be decreed that what had been poorly done be undone at the expense of the debtor
DEBTOR CREDITOR
[1167]
As to Primary Obligation
To do what was promised [1167] SUMMARY OF THE RULES REGARDING REMEDIES AVAILABLE TO THE CREDITOR IN
As to Liability in Case of Breach OBLIGATIONS TO GIVE, TO DO, AND NOT TO DO
1. To undo what has been poorly done 1. To have the obligation executed at the cost of SPECIFIC EQUIVALENT SUBSTITUTE
OBLIGATION
2. To shoulder the cost when someone else the debtor [1167] PERFORMANCE PERFORMANCE PERFORMANCE
a. Does or accomplishes the obligation 2. To recover damages in case of breach [1170 1 To give
b. Undone what was done [1167] a. Determinate ✔ ✔ ✗
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 21
 b. Generic ✔ ✔ ✔ Note: In an obligation to deliver a generic thing, the debtor is not relieved from
2 To do liability for loss due to a fortuitous event.
2. Mora accipiendi
a. Very personal ✗ ✔ ✗ a. Creditor is guilty of breach of the obligation
3 b. Not very personal ✗ ✔ ✔ b. He is liable for damages suffered, if any, by the debtor
Not to do ✗ ✔ ✔ c. He bears the risk of loss of the thing due
d. Where the obligation is to pay money, the debtor is not liable for interest from the
time of the creditor’s delay; and
Article 1169. Those obliged to deliver or to do something incur in delay from the time the obligee e. The debtor may release himself from the obligation by the consignation of the thing
judicially or extrajudicially demands from them the fulfillment of their obligation. or sum due
3. Compensatio morae
However, the demand by the creditor shall not be necessary in order that delay may exist: a. The delay of the obligor cancels out the effects of the delay of the obligee and vice
(1) When the obligation or the law expressly so declare; or versa. There’ll be no actionable default on both parties, such that as if neither one
(2) When from the nature and the circumstances of the obligation it appears that the is guilty of delay
designation of the time when the thing is to be delivered or the service is to be rendered b. If the delay of one party is followed by that of the other, the liability of the first
was a controlling motive for the establishment of the contract; or infractor shall be equitably tempered or balanced by the courts. If it can’t be
(3) When demand would be useless, as when the obligor has rendered it beyond his power determined, the contract shall be deemed extinguished and each shall bear his
to perform. own damages.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to WHEN DEMAND NOT NECESSARY TO PUT DEBTOR IN DELAY
comply in a proper manner with what is incumbent upon him. From the moment one of the parties GR: Demand is necessary in order for delay to exist. NO DEMAND, NO DELAY.
fulfills his obligation, delay by the other begins. (1100a) XPN:
● Ordinary Delay – failure to perform an obligation on time 1. When the obligation expressly declares — The obligation must expressly declare that
● Legal delay or default or mora – failure to perform an obligation on time, which failure, demand is not necessary
constitutes a breach of the obligation 2. When the law provides
3. When time is of the essence — When the time of delivery is not fixed or is stated in general
KINDS OF DELAY (MORA) and indefinite terms, time is not of the essence of the contract. In such cases, delivery shall
1. Mora Solvendi – delay on the part of the debtor to fulfill his obligation by reason of a cause be made within a reasonable time.
attributable to him 4. When demand would be useless
2. Mora Accipiendi – delay on the part of the creditor without justifiable reason to accept the 5. When there is performance by a party in reciprocal obligations
performance of the obligation
3. Compensatio Morae – delay of the obligations in reciprocal obligation, i.e., the delay of the Article 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or
obligor cancels the delay of the obligee delay, and those who in any manner contravene the tenor thereof, are liable for damages. (1101)
REQUISITES OF DELAY/DEFAULT BY THE DEBTOR
1. Failure of the debtor to perform his (positive) obligation A. Culpable
2. Demand (not mere reminder/notice) made by the creditor upon the debtor to fulfill, perform, or a. Fraud – Arts. 1170–1171
comply, with his legal obligation which demand, may be either judicial or extra-judicial; and b. Negligence – Arts. 1170, 1172, and 1173
3. Failure of the debtor to comply with such demand. c. Delay – Arts. 1169–1170
B. Non-Culpable
There is no delay if the obligation is not yet due or demandable. The above requisites presuppose that a. Fortuitous Event – Art. 1174
the obligation is already due or demandable and liquidated.
● A debt is liquidated when the amount is known or is determinable by inspection of the GROUNDS FOR LIABILITY IN THE PERFORMANCE OF OBLIGATIONS
terms and conditions of relevant documents. 1. Fraud (deceit or dolo) – deliberate or intentional evasion of the normal fulfillment of an
● The creditor has the burden of proving that a previous demand has been made. It is obligation
incumbent upon the debtor, to relieve himself from liability, to prove that the delay was not 2. Negligence (fault or culpa) – Any voluntary act or omission, there being no bad faith or
caused by his fault. malice, which prevents the normal fulfillment of an obligation. It is the failure to exercise that
degree of care required by the circumstances
EFFECTS OF DELAY 3. Delay (mora) – The delay in the performance of the obligation
1. Mora Solvendi 4. Contravention of the terms of the obligation – Violation of terms and conditions stipulated in
a. Debtor is guilty of breach of the obligation the obligation. Must NOT be due to a fortuitous event or force majeure
b. He is liable for interest in case of obligations to pay money or for damages in other
obligations. In the absence of extrajudicial demand, the interest shall commence KINDS OF DAMAGES
from the filing of the complaint; and 1. Moral – for mental and physical anguish
c. He is liable even for a fortuitous event when the obligation is to deliver a 2. Exemplary – corrective or to set an example
determinate thing. 3. Nominal – to vindicate a right — when no other kind of damages may be recovered
4. Temperate – when the exact amount of damages cannot be determined
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 22
 5. Actual – actual losses as well as unrealized profit KINDS OF FRAUD
6. Liquidated – predetermined beforehand: by agreement 1. Fraud In The Performance Of The Obligation [1170]
○ Subsequent Fraud: Not antecedent to the contract or to the perfection of the contract
RECOVERY OF DAMAGES FOR BREACH OF CONTRACT OR OBLIGATION ○ Fraud as Malice: There is a valid contract pre-existing yet in the performance of the
Breach of contract is the failure, without legal excuse, to perform any promise which forms the whole obligation under such contract, you are guilty of fraud or you employed fraud so the obligation
or part of the contract. existed before the fraud; the fraud is in the performance of the obligation
1. Measure of recoverable damages – one injured by a breach of a contract, or by a wrongful or ○ Effect: Will not affect validity of contract notwithstanding that one party was in BF and
negligent act or omission shall have a fair and just compensation commensurate to the loss employ BF in his obligations but it will be given an action for damages.
sustained as a consequence of the defendant’s act. 2. Fraud In The Perfection Of The Contract
2. Contractual interests of obligee or promise, remedy serves to preserve – Confers upon the ○ Dolo Causante or Causal Fraud [1344]
injured party a valid cause for recovering that which may have been lost or suffered. ○ Dolo Incidente or Incidental Fraud [1338]
a. Expectation interest – interest in having the benefit of his bargain by being put in as good a ■ There is fraud when, through insidious words or machination of one of the
position as he would have been had the contract been performed; or contracting parties, the other is induced to enter into a contract which, without them,
b. Reliance interest – interest in being reimbursed for loss caused by reliance on the contract he would not have agreed to
by being put in as good a position as he would have been had the contract not been made ■ Fraud as Deceit: The person is tricked into entering into a contract because of the
c. Restitution interest – his interest in having restored to him any benefit that he has conferred use of insidious words or machinations
on the other party ■ Antecedent Fraud: Antecedent to the contract so it is therefore deceit in bringing
3. Excuse from ensuing liability – Mere proof of existence of the contract and failure of compliance the person into the contract
justify a corresponding right of relief to the obligee unless the obligor can show extenuating ■ Effect: If the party is able to establish fraud as deceit when the contract was entered
circumstance, such as proof of his exercise of due diligence into, the contract can be annulled because of such antecedent fraud
4. Duty of obligee to minimize his damages – An obligee is duty bound to minimize the damages
for which he intends to hold any obligor responsible. He cannot recover damages for any loss EFFECTS OF FRAUD
which he might have avoided with ordinary care. The duty to minimize his damages as much as 1. The creditor may insist on the proper performance [1163–1168; 1233]
possible is imposed by law upon the claimant, regardless of the unquestionability of his entitlement 2. The creditor may resolve the obligation [1191]
3. Damages may be recovered [1170]
FRAUD AND NEGLIGENCE DISTINGUISHED
FRAUD NEGLIGENCE Article 1172. Responsibility arising from negligence in the performance of every kind of obligation is
There is deliberate intention to cause damage or No such intention to cause damage or injury also demandable, but such liability may be regulated by the courts, according to the circumstances.
injury (1103
Waiver of the liability for future fraud is void Such waiver may, in a certain sense, is allowed ● Negligence – omission of the diligence required by the nature of the particular obligation and
Must be clearly proved, mere preponderance of Negligence is presumed from the breach of a corresponds with the circumstances of persons, time and place
evidence is not sufficient contractual obligation ● Courts have discretionary power to moderate liability (may increase or decrease) according to the
Liability for fraud cannot be mitigated by the courts Liability for negligence may be reduced according circumstances of the case
to the circumstances ● In cases of breach because of negligence, because there was irregularity in performance the
obligee may recover by specific or substitute performance whichever is proper, rescission
Both are voluntary or resolution [1191]. In any case, he/she can rescind or ask for performance. As in the case of
Gross Negligence — refers to negligence characterized by the failure to exercise even slight care or fraud, damages whichever remedy he or she choses. Liability may be regulated by the Courts
diligence, or the entire absence of care, acting or omitting to act on a situation where there is a duty to according to circumstances.
act, not inadvertently, but willfully and intentionally.
EFFECTS OF NEGLIGENCE
Article 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an 1. Damages are demandable which the court may regulate according to the circumstances [1172]
action for future fraud is void. (1102a) 2. Invalidates the defense of a fortuitous event
● Fraud referred to in this article is NOT the fraud to induce another to enter into a contract.
RESPONSIBILITY ARISING FROM NEGLIGENCE DEMANDABLE
● Refers to incidental fraud (dolo incidente) which is fraud in the performance of an obligation
1. Discretion of court to fix measure of damages
(intentional evasion of the fulfillment of an obligation) already existing because of the contract
○ Debtor is always liable for damages resulting from his negligence
● Any deliberate deviation from the normal way of fulfilling the obligation may be a proper basis for
○ Court are given discretion in fixing the measure of damages because negligence is a
claim for damages against the guilty party.
question which must necessarily depend upon the circumstances of each case
● Implies some kind of malice or dishonesty and cannot cover cases of mistake and errors in
2. Damages where both mutually negligent
judgment made in good faith. In such cases, the obligor can be held liable for damages.
○ When both parties are mutually negligent in the performance of their respective obligations,
the fault of one cancels or neutralizes the negligence of the other.
Waiver of Fraud
○ No one shall enrich himself unjustly at the expense of another.
● Past fraud may be waived (may be deemed an act of generosity).
● Future fraud CANNOT be waived (renders the obligatory force of contracts illusory) → VOID.

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 23

KINDS OF NEGLIGENCE ACCORDING TO SOURCE OF OBLIGATION
1. Culpa Contractual (contractual negligence) – fault or negligence of obligor by virtue of EFFECT OF GOOD FAITH OR BAD FAITH IN THE NEGLIGENCE OF THE DEBTOR
which he is unable to perform his obligation arising from a pre-existing contract GOOD FAITH BAD FAITH
2. Culpa Aquiliana / Quasi-delict – fault or negligence of a person, whose failure to observe the Obligor is responsible only for the natural and Obligor is liable for ALL damages which can be
required diligence to the obligation causes damage to another probable consequences of the breach [2201] reasonably attributed to the non-performance of
3. Culpa Criminal – fault or negligence which results in the commission of a crime. the obligation [2201]
CONTRIBUTORY NEGLIGENCE
● Mitigation of damages to be awarded Note:
○ Article 2179 of the CC: “When the plaintiff’s own negligence was the immediate ● If obligee’s own negligence was the cause of his injury –– CANNOT recover damages
and proximate cause of his injury, he cannot recover damages. But if his ● If negligence was only contributory –– obligee MAY recover damages, but court shall mitigate
negligence was only contributory, the immediate and proximate cause of the injury damages awarded
being the defendant’s lack of due care, the plaintiff may recover damages, but the
courts shall mitigate the damages to be awarded.” Article 1174. Except in cases expressly specified by the law, or when it is otherwise declared by
● The conduct of the injured party has contributed, as a legal cause to the harm he has stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be
suffered, which falls below the standard to which he is required to conform for his own responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.
protection (1105a)
● Reduction of amount for damages ● Fortuitous Event – occurrence which could not be foreseen, or if foreseen, is inevitable
● The fortuitous event must not only be the proximate cause but it must also be the only and SOLE
TEST OF NEGLIGENCE cause.
● Would a prudent man, in the position of the person to whom negligence was attributed, foresee ● Contributory negligence of the debtor renders him liable despite the fortuitous event.
harm to the person injured as a reasonable consequence to the course pursued? (Picart vs.
Smith) CLASSES OF FORTUITOUS EVENTS
● Did the defendant in doing the alleged negligent act use that reasonable care and caution which 1. As to origin or cause
an ordinarily prudent person would have used in the same situation? If not, then he is guilty of a. Act of God – event absolutely independent of human intervention
negligence. The law considers what would be reckless, blameworthy, or negligent in the man of b. Act of Man (force majeure) – event caused by legitimate or illegitimate acts of
ordinary intelligence and prudence and determines liability by that (PNRC v. Vizcara) persons other than the obligor (e.g. armed invasion, robbery)
2. As to foreseeability
Article 1173. The fault or negligence of the obligor consists in the omission of that diligence which is a. Ordinary – event which ordinarily happen or which could be reasonably foreseen
required by the nature of the obligation and corresponds with the circumstances of the persons, of the but are inevitable
time and of the place. When negligence shows bad faith, the provisions of articles 1171 and 2201, b. Extraordinary – those which do not usually happen and could not be reasonably
paragraph 2, shall apply. foreseen

If the law or contract does not state the diligence which is to be observed in the performance, that Note: Fortuitous event includes unavoidable accidents, even if there has been an intervention of human
which is expected of a good father of a family shall be required. (1104a) element, provided fault or negligence cannot be imputed to the debtor. (Tolentino)
● Diligence – the attention and care required of a person in a given situation
● Due Diligence – that measure of prudence as is properly to be expected from and is REQUISITES OF A FORTUITOUS EVENT
ordinarily exercised by a prudent man under the particular circumstances 1. The cause of the unforeseen and unexpected occurrence, or the failure to comply with his
● Necessary Diligence – degree of diligence a person must exercise in order to entitle him to obligations, must be independent of the human will
the protection of the law 2. It must be impossible to foresee the event which constitute the caso fortuito, or if it can be
● Standard of Diligence Required foreseen, it must be impossible to avoid
○ If nothing is stated, that of a Good Father of the Family 3. Must render it impossible for the debtor to fulfill the obligation in a normal manner
● Negligence – omission of the diligence required by the nature of the particular obligation and 4. Debtor must be free of participation in the aggravation of the injury to the creditor
corresponds with the circumstances of persons, time and place
CONCURRENT OR PREVIOUS NEGLIGENCE OF OBLIGOR
Factors to Consider ● There must be no concurrent or previous negligence or imprudence on the part of the obligor by
1. Nature of the obligation which the loss or injury may have been occasioned
2. Circumstances of the person ● Whether due to his active intervention or neglect or failure to act, the whole occurrence is then
3. Circumstances of time humanized and removed from the rules applicable to acts of God
4. Circumstances of place ● There should have been no human participation amounting to negligent act
● When negligence concurs with the fortuitous event (FE), he is exempted from liability by showing
Kinds of Diligence to be observed by Parties: that the immediate cause of the damage was the FE.
1. Required by Law ● If the loss would have happened with or without the negligence of the obligor, all is derived from
2. Stipulated by parties FE.
3. Diligence expected of a Good Father of a Family
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 24
WHEN A DEBTOR IS LIABLE FOR FORTUITOUS EVENT TWO KINDS OF PRESUMPTION
GR: When a debtor is unable to fulfill his obligation because of a fortuitous event or force majeure, he 1. Conclusive presumption – one which cannot be contradicted like the presumption that
cannot be held liable for damages or non-performance. everyone is conclusively presumed
XPN: 2. Disputable (or rebuttable) presumption – one which can be contradicted or rebutted by
1. It is expressly specified by law presenting proof to the contrary like the presumption established in Article 1176
○ Obligor is in delay
○ Debtor is guilty of fraud, negligence, delay, or contravention of the tenor of the obligation WHEN PRESUMPTIONS IN ART. 1176 DO NOT APPLY
○ Obligor has promised to deliver the same thing to two or more persons who do not have the 1. With reservation as to interest
same interest 2. Receipt for a part of principal
○ Obligation to deliver a specific thing arises from a crime 3. Receipt without indication of a particular installment paid
○ The object is a generic thing 4. Payment of taxes
2. The parties have stipulated 5. Non-payment proven
3. Nature of the obligation requires the assumption of risk
○ Doctrinal basis: No wrong is done to one who consents Article 1177. The creditors, after having pursued the property in possession of the debtor to satisfy
○ Refers to a situation in which the obligor or debtor, with full knowledge of the risk voluntarily their claims, may exercise all the rights and bring all the actions of the latter for the same purpose,
enters into some relation with the obligee or creditor save those which are inherent in his person; they may also impugn the acts which the debtor may
○ Example: Insurance Contracts have done to defraud them. (1111)
PRIMARY REMEDIES OF CREDITORS
Article 1175. Usurious transactions shall be governed by special laws. (n) 1. Action for Specific Performance – performance of the debtor of the prestation
● Usury – the exaction of excessive interest (more than the allowable rate set by law) 2. Action for Substitute Performance – someone else performs at debtor’s expense
● Simple Loan or Mutuum – is a contract whereby one of the parties delivers to another Substitute Performance by a Third Person
money or other consumable thing, upon the condition that the same amount of the same kind 1. Personal (to DO) Obligation:
and quality shall be paid a. If not purely personal – substitute performance; the obligation shall be executed
● Central Bank Circular 905 rendered usury legally non-existent at debtor’s cost if he fails to do it
● Unconscionable interests are reducible under Art. 21 of the CC for being contrary to morals – b. Purely personal – no substitute performance may be demanded (involuntary
may be reduced by the courts servitude). The only remedy is damages
● Money lenders do not have the authority to raise interest rates to any level 2. Real (to GIVE) obligation
● Increase of interest rate without petitioner’s assent violate the principle of mutuality of a. Generic thing – substitute performance; delivery may be made by a person other
contracts than the debtor since the object is merely designated by its class or genus. The
● Jurisprudence provides that an interest rate of 24-25% per annum is fair creditor may ask that the obligation be complied with at the expense of the debtor
[1165]
KINDS OF INTEREST b. Specific thing – specific performance may be demanded, that is, the creditor may
1. Simple Interest – when the rate of interest is stipulated by the parties compel the debtor to make the delivery
2. Compound Interest – when the interest earned is upon interest due 3. Action for damages (exclusively or in addition to action for performance)
3. Legal Interest – when the rate of interest intended by the parties is presumed by law, as 4. Action for Rescission (or resolution in reciprocal obligations) – cancellation of contract
when the loan mentions interest but does not specify the rate thereof 5. Exhaust debtor’s properties – e.g. by attachment (except those exempt; see p. 45)
4. Lawful Interest – when the rate of interest is within the maximum allowed by (usury) law
5. Unlawful Interest – when the rate of interest is beyond the maximum fixed by law SUBSIDIARY REMEDIES OF CREDITORS
1. Accion Subrogatoria
Article 1176. The receipt of the principal by the creditor, without reservation with respect to the 2. Accion Pauliana
interest, shall give rise to the presumption that said interest has been paid. 3. Accion Directa – A person may directly sue another even if there is no privity of contract between
them. The law in certain cases gives to the creditor a direct action, an action by the creditor in his
The receipt of a later installment of a debt without reservation as to prior installments, shall likewise own name but directed against the name of his debtor. [1652, 1729, 1608, 1114]
raise the presumption that such installments have been paid. (1110a)
GR: Contracts are binding only between the parties thereto, and their heirs, assignees, and the estate
● If creditor has issued a receipt to the debtor covering the principal obligation (with no XPN: Accion Subrogatoria, Pauliana, Directa
reservation regards to interest due), there arises a REBUTTABLE presumption that interest
has already been paid REMEDIES OF CREDITOR UNDER ART. 1177
● Receipt of a later installment also gives rise to the rebuttable presumption that the prior Primary Remedy
installments have also been paid 1. Specific performance or exact fulfillment of the obligation with the right to damages
● No presumption of payment of income taxes (taxes payable by the year NOT 2. Pursue the leviable or to pursue the property in possession of the debtor which are not exempt
installments) from attachment under the law

Subsidiary Remedies

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 25

1. Accion Subrogatoria – right of the creditor to exercise all of the rights (except those inherent in a. By the contract of partnership
the person) and bring all of the actions which is his debtor may have against third persons; the b. By the contract of agency
debtor of my debtor is also my debtor c. By the contract of commodatum
Requisites: [I-P-E] 2. Not transmissible by their very Nature (i.e. Personal right)
1. Debtor to whom the right of action properly pertains must be Indebted to the 3. Not transmissible by stipulation of the Parties
creditor
2. The creditor must be Prejudiced by the failure of the debtor to collect his own debt CHAPTER 3
from 3rd persons either through malice or negligence DIFFERENT KINDS OF OBLIGATIONS
3. Creditor must have first pursued or Exhausted all the properties of the debtor
which are not exempted for execution
XPN to Accion Subrogatoria: [EP-HAS] SECTION 1 - PURE AND CONDITIONAL OBLIGATIONS
1. Inherent rights of the debtor like 1179 Definition of Pure Obligations
a. Right to Existence
b. Rights or relations of a Public character (like government positions) 1180 Debtor binds himself to pay when his means permit him
c. Rights of an Honorary character (like a doctor’s degree) 1181 Conditional Obligations
d. Right pertaining to the Affairs of the home and the family
e. The right to appear in court proceedings like Settlement of estate 1182 Potestative, Casual, and Mixed; Sole will of the debtor
2. Only those who at the time of donors death have a right to the legitime and their 1183 Impossible conditions
successors-interest may ask for the reduction or inofficious donations
1184 Positive Condition
2. Accion Pauliana – action to rescind where the creditor may impugn the acts which the debtor 1185 Negative Condition
may have done to defraud them 1186 Doctrine of Constructive Compliance
Requisites: [C-SOFA]
1. There is a Credit in favor of plaintiff prior to alienation 1187 Retroactive Fulfillment of Suspensive Condition
2. The debtor has performed a Subsequent contract conveying a patrimonial benefit 1188 Rights Pending Fulfillment of Suspensive Condition
to third persons
1189 Loss, Deterioration and Improvements during Pendency
3. Creditor has no Other legal remedy to satisfy the claim, but would benefit by
rescission of the conveyance to the 3rd person 1190 Resolutory Condition
4. The debtor’s acts are Fraudulent to the prejudice of the creditor 1191 Remedies in Reciprocal Obligations
5. The third person who received the property is an Accomplice in the fraud
1192 Both Parties in Breach of Obligation
ACCION SUBROGATORIA ACCION PAULIANA
As to the Existence of Credit Article 1179. Every obligation whose performance does not depend upon a future or uncertain event,
Not essential that credit is prior to the acquisition of Credit must have existed before debtor’s fraudulent or upon a past event unknown to the parties, is demandable at once.
debtor’s right act
As to the Creditor’s Intent to Defraud Every obligation which contains a resolutory condition shall also be demandable, without prejudice to
the effects of the happening of the event. (1113)
Intent to defraud creditor is NOT required Intent to defraud creditor is required
As to Prescription
PURE OBLIGATION CONDITIONAL OBLIGATION
No period of prescription Action prescribes within four (4) years from the
● Not subject to any condition or term ● One whose consequences are subject to
discovery of fraud
● No specific date for its fulfillment the fulfillment of a condition
● Demandable at once/immediately ● The happening of the condition determines
Article 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if demandable its demandability
there has been no stipulation to the contrary. (1112)
Condition – a “future and uncertain” event upon which the existence or extinguishment of an obligation
is made to depend; must NOT be impossible
TRANSMISSIBILITY OF RIGHTS
GR: All rights acquired in virtue of an obligation are generally transmissible.
CHARACTERISTICS OF A CONDITION
● By a subjective novation or by means of assignment of credit or by virtue of succession
1. Future and Uncertain
● Person who transmits the right cannot transfer greater rights than he possesses
2. Past but Unknown
● Person to whom rights are transmitted can have no greater interest than that possessed by
○ Past event unknown to parties — what is really meant is future knowledge of a past event but
the transmitter at the time of the transmission
not the event itself will determine W/N obligation will arise
XPN: [LaNS]
1. Not transmissible by operation of Law
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 26
TWO PRINCIPAL KIND OF CONDITION b. Casual – the fulfillment of the condition depends on chance / hazard or the will of a third
1. Suspensive Condition person (and not on the will of a party)
○ Condition precedent or condition antecedent c. Mixed – depends partly on the will of one of the parties and partly on chance or the will of a
○ One the fulfillment of which will give rise to an obligation (or right) third person
○ Demandability of the obligation is suspended until the happening of a future and uncertain 3. As to possibility
event which constitutes the condition a. Possible – capable of fulfillment (by law, nature, public policy and good customs)
○ Acquisition of right is not affected while said condition is not complied with b. Impossible – not capable of fulfillment (by law, nature, public policy, good customs)
○ The effectivity of a perfected contract subject to a condition can take place only if and when 4. As to mode
the condition happens or is fulfilled a. Positive – an act is to be performed
○ If the suspensive condition does not take place, the parties would stand as if the conditional b. Negative – involves omission of an act
obligation had never existed 5. As to divisibility
○ There can be no rescission of an obligation that is still non-existent, the suspensive a. Divisible – capable of partial performance
condition not having been fulfilled. b. Indivisible – not capable of partial performance
2. Resolutory Condition 6. As to numbers
○ Condition subsequent a. Joint/Conjunctive – if all the conditions must be performed
○ The happening of the condition extinguishes the rights and obligations already existing b. Alternative – if only one/few of the conditions have to be performed
○ Rights already acquired are lost once the condition is fulfilled. 7. As to form
a. Express – condition is expressly stated
Term/Period – that which necessarily must come W/N the parties will know it will happen b. Implied – condition not expressly stated

PERIOD CONDITION Article 1180. When the debtor binds himself to pay when his means permit him to do so, the
As to Time Refers to future and certain Future and uncertain obligation shall be deemed to be one with a period, subject to the provisions of article 1197. (n)
May refer to past event unknown to the
parties WHERE THE DURATION OF THE PERIOD DEPENDS ON THE DEBTOR
As to Fulfillment It will happen at an indefinite time, May or may not happen 1. The debtor promises to pay when his means permit him to do so
but is sure to happen a. Law presumes that he really intends to satisfy his obligation
As to Its Influence on No effect or influence upon the May give rise to an obligation b. What is left to his will is the duration of the period and not the compliance with the
the Obligation to be existence of the obligation but only in (suspensive) or the cessation of one obligation
Fulfilled or Performed its demandability or performance already existing (resolutory) 2. Other cases
As to Effect, when left Empowers the court to fix the Invalidates the obligation a. Little by little
to Debtor’s will duration b. As soon as possible
c. From time to time
As to Retroactivity GR: The arrival of the period does The happening of a condition has a d. At any time I have the money
Effect not have retroactive effect retroactive effect e. In partial payments
XPN: Unless there is an agreement f. When I am in a position to pay
to the contrary
Rationale → Situation contemplated is one in which the creditor has parted with value; Any doubt
WHEN CONDITION IMPOSED ON PERFECTION OF CONTRACT should be resolved in favor of the validity of such an obligation
Failure to comply with:
1. Perfection of Contract – results in failure of a contract GR: Creditor must ask court first for fixing of the term. When the term arrives, he can demand
2. Performance of Obligation – only gives the other party the option to (1) refuse to proceed fulfillment.
with the contract or (2) to waive performance of the condition XPN: If prior action fixing the term would serve no purpose but delay –– IMMEDIATE action may be
allowed.
WHEN OBLIGATION IS DEMANDABLE AT ONCE
1. When it is pure [1179 (1)]
2. When it is subject to resolutory condition [1179 (2)]
3. When it is subject to resolutory period [1193 (2)] Article 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss
of those already acquired, shall depend upon the happening of the event which constitutes the
CLASSIFICATION OF CONDITIONS condition. (1114)
1. As to effect
a. Suspensive – happening of condition gives rise to obligation EFFECTS OF HAPPENING OF CONDITION
b. Resolutory – happening of condition extinguishes the obligation ● Acquisition of rights → Suspensive
2. As to cause or origin ● Loss of rights already acquired → Resolutory
a. Potestative – the fulfillment of the condition depends on the will of one of the contracting
parties
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 27
Article 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the Article 1183. Impossible conditions, those contrary to good customs or public policy and those
conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible,
obligation shall take effect in conformity with the provisions of this Code. (1115) that part thereof which is not affected by the impossible or unlawful condition shall be valid.

REQUISITES TO BE A VOID OBLIGATION The condition not to do an impossible thing shall be considered as not having been agreed upon.
1. Suspensive condition (1116a)
2. Potestative condition
3. Dependent on the sole will of the debtor EXCLUSIVELY APPLICABLE TO — Suspensive conditions

Note: BALANE — The identifying and essential element of an obligation is the vinculum juris ('legal TWO KINDS OF IMPOSSIBLE CONDITIONS
tie' or 'legal bond'). Without it, the obligation is illusory: an obligation that does not bind. 1. Physically impossible → Those that in the nature of things, cannot exist or cannot be done;
Considered not imposed
MEANING OF POTESTATIVE CONDITION a. Ex. I will pay you P20, 000 if you grow a plant on your forehead.
Potestative Condition — a condition suspensive in nature and which depends upon the sole will of 2. Legally impossible → Those that are contrary to law, morals, good customs, public order or
one of the contracting parties, public policy; Renders the obligation annulled
a. Ex. A contract of sale of a house and lot with a stipulation that the vendee shall not
WHERE SUSPENSIVE CONDITION DEPENDS UPON THE WILL OF THE DEBTOR use the property for the manufacture of shabu.
1. Conditional Obligation VOID b. Ex. I will pay you if you kill A.
a. Void because its validity and compliance is left to the will of the debtor → cannot,
therefore, be legally demanded EFFECTS OF IMPOSSIBLE CONDITIONS
b. In order to not be liable, the debtor will not just fulfill the condition. There is no GR: Conditional Obligation VOID — both obligation and condition is Void
burden on the debtor and no juridical tie is created XPN:
2. Only the Condition is VOID 1. Conditional obligation valid – if the condition is negative, obligation becomes pure and valid
a. If the obligation is pre-existing and does not depend its existence upon the a. Ex: I will give you P10, 000 if you do not grow a plant on your forehead
fulfillment by the debtor of the potestative condition, only the condition is VOID, 2. Only the affected obligation is void – if the obligation is divisible
leaving unaffected the obligation itself a. Ex: I will give you P10, 000 if you pass the CPA board exam, and a car if you kill A.
b. The condition is imposed not on the birth of the obligation but on its fulfillment 3. Only the condition is void – if there was a pre-existing obligation
c. Example: X borrowed ₱10,000 from Y. X promised to pay Y “after X sells his car”. a. Ex: D promised to give P1,000 to C. Later on, D said that he will only make good of his
In this case, only the condition is void since it is dependent on the will of the debtor, promise if C kills X.
but not the pre-existing obligation of X to pay Y.
Positive condition to do something impossible Void condition and obligation
WHERE SUSPENSIVE CONDITION DEPENDS UPON THE WILL OF THE CREDITOR Negative condition not to do something impossible Disregard the condition, the obligation is valid
The obligation is VALID since the creditor is interested in the fulfillment of the obligation because it is
for his benefit. It is up to the creditor whether he will enforce his right or not. Negative condition not to do something illegal Valid condition and obligation

WHERE RESOLUTORY CONDITION DEPENDS ON THE WILL OF DEBTOR FOR DONATIONS AND TESTAMENTARY DISPOSITIONS — When there is physical or legal
The obligation is VALID although its fulfillment depends upon the sole will of the debtor. impossibility, the impossible condition is simply disregarded and the disposition is made not void but
● The fulfillment of the condition merely causes the extinguishment or loss of rights already pure.
acquired.
● The debtor is naturally interested in the fulfillment of the condition. Article 1184. The condition that some event happen at a determinate time shall extinguish the
● The position of the debtor when the condition is resolutory is exactly the same as that of the obligation as soon as the time expires or if it has become indubitable that the event will not take
creditor when the condition is suspensive. place. (1117)

CASUAL CONDITION
If suspensive condition depend upon chance or upon the will of a third person → obligation is VALID APPLICABLE TO — Positive Suspensive conditions with a period — the happening of an event at a
determinate time.
MIXED CONDITION
The obligation is VALID if the suspensive condition depends partly upon chance and partly upon the will Effect: Obligation is EXTINGUISHED as soon as:
of a third person. 1. The time expires without the event taking place; or
2. It has become indubitable that the event will not take place anymore
SUSPENSIVE CONDITION DEPENDS PARTLY UPON THE WILL OF DEBTOR
If the compliance with the obligation still depends upon that part of the condition whose fulfillment ● If the period is not fixed in the contract, the COURT, considering the party’s intentions, should
depends upon the will of the debtor, the obligation is VOID as it is within his power to comply or not to determine what period was really intended.
comply with the same. ● If the condition is resolutory, the non-occurrence of the condition will make the right absolute.

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 28

Article 1185. The condition that some event will not happen at a determinate time shall render the RETROACTIVE EFFECTS OF FULFILLMENT OF SUSPENSIVE CONDITION
obligation effective from the moment the time indicated has elapsed, or if it has become evident that OBLIGATIONS TO GIVE OBLIGATIONS TO DO OR NOT TO DO
the event cannot occur. Once condition is fulfilled, its effects shall retroact No fixed rule is provided. This does not mean,
to the day when the obligation was constituted. however, that in these obligations the principle of
If no time has been fixed, the condition shall be deemed fulfilled at such time as may have probably ● Reason: Because the condition is only an retroactivity is not applicable. The Courts are
been contemplated, bearing in mind the nature of the obligation. (1118) accidental element of a contract. empowered by the use of sound discretion and
● Rule on Retroactivity has no application to bearing in mind the intent of parties, the retroactive
APPLICABLE TO — Negative conditions with a period real contracts as they are perfected only by effect of the suspensive condition that has been
delivery of the object of obligation complied with.
NEGATIVE CONDITION
The obligation shall become effective and binding — RETROACTIVE EFFECTS AS TO FRUITS AND INTERESTS IN OBLIGATIONS TO GIVE
1. From the moment the time indicated has elapsed without the event taking place; or
2. From the moment it has become evident that the event cannot occur, although the time IN RECIPROCAL OBLIGATIONS IN UNILATERAL OBLIGATIONS
indicated has not elapsed. No retroactivity because the fruits and interest There is usually no retroactive effect because they
received during the pendency of the condition are are gratuitous. The debtor receives nothing from
IF NEGATIVE RESOLUTORY CONDITION → Non-occurence will extinguish the obligation deemed to have been mutually compensated. the creditor. Thus, fruits and interests belong to the
debtor unless from the nature and other
Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its This rule is necessary for purposes of convenience circumstances it should be inferred that the
fulfillment. (1119) since the parties would not have to render mutual intention of the person constituting the same was
accounting of what they have received. different.
CONSTRUCTIVE FULFILLMENT OF SUSPENSIVE CONDITION
Three (3) requisites for the application of this article. Article 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions for
1. Condition is suspensive the preservation of his right.
2. The obligor actually prevents the fulfillment of the condition; and
3. He acts voluntarily or intentionally The debtor may recover what during the same time he has paid by mistake in case of a suspensive
condition. (1121a)
Mere intention of the debtor to prevent the happening of the condition, or to place ineffective obstacles
to its compliance without actually preventing the fulfillment, is insufficient. APPLICABLE TO — Suspensive conditions
Rationale: In as much as pending the happening of the suspensive condition, the creditor has only
The law does not require that the obligor acts with malice or fraud as long as his purpose is to prevent expectancy and cannot compel the debtor to perform. Acts or events may take place which might
the fulfillment of the condition. In a reciprocal obligation like a contract of sale, both parties are mutually render his right illusory when the condition happens.
obligors an also obligee.
RIGHTS PENDING THE FULFILLMENT OF SUSPENSIVE CONDITION
Article 1187. The effects of a conditional obligation to give, once the condition has been fulfilled, shall 1. Rights of the Creditor – preservation of his rights to prevent alienation or concealment of the
retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes property
reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition ○ BALANE – Defective terminology in using “bring the appropriate actions” since it refers only
shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall to judicial remedies but that is not the case; Should be “take appropriate action”
appropriate the fruits and interests received, unless from the nature and circumstances of the ○ Includes causing the annotation of an adverse claim on the title.
obligation it should be inferred that the intention of the person constituting the same was different. ○ Since before the happening of the condition, one is only a potential creditor, this article is in
line with the right of the creditor to ensure that his credit, once condition occurs, is not
In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of rendered illusory
the condition that has been complied with. (1120) 2. Rights of the Debtor – recover what he has paid by mistake (solutio indebiti)
○ Requisites:
i. Payment was made by mistake (premature)
APPLICABLE TO → Suspensive conditions where there was fulfillment.
● If creditor acted in good faith – Creditor liability under Art 2160 is only for
impairment
● Once condition is fulfilled, its effects shall retroact to the day when the obligation was made
● If creditor acted in bad faith – Creditor liability under Art 2159 includes legal
● The retroactivity is explained by the fact that the condition is NOT an essential element of
interest and other damages
the obligation.
● If both were in bad faith – Condition is deemed waived
ii. Demand to recover is made by the debtor before the happening of the condition
○ Consider prescription prior to recovery

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 29

Article 1189. When the conditions have been imposed with the intention of suspending the efficacy of Article 1190. When the conditions have for their purpose the extinguishment of an obligation to give,
an obligation to give, the following rules shall be observed in case of the improvement, loss or the parties, upon the fulfillment of said conditions, shall return to each other what they have received.
deterioration of the thing during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished; In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is debtor, are laid down in the preceding article shall be applied to the party who is bound to return.
understood that the thing is lost when it perishes, or goes out of commerce, or disappears in
such a way that its existence is unknown or it cannot be recovered; As for obligations to do and not to do, the provisions of the second paragraph of article 1187 shall be
(3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the observed as regards the effect of the extinguishment of the obligation. (1123)
creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission APPLICABLE TO — Fulfillment of resolutory condition — obligation is then extinguished.
of the obligation and its fulfillment, with indemnity for damages in either case; ● It is as if the obligation did not exist, the parties are back to status quo before the constitution
(5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of of their obligation.
the creditor;
(6) If it is improved at the expense of the debtor, he shall have no other right than that granted to EFFECTS OF FULFILLMENT OF RESOLUTORY CONDITION
the usufructuary. (1122) 1. In obligation to give
a. Obligation is extinguished
APPLICABLE TO — Suspensive conditions b. Parties shall return to each other what they have received (including fruits & interests)
Requisites of Article 1189 — c. Return to the status quo (Mutual Restitution)
1. Obligation is a real obligation d. If it legally owned by a third party, the remedy of the party entitled is against the other
2. Object is specific/determinate; e. If the condition is not fulfilled, the rights acquired by a party become vested
3. Obligation is subject to a suspensive condition; 2. In obligation to do or not to do → Courts shall determine the retroactive effect
4. Condition is fulfilled; 3. In reciprocal obligations – fruits and interest shall be compensated against each other. The
5. There is loss (Par 1 and 2), deterioration (Par 3 and 4), or improvement (Par 5 and 6) during law allows compensation up to the current amount.
the pendency of the condition
Note: The happening of a resolutory condition has the same effect on the creditor as the suspensive
NOTE: NO OBLIGATION if condition is not fulfilled. The effects of deterioration, loss, or improvement of condition has on debtor — an obligation arises
the thing will concern the debtor alone.
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
KINDS OF FORTUITOUS LOSS obligors should not comply with what is incumbent upon him.
1. Physical loss – perishes (Ex: House burns down)
2. Legal loss – out of commerce (Ex: Obligation to deliver pinball machines upon the The injured party may choose between the fulfillment and the rescission of the obligation, with the
happening of some condition but before the condition happens, pinball machines are banned payment of damages in either case. He may also seek rescission, even after he has chosen
and declared illegal) fulfillment, if the latter should become impossible.
3. Civil loss – existence is unknown or cannot be recovered as a matter of fact/law (Ex: Dog
runs away; Ring is dropped from the ship at sea; Property is lost through prescription) The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
NOTE: Art 1189 contemplates total loss. If partial loss, Art 1264 is applicable.
This is understood to be without prejudice to the rights of third persons who have acquired the thing,
WITHOUT DEBTOR’S FAULT OR in accordance with articles 1385 and 1388 and the Mortgage Law. (1124)
WITH DEBTOR’S FAULT
FORTUITOUS EVENT
APPLIES ONLY TO — Reciprocal Obligations
Loss Obligation is extinguished if determinate Liable to pay damages
Deterioration Creditor shall bear impairment 1. Payment of damages; and KINDS OF OBLIGATION ACCORDING TO THE PERSON OBLIGED
2. Creditor may choose 1. Unilateral – where only one party is obliged to comply with a prestation
a. Rescission 2. Bilateral – when both parties are mutually bound to one another
b. Fulfillment a. Reciprocal – arise from the same cause in which each party is a debtor and
Improvement By the thing’s nature or by time — inure to At the debtor’s expense – DR shall have no creditor of the other, such that the performance of one is designed to be the
the benefit of the creditor right other than that granted to a equivalent and the condition of the performance of the other
usufructuary with respect to improvements b. Non-reciprocal – Performance on one is not dependent
(not entitled to indemnification, but may
remove improvements, if doing so causes CHOICE OF REMEDY IN RECIPROCAL OBLIGATIONS
no damage to property) GR: Has a choice of remedies
● Specific performance (fulfillment) of the obligation plus damages; or
● Rescission plus damages

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 30

Note: Remedies are alternative and not cumulative. One option is forfeited when he chooses the other.

XPN: Remedy for rescission for non-compliance period to do specific performance, when guilty is SECTION 2 – OBLIGATIONS WITH A PERIOD
willing to comply but just needs more time.
1193 Definition of Obligations with a Period
RESCISSION AS REMEDY 1194 Loss, Deterioration, Improvement
To rescind does not merely mean to terminate the contract from the beginning but to restore the parties 1195 Payment or Delivery before arrival of the Period
to their relative positions as if no contract has been made.
● This requires restitution or the return of the benefits that each party may have received as a 1196 Benefit of the Period
result of the contract 1197 Power of Courts to fix the Period
● Rescission can be carried out only when he who demands rescission can return whatever he
may have received. (Article 1385) 1198 When Obligation can be Demandable Prior to Lapse of Period
● Rescission cannot take place when the things which are the object of the contract are legally
in the possession of third persons who acted in good faith. (Article 1385) Article 1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable only
● The action for rescission must be commenced within 4 years. (Article 1389) when that day comes.
LIMITATIONS ON RIGHT TO DEMAND RESCISSION Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain.
1. Resort to the courts – cannot take law into our own hands
2. Power of the court to fix a period (discretionary) A day certain is understood to be that which must necessarily come, although it may not be known
3. Right of a third person – if with another person already, rescission is not available when.
4. Must be substantial violation
5. Waiver of right may be express or implied If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall
a. Implied – Through court action be regulated by the rules of the preceding Section. (1125a)
b. Express – No need for court intervention; Court judgment only determines w/n
rescission was proper
c. There must always be notice to the defaulter before rescission can take effect. Obligation with a Period → one whose effects or consequences are subjected to the expiration or
6. Contract to sell/of sale – breach contemplated is the obligor’s failure to comply with an arrival of said period or term.
obligation already extant, not a failure of a condition to render binding that obligation ● Ex: I will give you Php 10,000 on December 25, 2023.
7. Sales of real property and of personal property in installments ● Day Certain – that which must necessarily come, although it may not be known when
8. Judicial compromise – applies only to reciprocal obligations in general and not to obligations ● “On or about period” – means only a few days after the stated date
arising from judicial compromise. ● Period of Prescription – commences from the time the term in the obligation arrives, for it is
only from that date that it is due and demandable
Article 1192. In case both parties have committed a breach of the obligation, the liability of the first
PERIOD CONDITION
infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first
violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. As to Time Refers to future and certain Future and uncertain
(n) May refer to past event unknown to the
parties
WHERE BOTH PARTIES ARE GUILTY OF BREACH As to Fulfillment It will happen at an indefinite time, May or may not happen
1. First infractor known – his liability will be equitably reduced but is sure to happen
2. First infractor cannot be determined – contract is extinguished and each shall bear his own As to Its Influence on No effect or influence upon the May give rise to an obligation
costs the Obligation to be existence of the obligation but only in (suspensive) or the cessation of one
Fulfilled or Performed its demandability or performance already existing (resolutory)
PRESUMPTION OF SIMULTANEITY – Failure to establish the sequence of the breaches raises this As to Effect, when left Empowers the court to fix the Invalidates the obligation
presumption. to Debtor’s will duration
BALANE — This article refers to cases where the parties have independently breached the As to Retroactivity GR: The arrival of the period does The happening of a condition has a
reciprocal obligation by a culpable or negligent failure to perform their respective prestation. Effect not have retroactive effect retroactive effect
XPN: Unless there is an agreement
to the contrary

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 31

KINDS OF PERIOD OR TERM ○ Effect: Cannot recover payment or delivery he made
1. According to effect ○ Deemed to have waived the benefit of the term and obligation is considered to be matured
a. Suspensive – arises or becomes demandable only upon arrival of the period
b. Resolutory – becomes demandable at once, but terminates or is extinguished only SITUATIONS IN WHICH NO RECOVERY CAN BE MADE EVEN IF CONDITIONS ARE PRESENT
upon arrival of the period (premature payment, fruits, or interest cannot be recovered)
2. According to source 1. When the obligation is reciprocal and there has been premature performance on both sides
a. Legal Period – provided by law 2. When the obligation is a loan which the debtor is bound to pay interest
b. Conventional or voluntary period – agreed by the parties 3. When the period is exclusively for the benefit of the creditor because the debtor by paying in
c. Judicial period – fixed by the court advance loses nothing
3. According to definiteness 4. When the debtor is aware of the period and pays anyway – waiver
a. Definite – fixed known date or time
b. Indefinite – event which will necessarily happen but the date of its happening is Note: In solutio indebiti, there is no debt or obligation to pay. In comparison in Art. 1195, there exists a
known (i.e. death) debt or obligation which will become demandable upon arrival of the period.
4. According to form
a. Express – When period is specifically stated PERSONAL OBLIGATIONS → No recovery since it is physically impossible to recover a service
b. Tacit – When a person undertakes to do some work which can be done only during already rendered and one cannot recover what he has not done.
a particular season PREPAYMENT MADE CONSCIOUSLY → Code is silent. By implication from Art. 6 of NCC, no
recovery
REQUISITES OF A VALID TERM OR PERIOD
1. Must be in the future Article 1196. Whenever in an obligation a period is designated, it is presumed to have been
2. Must be certain but can be extended (by mutual agreement) established for the benefit of both the creditor and the debtor, unless from the tenor of the same or
3. Must be possible physically/legally other circumstances it should appear that the period has been established in favor of one or of the
other. (1127)
Article 1194. In case of loss, deterioration or improvement of the thing before the arrival of the day PRESUMPTION → Period is for the benefit of both debtor and creditor
certain, the rules in article 1189 shall be observed. (n) ● General principle of mutuality/bilaterality

● Involves loss, deterioration, improvement of the thing before the “day certain” EFFECT WHEN THE PERIOD IN AN OBLIGATION IS ESTABLISHED FOR THE BENEFIT OF BOTH
● See comments under Article 1189 as the principles are the same THE DEBTOR AND CREDITOR
1. The debtor cannot make premature payment to the creditor. The creditor has the right to
Article 1195. Anything paid or delivered before the arrival of the period, the obligor being unaware of refuse the payment if the debtor pays prematurely
the period or believing that the obligation has become due and demandable, may be recovered, with 2. The creditor cannot collect prematurely. The creditor cannot compel the debtor to pay
the fruits and interests. (1126a) before the maturity date.

EXCEPTIONS TO THE GENERAL RULE

APPLICABLE TO — Suspensive periods; Obligations to give; Similar to Art. 1188 (2) GR: If an obligation in a period is designated, it is presumed to have been established for benefit of
both parties
GR: It is always presumed that the debtor is aware of the period for his obligation. Hence, if he pays XPN:
prematurely, he can no longer recover from the creditor what he has paid since the debtor essentially 1. Terms is for the benefit of the debtor alone – He cannot be compelled to pay prematurely but
waives the benefit of the term. he can if desires to do so
XPN: However, if the debtor pays prematurely, he can recover from the creditor what he has given, plus 2. Terms is for the benefit of the creditor alone – He may demand fulfillment even before the
fruits and interest IF he is able to prove at the same time that (requisites): arrival of the term but debtor cannot require him to accept payment before expiration of period
1. he was unaware of the period; or
2. he believed that the obligation has become due and demandable; XPN to XPN: The benefit of the period may be waived by the person in whose favor it was constituted.
● If a creditor accepts partial payment, it is presumed that the period is waived.
PERIOD COVERED IN RECOVERY → From the time of prepayment until the period arrives
IF PERIOD HAD ARRIVED → Debtor has no right to recover the thing itself but only the fruits and THE BENEFIT OF THE PERIOD
interest Suspensive period may be for the benefit of both creditor and debtor, or for the creditor’s benefit, or for
the debtor’s benefit.
CONSEQUENCES OF PREMATURE PAYMENT OR DELIVERY
1. Good Faith The ff. are the consequences of each instance:
○ Not aware of the period or believed the obligation was due and demandable; prepayment 1. If for the benefit of both – Creditor cannot demand, nor, on the other, can the debtor compel
was made by mistake acceptance of payment before the arrival of the period. The juridical consequence of this is that
○ Effect: Can recover what was paid including fruits and interests there can be neither mora solvendi nor mora accipiendi before the period arrives.
2. Bad Faith 2. If for the creditor’s benefit – The creditor may demand payment at any time but the debtor
○ Was aware of period and paid voluntarily; prepayment was made consciously cannot compel performance before the arrival of the period
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 32
3. If for the debtor’s benefit – The debtor may compel attendance of performance at any time but 2. When he does not Furnish to the creditor the guaranties or securities which he has
the creditor cannot demand performance until the arrival of the period promised;
○ Suppose that the creditor agrees to give the debtor one month to pay the latter’s debt, upon
Article 1197. If the obligation does not fix a period, but from its nature and the circumstances it can the condition that the latter will give a ring as security. Should the debtor fail to do so, the
be inferred that a period was intended, the courts may fix the duration thereof. benefit of the period is lost and the obligation becomes demandable immediately.
3. When by his own acts he has Impaired said guaranties or securities after their
The courts shall also fix the duration of the period when it depends upon the will of the debtor. establishment, and when through a fortuitous event they disappear, unless he immediately
gives new ones equally satisfactory;
In every case, the courts shall determine such period as may under the circumstances have been ○ If only through the acts of the debtor, the securities need only be impaired.
probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by ○ If through a fortuitous event, it is necessary that the securities disappear.
them. (1128a) 4. When the debtor Violates any undertaking, in consideration of which the creditor agreed to
the period;
○ Suppose that the creditor agrees to give the debtor one month to pay the latter’s debt, upon
GR: If the obligation does not fix a period and no period is intended by the parties, the courts are not the condition that the latter will repaint his gate. Should the debtor fail to do so, the benefit of
authorized to fix a period for the parties. the period is lost and the obligation becomes demandable immediately.
XPN: Under Art. 1197, there are two (2) instances when the courts are authorized to fix the period: 5. When the debtor attempts to Abscond.
1. When no period is fixed by the parties in an obligation, but a period was really intended for ○ A mere attempt to abscond is enough
the performance of the obligation. ○ Example is if the debtor changes his address without informing the creditor for the purpose of
2. When the period depends upon the will of the debtor. escaping from his obligation.

HOW THE COURT FIXES THE PERIOD ADDITIONAL → When the creditor is deceived on the substance or quality of the thing pledged, the
● The Court determines the period by considering the time probably contemplated by the creditor may either claim another thing in its stead or demand immediate payment of the principal
parties. Once the period is fixed by the courts, the period becomes part of the contract, thus obligation (Article 2109)
the courts cannot change it.
● The parties may of course change the period by mutual agreement, or may even disregard SECTION 3 – ALTERNATIVE OBLIGATIONS
the same (Barretto v. City of Manila) in which case, the obligation becomes a pure one, and
demandable at once. 1199 Definition of Alternative Obligations
1200 Right of Choice belongs to Debtor
PERIOD FIXED CANNOT BE CHANGED BY THE COURTS
● If there is an expired period agreed upon by parties, the Court cannot fix another period. 1201 Choice must be communicated to produce effect
● If the court fixes a period and parties consent to it, the period is then binding. 1202 Losing Right of Choice if only one is practicable
● Period fixed in a final judgment is res judicata. 1203 When May Debtor Rescind the Contract (with damages)
1204 Effect of Loss of the Objects of the Obligation when choice is Will of the Debtor
Article 1198. The debtor shall lose every right to make use of the period:
(1) When after the obligation has been contracted, he becomes insolvent, unless he gives a Effect of Loss of the Objects of the Obligation when choice is Will of the
1205
guaranty or security for the debt; Creditor
(2) When he does not furnish to the creditor the guaranties or securities which he has 1206 Definition of Facultative Obligations
promised;
(3) When by his own acts he has impaired said guaranties or securities after their
establishment, and when through a fortuitous event they disappear, unless he immediately Article 1199. A person alternatively bound by different prestations shall completely perform one of
gives new ones equally satisfactory; them.
(4) When the debtor violates any undertaking, in consideration of which the creditor agreed to
the period; The creditor cannot be compelled to receive part of one and part of the other undertaking. (1131)
(5) When the debtor attempts to abscond. (1129a)
KINDS OF OBLIGATIONS ACCORDING TO OBJECT
APPLIES TO — Obligations with a period that is for the benefit of the debtor 1. Simple Obligation – has only one prestation
EFFECT OF ENUMERATED EXCEPTIONS — Convert to pure obligation (immediately demandable) 2. Compound Obligation – has two or more prestations
GR: Obligations are not demandable before the lapse of the period. a. Conjunctive Obligation – specifies several prestations which all should be
performed
WHEN OBLIGATION CAN BE DEMANDED BEFORE LAPSE OF PERIOD [I-F-I-V-A] b. Distributive Obligation – one of two or more of the prestation is due. It may be
1. When after the obligation has been contracted, he becomes Insolvent, unless he gives a alternative
guaranty or security for the debt
○ The insolvency need not be judicially declared. It is sufficient that the assets are less than the Alternative Obligation – specifies two or more prestations, but only one or some (not all) of which
liabilities, as long as it occurs after the contracting of the obligation. should be performed

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 33

LIMITATION ON ALTERNATIVE OBLIGATIONS 2. The choice is irrevocable and cannot be renounced
The debtor in an alternative obligation cannot validly discharge the obligation by making partial 3. Where the choice has been expressly given to the Creditor, such choice shall likewise
performance of each of the prestations. produce legal effects upon being communicated to the debtor
● UNLESS: Debtor is expressly authorized to perform combinations of prestations 4. Balane: To make the obligation unitary or specific and brings the obligation under the rules on
specific obligations, as for instance, the rule one extinguishment in case of fortuitous event
Article 1200. The right of choice belongs to the debtor, unless it has been expressly granted to the
creditor. Article 1202. The debtor shall lose the right of choice when among the prestations whereby he is
alternatively bound, only one is practicable. (1134)
The debtor shall have no right to choose those prestations which are impossible, unlawful or which ● When only one prestation is practicable (e.g. the others have become impossible), the debtor
could not have been the object of the obligation. (1132) loses his right of choice
○ The obligation loses its alternative character and becomes a simple obligation
CONCENTRATION → Another term used for the act of making the choice ● If more than one is practicable –– Art. 1200 that will apply
GR: The right to choose the alternative belongs to the DEBTOR. ● This article applies only to DEBTORS. If the creditor is given the right to choose –– Art. 1205
XPN: It may be exercised by the creditor when expressly stipulated. applies

RIGHT OF CHOICE OF DEBTOR IS NOT ABSOLUTE Article 1203. If through the creditor’s acts the debtor cannot make a choice according to the terms of
The right of choice of the debtor is subject to the following limitations: the obligation, the latter may rescind the contract with damages. (n)
1. The debtor must choose, and completely perform, only ONE alternative prestation. He
cannot choose part of one prestation and part of another prestation. (Art. 1199, par. 2)
2. The debtor cannot choose those prestations which are impossible, unlawful, or which “MAY” → If the creditor performs acts that prevent the debtor from making a choice, the debtor may
could not have been the object of the obligation. (Art. 1200, par. 2) choose between rescission of the contract or carrying on with the same. He is not bound to rescind.
3. The debtor loses his right of choice when only one alternative prestation is practicable of
performance. (Art. 1202) Article 1204. The creditor shall have a right to indemnity for damages when, through the fault of the
debtor, all the things which are alternatively the object of the obligation have been lost, or the
compliance of the obligation has become impossible.
Article 1201. The choice shall produce no effect except from the time it has been communicated.
(1133) The indemnity shall be fixed taking as a basis the value of the last thing which disappeared, or that of
the service which last became impossible.
● Until choice is made and communicated to the other party, the obligation remains alternative
a. Once the notice of the elections has been given to the creditor → obligation Damages other than the value of the last thing or service may also be awarded. (1135a)
becomes simple
b. Choice must be properly made and communicated. Consent of the creditor is not
required to the choice of the debtor. The debtor’s right of choice would be rendered EFFECTS OF THE LOSS OF OBJECTS OF THE OBLIGATION
useless if he was to get the creditor’s approval of what prestation to choose. 1. Some of the objects – obligation goes on; no liability since debtor has the right of choice and
c. Choice is given legal effects upon communication. obligation can still be performed
● Proof and form of notice – orally or in writing, provided that it clearly conveys the 2. All of the objects – creditor has the right to indemnity of damages. Value will be based on the last
unmistakable choice of the debtor. thing, which has disappeared.
a. If through fortuitous event → extinguished
RATIONALE OF GIVING CHOICE
● To give the creditor time to prepare RULES IF THE CHOICE BELONGS TO THE DEBTOR
● Once the choice is communicated, the obligation ceases to be alternative → risk of loss 1. When only one prestation is left, either through fortuitous event or debtor’s fault –– loses the right
belongs to the creditor now of choice [1202]
● If choice belongs to the creditor, debtor won’t know which prestation he is to perform. 2. If choice is limited through the creditor’s fault or negligence –– rescission with damages [1203]
3. If all prestations are lost through debtor’s fault –– indemnity for the value of the last object plus
REMEDY OF CREDITOR IF DEBTOR FAILS TO MAKE CHOICE damages
● Code is silent 4. If some prestations are lost through the debtor’s fault –– the debtor can still choose from the
● Reference to closest analogue of the situation — File suit to compel debtor remaining ones without damages
● Alternative opinion of Tolentino based on French and German views: Court itself will make 5. If all are lost through a fortuitous event –– obligation is extinguished
the choice (French view) or he may file suit for an alternative judgment 6. If all but one are lost through a fortuitous event and the last one is lost through debtor’s fault ––
creditor shall have a right to indemnity for the value of the last object plus damages
GR: In case of plurality of debtors or creditors (joint obligations), ALL must give their consent 7. If all but one are lost through debtor's fault and the last one is lost through fortuitous event –– no
XPN: Unless the obligation is solidary, in which the choice of one is binding to all. right to demand anything; obligation is extinguished

EFFECTS OF CHOICE OR SELECTION

1. Becomes a SIMPLE obligation
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 34
Article 1205. When the choice has been expressly given to the creditor, the obligation shall cease to Creditor may choose:
be alternative from the day when the selection has been communicated to the debtor. ● Choose from any the remainder or
● That which remains if only one
Until then the responsibility of the debtor shall be governed by the following rules: subsists
(1) If one of the things is lost through a fortuitous event, he shall perform the obligation by Through Debtor’s Fault
delivering that which the creditor should choose from among the remainder, or that which Creditor has the right to indemnity for the
remains if only one subsists; LAST is value of the last object plus damages
(2) If the loss of one of the things occurs through the fault of the debtor, the creditor may claim lost Through Fortuitous Event
any of those subsisting, or the price of that which, through the fault of the former, has
disappeared, with a right to damages; No right to demand anything; obligation is
(3) If all the things are lost through the fault of the debtor, the choice by the creditor shall fall extinguished
upon the price of any one of them, also with indemnity for damages.

The same rules shall be applied to obligations to do or not to do in case one, some or all of the Article 1206. When only one prestation has been agreed upon, but the obligor may render another in
prestations should become impossible. (1136a) substitution, the obligation is called facultative.
● Applies only when the right of choice has been granted to the CREDITOR.
● Obligation of the debtor ceased to be an alternative from the time of communication by the The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor,
creditor. The obligation becomes a simple one. does not render him liable. But once the substitution has been made, the obligor is liable for the loss
● BEFORE the creditor makes the selection, the debtor CANNOT incur delay of the substitute on account of his delay, negligence or fraud. (n)
○ Reason: Until obligation becomes a simple obligation, the debtor would not know
which protestation to perform. ● Applies to both real and personal obligations
RULES IF THE CHOICE BELONGS TO THE CREDITOR FACULTATIVE OBLIGATIONS
1. If one or some are lost through fortuitous event — choose from among the remainder or ● Balane: Only 1 object or prestation has been agreed upon by the parties to the obligation, but
that which remains the debtor may deliver or render another in substitution.
a. If only one remains, debtor must deliver this to creditor; no right of choice anymore ○ Example: I will give you my piano, but I may give you my TV as a substitute
2. If one or some are lost through debtor’s fault — may choose ● In a facultative obligation, the right of choice is ALWAYS with the debtor.
a. Any of the remainders or with damages
b. The value of the one lost with damages EFFECT OF LOSS
3. If all are lost through debtor’s fault –– may choose the value of any of them plus damages 1. BEFORE Substitution ––
4. If all are lost through fortuitous event –– obligation extinguished ● If the principal thing is lost through a fortuitous event, the obligation is extinguished;
5. If some are lost through creditor’s fault –– choose from the remainder otherwise, the debtor is liable for damages
(Balane: not explicit in the article) ● The loss of the thing intended as a substitute with or without the fault of the debtor does not
6. If all are lost through creditor's fault –– obligation extinguished render him liable
(Balane: not explicit in the article) ● The thing intended as a substitute is not due. The effect of the loss is merely to extinguish the
facultative character of the obligation.
● Balane: The debtor should not be held liable for loss of substitute thing BUT this rule is
ART. 1204 ART. 1205 qualified by the principle of abuse of right in proper cases (Arts. 19-20, NCC)
(Choice of DEBTOR) (Choice expressly given to CREDITOR) 2. AFTER Substitution —
Through Debtor’s Fault ● If the principal thing is lost, the debtor is not liable whatever may be the cause of the loss,
Creditor has the right to indemnity for the because it is no longer due
value of the last thing w/c disappeared or Creditor may choose the value of any of them ● If the substitute is lost, the liability of the debtor depends upon whether or not the loss is due
ALL are that service w/c last became impossible plus damages through his fault
lost plus damages
Once substitution is made, the obligation is converted into a simple one to deliver or perform the
Through Fortuitous Event substituted thing or prestation.
Obligation is extinguished Obligation is extinguished When Substitution Takes Effect: The choice takes effect upon the receipt by the creditor of the notice
Through Debtor’s Fault of the debtor’s election
Debtor is not liable. Debtor can still choose Creditor may choose: Rule in Case of Doubt (Balane): Resolved in favor of the existence of an alternative obligation. That
from the remaining ones without damages. a. Any of the remainders plus interpretation would be comfortable with Art. 1378.
ONE or
In other words, creditor has the right to damages or
SOME are
demand performance of the remaining b. The value of the one lost plus
lost
without damages damages
Through Fortuitous Event ALTERNATIVE OBLIGATIONS FACULTATIVE OBLIGATIONS
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 35
As to Contents Several prestations due, but compliance Only ONE prestation due, although debtor
of the Obligation of one is sufficient is allowed to substitute it Article 1208. If from the law, or the nature or the wording of the obligations to which the preceding
May be given to creditor or debtor or Right to make a substitution is given ONLY article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as
Right of Choice
third person to the debtor many shares as there are creditors or debtors, the credits or debts being considered distinct from one
One of the another, subject to the Rules of Court governing the multiplicity of suits. (1138a)
If the principal obligation is impossible,
Prestations is There are other choices
everything is annulled
Impossible KINDS OF OBLIGATIONS ACCORDING TO NUMBER OF PARTIES
The loss of one of the alternatives DOES The loss of the thing due through his fault 1. Individual Obligation – one where there is only one obligor or obligee
NOT render him liable MAKES HIM LIABLE 2. Collective Obligation – one where there are more than one debtors/creditors. It may be:
Effect of Loss Where the choice belongs to the creditor, a. Joint Obligation – one where the whole obligation is to be paid proportionately by the
through Debtor the loss of one alternative through the The loss of the substitute before the different debtors and/or is to be demanded proportionately by the different creditors. (Art.
substitution through the fault of the debtor 1208).
fault of the debtor gives rise to the
does NOT render him liable ■ Balane: ESSENTIAL NATURE — There are as many obligations as there are creditors
liability
multiplied by as many debtors
Effect of Loss b. Solidary Obligation – any of the debtors can be held liable for the entire obligation, and any
The loss of one or more alternatives The loss of the thing due EXTINGUISHES
through of the creditors is entitled to demand the entire obligation.
does NOT extinguish the obligation the obligation
Fortuitous Event ■ Example: “I promise to pay” signed by several debtors
If one prestation is VOID, others are still Nullity of the prestation agreed upon
valid INVALIDATES the obligation Types of Joint Obligations
As to Nullity
Debtor OR creditor shall choose from 1. Active Joint – multiple creditors
Debtor is NOT bound to choose
among the remainder ○ The demand of 1 creditor in 1 debtor will not constitute a demand on the others
○ The prescription of 1 of the debts will not affect the other debts
SECTION 4 – JOINT AND SOLIDARY OBLIGATIONS 2. Passive Joint – multiple debtors
○ The demand of 1 creditor on 1 debtor will not constitute a demand on the others
1207 Definition of Solidary Obligation ○ The prescription of 1 of the debts will not affect the other debts
1208 Nature and Effects of Joint Obligation ○ The insolvency of 1 of the debtors will not affect the burden of other debtors
3. Mixed Joint – multiple creditors and debtors
1209 Joint Indivisble Obligations
1210 Indivisiblity and Solidarity Relationship Types of Solidary Obligations
According to Parties Bound
1211 Nature and Effects of Solidary Obligations
1. Passive Solidarity – solidarity on the part of debtors
1212 Act of Solidary Creditor Useful/Prejudicial to Others 2. Active Solidarity – solidarity on the part of creditors
1213 Assignment by Solidary Creditor of His Rights 3. Mixed Solidarity – Both debtors and creditors are in solidarity with each other
1214 Payment of Debtor to Any of the Solidary Creditors According to Source
1215 Liability of Solidary Creditor in case of Extinguishment of Obligations 1. Conventional Solidarity – Solidarity is agreed upon by both parties
2. Legal Solidarity – Solidarity imposed by law
1216 Right of Creditor to Proceed Against any Solidary Debtor
3. Real Solidarity – Solidarity is imposed by the nature of the obligation
1217 Effect of Payment by a Solidary Debtor
1218 Effect of Payment when Obligation is Prescribed/Illegal COLLECTIVE OBLIGATION PRESUMED TO BE JOINT
GR: The presumption is the obligation is always JOINT. (Balane: The obligation is joint since joint
1219 Effect of Remission of Share After Payment obligations are less onerous)
1220 No Right to Reimbursement in Cases of Remission XPN: There is SOLIDARY only when provided by
1. Law (i.e. tortfeasors are solidarily liable)
1221 Thing is Lost or Becomes Impossible / Fortuitous Event ○ Obligations arising from quasi-delicts (torts)
1222 Defenses available to Solidary Debtor ○ Obligations arising from quasi-contract
○ Legal provisions regarding the obligations of devisees and legatees
○ Liability of principals, accomplices, and accessories of a felony
2. Stipulation of the parties
Article 1207. The concurrence of two or more creditors or of two or more debtors in one and the 3. Nature of the obligation
same obligation does not imply that each one of the former has a right to demand, or that each one of ● Solidary obligation CANNOT be presumed but must be EXPRESSLY stated.
the latter is bound to render, entire compliance with the prestation. There is a solidary liability only ○ Reason: It is burdensome on the debtors. It results in the increase of their
when the obligation expressly so states, or when the law or the nature of the obligation requires responsibilities and liabilities as against solidary creditors.
solidarity. (1137a)

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 36

 PASSIVE SOLIDARITY SOLIDARITY GUARANTY Article 1209. If the division is impossible, the right of the creditors may be prejudiced only by their
Solidary debtor, like surety, answers for a debt which is not properly his own and after paying, he may collective acts, and the debt can be enforced only by proceeding against all the debtors. If one of the
demand reimbursement from the debtor personally bound in the obligation paid. latter should be insolvent, the others shall not be liable for his share. (1139)
Does not incur liability unless the principal is held
Liable not only for the debt of another but also for
liable; Considered as being the same party as the APPLICABLE TO — Joint Indivisible Obligations
one properly his own.
principal debtor ● It is joint as to liabilities of debtors or rights of creditors but indivisible as to compliance
Debtor who made the payment may claim Entitled to be indemnified by the principal debtor ● Constitutes the middle ground between a joint obligation and solidary obligation
reimbursement from his co-debtors with the right to be subrogated ● Performance by the debtors (if passively joint) must be done by all of them together.
Extension granted by the creditor to one of the Extension granted to principal debtor, without
solidary debtors, without consent of others, does consent of surety, has effect of extinguishing EFFECT OF NON-COMPLIANCE BY ONE OF THE DEBTORS
not release other solidary debtors from obligation suretyship. Debt will convert into one for damages, with each debtor responsible for their own proportionate shares.
● Should any of the debtors be insolvent, but the creditor, and not the co-debtors, carries the
burden of the proportionate share of the unwilling debtor. Co-debtors still pay for their
JOINT OBLIGATIONS SOLIDARY OBLIGATIONS proportionate shares but if they suffer any damages, they can recover them from the unwilling
Consists of several obligations; There debtor.
are as many obligations as the number Single obligation even if there are
Nature
of debtors multiplied by the number of multiple parties Damages from the Contravening Debtor – Liable to co-debtors
creditors
Active Solidarity – Any of the creditors DIFFERENT PERMUTATIONS FOR JOINT INDIVISIBLE OBLIGATIONS
may demand the whole amount from the 1. Performance must be by all debtors or in favor of all creditors
Who can be sued 2. If there are two or more debtors, compliance with the obligation requires the concurrence of all the
Each of the debtors proportionate to debtor
and how much can debtors, although each for his own share. Demand must therefore be made on ALL the joint
their share Passive Solidarity – Creditor may
be sued debtors
demand the whole amount from any of
the debtors 3. GR: If there are two or more creditors, the delivery must be made to ALL and not merely to one
Failure/Refusal of a Does not give rise to liability of Any of the debtors can still be made to XPN: Unless that one is specifically authorized by the others
Debtor co-debtors pay the whole amounts NOTE: If a creditor refuses to accept, he may resort to tender of payment and to be followed by
proper consignation of the thing
Demand on one debtor does not affect Demand by one is demand by all; 4. Each credit is distinct from one another; therefore a joint debtor cannot be required to pay for
Effect of Demand
other debtors Demand to one is demand to all the share of another with the debtor, although he may pay if he wants to
Insolvency of One Does not give rise to liability of Any of the other debtors can still be 5. In case of insolvency of one of the debtors, the others shall not be liable for his shares. To hold
Debtor co-debtors made to pay the whole amounts otherwise would destroy the joint character of the obligation
Extinguishes in whole or to the extent of 6. No creditor can do acts prejudicial to others
Effect of Payment by Extinguishes his share of the obligation 7. Each joint creditor is allowed to renounce his proportionate credit
the payment, with right to
One Debtor but not his co-debtors’ share
reimbursement
Article 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does
solidarity of itself imply indivisibility. (n)
WORDS USED FOR JOINT LIABILITY WORDS USED FOR SOLIDARY LIABILITY ● Indivisible Obligation – refers to the SUBJECT MATTER; character of the object which
1. Jointly and/or severally does not permit its division or segregation without destroying its essence or substance
2. Individually and collectively ● Solidary Obligation – refers to the TIE BETWEEN parties; one where each debtor is liable
1. Proportionately
3. Together and/or separately for the entire obligation, and each creditor is entitled to demand the fulfillment of the whole
2. Pro rata
4. “I promise to pay” signed by two or more obligation
3. Jointly
debtors (in contrast to signing of two or
4. “We promise to pay” signed by two or
more debtors of “we promise to pay) KINDS OF INDIVISIBILITY
more persons
5. Mancoumanda solidaria 1. Legal Indivisibility – law declares obligation indivisible
5. Mancomunada
6. Juntos or separadamente 2. Conventional indivisibility – when agreed to by the parties
6. Mancomunada simple
7. De mancomun e insolidum
8. In solidum

Note: The precise word “solidary” need not be used. It is sufficient that the obligation states that each INDIVISIBILITY SOLIDARITY
one of the debtors can be compelled to pay the entire obligation. Refers to the prestation which Refers to the legal tie or vinculum
Q: May the obligation be joint on the side of the creditors and solidary on the side of the debtors and As to Nature
constitutes the object of the obligation
vice versa? YES
As to Number of Plurality of subjects is not required Plurality of subjects is indispensable
Subjects
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 37
 In case of breach, obligation is When there is liability on the part of the XPN: When a demand, judicial or extrajudicial, has been made by one of them, payment should be
converted into indemnity for damages debtors because of the breach, the made to him
Effect of Breach ● To avoid confusion and prejudice to the more diligent creditor
because the indivisibility of the solidarity among the debtors remains
obligation is terminated
Heirs of the debtor remain bound to Terminates the solidarity, the tie or GR: If there are other debtors to whom no demand was made, they are free to pay to any of the
Effect of Death of solidary creditors
perform the prestation vinculum, being in transmissible to the
Debtor XPN: Unless the first had FULLY paid they then have to pay or reimburse the debtor who paid
heirs
Others are not liable for insolvency of The other debtors are proportionately GR: Payment to another creditor will not extinguish the obligation
Effect of Insolvency
the debtor liable [1217] XPN: Except insofar sa the share of the payor is concerned.

Article 1211. Solidarity may exist although the creditors and the debtors may not be bound in the EFFECT OF DEMAND – Terminates mutual agency among the solidary creditors
same manner and by the same periods and conditions. (1140)
Article 1215. Novation, compensation, confusion or remission of the debt, made by any of the
KINDS OF SOLIDARY OBLIGATIONS solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice
1. Uniform – when the parties are bound by the same stipulation to the provisions of article 1219.
2. Non-uniform or varied – when the parties are not subject to the same stipulations or
clauses The creditor who may have executed any of these acts, as well as he who collects the debt, shall be
liable to the others for the share in the obligation corresponding to them. (1143)
● There may be a solidary obligation although the parties are not bound in the same manner
and by the same period and conditions. APPLICABLE TO — Active Solidarity
● Creditor may bring his action in toto against any of the solidary debtors less the shares of the
other debtors with unexpired terms or unfulfilled conditions. LIABILITY FOR SOLIDARY CREDITOR IN CASE OF EXTINGUISHMENT OF OBLIGATION
● The parties may stipulate that any solidary debtor already bound may be made liable for the ● The creditor who executed any of these actions should be liable to the others for their
obligation. corresponding shares considering that such acts are prejudicial to them.

JOINT OBLIGATION ON ONE SIDE, SOLIDARY ON THE OTHER Effect of Extension of time given by Creditor to a Solidary Debtor
● May be joint on the side of creditors and solidary on the side of debtors, or vice versa ● Extension of time granted by the creditor to a solidary debtor does not amount to a novation
● In such cases, the rule applicable to each subject of the obligation should be applied. that will discharge the other solidary debtors.
● The latter shall be liable for the whole debt less the share of the debtor granted the extension.
Article 1212. Each one of the solidary creditors may do whatever may be useful to the others, but not ● In suretyship, the effect of the extension given to the principal debtor, without the consent of
anything which may be prejudicial to the latter. (1141a) the surety is to extinguish the contract of suretyship.
○ Note: In suretyship, a surety binds himself solidarily with the principal debtor. In a
APPLICABLE TO — Active Solidarity solidary obligation, a solidary debtor is himself a principal debtor. Therefore, a
● If any creditor performs any act prejudicial to the others, the obligation is extinguished and he solidary debtor cannot be considered a guarantor of his co-debtor.
shall be responsible for damages
○ Balane — This is based on Roman law Effect on Joint Obligations
● As far as the debtor or debtors are concerned, the act shall be valid and binding. GR: Novation, compensation, confusion, remission, prescription, and any other cause of modification or
● This rule is based on mutual agency extinction does NOT extinguish or modify the obligation
○ Mutual Agency – The right of one to act for and in the name of the others XPN: With respect to the creditor or debtor affected, without extending its operation to any other part of
○ A joint creditor CANNOT act in representation of others the debt or credit

Article 1213. A solidary creditor cannot assign his rights without the consent of the others. (n) CONFLICT BETWEEN 1212 AND 1215
● Article 1212 provides that each of the solidary creditors may do whatever may be useful to
● This agency cannot be just assigned to a third person without the consent of the other
the others, but not anything which may be prejudicial to the latter. But Article 1215 allows
creditors. With the consent of ALL, the rights may be assigned
novation, compensation, confusion or remission on the part of the solidary creditor.
● Reason: mutual agency of solidary creditors which is based on mutual trust and confidence
● According to Professor Balane, this is absurd.
● Effect: the assignment is mere unenforceable and therefore curable by ratification
● One way of reconciling is that under Article 1215, any creditor can remit or condone the
● Assignment to a co-creditor: Not covered by the prohibition therefore valid
obligation. But because the obligation is extinguished, the condoning creditor must be liable
for the other creditor‘s share. Here, there is no prejudice. However, another problem arises if
Article 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or the condoning creditor later on becomes insolvent.
extrajudicial, has been made by one of them, payment should be made to him. (1142a)
APPLICABLE TO — Active and Mixed Solidarity Article 1216. The creditor may proceed against any one of the solidary debtors or some or all of them
GR: Debtor may pay any one of the solidary creditors simultaneously. The demand made against one of them shall not be an obstacle to those which may
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 38
subsequently be directed against the others, so long as the debt has not been fully collected. (1144a) 3. Among the solidary creditor(s)
○ The receiving creditor is jointly liable to the others for their corresponding shares.

APPLICABLE TO — Passive Solidarity

ESSENCE OF PASSIVE SOLIDARITY – Any one or some or all of the solidary debtors, Article 1218. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors
simultaneously, may be made to pay the debt so long as it had not been fully collected if such payment is made after the obligation has prescribed or become illegal. (n)

RIGHT OF CREDITOR TO PROCEED AGAINST ANY SOLIDARY DEBTOR EFFECT OF PAYMENT WHERE OBLIGATIONS HAS PRESCRIBED OR BECAME ILLEGAL
● Solidary debtors are not indispensable parties in a suit filed by the creditor ● If obligation has prescribed or becomes illegal, it is extinguished.
● Bringing of an action against a solidarity debtor to enforce the payment of the obligation does
not preclude the bringing of another to compel the others to fulfill their obligations GR: Paying debtor is entitled to reimbursement from his co-debtors
○ A solidarity debtor is also a surety XPN: Two cases when a paying debtor cannot get any reimbursement
● In case of death of one of the solidary debtors, the creditor has thee choice to proceed 1. Obligation prescribed due to lapse of the time required by law – obligation is extinguished
against the estate of the deceased solidary debtor along or against any or all of the surviving after prescription
solidary debtors whose liability is independent of and separate from the deceased debtor 2. Obligation has become illegal – void; no legal compulsion to pay
● Choice is left to the solidary creditor to determine against whom he will enforce collection
● As compared to Art 1252 which contemplates the situation where a debtor has various debts, EFFECT OF PARTIAL EXTINGUISHMENT – Will apply only to the portion that has been extinguished
this article is when each solidary debt is imputable to several debtors RECOVERY FROM CREDITOR – Will depend on whether or not the rules on solutio indebiti applies
● This rule may be modified by agreements of the parties
Article 1219. The remission made by the creditor of the share which affects one of the solidary
Note: In joint obligations, failure to collect from one joint debtor his share does not authorize the creditor debtors does not release the latter from his responsibility towards the co-debtors, in case the debt
to proceed against the others, regarding the insolvent debtor’s share. In solidary obligations, if the had been totally paid by anyone of them before the remission was effected. (1146a)
creditor sues only one, two or some (but not all) there is no waiver against those not yet sued.
They may be proceeded against later.
APPLICABLE TO — Cases of remission by the creditor of a co-debtor’s share AFTER another
Passive Solidarity and Suretyship co-debtor has made full payment
Similarity: Both the solidary debtor and surety: ● Remission does not excuse the debtor whose share has been remitted, from contributing his
1. Guarantee for another person and share.
2. Both can demand reimbursement
EFFECT OF REMISSION OF SHARE AFTER PAYMENT
● If the payment is made first, the remission or waiver has no effect
Article 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more ● If the remission is made before the payment and payment is made, solutio indebiti arises.
solidary debtors offer to pay, the creditor may choose which offer to accept. ○ Up to the debtor whose debt is remitted to prove priority of the remission to the
payment
He who made the payment may claim from his co-debtors only the share which corresponds to each, ○ Share that has been remitted is extinguished; Paying debtor cannot collect
with the interest for the payment already made. If the payment is made before the debt is due, no ○ Creditor may demand payment of the reduced amount from any of the co-debtors,
interest for the intervening period may be demanded. including the debtor himself whose share has been remitted
RATIO – To forestall the fraud where the debt, having been paid, the creditor, who does not stand to
When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the suffer any loss or damage, remits the share of a particular debtor; Secures equality and justice to the
debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt paying debtor
of each. (1145a)

Article 1220. The remission of the whole obligation, obtained by one of the solidary debtors, does not
REFERS TO – Payment by one of the passive solidary debtors; not applicable when no payment made entitle him to reimbursement from his co-debtors. (n)
EFFECTS OF PAYMENT BY A SOLIDARY DEBTOR
1. Between the solidary debtors and creditor(s) APPLIES WHEN — There is remission of the WHOLE obligation
○ Full payment by a solidary debtor extinguishes the obligation
○ However, creditor is given the right to choose which offer to accept if two or more solidary NO RIGHT TO REIMBURSEMENT IN CASE OF REMISSION
debtors offer to pay ● Debtor who obtains remission pays nothing to the creditor since remission is essentially
2. Among the solidary debtors gratuitous. No payment made, no reimbursement.
○ The paying solidary debtor can demand reimbursement from his co-debtors for their ● But in the case of novation, compensation, or confusion, the debtor with whom it is affected is
proportionate shares with legal INTEREST (only from the time of payment) entitled to recover from his co-debtors their corresponding shares.
○ A joint obligation is created for the rest of the co-debtor for reimbursement to the
debtor-payer Article 1221. If the thing has been lost or if the prestation has become impossible without the fault of
○ However, in case of insolvency of any of the solidary debtors, the others assume the the solidary debtors, the obligation shall be extinguished.
share of the insolvent one pro rata
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 39
If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price SECTION 5 – DIVISIBLE AND INDIVISIBLE OBLIGATIONS
and the payment of damages and interest, without prejudice to their action against the guilty or 1223 Disivible and Indivisible Obligations
negligent debtor.
1224 Non-Compliance of Debtor in Joint Indivisible Obligation
If through a fortuitous event, the thing is lost or the performance has become impossible after one of 1225 Obligations Deemed Indivisible/Divisible
the solidary debtors has incurred in delay through the judicial or extrajudicial demand upon him by the
creditor, the provisions of the preceding paragraph shall apply. (1147a)
Article 1223. The divisibility or indivisibility of the things that are the object of obligations in which
there is only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of
RULES IN CASE THING HAS BEEN LOST OR PRESTATION HAS BECOME IMPOSSIBLE this Title. (1149)
1. Loss is without fault and before delay → Extinguished obligation
2. Loss is due to the fault on the part of a solidary debtor → They are all liable for the price of
the thing and damages. But the debtor at fault cannot ask for reimbursement from his APPLICABLE TO — Real or personal obligations; “Things” is used in its broad sense
co-debtors if he paid for the price and damage. 1. Divisible Obligation – one capable of partial performance
○ As far as the creditor is concerned, fault or delay of one is fault or delay of all. a. deliver 200kg of sugar in 100kg increments
3. Loss is without fault but after delay – Same as (2) 2. Indivisible Obligation – not capable of partial performance
a. deliver specific car

TEST FOR DISTINCTION

Article 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which ● Refers to the performance/prestation of the obligation, not to its object
are derived from the nature of the obligation and of those which are personal to him, or pertain to his ● Purpose of the obligation, or intention of the parties
own share. With respect to those which personally belong to the others, he may avail himself thereof ● INDIVISIBLE
only as regards that part of the debt for which the latter are responsible. (1148a) ○ If a thing could be divided into parts and as divided, its value is impaired
disproportionately, that thing is indivisible.
DEFENSES AVAILABLE TO A SOLIDARY DEBTOR ■ Otherwise, it is divisible
1. Defenses derived from the nature of the obligation – third party pays, fraud, prescription, ○ Object is NOT physically divisible or service is NOT susceptible of partial fulfillment
remission, illegality, or absence of consideration, res judicata, non- performance of a ○ Hence, even if the object or service may be physically divisible, an obligation is
suspensive condition indivisible, if so provided by law or intended by the parties.
a. Complete/real defense because it nullifies the obligation or renders it ineffective ● PRESUMED INDIVISIBLE: If there is only one creditor and one debtor.
2. Defenses personal to, or which pertain to share of, debtor sued – insanity, incapacity,
mistake, violence, minority Kinds of Divisibility
a. Personal defense since it is only with respect to his/her share 1. Conventional – by agreement or will of contracting parties
b. May be total defense if it consists of vitiation of consent 2. Natural or absolute – nature of the object or prestation does NOT admit division
c. May also be partial defense, valid insofar as debtor’s share – such as different due a. Ex: take a trip to Manila; give a particular ring; sing in a wedding
dates for the shares 3. Legal – specific provision of law declares so
3. Defenses personal to other debtors
a. Partial/personal defense since it is only with respect to his/her share Kinds of Division
1. Quantitative division – divisibility depends on the quantity
The debtor sued can invoke all three kinds of defenses. The difference is whether such defense would a. Ex. A & B divide 300 cavans of palay harvested from the rice field, or the P10,000
result in total or partial exculpation. cash
2. Qualitative division – divisibility depends on quality
a. Ex: A & B are heirs of C. They agreed to divide their inheritance: A - house and lot
and home appliances to B - rice field, car, and P10,000.
3. Ideal or Intellectual Division – one that exists merely in the mind of the parties
a. Ex. A and B own, in common, a car. One-half share of either is only in the mind.
(Their shares are not separable in a material way but only mentally.)

APPLICABILITY OF CHAP 2, TITLE 1

● Chap 2, Title 1 (Nature & Effect of Obligations) are also applicable to divisible or indivisible
obligations even if they contemplate obligations involving only one creditor and one debtor.
● Since divisibility or indivisibility refers to the object or prestation, it does not alter or modify
said the nature of the obligation.

Article 1224. A joint indivisible obligation gives rise to indemnity for damages from the time anyone of

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 40

the debtors does not comply with his undertaking. The debtors who may have been ready to fulfill ○ Ex. of Indivisible – Not to sell cigarettes in store of one year.
their promises shall not contribute to the indemnity beyond the corresponding portion of the price of ○ Ex. of Divisible – Not to sell cigarettes in store during Sundays and holidays.
the thing or of the value of the service in which the obligation consists. (1150) ● Obligations “to do” or “not to do” are generally indivisible
○ EXCEPT: Obligations to do in Art. 1225, Par 2 are divisible

APPLIES TO — Joint indivisible obligation SECTION 6 – OBLIGATIONS WITH A PENAL CLAUSE

● Performance by the debtors (if passively joint) must be done by all of them together
● The object is indivisible but the liability of the parties is joint. 1226 Definition of Obligations with a Penal Clause
● Action for enforcement of the obligation must be pursued against ALL the debtors. 1227 Assumed Subsidiary
● Non-compliance involves the inability of any of the debtors to comply with his undertaking.
1228 Proof Needed
EFFECT OF NON-COMPLIANCE BY A DEBTOR IN A JOINT INDIVISIBLE OBLIGATION 1229 When Penalty Can be Reduced by Court
1. Obligation transformed into one for damages 1230 Accessory Follows Principal
○ If one of the debtors does not comply in a joint indivisible obligation, the obligation
is transformed into one for damages, i.e., to pay money
○ Creditor cannot ask for specific performance or rescission since there is no cause Article 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for
of action against other debtors who are willing to fulfill performance damages and the payment of interests in case of noncompliance, if there is no stipulation to the
2. Contribution of innocent debtors limited to their respective shares contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of
○ In solidary obligation, breach by a co-debtor makes all debtors liable for damages. fraud in the fulfillment of the obligation.
■ Obligation remains solidary without prejudice to their rights against the
guilty or negligent debtor. The penalty may be enforced only when it is demandable in accordance with the provisions of this
○ In joint indivisible obligation, the effect of non-compliance by a debtor is to make all Code. (1152a)
the debtors liable for damages but innocent debtors shall not contribute beyond
● Obligation with a Penal Clause – one which contains an accessory undertaking to pay a
their respective shares of the obligation.
previously stipulated indemnity in case of breach
■ The obligation becomes a divisible one.
○ To entitle the injured party to the penalty, no need to prove damages
○ It is sufficient for the injured party to prove that there was a breach of contract
Article 1225. For the purposes of the preceding articles, obligations to give definite things and those ● The penalty is the means of repairing the losses and damages suffered by injured party
which are not susceptible of partial performance shall be deemed to be indivisible. ● Penal Clause – accessory undertaking attached to an obligation to assume greater liability
in case of breach
When the obligation has for its object the execution of a certain number of days of work, the
accomplishment of work by metrical units, or analogous things which by their nature are susceptible Meaning of Principal and Accessory Obligations
of partial performance, it shall be divisible. 1. Principal Obligation - one which cans tand by itself and not depend for its validity and existence
upon another obligation
However, even though the object or service may be physically divisible, an obligation is indivisible if 2. Accessory Obligation - one which is attached to a principal obligation; cannot stand alone
so provided by law or intended by the parties.
Difference between Penal Clause and Condition
In obligations not to do, divisibility or indivisibility shall be determined by the character of the PENAL CLAUSE CONDITION
prestation in each particular case. (1151a)
Constitutes an obligation although accessory Does not constitute an obligation
CONTROLLING CIRCUMSTANCE TO DETERMINE DIVISIBILITY/INDIVISIBILITY Demandable in default of the unperformed Never demandable
● The ultimate controlling circumstance is the purpose of the obligation obligation and sometimes jointly
OBLIGATIONS DEEMED INDIVISIBLE
DIFFERENT KINDS OF PENALTIES
1. Obligations to give definite things
1. As to origin
2. Obligations not susceptible to partial performances
a. Legal – constituted by law
3. Obligations provided by the law to be indivisible even if thing or service can be divisible
b. Conventional – constituted by agreement of the parties
4. Obligations intended by the parties to be indivisible even if thing or service can be divisible
2. As to purpose
a. Compensatory – established for the purpose of indemnifying damages
OBLIGATIONS DEEMED DIVISIBLE
b. Punitive – established for the purpose of punishing the debtor for breach
1. Obligations which have for their object the execution of a certain number of days of work
3. As to effect
2. Obligations which have for their object the accomplishment of work by metrical units
a. Subsidiary – only the penalty may be demanded in case of breach
3. Obligations which by their nature are susceptible of partial performance
b. Joint – the principal obligation and the penalty may both be demanded
DIVISIBILITY OR INDIVISIBILITY IN OBLIGATIONS NOT TO DO
Nature of the Penalty Imposed in case of Breach
● In negative obligations (not to do), the character of the prestation in each particular case will
1. Indemnity for damages
determine their divisibility/indivisibility
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 41
 2. Payment of Interests fulfillment of the obligation, the performance thereof should become impossible without his fault, the
3. Stipulation to the contrary (can be in form of money, an act or an abstention) penalty may be enforced. (1153a)
LIABILITY FOR PENALTY, DAMAGES, AND/OR INTERESTS GR: Debtor cannot just pay the penalty instead of performing the obligation (if the debtor is allowed to
1. Penalty substitutes for damages and interests – GR: Penalty takes the place of the just pay this would in effect make it an alternative obligation)
indemnity for damages and the payment of interests in case of non-compliance. XPN: When debtor is EXPRESSLY granted the right to substitute the penalty for the principal obligation
○ Proof of actual damages suffered is not necessary for the penalty to be enforced.
2. Penalty and interests enforceable – Law permits an agreement upon a penalty apart from GR: Creditors cannot demand the fulfillment of the obligation and payment of penalty at the same time
the interest. XPN:
○ Should there be such an agreement, the penalty does not include the interest and 1. Creditor was clearly given the right to enforce the principal obligation and the penalty
as such, the two are different things which may be demanded separately 2. Creditor has demanded the fulfillment of the obligation, but the same could no longer be
○ A stipulation about payment of additional interest partakes of the nature of a fulfilled due to the debtor’s fault, he may demand the penalty
penalty clause which is sanctioned by law. ● Fault due to Creditor’s Act – CANNOT claim penalty
3. Penalty, damages, and interests enforceable – the creditor, in addition to the penalty, may ● Fraud on Debtor’s part – Creditor may recover penalty and damages
recover damages and interests: ● Due to Fortuitous event – Obligation and penalty extinguished
○ When so stipulated by the parties;
○ When the obligor refuses to pay the penalty; or PENAL CLAUSE ASSUMED SUBSIDIARY
○ When the obligor is guilty of fraud in the fulfillment of obligation ● When there is performance – Once obligation is fulfilled, there is no need to demand for
4. Requirement to make penalty enforceable – Penalty may be enforced only when it is penalty unless ”this right has been clearly granted”.
demandable. ● When there is no performance – The creditor may ask for the penalty or specific
○ The penalty, as a stipulation in a contract, is demandable only if there is a breach performance. These remedies are alternative. But he can ask for a penalty, if the choice was
of the obligation and it is not contrary to law, morals, good customs, public order or specific performance and it has become impossible to do so without the fault of the debtor.
public policy.
○ If due to fortuitous event, penalty is not demandable WHEN PENAL CLAUSE JOINT – When the right to pay penalty in lieu of performance has been
○ May be reduced if it is unconscionable or in case there is partial or irregular expressly reserved for him
fulfillment.
Article 1228. Proof of actual damages suffered by the creditor is not necessary in order that the
GR: Penal clause is subsidiary (1227) and exclusive (1226) — upon breach, only the penalty is penalty may be demanded. (n)
demandable
XPN: Joint/Cumulative — The principal obligation and the penalty can be demanded when the penal APPLICABLE TO – When the penalty is fixed by the parties to substitute the indemnity for damages
clause is joint or cumulative. This occurs when the creditor has been clearly granted such right (Article
1227, 2nd sentence), either expressly or impliedly. The implied right must be one ascertainable from the PROOF OF ACTUAL DAMAGES
nature of the obligation. ● All the creditor has to prove is the violation of the obligation by the debtor. ○ Penal clause
● Ex: In the construction industry where the contractor must pay the penalty if the work is constitutes predetermined damages.
completed after the stipulated time frame but must also finish the agreed construction. ● Creditor may enforce penalty whether he suffered damages or not.
○ BUT: He cannot recover more than the stipulated amount even if he proves the
HOW CONSTRUED — Obligations with penal clauses are strictly construed since it is an exception amount of his damages is greater.
to the General Rules on recovery of losses and damages
FOR PUNITIVE PENAL CLAUSE (Damages recoverable in addition to the penalty) – creditor must
provide evidence of such damages.
Obligations with a Conditional Alternative Facultative
Penal Clause Obligation Obligation Obligation
Balane – New article is correct but superfluous since it only makes explicit what the definition of a penal
There is a principal Existence of the There is only one There is only one thing clause already contains.
obligation to which the obligation is uncertain. obligation but there are due notwithstanding the
accessory obligation of two things due right conferred upon the
penal clause is joined. alternatively and debtor to satisfy the Article 1229. The judge shall equitably reduce the penalty when the principal obligation has been
Debtor cannot choose to obligation may be obligation by substituting partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty
pay in lieu of satisfied by the another in its place. may also be reduced by the courts if it is iniquitous or unconscionable. (1154a)
performance, unless performance of one of
expressly granted. them. WHEN PENALTY CAN BE REDUCED BY COURT
1. When there is partial or irregular performance
○ Penalty should be more or less proportionate with the extent of the breach
Article 1227. The debtor cannot exempt himself from the performance of the obligation by paying the
○ Presumed that the parties contemplate only a total breach of contract
penalty, save in the case where this right has been expressly reserved for him. Neither can the
2. When the penalty agreed upon is iniquitous or unconscionable
creditor demand the fulfillment of the obligation and the satisfaction of the penalty at the same time,
○ Penalty is not void, but subject to equitable reduction
unless this right has been clearly granted him. However, if after the creditor has decided to require the
○ Addressed to the sound discretion of the court and on several factors:
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 42
 ■ The type, extent and purpose of the penalty, the nature of the obligation, 5. Impossibility of fulfillment
the mode of breach and its consequences, the supervening realities, the 6. Happening of a fortuitous event
standing and relationship of the parties 7. Waiver by the creditor
■ Can be subjective/objective 8. Change of civil status
3. When necessary to protect the rights of innocent third persons 9. Withdrawal by one of the parties in a partnership
10. Disappearance or cessation of creditor’s interest
PURPOSE — Evident justice; contrary to morals 11. Judicially declared insolvency

Article 1230. The nullity of the penal clause does not carry with it that of the principal obligation. SECTION 2 - PAYMENT OR PERFORMANCE
1232 Definition of Payment
The nullity of the principal obligation carries with it that of the penal clause. (1155)
1233 When is Debt Considered Paid

RULE – Accessory follows the principal and not vice-versa 1234 Recovery is Allowed in Substantial Performance in Good Faith
BASIS – Accessory obligation cannot subsist without the principal obligation but the latter can subsist 1235 Obligation is Fulfilled if Obligee Accepts Despite Incompleteness
without the former. 1236 Creditor is Not Bound to Accept Payment from 3rd Party
IF PENAL CLAUSE IS VOID – Principal obligation is still valid and demandable but simply becomes
one subject to the general rules on damages in case of breach. 1237 Rights of 3rd Person to Subrogation
1238 If 3rd Person Does not Want Reimbursement → Donation
EXCEPTIONS:
1. When the penalty is undertaken by a third person precisely for an obligation which is 1239 Free Disposal in Obligations to Give; Capacity to Alienate
unenforceable, voidable, or natural, in which case it assumes the form of a guaranty which is valid 1240 Person to whom payment shall be made
under Art. 2052
1241 Payment to incapacitated person or third person
2. When the nullity of the principal obligation itself gives rise to liability of debtor for damages/due to
fault of debtor who acted in bad faith 1242 Payment to 3rd Person in Possession of Credit
a. Vendor knew thing due was nonexistent at the time of the contracts → Liable for damages 1243 When Payment to Creditor is Invalid
b. Since penalty is merely a substitute for damages, it can be enforce
1244 Identity Requisite; Substitution of Prestation
IF PRINCIPAL OBLIGATION IS VOID — Penal clause is likewise void although it is itself valid; cannot 1245 Dation in Payment is governed by Law of sales
stand alone
1246 Can't Demand something Superior/Inferior for Generic Thing
1247 Extrajudicial Expenses & Judicial Costs Required by Payment
CHAPTER 4
EXTINGUISHMENT OF OBLIGATIONS 1248 Complete Performance Necessary; Valid partial performance
1249 Currency of Debt; Legal Tender
SECTION 1 - GENERAL PROVISIONS 1250 Extraordinary Inflation or Deflation
1231 Causes of Extinguishment of Obligations 1251 Place of Payment / Location where Payment must be made

Article 1231. Obligations are extinguished: Article 1232. Payment means not only the delivery of money but also the performance, in any other
(1) By payment or performance; manner, of an obligation. (n)
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt; MEANING OF PAYMENT → May consist of not only in the delivery of money but also the giving of a
(4) By the confusion or merger of the rights of creditor and debtor; thing (other than money), the doing of an act, or not doing of an act
(5) By compensation; ● Normal, perfect mode of extinguishment of obligations → Paradigm of all other modes
(6) By novation. ○ Other modes are abnormal
● Payment – Proper term of obligations to give
Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a ● Performance – Obligations to do or not to do
resolutory condition, and prescription, are governed elsewhere in this Code. (1156a) ● In law, payment and (specific) performance are synonymous and used interchangeably.

ELEMENTS OF PAYMENT
CAUSES OF EXTINGUISHMENT OF OBLIGATIONS Under the common law doctrine —
1. Death of a party in case the obligation is a personal one 1. Persons, who may pay and to whom payment may be made
2. Mutual desistance or withdrawal 2. Thing or object in which payment must consist
3. Arrival of resolutory period 3. The cause thereof
4. Compromise 4. The mode or form thereof
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 43
 5. The place and time in which it must be made EXISTENCE OF SUBSTANTIAL PERFORMANCE
6. The imputation of expenses occasion made by it When there is compliance with the essential requirements, whether of a contract or a statute
7. The special parts which may modify the same and the effects they generally produce ● Breach is of inconsequential nature → Substantial performance
● Breach is material and not merely slight or technical and unimportant → No substantial
Burden of proving payment performance; Has right to resolution
Upon the debtor who pleads payment or offers such defense to the claim of the creditor; Must prove ● Operation of Art. 1234 prevents application of Art. 1191
with preponderance of evidence
Article 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity,
Article 1233. A debt shall not be understood to have been paid unless the thing or service in which and without expressing any protest or objection, the obligation is deemed fully complied with. (n)
the obligation consists has been completely delivered or rendered, as the case may be. (1157)
RECOVERY ALLOWED, WHEN INCOMPLETE OR IRREGULAR PERFORMANCE WAIVED
WHEN DEBT CONSIDERED PAID Founded on the principle of estoppel – If payment is incomplete or irregular, creditor has the right to
1. Integrity – how payment should be made, it should be complete (with accessions and accessories) reject. In case of acceptance, law considers that the creditor waives his right.
2. Identity – what is to be paid, payment should be the very same obligation/prestation promised ● The rule of requirement of integrity is for the creditor/obligee’s benefit

GR: Partial or irregular performance will not produce the extinguishment of an obligation Requisites for the Application of Art. 1235
XPN: 1. The obligee knows that the performance is incomplete or irregular
1. Unless otherwise stipulated 2. He accepts the performance without expressing any protest or objection
2. Substantial performance in good faith (1234)
3. Waiver by creditor/obligee (1235) “ACCEPT” → To take as satisfactory or sufficient; To give assent to; To agree or accede to an
4. If there are several debts of the same nature and burden, and they are al due, the remittance incomplete or irregular performance.
of an amount less than the total of all the debts will be applied pro rata to them all under the ● Mere receipt of partial payment is not equivalent to acceptance of performance
rules on application of payments (1254, par. 2) ● The acceptance must be made under circumstances that indicate his intention to consider the
performance complete and renounce his claim arising from defect
Who Must Pay
1. Debtor WHO CAN PAY OR PERFORM THE OBLIGATION
2. Anyone acting on the debtor's behalf Article 1236. The creditor is not bound to accept payment or performance by a third person who has
a. Duly authorized agent or legal representative no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.
b. Heirs (provided that the debtor is already dead for otherwise they are considered
as third persons interested in the obligation) Whoever pays for another may demand from the debtor what he has paid, except that if he paid
c. Successors-in-interest and assignees without the knowledge or against the will of the debtor, he can recover only insofar as the payment
3. Third Person Who is An Interested Party (Interested Party – one who has an interest in the has been beneficial to the debtor. (1158a)
extinguishment of the obligation) such as:
a. Co-debtors GR: Creditor is NOT bound to accept payment or performance by a third person who has NO
b. Sureties INTEREST in the fulfillment of the obligation
c. Guarantors XPN:
d. Owners of mortgaged property or pledge 1. If there is an express stipulation
Note: Even without the knowledge of the debtor, a person interested in the fulfillment of the obligation 2. If said person has an interest in the fulfillment of the obligation (co-debtor, guarantor, surety,
can pay [1302]. mortgagee)

Rationale: Creditor has a right to insist on the liability of the debtor. He should also not be compelled to
Article 1234. If the obligation has been substantially performed in good faith, the obligor may recover accept payment from a third person he may dislike or distrust. Furthermore, the creditor cannot be
as though there had been a strict and complete fulfillment, less damages suffered by the obligee. (n) absolutely sure that the thing delivered is in accordance with the contract.

RECOVERY ALLOWED, SUBSTANTIAL PERFORMANCE IN GOOD FAITH EFFECT OF PAYMENT BY A THIRD PERSON
● In case of substantial performance, the obligee is benefitted 1. If made without knowledge or against the will of debtor –
● There must be just compensation for the relative breach committed by the obligor. ○ Recover only up to the extent or amount of the debt at the time of payment (Art
1236, Par 2)
REQUISITES FOR THE APPLICATION OF ART. 1234 ○ Not subrogated to the rights of the creditor (Art 1237)
1. There must be substantial performance 2. If made with the knowledge of the debtor
○ The existence of such depends upon the circumstances of each case ○ Has right to reimbursement, recover what he has paid (not necessarily the amount
2. The obligor must be in good faith of the debt) from the debtor
○ Good faith is presumed in the absence of proof to the contrary i. Nothing beyond what has been paid
ii. Except if payment is intended as a donation to debtor
○ Has right to subrogation
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 44
 ○ If opposition is to be made, it must be before or at the time the payment is ● If creditor is unaware — Debtor or person who has a better right to property may recover the
made, not subsequently since the effect of payment is determined at the time it same
was made. ● In either case, the debtor may ratify or validate the payment previously made should he
subsequently acquire the right and capacity
Article 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the XPN: Minors between 18–21 without parental/guardian consent who voluntarily pays or performs have
latter, cannot compel the creditor to subrogate him in his rights, such as those arising from a no right to recover from obligee if the thing has been consumed in good faith. (1427)
mortgage, guaranty, or penalty. (1159a) ● Dead-letter, repealed by R.A. 6809, which set majority age to 18

TO WHOM PAYMENT SHOULD BE MADE

RIGHT OF THIRD PERSON TO SUBROGATION
● If with knowledge — Entitled to subrogation Article 1240. Payment shall be made to the person in whose favor the obligation has been
● If without knowledge or against the will — Cannot compel constituted, or his successor in interest, or any person authorized to receive it. (1162a)
○ What if the creditor willingly permits the subrogation to 3rd person? NO. This
article is for the benefit of the debtor so subrogation can only take place with his PERSON TO WHOM PAYMENT MUST BE MADE
consent. 1. Creditor or obligee (person in whose favor the obligation has been constituted)
● Legal subrogation by operation of law is presumed in certain cases (1302) ○ Must be creditor at the time the payment is to be made
○ Read together with Art. 1626 — Debtor who, before having knowledge of
APPLICATION — Arts 1236–1237 do not apply where there is no debtor-creditor relationship with the assignment, pays his creditor shall be released from the obligation
person on whose behalf the third person made payment and payee 2. Successor in interest (e.g. heir/assignee) or Transferee/Representative
SUBROGATION REIMBURSEMENT 3. Any person authorized to receive it
Payer acquires not only right to reimbursement for Merely the bare right to be refunded to the extent
what he paid but also all other rights which creditor provided in Art. 1236 (2) GR: Payment made to an unauthorized person is NOT a valid payment
could have exercised in relation to the credit XPN:
1. Payment made to an incapacitated person or a third person under Art. 1241
No real extinction, only a change of creditor 2. Payment made in good faith to any person in possession of the credit, though such person
may not be authorized to receive it under Art. 1242
Article 1238. Payment made by a third person who does not intend to be reimbursed by the debtor is
deemed to be a donation, which requires the debtor’s consent. But the payment is in any case valid Article 1241. Payment to a person who is incapacitated to administer his property shall be valid if he
as to the creditor who has accepted it. (n) has kept the thing delivered, or insofar as the payment has been beneficial to him.

PAYMENT BY A THIRD PERSON WHO DOES NOT INTEND TO BE REIMBURSED Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the
● “No one should be compelled to accept the generosity of another” creditor. Such benefit to the creditor need not be proved in the following cases:
● Deemed a donation which require debtor’s consent to be valid (1) If after the payment, the third person acquires the creditor’s rights;
● If creditor accepts, it is valid to him and obligation is extinguished even if debtor does not consent. (2) If the creditor ratifies the payment to the third person;
○ Remedy of 3rd person is to ask reimbursement from debtor since there is no donation (3) If by the creditor’s conduct, the debtor has been led to believe that the third person had
○ Can non-consenting debtors refuse to reimburse? No. authority to receive the payment. (1163a)
EFFECTS OF PAYMENT MADE TO AN INCAPACITATED PERSON
GR: Payment to a person incapacitated to administer his property is NOT valid
Article 1239. In obligations to give, payment made by one who does not have the free disposal of the XPNs: Payment is valid when:
thing due and capacity to alienate it shall not be valid, without prejudice to the provisions of article 1. Incapacitated person has kept the thing delivered
1427 under the Title on “Natural Obligations.” (1160a) 2. Incapacitated person was benefited by the payment
Rationale: As the creditor is incapacitated, payment should have been made to representative or
guardian. If there is none, consignation in court.
Free disposal of the thing due → Thing to be delivered must not be subject to any claim or lien on
encumbrance of a third person. EFFECT OF PAYMENT TO A THIRD PERSON
GR: Payment to a third person is NOT valid
Capacity to alienate → Must have capacity to contract; Person is not incapacitated to enter into XPN: If it has redounded to the benefit of the creditor
contracts (1427 and 1329); Can dispose of thing due ● It is immaterial that the debtor acted in utmost good faith and by mistake as to the person of
the creditor
GR: In obligations to give, payment made by one who does not have the free disposal of the thing due ● That the creditor was benefited by the payment made by the debtor to a third person is NOT
and capacity to alienate it shall not be valid and thing paid can be recovered. presumed; must be satisfactorily established by the person interested in proving this fact.
● Creditor cannot be compelled to accept payment when person paying has no capacity ○ In the absence of proof, the payment in error and in good faith will not deprive the
● If creditor is aware of debtor’s lack of right or incapacity to dispose — Accepts the thing at his creditor of right to demand payment
own risk

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 45

WHEN BENEFIT TO CREDITOR NEED NOT BE PROVED BY DEBTOR ○ In the nature of involuntary novation by the substitution of one creditor for
GR: Payment to a third person or wrong party is NOT valid, even though made in good faith another (Article 1291, par 2)
XPN: ● The benefit granted under this article can only be invoked by the creditor who secures the
1. It has redounded to the benefit of the creditor. Furthermore, benefit of the creditor is order of retention
PRESUMED when: ● Injunction – Judicial process by virtue of which a person is generally ordered to refrain from
a. Subrogation of the payor in the creditor’s rights doing something
b. Ratification by the creditor
c. Estoppel on part of the creditor Article 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the
2. Art. 1242 – payment to a possessor of credit in good faith latter may be of the same value as, or more valuable than that which is due.

In obligations to do or not to do, an act or forbearance cannot be substituted by another act or

Article 1242. Payment made in good faith to any person in possession of the credit shall release the forbearance against the obligee’s will. (1166a)
debtor. (1164) ● Debtor cannot COMPEL creditor to accept a different object
● Possessor of credit – refers to a person who has the appearances of the creditor but who ● Creditor shall be paid only what has been stipulated upon because the contract is the law
actually is not; there must be possession of the credit itself and not merely the document between parties (even if it is worth more than what is agreed)
evidencing the credit ● What the law prohibits is the compulsion. Thus, if the creditor consents to the delivery of a
● GR: Mere possession of the instrument of credit does NOT entitle the holder to payment nor different thing, his acceptance extinguishes the obligation
does payment release the debtor
● XPN: Possession of instrument of credit wherein credit is transferable by delivery EVERY PRESTATION DUE MUST BE COMPLIED WITH
1. Real Obligations — Obligations to give; A thing different from that due cannot be offered or
REQUISITES FOR 1242 TO APPLY demanded against the will of the creditor or debtor as the case may be
1. Payment by PAYOR must be made in good faith 2. Personal Obligations — Obligations to do/not to do; The act to be performed or prohibited
○ Payee may be in good or bad faith cannot be substituted against the obligee’s will.
○ Honest belief that he is making a valid payment and payee is the owner of the
credit When Prestation may be substituted
2. PAYEE must be in possession of the credit itself 1. In case of facultative obligations – debtor can substitute another
2. In case there is another agreement resulting in either
Article 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered a. Dation in payment (1245)
to retain the debt shall not be valid. (1165) b. Novation (1291)
3. In case of waiver by the creditor (expressly or impliedly)
● This article applies to ‘debts’ or ‘credits’ and not to property
● Properties are attached, while a credit on the other hand is garnished.
● The judicial order may have been prompted by an order of injunction or garnishment Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt
in money, shall be governed by the law of sales. (n)
WHEN PAYMENT TO CREDITOR NOT VALID Dation In Payment – mode of extinguishing an obligation whereby the debtor alienates in favor of the
● In an action against the debtor who is the creditor of another, the latter, during the pendency creditor, property for the satisfaction of monetary debt
of the case, may be ordered by the court (or any competent authority if it be administrative) to ● Conveyance of ownership of a thing by the debtor to the creditor as an accepted equivalent
retain the debt until the right of the plaintiff, the creditor in the main litigation is resolved. of an outstanding performance of a monetary obligation
● If payment is subsequently made by the debtor who is the creditor of another, it is invalid if ● Special form because debt in money is satisfied not through payment of money but by
the plaintiff in main litigation wins the case and cannot collect the payment made. Such transmission of ownership of a thing by debtor to his creditor.
payment is made in bad faith. ● A special mode of payment the debtor offers another thing to the creditor who accepts it as
● Benefit here can only be invoked by the creditor who secures the order of retention. the equivalent of payment of an outstanding debt (Lo v. KJS)

GARNISHMENT OF DEBTOR’S CREDIT REQUISITES OF DACIÓN EN PAGO [P-D-A]

● Proceeding for the purpose of subjecting a debtor’s credit to the payment of his debt to 1. There must be Performance of the prestation in lieu of payment (animo solvendi) which may
another consist in the delivery of a corporeal thing or a real right or a credit against a third person
● Effectively freezes such credit 2. There must be some Difference between the prestation due and that which is given in
● Should hold the payment of the debt in abeyance and await further orders of the court substitution (aliud pro alio)
● It is a specie of attachment 3. There must be an Agreement between the creditor and debtor that the obligation is
● It is a nature of an involuntary novation by the substitution of one creditor for another immediately extinguished by reason of the performance of a prestation different from that due
● Takes place when the debtor (debtor-stranger) of a debtor is ordered not to pay the latter so
that preference would be given to the latter’s creditor CONDITIONS UNDER WHICH A DATION IN PAYMENT WOULD BE VALID
○ Payment made subsequently by the debtor-stranger shall not be valid if the plaintiff 1. If the creditor consents
wins the case and cannot collect from a debtor to whom the payment is made 2. If the dation in payment will not prejudice the other creditors
■ Payment made after judicial order to retain is VOID. 3. If the debtor is not judicially declared insolvent
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 46
 ● The PURPOSE and other CIRCUMSTANCES shall be considered in the determination of
NATURE OF DATION IN PAYMENT what quality shall be delivered
1. Specie of Sale – Creditor is really buying the thing or property of the debtor, payment for ● Benefit of this article may be waived:
which is charged against debtor’s debt ○ Creditor may demand and accept one of inferior quality
2. Objective novation of obligation – Thing offered as an accepted equivalent of the ○ Debtor may deliver one of superior quality
performance of an obligation is considered as the object of contract sale while debt is the
purchase price; No dation when there is no transfer of ownership in creditor’s favor. Article 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment
3. Third Theory (Castan) – Species of variation of payment implying an onerous transaction shall be for the account of the debtor. With regard to judicial costs, the Rules of Court shall govern.
akin to a sale (1168a)
GOVERNING LAW — Law of Sales GR: Debtor has to pay for the extrajudicial expenses incurred during the payment
● Essential elements of a contract of sale must be present — consent, object certain and cause XPN: When there is a stipulation to the contrary
of concentration ● This does not include expenses incurred by creditor going to debtor

SALE DATION IN PAYMENT Judicial costs – are the statutory amounts allowed to a party to an action for his expenses, incurred in
the action.
No pre-existing credit There is pre-existing credit ● GR: Paid by the losing party
Obligations are created Obligations are extinguished ● XPN: For special reasons, Court may adjudge either party to equitably pay the costs. No
Cause is the price paid from the viewpoint of the Extinguishment of obligation from viewpoint of costs are allowed against the government unless provided by law
seller, or acquisition of thing sold from viewpoint of debtor, or acquisition of the object in lieu of the
buyer credit from viewpoint of creditor Article 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled
More freedom in fixing the price According to obligation partially to receive the prestations in which the obligation consists. Neither may the debtor be required
Buyer still has to pay the price Payment is received before contract is perfected to make partial payments.
which is to be charged against creditor’s debt
Parties deliver and receive the thing as seller and Debtor and creditor However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and
buyer the debtor may effect the payment of the former without waiting for the liquidation of the latter. (1169a)
● Reason Why Partial Payment Not Allowed: Art. 1233 especially provides that a debt shall
TRANSMISSION OF OWNERSHIP TO CREDITOR not be understood as paid until the obligation has been completely delivered.
● Dation in payment required the delivery and transmission of ownership of a thing to the ● Creditor may accept but he cannot be compelled to accept partial performance.
creditor who accepts it as equivalent of payment of an outstanding debt ● The debtor has the duty to comply with the whole of the obligation but cannot be required to
● Where repossession of the thing was merely to secure the payment of the debtor’s loan make partial payments if he does not wish to do so.
obligation and not to transfer ownership, it is not dation in payment.
WHEN PARTIAL PAYMENT ALLOWED
REQUIREMENT OF CONSENT – Must be consent of both parties GR: Performance of the obligation should be complete and not partial
APPLICABILITY TO OBLIGATIONS OTHER THAN MONEY DEBTS – Difficult to reconcile since XPN:
article clearly mentions “debts in money” 1. When there is a stipulation to this effect
● Argument for possibility is only analogy to barter 2. When the different prestations are subject to different conditions or terms
3. When a debt is part liquidated (definitely and determined or computed) and part unliquidated
EXTENT OF EXTINGUISHMENT – Extent of the value of the thing delivered unless the parties, by 4. When the parties know that the obligation reasonably cannot be expected to be performed
agreement, express or implied, consider the thing as equivalent to the obligation, in which case, the completely at one time
obligation is totally extinguished 5. When there is abuse of right or if good faith requires acceptance

Article 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose Article 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not
quality and circumstances have not been stated, the creditor cannot demand a thing of superior possible to deliver such currency, then in the currency which is legal tender in the Philippines.
quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the obligation and
other circumstances shall be taken into consideration. (1167a) Repealed by RA 8183: “All monetary obligations shall be settled in the Philippine currency which is
the legal tender in the Philippines. However, parties may agree that the obligation or transaction shall
be settled in any other currency at the time of payment.
APPLICABLE TO — Delivery of generic thing
The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents
RULE OF THE MEDIUM QUALITY shall produce the effect of payment only when they have been cashed, or when through the fault of
● Purpose of the obligation and other circumstances shall be taken into consideration the creditor they have been impaired.
● Principle of equity – supplies justice in cases where there is lack of precise declaration or
when there is disagreement by parties In the meantime, the action derived from the original obligation shall be held in abeyance. (1170)

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 47

 ● Legal Tender – is that currency which a debtor can legally compel a creditor to accept in
payment of a debt; ALL notes and coins issued by the BSP Article 1251. Payment shall be made in the place designated in the obligation.
● The amount of coins that may be accepted as legal tender are (Bangko Sentral ng Pilipinas
Circular 537, 2006) There being no express stipulation and if the undertaking is to deliver a determinate thing, the
○ Up to ₱1000 (if ₱1, ₱5, ₱10 are used) payment shall be made wherever the thing might be at the moment the obligation was constituted.
○ Up to ₱100 (if ₱0.25 or less are used)
● Paper bills are valid legal tenders for any amount, unlike coin In any other case the place of payment shall be the domicile of the debtor.
PAYMENT BY MEANS OF INSTRUMENT OF CREDITS If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional
● Promissory notes, checks, bills of exchange and other commercial documents are not legal expenses shall be borne by him.
tender. Creditor cannot be compelled to accept them.
○ Should the creditor accept, the demandability of original obligation is suspended These provisions are without prejudice to venue under the Rules of Court. (1171a)
until payment by the commercial document is actually realized.
● Not applicable for payment for purpose of redemption since mere tender of checks in
redemption is sufficient VENUE OF PAYMENT
● Payment by means of mercantile documents does not extinguish obligation until: 1. If there is a stipulation – in the place DESIGNATED
○ They have been cashed OR 2. If there is no stipulation
○ They have been impaired through fault of creditor a. Art 1251 Par. 2 – There being no express stipulation and if the undertaking is to
■ Only possible if check is issued by a third person deliver a determinate thing the payment shall be made wherever the thing might be
● XPN: Where parties agree beforehand on payment by means of bills of exchange at the moment the obligation was constituted.
b. Art 1251 Par. 3 – In any other case (not to deliver a determinate thing), the place of
APPLICABILITY OF IMPAIRMENT CLAUSE OF ARTICLE 1249 payment shall be at the domicile of the debtor.
1. Instruments executed by third persons or by debtor himself – Applicable not only to c. Art 1251 Par. 4 – If the debtor changes his domicile in bad faith, or after he has
those instruments executed by third persons, which debtor delivers to creditor, but also to a incurred in delay, the additional expenses shall be borne by him. (Absent such
note executed by debtor himself and delivered to creditor circumstances, it will be borne by the creditor)
2. Only to instruments executed by third persons – However, the clause relative to
impairment of negotiable character of commercial paper by fault of creditor is only for Effect of Debtor’s Change of Domicile
instruments executed by third persons ● Bad Faith/After Delay: Additional expenses incurred by the creditor shall be borne by the
3. Duty of payee accepting a check – Acceptance of a check implies an undertaking of due debtor (these do not cover regular expenses incurred going to original place of D)
diligence on the part of the payee in presenting it for payment ● Good Faith: Not liable for said additional expenses (e.g. security reasons, appointed as
officer in other place)
Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should
supervene, the value of the currency at the time of the establishment of the obligation shall be the
basis of payment, unless there is an agreement to the contrary. (n)
● Inflation – sharp sudden increase of money or credit or both without a corresponding
increase in business transactions. Since the value of money decreases, the natural result is
an increase in the price of goods and services.
● Deflation – reduction in volume and circulation of available money or credit, resulting in a
decline in the general price level; it is the opposite of inflation
● Extraordinary inflation or deflation of currency – any uncommon decrease or increase in
the purchasing power of the currency which could not have been reasonably foreseen

REQUISITES FOR APPLICATION OF ART. 1250 [O-C-E]

1. There is an Official declaration of extraordinary inflation or deflation from the BSP
2. The obligation is Contractual in nature
3. The parties Expressly agreed to consider the effects of the extraordinary inflation or
deflation

Does not apply if the obligation to pay arises from a source independent of contract such as law,
quasi-contract, crime, tort or payments in expropriation proceeding.
● Legal rate of Interest in Obligations which consist in payment of money: 12% / year

Basis for Payment

● GR: The value at the time the obligation was constituted or incurred
● XPN: Unless there is an agreement to the contrary
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 48
SUMMARY DIAGRAM OF PAYMENT / PERFORMANCE
Diagram by Professor Eduardo A. Labitag

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 49

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 50
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 51
 3. The right to make the application once exercised is irrevocable unless the creditor consents
SUBSECTION 1 - APPLICATION OF PAYMENTS to the change.
4. Tertiary Rule – Debtor’s right to apply payment is not mandatory but merely directory
1252 Application of Payments
○ If the debtor does not apply payment, the creditor has the subsidiary right to make
1253 Interests Earned Paid Ahead of Principal the designation by specifying in the receipt which debit is being paid
1254 Application Where Preceding Rules Cannot be Applied or Inferred ○ “If the debtor accepts” → Debtor has liberty to reject
○ Acceptance of the receipt is a contract in itself independent of the principal
obligation
Article 1252. He who has various debts of the same kind in favor of one and the same creditor, may 5. Quaternary Rule – If the creditor has also not made the application, or if the application is not
declare at the time of making the payment, to which of them the same must be applied. Unless the valid, the debt which is most onerous to the debtor among those due shall be deemed to
parties so stipulate, or when the application of payment is made by the party for whose benefit the have been satisfied.
term has been constituted, application shall not be made as to debts which are not yet due. 6. Quinary Rule – If the debts are of the same nature and burden, the payment shall be applied
to all of them proportionately
If the debtor accepts from the creditor a receipt in which an application of the payment is made, the ○ Shall be applied indiscriminately, even if the amount paid or remitted exactly
former cannot complain of the same, unless there is a cause for invalidating the contract. (1172a) corresponds to the amount of one of the debts
○ Statutory exception to the requirements integrity and indivisibility of payment
7. If neither party has exercised its option and there is disagreement as to debts to which
APPLICATION OF PAYMENTS → Designation of the debt to which should be applied the payment
payment must be applied, the court will apply the payment according to the justice and equity
made by a debtor who has various debts of the same kind in favor of one and the same creditor.
of the case, taking into consideration all its circumstances.
REQUISITES FOR A VALID APPLICATION OF PAYMENTS BY THE DEBTOR
APPLICABLE TO — Person owing several debts of the same kind to a single creditor
1. There must be one debtor and one creditor
● Not applicable to a person whose obligation as a mere surety is both contingent and singular
2. There must be two or more debts
● Can be for non-monetary obligations, provided that they are of the same nature
3. The debts must be of the same kind
● Will come into play when the debtor remits to the creditor an amount that is less than the total
4. The debts to which payment was made by the debtor has been applied must be due
of all the obligations.
5. The payment made must not be sufficient to cover all the debts
LIMITATIONS ON DEBTOR’S RIGHT TO MAKE APPLICATION
REQUISITES FOR A VALID APPLICATION OF PAYMENT BY THE CREDITOR
1. He cannot apply the payment to the principal if there is an outstanding interest
1. The debtor did not make any designation on which debt should be paid when he made the
2. He cannot apply the amount in such a way that the requisite of integrity or indivisibility will be
payment
violated.
2. The creditor issued a receipt expressing the application of the payment to a particular debt
3. The debtor assented to the application made by the creditor by accepting the receipt without
objections. Article 1253. If the debt produces interest, payment of the principal shall not be deemed to have
been made until the interests have been covered. (1173)
Note:
● The requirement of only one debtor does not prohibit application of payments to solidary INTEREST EARNED PAID AHEAD OF PRINCIPAL
obligations, as the solidary debtor who paid may have obligations other than the solidary ● This is a mandatory rule. Debtor cannot choose to credit his payment to the principal before the
obligation in favor of the creditor to whom payment is made. interest is paid.
● Even if some of the obligations are not of the same kind at their constitution, application of ● Creditor can refuse the application of debtor when it is made contrary to the provisions of Article
payment is still possible if at the time the application is made, such obligations had already 1253.
been converted into obligations to indemnify with damages by reason of breach or ● The rule is subject to any agreement between the parties, or to waiver by the creditor. In this
non-fulfillment. sense, Art 1253 is merely a directory.
○ It is the duty of the creditor to inform the debtor of the amount of interest that falls due and
GR: No application for debts not yet due that he is applying the installment payments to cover said interest.
XPN: ○ Creditor who accepts payment from a surety of the amount of a bond does not thereby waive
1. If the parties so stipulate his right to recover from the debtor the interest due on said amount.
2. When the application of payment is made by the party for whose benefit the term is ○ SC has held that the above provision applies ONLY in the absence of a written/verbal
constituted. agreement to the contrary (Baltazar vs. Lingayen Gulf; Magdalena Estate vs. Rodriguez)
RULES ON APPLICATION OF PAYMENTS
1. Primary Rule – Agreement between the parties Article 1254. When the payment cannot be applied in accordance with the preceding rules, or if
2. Secondary Rule – The debtor has the first choice application can not be inferred from other circumstances, the debt which is most onerous to the
○ Must indicate which particular debt is being paid at the time of making payment and debtor, among those due, shall be deemed to have been satisfied.
not afterwards
○ Application of payment made by the debtor without objection from the creditor is If the debts due are of the same nature and burden, the payment shall be applied to all of them
binding upon the latter proportionately. (1174a)
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 52
APPLICATION WHERE PRECEDING RULES CANNOT BE APPLIED OR INFERRED EFFECT OF PAYMENT
● If the creditor has also not made the application, or if the application is not valid → The debt GR: The creditors do not become owners; they are merely assignees with authority to sell.
which is most onerous to the debtor among those due shall be deemed to have been ● If the ownership is transferred, this becomes a dation in solutum
satisfied. XPN: Unless there is an express stipulation
○ Onerous — Most burdensome (pinakamabigat) ● The debtor is released up to the amount of the net proceeds of the sale, unless there is a
● If the debts are of the same nature and burden → The payment shall be applied to all of them stipulation to the contrary (that the assignment shall be in full satisfaction of his debts)
proportionately. ○ The debtor is still liable if there is a balance
● Creditors will collect credits in the order of preference agreed upon, or in default of
WHEN A DEBT IS MORE ONEROUS THAN ANOTHER agreement, in the order ordinarily established by law.
No fixed rule; case-to-case basis
● This article does not apply when there has already been an application of payment VARIETIES OF PAYMENT BY CESSION
1. What is contemplated in this article is the voluntary or contractual assignment
WHEN DEBTS ARE NOT OF SAME BURDEN ○ Requires the consent of all the creditors as distinguished from legal or judicial
1. When there are various debts, the oldest ones are more burdensome assignment
2. When one bears interest and the other does not, even if the latter is the older obligation, the 2. If done through a judicial proceeding, it will be governed by the Insolvency Law
former is considered more onerous
3. Of two interest-bearing debts, the one with a higher rate is more onerous PAYMENT BY CESSION VS. DATION IN PAYMENT
4. When a person is bound as principal in one obligation and as surety in another, the former is BASIS CESSION DATION
more onerous
5. A debt as a sole debtor is more onerous than as a solidary debtor Definition Assignment or abandonment of all Another thing is alienated by the debtor
6. When there is an encumbrance, the debt with a guaranty is more onerous than that without the properties of the debtor for the to the creditor who accepts it as
security benefit of his creditors in order that equivalent of payment of an existing
7. With respect to indemnity for damages, the debt which is subject to the general rules on the latter may sell the same and debt in money.
damages is less burdensome than that in which there is a penal clause apply the proceeds therefore to the
8. The liquidated debt is more burdensome than the unliquidated one satisfaction of their credits.
9. An obligation in which the debtor is in default is more onerous than one in which he is not Number Plurality of creditors May be only one creditor
10. Advances for subsistence are more onerous than cash advances
Object Universality of property of debtor is Thing delivered is considered as
what is ceded (except those exempt) equivalent of performance
Note: If a principal debtor is guaranteed by a surety but the guaranty is for a smaller amount, any
partial payment made by the debtor shall be applied to the portion which is NOT secured, since this Financial Condition Debtor must be partially or relatively Not necessarily in state of financial
exclusive debt is considered more onerous to him. (Hongkong v. Aldanese) of Debtor insolvent difficulty
Consent Requires the consent of all the Only concerned creditor’s consent
SUBSECTION 2 - PAYMENT BY CESSION creditors required
1255 Payment by Cession Ownership Ownership not transferred; only the Ownership transferred upon delivery
right to sell it
Article 1255. The debtor may cede or assign his property to his creditors in payment of his debts. Novation Not an act of novation An act of novation
This cession, unless there is stipulation to the contrary, shall only release the debtor from Extent of Merely released debtor for net Payment extinguishes obligation to the
responsibility for the net proceeds of the thing assigned. The agreements which, on the effect of the Extinguishment proceeds of things ceded or extent of the value of the thing delivered
cession, are made between the debtor and his creditors shall be governed by special laws. (1175a) assigned, unless there is express as agreed upon, provided or implied
stipulation from the conduct of the creditor
PAYMENT BY CESSION
Assignment or abandonment of all the properties of the debtor for the benefit of his creditors in order
that the latter may sell the same and apply the proceeds thereof to the satisfaction of their benefits.

REQUISITES OF PAYMENT BY CESSION

1. There must be two or more creditors
2. The debtor must be (partially insolvent)
3. The assignment must involve all the properties of the debtor
4. The cession must be accepted by the creditors.
5. Property ceded or assigned not exempt from execution.

Note: In case the creditors do not accept the cession or assignment, a similar result may be obtained
by proceeding in accordance with the Insolvency Law.
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 53
 SUBSECTION 3 - TENDER OF PAYMENT AND CONSIGNATION BASIS TENDER OF PAYMENT CONSIGNATION
1256 Tender of Payment and Consignation Nature Preparatory act to consignation Principal act to extinguish the obligation
1257 Prior Notice Effect Does not by itself extinguish the Extinguishes the obligation when
1258 Proper Judicial Authority obligation declared valid

1259 Expenses of Consignation Character Extrajudicial Judicial for it requires the filing of a
complaint in court
1260 Withdrawal by the Debtor
1261 Effect of Withdrawal with Creditor's Authority REQUISITES OF A VALID TENDER OF PAYMENT
1. The tender of payment must comply with the rules on payment (Arts. 1256-1258)
a. Involves a positive and unconditional act by the obligor of offering legal currency as payment
Article 1256. If the creditor to whom tender of payment has been made refuses without just cause to to the obligee for the former’s obligation and demanding that the latter accept the same.
accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due. b. Good faith of the offeror or ability to make good the offer should excuse the debtor from
paying interest after the offer was rejected.
Consignation alone shall produce the same effect in the following cases: c. A tender, even if valid, does not by itself produce legal payment, unless completed by
(1) When the creditor is absent or unknown, or does not appear at the place of payment; consignation. It has effect, however, of exempting the debtor from liability for interest.
(2) When he is incapacitated to receive the payment at the time it is due; 2. It must be unconditional and for the whole amount due and in legal tender
(3) When, without just cause, he refuses to give a receipt; 3. It must be actually made
(4) When two or more persons claim the same right to collect; a. The manifestation of a desire or intention to pay is not enough.
(5) When the title of the obligation has been lost. (1176a) b. The tender of payment cannot be presumed by a mere inference from surrounding
circumstances.
TENDER OF PAYMENT AND CONSIGNATION
Tender of Payment — Act, on the part of the debtor of offering to the creditor the thing or amount due WHEN TENDER OF PAYMENT NOT REQUIRED; CONSIGNATION ALONE IS SUFFICIENT
● Act preparatory to the consignation, which is the principal, and from which are derived the 1. Creditor is absent, unknown, or does not appear at place of payment
immediate consequences which the debtor desires or seeks to obtain ○ Does not need to be judicially declared absent; no representative to accept or no one to
whom tender can be made
Consignation — Act of depositing the thing or amount due with the proper court or judicial authorities 2. Creditor refuses to issue a receipt without just cause
when the creditor does not desire, or refuses to accept payment, or cannot receive it, after complying ○ Absurd because if refuses, tender of payment was made.
with the formalities required by law 3. When the title of the obligation has been lost
● Necessary judicial ○ For the debtor’s protection to consign rather than give it directly to the creditor and risk the
● Generally requires a prior tender of payment, which is necessarily extrajudicial possibility of double payment
4. Creditor is incapacitated to receive payment at the time it is due
CONSIGNATION ○ Does NOT apply if the creditor has a legal representative and the debtor knows this
● Premised on mora accipiendi (delay by creditor) ○ Though it can be physically made, would be juridically ineffective; an exercise in futility, since
○ Actual — culpable kind, when creditor refuses without justification to accept the creditor is incompetent
payment; Requires previous tender of payment 5. Two or more persons claim the right to collect
○ Constructive — Does not import culpability but impossibility or impracticability of ○ The tender of payment becomes risky
direct payment; Does not require prior tender of payment ○ An action in INTERPLEADER would be proper here
● Nature — Facultative remedy which the debtor may or may not avail of ■ The debtor, should he wish to extinguish the obligation, should dispense with prior
○ If made by the debtor, creditor merely accepts if he wishes; or the court declares tender and proceed to consignation and as that the various claimants interplead
that it has been properly made → Extinguishes the obligation among themselves
○ Law allows debtor to make a withdrawal of the thing or the sum deposited before 6. Consignation is ordered by the Court
creditor accepts or court cancels the obligation
○ If debtor has right to withdraw, he also has the right to refuse to make the deposit in REQUISITES OF A VALID CONSIGNATION
the first place. 1. Existence of a valid debt which is due (Article 1256, par 1)
○ If debtor refuses, creditor’s remedy is through the proper coercive processes 2. Valid prior tender of payment by debtor and refusal without justifiable reason by the creditor to
provided by law such as attachment, judgment and execution. accept it
● Purpose is to avoid the performance of an obligation more onerous to the debtor by reason of 3. Creditor unjustly refuses the tender of payment
causes not imputable to him 4. Prior notice of the consignation to persons interested in the fulfillment of the obligation (Article
○ For failure to consign the thing, the debtor may become liable for 1257, par 1) (prior notice)
○ damages and/or interest but such failure does not amount to breach of contract 5. Actual Consignation of the thing or sum due with the proper court (Article 1258, par 1)
when by the fact of tendering payment, he was willing and able to comply with the 6. Subsequent notice of consignation made to the interested parties (second notice)
obligation.
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 54
WHEN CONSIGNATION IS NOT REQUIRED ● A written tender of payment alone, without consignation in court of the sum due, does not
● Tender of payment without consignation does not extinguish the debt; consignation must suspend the accruing of regular or monetary interest.
follow ● Where an obligar fails to make a consignation after a valid tender of payment, the court may
● In some cases, however, consignation is not required, mere tender being needed allow him time to pay the obligation without rescinding the contract.
● This is so where there really exists no debt, no obligation, and where the payment is purely ● If the judgment of CA is remanded to lower court, the CA is no longer the property entity to
voluntary, where the person offering could have refused to offer make consignation to.
● May happen in cases where only a right, not a duty exists. Mere tender would be sufficient ● The consignation has a retroactive effect. The payment is deemed to have been made at the
to preserve the right or privilege, in cases of: time of the deposit of the thing in court or when it was placed at the disposal of the judicial
a. Option Contract authority.
b. Pacto De Retro ● Rules on consignation also apply to immovable property.
c. Legal Redemption
● Thus, if one is granted an option to buy, he may or may not buy, it is his choice; if one is SUBSEQUENT NOTICE/SECOND NOTICE
granted the right to redeem, he may or may not redeem also his own choice ● This may be fulfilled by the service of summons upon the defendants together with a copy of
the complaint
Article 1257. In order that the consignation of the thing due may release the obligor, it must first be ● Purpose of the second notice is to enable the creditor to withdraw the thing or sum deposited
announced to the persons interested in the fulfillment of the obligation. or take possession in case he accepts the consignation

The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which CONSIGNATION APPLICABLE ONLY TO PAYMENT OF DEBT
regulate payment. (1177) ● Judicial consignation is an incident to an action to compel acceptance by the creditor of
payment of a debt. It is not applicable when there is no obligation to pay.
● Not necessary in case where a privilege or rights exists; In such cases, tender of payment
PRIOR NOTICE TO INTERESTED PERSONS REQUIRED would be sufficient to preserve the right or privilege.
● Absence of this act shall render consignation as void ○ Mortgage-debtor who desires to redeem the mortgaged property
● Purpose is to give the creditor a chance to reflect on his previous refusal to accept payment ○ Co-heir or co-owner or a vendor a retro who wants to repurchase the property sold
considering that the expenses of consignation shall be charged against him and that in case ○ Lesse with option to buy who desires to exercise the right of option as he has no
the thing is lost, he shall bear the risk. obligation to pay the price until the execution of the deed of sale in his favor
● This should not be a mere warning ● Formal offer to redeem by a co-owner or adjoining owner accompanied by a bona fide tender
● Should fix the date and hour of the consignation and the name of the court where the same of payment within the redemption period is sufficient to preserve the right of redemption
would be made ○ BUT: Where the effect of a judgement allows the vendor a retro to repurchase the
● Tender of payment and notice of consignation may be done in the same act property within a certain period, it is to definitely settle by judicial declaration the
respective rights of the parties and fix relations. Here, the vendor must consign the
CONSIGNATION MUST COMPLY WITH PROVISIONS ON PAYMENT full amount of the repurchase price, if the vendee refuses to allow redemption.
● Must be made in legal tender
● There must be unmistakable evidence on record that the prerequisites of a valid consignation PROPERTY DEPOSITED WITH COURT IS EXEMPT FROM ATTACHMENT
are present, especially the conformity of the offered payment to the terms of the obligation ● Money deposited with a clerk of court is exempt from attachment and not subject to execution
which is to be paid ● In custodia legis and cannot be withdrawn without an express order of the court
● If no subsequent notice of consignation, it is immaterial. However, debtor is still liable for the
TENDER OF PAYMENT OF JUDGMENT obligation.
● Tender of payment of the amount due on a judgment into court is NOT the same as tender of
payment of a contractual debt and consignation of the money due from a debtor to a creditor.
● Articles 1256 and 1257 do not apply. Article 1259. The expenses of consignation, when properly made, shall be charged against the
● In case of refusal of such tender, the court may direct the money to paid into court, and after creditor. (1179)
this payment is done, order satisfaction of the judgment to be entered.
CEREDITOR IS LIABLE FOR EXPENSES OF CONSIGNATION
Article 1258. Consignation shall be made by depositing the things due at the disposal of judicial ● The consignation was made necessary because of the fault or unjust refusal of the creditor to
authority, before whom the tender of payment shall be proved, in a proper case, and the accept payment
announcement of the consignation in other cases. ● Creditor may also be held liable for damages
● Applicable for actual and constructive mora accipiendi
The consignation having been made, the interested parties shall also be notified thereof. (1178) ● XPN: If consignation is not properly made, charges are to the debtor.

WHEN CONSIGNATION IS DEEMED PROPERLY MADE

PROPER JUDICIAL AUTHORITY 1. When the creditor accepts the thing or sum deposited, without objection, as payment to the
● Must deposit with the proper judicial authority obligation
● Cannot be made elsewhere unless otherwise prescribed by special law (e.g., P.D. No. 25 re: 2. When the creditor questions the validity of the consignation, and the court, after hearing,
rentals) declares that it has been properly made

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 55

 3. When the creditor neither accepts nor questions the validity of the consignation, and the court EFFECT OF WITHDRAWAL MUTUALLY AGREED UPON
after hearing, orders the cancellation of the obligation 1. The principal obligation is revived
2. Accessory obligations are not revived
The creditor may accept the consignation with reservation or qualification; therefore, he is not barred GR: The guarantors and sureties are RELEASED
from raising such against the debtor XPN: Unless they consented
3. The creditor loses any preference over the thing such as preference over subsequent
Article 1260. Once the consignation has been duly made, the debtor may ask the judge to order the mortgages and other security transactions
cancellation of the obligation. 4. Should the debt be passively solidary, the bond of solidarity that was dissolved by the
perfected consignation is not revived.
Before the creditor has accepted the consignation, or before a judicial declaration that the GR: The co-debtors of the part who was allowed to withdraw the thing consigned can be
consignation has been properly made, the debtor may withdraw the thing or the sum deposited, required by the creditor to pay their individual shares
allowing the obligation to remain in force. (1180) XPN: They have already paid their share to the debtor who withdraws the thing consigned.

Effects of Withdrawal by Debtor

CONSUMMATION OF CONSIGNATION — Terminates upon acceptance by the creditor or a judicial 1. Before approval of the court –– Obligation remains in force
declaration of the consignation. 2. After approval of the court or acceptance by the creditor, and without creditor’s consent ––
Obligation subsists, without change in the liability of guarantors and co- debtors, or the
EFFECTS OF CONSIGNATION creditor’s right of preference
1. The obligation is extinguished and the debtor is released 3. After approval of the court or acceptance by the creditor, with the consent of the latter ––
2. The accessory obligations are likewise extinguished ○ Obligation remains in force, but guarantors and co-debtors are liberated
3. If no prior tender of payment was required, interest ceases to run ○ Preference of the creditor over the thing is los
○ If prior tender of payment is required and had been made, interest would have ceased
running when the tender of payment was made SECTION 2 - LOSS OF THE THING DUE
4. Risk of loss transfers to the creditor
○ If tender of payment is required and had been made, the risk of loss would have transferred Loss of Thing Due or Impossibility of Performance for Obligation to Deliver
1262
to the creditor upon his unjustified refusal Specific Thing
5. The creditor is entitled to any appreciation or bears any depreciation subsequently occurring Loss of Thing Due or Impossibility of Performance for Obligation to Deliver
1263
Generic Thing
WITHDRAWAL BY DEBTOR OF THING CONSIGNED
1. As a matter of right – the right is given to the debtor because he still owns the thing; however, he 1264 Partial Loss
bears the expense. The co-debtors, guarantors cannot object 1265 Presumption of Debtor's Fault/Negligence
○ Before the creditor has accepted the consignation
○ Before judicial declaration that the consignation has been properly made (obligation remains 1266 Legal or Physical Impossibility
in force and accessory stipulations remain) 1267 Doctrine of Unforeseen Events
2. As a matter of privilege
1268 Debtor's Liability for Fortuitous Event
○ When after consignation has been properly made, the creditor authorizes the debtor to
withdraw the thing, Article 1261 applies. 1269 Right of Subrogation to Creditor
○ If the right of the debtor to withdraw before the perfection of the consignation was unilateral,
after the perfection of the consignation, such right is extinguished and withdrawal will need
the concurrence of the debtor’s and creditor’s wills. Article 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished
if it should be lost or destroyed without the fault of the debtor, and before he has incurred in delay.
Note: The creditor can prevent the debtor from exercising the RIGHT to withdraw the thing consigned
by immediately accepting the consignation with or without reservations. IF he accepts without When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does
reserving his right to further claims such as damages, this would be a case of WAIVER. not extinguish the obligation, and he shall be responsible for damages. The same rule applies when
the nature of the obligation requires the assumption of risk. (1182a)
Article 1261. If, the consignation having been made, the creditor should authorize the debtor to
withdraw the same, he shall lose every preference which he may have over the thing. The co-debtors, WHEN A THING IS CONSIDERED LOST
guarantors and sureties shall be released. (1181a) 1. It goes out of commerce
2. It perishes
3. It disappears in such a way that its existence if unknown
WITHDRAWAL WITH AUTHORITY OF CREDITOR 4. It disappears in such a way that it cannot be recovered
Consignation is for the benefit of the creditor so he may authorize the debtor to withdraw the deposit
after he has accepted the same or after the court has issued an order cancelling the obligation Loss of thing due or impossibility of performance
● If the right of the debtor to withdraw before the perfection of the consignation was unilateral, ● In obligations to give, the term used is loss
after the perfection of the consignation such right is extinguished, and withdrawal will need ● In obligations to do, the term used is impossibility of performance
the concurrence of the debtor’s and the creditor’s wills.
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 56
LOSS/IMPOSSIBILITY AND FORTUITOUS EVENT GR: There is a disputable presumption that the debtor is at fault when the thing to be delivered is lost
This article applies to cases of loss without the fault of the debtor (i.e., a fortuitous event). and it was in his possession (Only applies to determinate thing).
● XPN: Provision of law, stipulation of parties, nature of the obligation XPN: Presumption shall not apply in case loss is due to natural calamity (earthquake, flood, storm, etc.)
XPN to the XPN: (Debtor still liable for loss even if fortuitous event)
KIND OF LOSS/IMPOSSIBILITY 1. Debtor is in delay
● Supervening Loss – one which occurs after the obligation is created and before the debtor 2. Debtor promise to deliver a thing to two or more persons with different interests (Art. 1165)
incurs delay The creditor has no duty to show that the debtor was at fault
○ Kind of loss/impossibility contemplated in this article
○ The impossibility of performance must be subsequent to the execution of the Article 1266. The debtor in obligations to do shall also be released when the prestation becomes
contract in order to extinguish the obligation legally or physically impossible without the fault of the obligor. (1184a)
● Original Impossibility – This article do not apply to prevenient or antecedent loss (i.e.
cases where prestation involves the delivery of the thing or performance of a service which is
non-existent or impossible to begin with); No obligation to extinguish APPLICABLE TO — Obligations to do
Effect: The supervening impossibility of the obligation will result in the extinguishment of obligation.
EFFECT OF LOSS/IMPOSSIBILITY OF ONE OF THE PRESTATIONS IN A RECIPROCAL
OBLIGATION TYPES OF IMPOSSIBILITY TO PERFORM AN OBLIGATION TO DO
1. VIEW 1: Res perit domino – the other party is correspondingly absolved because of the 1. Legal Impossibility – act stipulated to be performed is subsequently prohibited by law
extinguishment of entire juridical relation 2. Physical Impossibility – act stipulated could not be physically performed by the obligor
○ The debtor must return to the creditor whatever the latter may have already
delivered by reason of the obligation Article 1267. When the service has become so difficult as to be manifestly beyond the contemplation
○ The risk pertains to the debtor, which means that if an obligation is extinguished by of the parties, the obligor may also be released therefrom, in whole or in part. (n)
the loss or impossibility, the counter-prestation is also extinguish
2. VIEW 2: Res perit creditori – the other party remains bound to perform his own presentation
○ The reciprocal prestations are entitatively distinct and the extinction of one does ● This article is another exception to the obligatory force of a valid and enforceable contract
not ipso facto carry with it that of the other ● This article does not refer to impossibility but to difficulty of service or performance manifestly
beyond the contemplation/intention of the parties
○ Must be extreme difficulty
Article 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the
same kind does not extinguish the obligation. (n) REBUS SIC STANTIBUS
A principle in international law which means that an agreement is valid only if the same conditions
APPLICABLE TO — Applies only to obligations to deliver a generic thing prevailing at the time of contracting continue to exist at the time of performance. It is the basis of the
GR: Obligation is not extinguished by loss or by a fortuitous event because “genus never perishes” principle of unforeseen difficulty of service.
● Debtor can still be compelled to deliver a thing of the same kind ● Meant to be a qualification to pacta sunt servanda
XPN: Loss of entire genus
● Example: Government makes pinball machines illegal DOCTRINE OF UNFORESEEN EVENTS
● Also known as frustration of the enterprise, or frustration of the commercial object
LIMITED GENERIC OBLIGATION — If the prestation is to deliver a thing from among a specified mass
or group; Governed by Art. 1262 Scope of Operation
Applies where the performance of the prestation, though not impossible, has become so manifestly and
extremely difficult as to be beyond the contemplation of both parties
Article 1264. The courts shall determine whether, under the circumstances, the partial loss of the ● Not enough that the service is manifestly beyond the contemplation of the parties but it must
object of the obligation is so important as to extinguish the obligation. (n) be extremely difficult
● If conditions radically and unforeseeably change in the future, the contract loses its basis due
EFFECT OF PARTIAL LOSS OF A SPECIFIC THING to a reason akin to failure of cause
1. Due to fault or negligence of debtor – Creditor has the right to demand the rescission of
the obligation or to demand specific performance, plus damages, in either case. GR: Impossibility of performance releases the obligor (1266)
2. Due to fortuitous event XPN: Performance of the service has become so difficult, the court is authorized to release the obligor
a. Substantial Loss – obligation is extinguished in whole or in part.
b. Unsubstantial Loss – Creditor shall deliver thing promised in its impaired condition
Requisites of Doctrine of Unforeseen Events
Article 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the 1. Event could not have been foreseen at the time of the constitution of the contract
loss was due to his fault, unless there is proof to the contrary, and without prejudice to the provisions 2. Event makes performance extremely difficult but not impossible
of article 1165. This presumption does not apply in case of earthquake, flood, storm or other natural 3. Event not due to any act of the parties
calamity. (1183a) 4. Contract is for future prestation

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 57

Article 1268. When the debt of a thing certain and determinate proceeds from a criminal offense, the Requisites of Condonation
debtor shall not be exempted from the payment of its price, whatever may be the cause for the loss, 1. The debt must be existing, not necessarily due, when the condonation is made
unless the thing having been offered by him to the person who should receive it, the latter refused 2. It must be gratuitous
without justification to accept it. (1185) 3. The creditor must have capacity to contract and to dispose of his property.
4. The debtor must have capacity to accept the condonation.

APPLIES TO — Obligation to deliver a determinate thing which obligation arose out of the commission KINDS OF CONDONATION
of a criminal offense committed by the debtor 1. As to extent
● The person obliged to return it becomes an insurer of the thing, being liable even for a. Complete – when it covers the entire obligation
fortuitous event b. Partial – when it does not cover the entire obligation
● If the thing is lost for whatever reason, the debtor shall pay for the value of the thing 2. As to form
● Offer referred to in this article is different from consignation; the former refers to a. Express – when it is made verbally or in writing
extinguishment of obligation through loss while the latter refers to payment of the obligation b. Implied – when it can only be inferred from conduct
3. As to its date of effectivity
DEBTOR’S OPTIONS IN CASE OF CREDITOR’S UNJUSTIFIED REFUSAL TO ACCEPT a. Inter vivos – when it will take effect during the lifetime of the donor
1. To consign the thing and release himself from liability b. Mortis causa – when it will become effective upon the death of the donor. It must
2. To retain the thing in his possession and take care of it with diligence of a good father of a family comply with the formalities of a will
In both cases, he ceases to be liable for fortuitous event
REMISSION MUST BE GRATUITOUS
Article 1269. The obligation having been extinguished by the loss of the thing, the creditor shall have There is no equivalent received for the benefit given because from the moment it exists, the nature of
all the rights of action which the debtor may have against third persons by reason of the loss. (1186) the act is changed and becomes:
● Dation in payment – if the thing is received by the creditor instead of the amount due
● Cession – if the assignment of property is for the benefit of the creditors
OPERATION OF ARTICLE – Grants the right of subrogation to the creditor who can exercise the right ● Novation – if the object of circumstances of the obligation are changed
of the debtor to demand indemnity from any third persons who may, by fault of negligence, be ● Compromise – if what is renounced is a doubtful or litigious right in exchange of other
responsible for the loss of the thing to be delivered. concessions obtained by the creditor
● Usually applied to insurance cases
● Reinforces view that in reciprocal obligations, the loss does not excuse other party from CONDONATION VIS-A-VIS WAIVER
performance BALANE — The creditor’s desistance from taking action to enforce his claim will constitute waiver. His
inaction, if sufficiently extended, will cause the prescription to run its full course and extinguish the
SECTION 3 - CONDONATION OR REMISSION OF THE DEBT obligation.
1270 Condonation or Remission
1271 Article 1271. The delivery of a private document evidencing a credit, made voluntarily by the creditor
Presumptions when debt is evidenced by private document to the debtor, implies the renunciation of the action which the former had against the latter.
1272
1273 Accessory follows principal If in order to nullify this waiver it should be claimed to be inofficious, the debtor and his heirs may
uphold it by proving that the delivery of the document was made in virtue of payment of the debt.
1274 Presumption of remission of pledge
(1188)

Article 1270. Condonation or remission is essentially gratuitous, and requires the acceptance by the PRESUMPTION — In cases where the debt is evidenced by a private document, the voluntary delivery
obligor. It may be made expressly or impliedly. of such document by the creditor to the debtor raises the rebuttable presumption that the creditor has
remitted the debt.
One and the other kinds shall be subject to the rules which govern inofficious donations. Express
condonation shall, furthermore, comply with the forms of donation. (1187) RATIONALE — By surrendering the only evidence of debtor’s indebtedness, the creditor deprives
himself of proof to his claim.
CONDONATION OR REMISSION
● Gratuitous abandonment by the creditor of his right against the debtor resulting in the EFFECT OF DELIVERY OF PRIVATE DOCUMENT EVIDENCING THE CREDIT
extinguishment of debt ● The Article speaks of a “private document,” not a public one because in the case of the latter,
● An act of liberality by virtue of which, without receiving any onerous consideration or a copy is easily obtainable, being a public record
equivalent, the creditor renounces the enforcement of the obligation, thus extinguishing it ● Note that with the delivery of the private instrument, a remission or renunciation is presumed
in its entirety or in the part ● Where the credit is evidenced by a private document, the voluntary delivery of such
document by the creditor to the debtor raises the rebuttable presumption that the creditor has
NATURE — Gratuitous; Law treats it as a donation and subjects it to the rules of donations remitted the debt

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 58

IMPLIED REMISSION
● The voluntary destruction by the creditor of the instrument is likewise another form of implied SECTION 4 – CONFUSION OR MERGER OF RIGHTS
remission
1275 Confusion or Merger of Rights
● But the mere fact that the creditor has omitted a certain debt or the name of the debtor from
an inventory made by him does not imply a tacit remission 1276 When does confusion take place
● JOINT OBLIGATION = remission only to the share of the debtor who is in possession of the 1277 Confusion in Joint Obligations
document. If solidary, to the total obligation

REBUTTAL OF PRESUMPTION — When creditor shows sufficient evidence showing that the delivery Article 1275. The obligation is extinguished from the time the characters of creditor and debtor are
of the private document was made by mistake, or through any involuntary means, or made without merged in the same person. (1192a)
intent to remit
● Debtor allowed to make a counter-rebuttal but Balane believes that this is immoral and
CONFUSION OR MERGER — Is the meeting in one person of the qualities of creditor and debtor
absurd since it endorses fabrication and falsehood
with respect to the same obligation
● Illustration: Acquisition by the debtor, through testate or intestate succession, of a credit
Article 1272. Whenever the private document in which the debt appears is found in the possession of which his ascendant had against him
the debtor, it shall be presumed that the creditor delivered it voluntarily, unless the contrary is proved. ● May overlap with other modes of extinguishment such as remission or payment
(1189)
EXTINCTIVE EFFECT OF CONFUSION
PRESUMPTION — In cases where the debt is evidenced by a private document, the creditor voluntarily ● Creditor becomes his own debtor, or the debtor becomes his own creditor;
delivered the document to the debtor. ● Renders impossible the exercise of rights flowing away from the obligation
● This has the effect of producing the presumption in Art 1271 – the voluntary delivery was ● Furthermore, when there is a confusion of rights, the purposes for which the obligation may
made with intent to remit. have been created are deemed realized
● However, it is believed that the presumption of voluntary delivery should give rise to the ● There can be partial confusion. It will be definite and complete up to the extent of the
presumption of payment only when it is known that indeed there is no payment should there concurrent amount or value, but the remaining obligation subsists.
be a presumption of remission
Requisites of Confusion
PRESUMPTION OF REMISSION IN JOINT AND IN SOLIDARY OBLIGATIONS 1. Merger in the same person of the characters of both a creditor and debtor
● Joint obligations 2. Must take place between principal debtor and creditor
○ Joint active (several creditors) – Only the share of the delivering creditor is remitted 3. Must be complete
○ Joint passive (several debtors) – Only the share of the debtor in possession of the
document is remitted Usual causes of confusion – Succession (compulsory, testate, intestate), Donation, Negotiation of a
● Solidary Obligations – covers the entire amount negotiable instrument

Article 1273. The renunciation of the principal debt shall extinguish the accessory obligations; but the Article 1276. Merger which takes place in the person of the principal debtor or creditor benefits the
waiver of the latter shall leave the former in force. (1190) guarantors. Confusion which takes place in the person of any of the latter does not extinguish the
obligation. (1193)
● If the principal debt has been remitted, the accessory obligation is extinguished
● While the accessory obligations cannot exist without the principal obligation, the latter may WHEN DOES CONFUSION TAKE PLACE — If it occurs in the person of the creditor or principal debtor
exist without the former ● No confusion if person who acquires credit is not the principal debtor (i.e., subsidiary debtor)

MERGER IN THE PERSON OF PRINCIPAL DEBTOR OR CREDITOR

Article 1274. It is presumed that the accessory obligation of pledge has been remitted when the thing ● Effect: Extinguishes the obligation
pledged, after its delivery to the creditor, is found in the possession of the debtor, or of a third person ● Hence, the accessory obligation of guaranty is also extinguished in accordance with the
who owns the thing. (1191a) principle that the accessory follows the principle.

PLEDGE – a contract by virtue of which the debtor delivers to the creditor or to a third person a MERGER IN THE PERSON OF GUARANTOR
movable or instrument evidencing incorporeal rights for the purpose of securing the fulfillment of a ● Effect: Extinguishment of accessory obligation does not extinguish the principal
principal obligation with the understanding that when the obligation is fulfilled the thing delivered shall ● Merger, which takes place in the person of the guarantor leaves the principal obligation in
be returned with all its fruits and accessions. force (even if it extinguishes the guaranty)
● Ordinarily, the thing pledged is in the possession of the creditor or a third person by common
agreement Note: Confusion, to take effect, must merge the personalities of the creditor and the principal debtor.
● Presumption in case thing pledged found in possession of debtor or a third person: Thus, if the credit is acquired by the subsidiary debtor, like a guarantor, no confusion, properly
That the accessory obligation of the pledge is presumed REMITTED (not the obligation itself) understood, can take place.
● The debtor shall continue to be indebted but he does not have to return pledged.
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 59
Article 1277. Confusion does not extinguish a joint obligation except as regards the share OBJECT, IMPORTANCE, AND RATIONALE OF COMPENSATION
corresponding to the creditor or debtor in whom the two characters concur. (1194) ● To prevent unnecessary suits and payments through mutual extinction by operation of law of
concurring debts
● Compensation is a specie of abbreviated payment, which gives each of the parties a double
CONFUSION IN JOINT OBLIGATIONS advantage
● Confusion or Merger in a Joint obligation: Confusion will extinguish only the share ○ Facility of payment because it avoids employment of enumeration
corresponding to the creditor or debtor in whom the two characters concur (part of the obligation ○ Guaranty for effectiveness of credit because if one of the parties pays without
still exists) waiting to be paid by the other, he could be made a victim of fraud of of insolvency
● Confusion or Merger in a Solidary Obligation: Confusion shall extinguish the ENTIRE ● Simplified payment – a more convenient and less expensive realization of two payments
obligation because it is also a merger in the other solidary debtors. He who makes the payment ● Simplifying accounting – economic utility , its advantages for credit and for saving the use
may claim reimbursement from his co-debtors for the shares which correspond to them. of money in transactions
● Guaranty against fraud assuring the enforcement of some credits which otherwise may not
The nature of joint obligations shows that there are really as many distinct debts as the number of be enforced
creditors multiplied by the number of debtors. Confusion will only affect the person in whom the role of a
creditor and debtor concur. KINDS OF COMPENSATION
1. By its effect or extent
Revocation of Confusion or Merger of Rights a. Total – obligations are of the same amount and are entirely extinguished
● If the act which created the confusion is revoked for some causes such as rescission of b. Partial – when two obligations are of different amounts and a balance remains; the
contracts, or nullity of the will or contract, the confusion or merger is also revoked. The extinctive effect of compensation will be partial only as regards the larger debt
subject obligation is revived in the same condition as it was before the confusion. 2. By its cause or origin
● During such interregnum, the running of the period of prescription of the obligation is a. Legal – when it takes place by operation of law (Art. 1278, 1279)
suspended. b. Voluntary – when it takes place by agreement of the parties
c. Judicial – when it takes place by order from a court in litigation
d. Facultative – when it can be set up by only one of the parties
SECTION 5 – COMPENSATION
1278 Compensation Article 1279. In order that compensation may be proper, it is necessary:
1279 Requisites of Legal Compensation (1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;
1280 Guarantor's Liability in Compensation (2) That both debts consist in a sum of money, or if the things due are consumable, they be of
1281 Extent of Compensation the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
1282 Conventional or Contractual Compensation (4) That they be liquidated and demandable;
1283 Judicial Compensation (5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor. (1196)
1284 Rescissible or Voidable Debts
1285 Assignment of Credit Receivable to Third Party
● When all the requisites are present, compensation takes effect by operation of law, and
1286 Automatic Operation of Legal Compensation extinguishes both debts to the concurrent amount, even though the creditors and debtors
1287 are not aware of the compensation (Art. 1290)
Facultative Compensation ● Compensation is not proper where the claim of the person asserting the set-off against the
1288 other is not clear or liquidated; compensation cannot extend to unliquidated, disputed claim
1289 Several Compensable Debts existing from breach of contract.
1290 Manner of Legal Compensation
REQUISITES OF LEGAL COMPENSATION
1. The parties are principal creditors and principal debtors of each other
Article 1278. Compensation shall take place when two persons, in their own right, are creditors and ○ The essence of this requirement is the personal and principal nature of the legal tie that
debtors of each other. (1195) binds each of the parties
○ There can be no compensation if either party is only:
■ A guarantor or surety in one of the debts
COMPENSATION — Mode of extinguishing to the concurrent amount the obligations of persons who in ■ A party occupies only a representative capacity (i.e., agent)
their own right and as principals are reciprocally debtors and creditors of each other.
● Commonly referred to as set-off 2. Both debts consist in a sum of money, or of consumable things of the same kind and
● Most common and frequently-occurring mode of extinguishment quality
● Happens in inter-bank transactions ○ Money is a proper subject of compensation if of the same currency

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 60

 ○ Non-monetary things – both are consumable and of the same kind and quality; fungible a. What the creditor owes the principal debtor whom the guarantor is guaranteeing
things which by intent or agreement is capable of replacement or substitution of another and/or
thing of the same kind b. For what the creditor owes the guarantor himself.
○ Consumable things – they are “movables which cannot be used in a manner appropriate to ● The creditor shall not collect from the guarantor on the basis of the guaranty, as long as the
their nature without being consumed.” (Art. 418) principal debtor is capable of paying his obligation. Thus, the guarantor (even if only
■ Even non-consumable things may be compensated provided they are of the same kind subsidiarily bound) is given the right to set up compensation.
and quality. ● Reason: The extinguishment of the principal obligation because of compensation carries with
it the accessory obligation such as guaranty.
3. Two debts are due
○ E.g. Their performance can be enforced in court, although incurred at different dates Article 1281. Compensation may be total or partial. When the two debts are of the same amount,
○ Both debts must be due at the same time there is a total compensation. (n)
○ When the obligation is payable on demand, the obligation is not yet due where no demand
has not been made
○ A debt that has prescribed is no longer demandable and consequently, cannot be EXTENT OF COMPENSATION
compensated unless the compensation has taken place before the lapse of the period of Operates only to the concurrent amount of the two obligations; Can be total or partial
prescription ● In case of partial compensation, the balance remains due and demandable
○ Natural obligations are not legally demandable ● Partial compensation is an exception to integrity of payment

4. Two debts are liquidated and demandable Article 1282. The parties may agree upon the compensation of debts which are not yet due. (n)
○ Demandable means that the debts are enforceable in court, there being no apparent
defenses inherent in them. The obligations must be civil obligations, excluding those that are
purely natural. Before a judicial decree of rescission or annulment, a rescissible or voidable CONVENTIONAL OR CONTRACTUAL COMPENSATION
debt is valid and demandable; hence, it can be compensated. ● Legal compensation cannot take place because Req 3 is absent
■ Both debts must be demandable at the same time ● Principle of contractual freedom governs the scope of the agreement subject to Art. 1306
○ A debt is liquidated when its existence and amount are determined. restrictions
○ It is expressed already in definite figures which do not require verification. ● The parties must have contractual capacity as well as capacity to dispose inter vivos of their
○ An existing debt is liquidated if the amount is known in definite things or can be determined property.
by a simple computation or by inspection of the terms and conditions of relevant documents ● Any compensation which takes place by agreement of the parties even if all of the requisites
without need of verification for legal compensation are NOT present.
○ Proof of liquidation is necessary if such claim is disputed
○ If the claim of one the parties is still pending, such claim cannot be said to be a liquidated GR: For compensation to be effective mutual debts must both be due and demandable
credit XPN: The parties may agree that their mutual debts be compensated even if the same are not yet due
○ If acknowledged by the debtor, although not in writing, the claim must be treated as ● It is sufficient in conventional compensation that the agreement or contract which declares
liquidated the compensation should itself be valid; thus among other things, the parties must have legal
capacity and must freely give their consent.
5. No retention or controversy commenced by a third person ● Only requisites are:
○ Retention – when the credit of one of the parties is subject to the satisfaction of the claims a. Each of the parties has the right to dispose of the credit he seeks to compensate
of a third person b. They agree to the mutual extinguishment of their credits
○ Controversy – exists when a third person claims he is the creditor of one of the parties
○ Retention or controversy must be communicated “in due time” to the debtor which means the Article 1283. If one of the parties to a suit over an obligation has a claim for damages against the
period before legal compensation is supposed to take place other, the former may set it off by proving his right to said damages and the amount thereof. (n)

6. Compensation must not be prohibited by law (Art. 1290)

JUDICIAL COMPENSATION
○ GR: Taxes, being obligations of public interest and governed by special laws, are not subject
● Legal compensation cannot take place because Req 4 is absent
to set-off or compensation
○ But should the court eventually grant damages, judicial compensation takes place
○ XPN: Both the claims of the government and taxpayer against each other have already
to the concurrent amount of the credits.
become due and demandable as well as fully liquidated
● Presupposes that the other credit is also monetary

Article 1280. Notwithstanding the provisions of the preceding article, the guarantor may set up
Article 1284. When one or both debts are rescissible or voidable, they may be compensated against
compensation as regards what the creditor may owe the principal debtor. (1197)
each other before they are judicially rescinded or avoided. (n)

COMPENSATION BENEFITS THE GUARANTOR

RATIONALE — Rescissible or voidable obligations are effective unless and until rescinded or annulled.
● GR: For compensation, the parties must be the principal debtors and creditors of each other.
NATURE OF COMPENSATION — Compensation must be rescissible or voidable.
● XPN: Guarantor is allowed to set up compensation for:

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 61

Article 1285. The debtor who has consented to the assignment of rights made by a creditor in favor ● Indemnity for expenses of exchange – this refers to monetary exchange, in case the debts
of a third person, cannot set up against the assignee the compensation which would pertain to him are money debts
against the assignor, unless the assignor was notified by the debtor at the time he gave his consent, ● It does not refer to the difference in the value of the things in their respective places
that he reserved his right to the compensation. ● Exchange rate – price of one currency expressed or quoted in relation to another currency
● Once these expenses are liquidated, the debts also become compensable
If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may ● The indemnity shall be paid by the person who raises the defense of compensation
set up the compensation of debts previous to the cession, but not of subsequent ones. ● This rule is without prejudice to a different agreement between the parties

If the assignment is made without the knowledge of the debtor, he may set up the compensation of all Article 1287. Compensation shall not be proper when one of the debts arises from a depositum or
credits prior to the same and also later ones until he had knowledge of the assignment. (1198a) from the obligations of a depositary or of a bailee in commodatum.

● If AFTER automatic compensation has taken place, one of the extinguished debts is Neither can compensation be set up against a creditor who has a claim for support due by gratuitous
assigned to a stranger, ordinarily this would be a useless act since there is nothing more to title, without prejudice to the provisions of paragraph 2 of article 301. (1200a)
assign
○ The debtor can raise the defense of compensation with respect to the debt PARAGRAPH 1: LEGAL COMPENSATION IMPOSIBLE IN DEPOSIT OR COMMODATUM
○ It is a well-settled that the rights of the assignee are not any greater than the rights ● Deposit – constituted from the moment a person receives a thing belonging to another
of the assignor since the assignee merely substituted in the palace of the assignor (depositor) with the obligation of safely keeping it and returning the same
○ The remedy of the assignee is against the assignor ● Bank deposit is not really a depositum but a loan. However, the relationship of the depositor
● Insofar as the excess is concerned, the assignment to 3rd person with the consent of debtor and the bank is one of creditor and debtor between whom there can be compensation.
constitutes subrogation of 3rd person in the rights of the creditor. ● The relationship of the depositary to the depositor is fiduciary in character since it is based on
trust and confidence. The claim of depositary for compensation would involve a breach of that
EFFECT OF ASSIGNMENT ON COMPENSATION OF DEBTS confidence.
1. Assignment AFTER the compensation took place ● NOTE: It is the depositary who cannot claim compensation. The depositor is allowed to
GR: Ineffectual; useless act since there is nothing more to assign claim.
XPN: When the assignment was made with the knowledge and consent of the debtor (such consent ○ An instance of facultative compensation
operates as a waiver of the rights to compensation) ○ The remedy of the depositary is to file an action against the depositor for the
XPN to the XPN: At the time he gave his consent, he reserved right to compensation recovery of the amount
● Commodatum – gratuitous contract whereby one of the parties delivers to another
2. Assignment BEFORE the compensation took place something not consumable so that the latter may use the same for a certain time and return
○ With the consent of the debtor – Compensation cannot be set up except when the right to it.
compensation is reserved ● The purpose of the law is to prevent a breach of trust and confidence on the part of the
○ With the knowledge but without consent of the debtor – Compensation can be set up borrower (or depositary in depositum)
regarding debts previous to the cession or assignment but not subsequent ones ● The lender may claim compensation; the borrower is NOT allowed to do so.
○ Without the knowledge of debtor – Can set up compensation as a defense for all debts ○ An instance of facultative compensation
maturing prior to his knowledge of the assignment
PARAGRAPH 2: DEBTS ARISING FROM A COMMODATUM
Assignment under the Article is Different from Cession under Article 1255 ● Support comprises everything that is indispensable for sustenance, dwelling, clothing,
Article 1255 refers to cession or assignment of the property of the debtor to his creditors in payment of medical attendance, education and transportation, in keeping with the financial capacity of
his debts. In the present article, the one assigning rights is the creditor in favor of a third person who the family (Art. 194, Family Code)
need not be a creditor. ● BALANE — With respect to future support, to allow its extinguishments by compensation
would defeat its exemption from attachment and execution (Article 205, Family Code) and
Limitation to Assignment of Rights may expose the recipient to misery and starvation.
A solidary creditor cannot assign his rights without the consent of the others ● Support, whether current or in arrears, cannot be compensated
○ It is essential to the life of the recipient
Article 1286. Compensation takes place by operation of law, even though the debts may be payable ○ However, support in arrears, may, at the recipient’s election, be set up by him
at different places, but there shall be an indemnity for expenses of exchange or transportation to the against the obligor
place of payment. (1199a) ■ Reason: The one who is supposed to receive the support in arrears no
longer needs the support as he was able to exist even without the
support of the person obliged to give support
APPLIES TO — Legal compensation under Art. 1279 ● The excess beyond that required for legal support is subject to legal compensation, but not
that required for legal support
COMPENSATION OF DEBTS PAYABLE IN DIFFERENT PLACES ● Article 301. The right to receive support cannot be renounced; nor can it be transmitted to a
● Indemnity for expenses of transportation – this applies to transportation of the goods or of third person. Neither can it be compensated with what the recipient owes the obligor.
the object in case of a thing to be delivered

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 62

However, support in arrears may be compensated and renounced, and the right to demand the 1295
same may be transmitted by onerous or gratuitous title.
1296 Effect of novation on accessory obligations
1297 Effect when the new obligation is void or voidable
Article 1288. Neither shall there be compensation if one of the debts consists in civil liability arising
from a penal offense. (n) 1298 Effect when the old obligation is void or voidable
1299 Presumption where original obligation is subject to a condition
● Debts arising from crime cannot be compensated by the criminal. However, the victim is 1300 Subrogation
allowed to claim compensation
● RATIONALE — Consideration of public policy lie at the basis of this article 1301 Conventional Subrogation
● Compensation is improper because the satisfaction of the obligation arising from crime is 1302 Legal Subrogation
imperative
1303 Effects of Subrogation

Article 1289. If a person should have against him several debts which are susceptible of 1304 Effect of Partial Subrogation
compensation, the rules on the application of payments shall apply to the order of the compensation.
(1201) Article 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
IF ONE OF THE DEBTORS HAVE SEVERAL COMPENSABLE DEBTS (2) Substituting the person of the debtor;
● Apply rules on Application of Payments (3) Subrogating a third person in the rights of the creditor. (1203)
○ He must inform the creditor which of them shall be the object of the compensation
○ In case he fails to do so, then the compensation shall be applied to the most NOVATION — Total or partial extinction by of an obligation through the creation of a new one which
onerous obligation substitutes it by:
1. Changing their object or principal conditions;
Article 1290. When all the requisites mentioned in article 1279 are present, compensation takes 2. Substituting the person of the debtor;
effect by operation of law, and extinguishes both debts to the concurrent amount, even though the 3. Subrogating a third person in the rights of the creditor.
creditors and debtors are not aware of the compensation. (1202a)
Novation is the most unusual mode of extinguishing an obligation. It does not operate as an absolute
MANNER AND EXTENT OF LEGAL COMPENSATION but only as a relative extinction because it creates a new one in place of the old which is only “modified”
● Manner of Operation – Legal compensation operates automatically implying clearly that it may be partial. The other modes of extinguishing an obligation are absolute in
● Extent of Legal Compensation – Legal compensation extends to the concurrent amount of the sense that the extinguishment of the obligation is total.
the two debts being set off. Thus, the extinguishment of the debts may be total or partial. ● A compromise is a form of novation. The difference is that a compromise has some judicial
participation. The effect of compromise is the same as novation.
TIME WHEN COMPENSATION TAKES EFFECT
● Legal Compensation –– the moment all five requisites become present, compensation takes TWO-FOLD FUNCTION OF NOVATION
place by operation of law, even though the parties are not aware thereof (unless there has 1. It extinguishes an obligation
been valid waiver thereof) 2. Creates a new obligation in lieu of the old one
● Voluntary Compensation –– it will take effect from the time or day agreed upon by the ○ Novation is extinctive when an old obligation is terminated by the creation of a
parties new obligation that takes place of the former because of the total incompatibility
● Judicial Compensation –– it will be effective from the moment the judgment becomes final between the two obligations
and executory ○ When the change is not extinctive but merely modificatory, the new agreement
will not have the effect of extinguishing the first but would merely supplement or
RENUNCIATION OF COMPENSATION supplant some but not all of its provisions
● Can be renounced by the parties ○ Novation can take place even in the absence of an express agreement as when
● May be express or implied there is total incompatibility between the old and the new obligations (implied
○ Art 1285 – When debtor consents without reservation to the assignment novation), in which case, the novation is extinctive.

KINDS OF NOVATION
SECTION 6 – NOVATION
1. According to origin
1291 Definition of Novation a. Legal – That which takes place by operation of law
1292 Requisites of Novation b. Conventional – That which takes place by agreement of the parties
2. According to how it is constituted
1293 Substitution a. Express – When it is so declared in unequivocal terms
1294 Effect of new Debtor's insolvency or non-fulfillment of obligation b. Implied – When the old and the new obligations are essentially incompatible with
each other

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 63

 3. According to extent or effect ○ Either a change in object or a change in conditions of the obligation
a. Total or extinctive – When the old obligation is completely extinguished ○ To take effect, it is imperative that the new obligation expressly declare that the old
b. Partial or modificatory – When the old obligation is merely modified obligation is thereby extinguished, or that the new obligation be on every point
4. According to the subject incompatible with the old one
a. Real or objective – When the object or principal conditions of the obligation are 2. Implied/Subjective Novation – The old and the new obligations must be incompatible with
changed each other on every point
b. Personal or subjective – When there is a change in subject ○ No need for express agreement; no specific form
i. Active – When a third person is subrogated in the rights of the creditor ○ Implied consent may be inferred from the acts of the creditor
ii. Passive – When the person of the debtor is substituted (Subs ○ Must still be proven
c. Mixed – When the object or principal condition of the obligation and the debtor or ○ If subjective novation by a change in the person of the debtor is to occur, it is not
the creditor or both the parties, are changed; Combination of real and personal enough that the juridical relation between the parties to the original contract is
novations. extended to a third person.
○ It is essential that the old debtor be released from the obligation, and the third
Article 1292. In order that an obligation may be extinguished by another which substitute the same, it person or new debtor take his place in the new relation. If the old debtor is not
is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on released, no novation occurs and the third person who has assumed the obligation
every point incompatible with each other. (1204) of the debtor becomes merely a co-debtor or surety or a co-surety.
For both, the parties in the new contract must be the same parties in the old contract.

● Novation is never presumed REQUISITES OF EXTINCTIVE NOVATION (BALANE) [P-AC-E-V]

○ GR: No form of words or writing is necessary to give effect to novation 1. A Previous Valid obligation
○ XPN: It must be clearly and unmistakably established by express agreement by ● The novation is void if the original obligation was void, except when annulment may be
acts of the parties. claimed only by the debtor, or when ratification validates acts which are voidable (Art. 1298)
○ Even if novation were sufficiently shown, the presumptive rule is that conditions ● If the old obligation is VOID or NON-EXISTENT, there is nothing to novate
attached to the old obligation also attach to new obligation ● If the old obligation is VOIDABLE, novation is still possible provided that the obligation has
● If the change involves principal conditions, there is without doubt a novation not yet been annulled.
● But if the change involves only incidental conditions, there is no novation because the 2. An Agreement of the parties and Capacity to create the new obligation
original obligation is not extinguished ● If the original obligation was subject to a suspensive or resolutory condition, the new
● Novation is merely modificatory when the change brought about by any subsequent obligation shall be under the same condition, unless it is otherwise stipulated (Art. 1299)
agreement is merely incidental to the main obligation 3. There must be an Extinguishment of the old obligation
● There can be NO novation UNLESS two (2) distinct and successive binding contracts take ● Professor Balane considers this as an effect rather than a requisite of novation.
place, between the same parties with the second designed to replace the preceding ● In order that an obligation may be extinguished by another which substitute the same, it is
convention. imperative that it be so declared in unequivocal terms, or that the old and the new obligations
● Since novation is effected only when a new contract has extinguished an earlier contract be on every point incompatible with each other (Art. 1292)
between the same parties, it necessarily follows that there could be NO novation if the parties 4. The new obligation must be Valid
in the new contract are not the same parties in the old contract. ● If the new obligation is void, the original one shall subsist, unless the parties intended that the
● The necessity to prove the novation by clear and convincing evidence is accentuated where former relation should be extinguished in any event (Art. 1297)
the obligation of the debtor has already matured.
How Implied Novation May Be Made
IN RELATION TO JUDGMENT – A final judgment of a court that had been executed but not yet fully When not expressed, incompatibility is required so as to ensure that the parties have intended such
satisfied, may be novated by compromise. novation despite their failure to express it in categorical terms.
● Judgment cannot subsequently be executed because the agreement supersedes the
judgment. The incompatibility should take place in any of the ESSENTIAL ELEMENTS of the obligation: [J-O-S]
● Novation may be subject to a suspensive condition. 1. in the Juridical relation or tie of the contract
2. in the Object or principal terms or conditions of the contract
IN RELATION TO CRIMINAL LIABILITY – Novation is not a mode of extinguishing criminal liability. 3. in the Subjects of the contract
● It may prevent the rise of criminal liability as long as it occurs prior to the filing of the criminal
information in court. TEST OF INCOMPATIBILITY BETWEEN TWO OBLIGATIONS
● It is only limited to the civil aspect of liability. ● Whether or not the old and new obligation can stand together, each one having its own
● Novation theory does not apply where the offer to pay by the debtor and accepted by the independent existence.
creditor, turns out to be merely an empty promise. ● No incompatibility exists when they can stand together. Hence, there is no novation.
Incompatibility exists when they cannot stand together. Hence, there is novation. The
WAYS OF EFFECTING CONVENTIONAL NOVATION former obligation loses all its force and effect and only the new obligation can be enforced.
Subsequent obligation supersedes or novates the first [OI] ● The incompatibility must affect any of the essential elements of the obligation, such as
1. Objective Novation – By express agreement of the parties or acts of equal or equivalent its object, cause or principal conditions thereof; otherwise, the change is merely modificatory
import. in nature and insufficient to extinguish the original obligation.
○ Must be proven
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 64
 ● Essential that the old debtor be released from his obligation; otherwise there is no
Instances When the Court Held That There Was Extinctive Novation expromission and no novation
1. If a debt subject to a condition is made an absolute one without a condition. (Macondray v. Ruiz) ● Requires the consent of the third person (new debtor) and the creditor
2. Reduction of the term or period originally stipulated. (Kabankalan Sugar Co. v. Pacheco) ● The intent of the parties must be to release the old debtor. The release of the old debtor is
3. When, without the consent of some subscribers, the capital stock of a corporation is increased. absolute even if it turns out that the new debtor is insolvent.
Here the subscribers who did not consent to the increase are released or freed from their ● Cases of expression are quite rare.
subscription. (National Exchange Co. v. Ramos) 2. Delegacion – When the creditor accepts a third person to take the place of the debtor at the
instance of the latter.
Instances When the Court Held That There Was NO Extinctive Novation ● The creditor may withhold approval
1. A compromise agreement which merely clarified the total sum owed by the would-be buyer to the ● All the parties, the old debtor, the new debtor, and the creditor must agree
would-be seller for easier compliance with the obligation. The agreement can stand with the ● The intent of the parties must be to release the old debtor. The release of the old debtor is not
contract to sell. (Rillo v. CA) absolute, subject to exceptions in Art. 1295.
2. Change consists only in the time or place of payment, or in the mode or manner of payment, or ● The parties in delegacion are the following:
rates of interests, without really effecting a substitution of debtor, or adds other obligations not i. The delegante – the original debtor
incompatible with the old one, or one where the new contract merely supplements the old one, the ii. The delegatario – the creditor
change is merely modification in nature and insufficient to extinguish the original obligation. iii. The delegado – the new debtor
(Quinto v. People)
3. The term “principal obligation” in Art. 1291 includes a change in the “period” to comply with the REQUISITES OF EXPROMISION REQUISITES OF DELEGACION
obligation. Such a change, however, would only be a partial novation since the period merely 1. Substitution is upon the initiative or proposal 1. Substitution is upon the initiative or proposal
affects the performance, not the creation of the obligation. (Ong v. Bogñalbal) of a third person who will step into the shoes of the old debtor himself
4. A write-off cannot be likened to a novation since the obligation of both parties are not modified. of debtor 2. The creditor accepts and the new debtor
(Reyna v. CoA) 2. Creditor must give his consent to the agrees to the proposal of the third person
5. When the new contract merely contains supplementary agreement. (Asiatic Petroleum Co. v. proposal of the third person 3. The old debtor is released from the obligation
Quary Sim Pao) 3. Old debtor must be released from the with the consent of the creditor
6. When additional interest is agreed upon. (Bank of the P.I. v. Gooch) obligation with the consent of the creditor
7. When additional security is given. (Bank of the P.I. v. Herridge)
8. When the place of payment is changed or when there is a variation in the amount of partial
payments WHEN DELEGACION DOES NOT GIVE RISE TO NOVATION
9. When a public instrument is executed to confirm a valid contract, whether oral or in a private 1. When the third person was only an agent, messenger, or employee of the debtor.
instrument. 2. When the third person acted only as guarantor or surety.
3. When the new debtor merely agreed to make himself solidarily liable for the obligation.
EFFECTS OF MODIFICATIONS OF ORIGINAL OBLIGATION 4. When the new debtor merely agreed to make himself jointly or partly responsible for the obligation.
1. Slight modifications and variations — When made with the consent of the parties, they do
NOT abrogate the entire contract and the rights and obligations of the parties thereto, but the NOTE: The criterion of distinction between expromission and delegacion is NOT consent or knowledge,
original contract continues in force EXCEPT as the altered terms and conditions of the but initiative.
obligation are considered to be the essence of the obligation itself.
2. Material deviations or changes – When the original contract is deviated from in material CONSENT OF CREDITOR NECESSARY TO SUBSTITUTION
respects so that the object or principal condition cannot be reasonably recognized as that Both in expromission and delegacion, the consent of the creditor is an indispensable requirement.
originally contracted for, the original contract should be treated as abandoned. The existence of the creditor’s consent may also be inferred from the creditor’s acts but such acts need
to be “clear and unmistakable expression of the creditor’s consent.” (BPI v. Domingo)
1. Substitution implies waiver by creditor of his credit
Article 1293. Novation which consists in substituting a new debtor in the place of the original one, ○ Since novation of a contract by substitution of a new debtor extinguishes the personality of
may be made even without the knowledge or against the will of the latter, but not without the consent the first debtor, it implies on the part of the creditor a waiver of right he had before the
of the creditor. Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237. novation. Hence, the creditor’s consent is necessary to the substitution of a new debtor.
(1205a) 2. Substitution may be prejudicial to the creditor
○ This is based on simple consideration of justice since the consequence of the substitution
KINDS OF PERSONAL NOVATION may be prejudicial to the creditor and such prejudice may take the form of delay in the
1. Substitution – when the person of the debtor is substituted fulfillment of the obligation, or contravention of its tenor, or non-performance thereof by the
2. Subrogation – when a third person is subrogated in the rights of the creditor new debtor, by reason if his financial inability or insolvency.
3. Creditor has right to refuse payment by third person without interest in obligation
KINDS OF SUBSTITUTION (OR PASSIVE SUBJECTIVE NOVATION) ○ The creditor cannot be compelled to accept payment or performance by a third person who
● Essential Distinction – W/N the initiative for the substitution came from the original debtor. If has no interest in the fulfillment of the obligation. (Art. 1236, par. 2)
yes, it is delegacion. If not, it is expromission. ○ The creditor may accept, if he so wishes, payment from a third party. But mere acceptance
1. Expromission – When a third person of his own initiative and without the knowledge or against of payments for the benefit of a debtor, whose obligation the third party has assumed, in the
the will of the original debtor assumes the latter’s obligation with the consent of the creditor absence of unmistakable showing of intent to make the third person liable, does NOT
constitute a novation.
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 65
 ○ Art. 1293 does NOT state such consent to the change of debtor be express, or given at the EFFECT OF NOVATION ON ACCESSORY OBLIGATIONS
time of the substitution. It is sufficient that his consent be given at any time and in any form, GR: Extinguishment of the principal obligation by means of novation carries with it the extinguishment
whatever, while the agreement of the debtor subsists. of the accessory obligations.
4. Involuntary novation by substitution of debtor XPN:
1. Parties bound in the accessory obligation consent or agree to continue to be bound. (waiver
RIGHT OF NEW DEBTOR WHO PAYS of rights)
GR: Upon payment by the new debtor, he acquires the right to be reimbursed by the original debtor. 2. An accessory obligation created in favor of a third person remains in force unless said third
● Either the full amount paid by him or the amount equal to the extent of the benefit to the person gives his consent to the novation
original debtor depending on whether payment was made with the original debtor’s consent 3. Novation consists in a change in the person of the creditor (subrogation)
or not ○ By terms of Art. 13033 in cases of subrogation, rights against third persons, like
XPN: The new debtor intends the payment to be a donation mortgagors, subsist.
● If accepted by the original debtor as a proper donee, will preclude reimbursement Reason: Person should not be prejudiced by the act of another without his consent.

WITHOUT KNOWLEDGE OR AGAINST THE WILL OF DEBTOR: In expromission, payment by the BASIS DELEGATION EXPROMISSION
new debtor gives him the right to beneficial reimbursement under Article 1236 (2)
WITH DEBTOR’S CONSENT: If payment was made with the consent of the original debtor or on his Initiated by Old Debtor Third Person
own initiative (delegacion), the new debtor is entitled to reimbursement and subrogation under Article Consent of Creditor May be expressed or implied from his acts but not from his mere acceptance of
1237 payment by a third party.
Consent of old With the consent of the old debtor With or without knowledge of the debtor
Article 1294. If the substitution is without the knowledge or against the will of the debtor, the new debtor (since he initiated substitution) or against his will
debtor’s insolvency or non-fulfillment of the obligation shall not give rise to any liability on the part of
3rd Person Consent Consent needed
the original debtor. (n)
Intention Released from the obligation with the consent of the creditor
EFFECT OF INSOLVENCY OF NEW DEBTOR IN EXPROMISSION Rights of the new WIth the debtor’s consent – right of With the debtor’s consent – right of
● In expromission, the replacement of the old debtor is NOT made at his own initiative. debtor reimbursement and subrogation reimbursement and subrogation
● Under Art. 1294, the new debtor’s insolvency or nonfulfillment of the obligation will not revive
the action of the creditor against the old debtor whose obligation is extinguished by Without the consent of the old
assumption of the debt by the new debtor. debtor or against his will – right to
● The release of the original debtor in expromission is absolute. beneficial reimbursement (only insofar
as the payment has been beneficial to
such debtor). No subrogation.
Article 1295. The insolvency of the new debtor, who has been proposed by the original debtor and
accepted by the creditor, shall not revive the action of the latter against the original obligor, except Insolvency or GR: Shall not revive the action of the With the debtor’s consent – If the old
when said insolvency was already existing and of public knowledge, or known to the debtor, when he nonfulfillment of latter against the original obligor. debtor gave his consent and the new
delegated his debt. (1206a) the obligation of the debtor could not fulfill the obligation, the
new debtor XPN: Original debtor held liable. old debtor should be liable for the
1. Insolvency was already existing payment of his original obligation
EFFECT OF INSOLVENCY OF NEW DEBTOR DELEGACION
and of public knowledge, or
GR: The old debtor is NOT liable to the creditor in case of the insolvency of the new debtor.
known to the debtor Without the consent of the old
XPN: The original debtor’s liability will be revived if the two circumstances concur:
2. Insolvency of the new debtor debtor or against his will – the new
1. Said insolvency was already existing and of public knowledge at the time of the delegacion
was already existing and known debtor’s insolvency or non-fulfillment of
2. The insolvency was already existing and known to the debtor at the time of delegacion
to the original debtor at the time the obligation shall not give rise to any
XPN to the XPN: There is no liability on the part of the old debtor when the creditor knew of the new
of the delegation of the debt to liability on the part of the original debtor
debtor’s pre-existing insolvency.
the new debtor
● This article refers to delegacion and it speaks only of insolvency.
● If the non-fulfillment of the obligation is due to other causes, the old debtor is not liable. Article 1297. If the new obligation is void, the original one shall subsist, unless the parties intended
● The exceptions in this article are intended to prevent fraud by old debtor. that the former relation should be extinguished in any event. (n)

Article 1296. When the principal obligation is extinguished in consequence of a novation, accessory EFFECT WHERE THE NEW OBLIGATION IS VOID
obligations may subsist only insofar as they may benefit third persons who did not give their consent. ● Stresses the essential requirement that the new obligation must be valid
(1207)
GR: There is no novation if the new obligation is void. The original obligation shall subsist.
XPN: If the parties intended that the old obligation should be extinguished in any event.

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 66

EFFECT WHERE THE NEW OBLIGATION IS VOIDABLE
GR: Novation can take place if new obligation is voidable (as it is valid and binding until annulled) KINDS OF SUBROGATION
XPN: Once the new obligation is annulled, the old obligation will subsist and the novation is considered 1. Conventional – When it takes place by express agreement of the original parties (the
as not having taken place and the original one can be enforced. debtor and the original creditor) and the third person (the new creditor), that the person
XPN to XPN: Unless the intention of the parties is that the obligation would still be extinguished in any paying the debt shall succeed to all the rights and remedies of the original creditor
event. 2. Legal – Takes place without agreement between the parties but by operation of law

Article 1298. The novation is void if the original obligation was void, except when annulment may be Article 1301. Conventional subrogation of a third person requires the consent of the original parties
claimed only by the debtor, or when ratification validates acts which are voidable. (1208a) and of the third person. (n)

EFFECT WHERE THE OLD OBLIGATION IS VOIDABLE CONVENTIONAL SUBROGATION — CONSENT OF ALL PARTIES REQUIRED
● If ratified before it could be annulled – it can be the subject of novation 1. Debtor – because he becomes liable under the new obligation to a new creditor
● If it was already annulled – it ceases to exist and there is nothing to novate 2. Old or original Creditor – because his right against the debtor is extinguished
● A void obligation CANNOT be novated because there is nothing to novate 3. New Creditor – because he may dislike or distrust the debtor

PRESCRIBED OBLIGATION MAY BE THE SUBJECT OF NOVATION EFFECT OF SUBROGATION

● Unless the defense of prescription is set up by the debtor, the obligation continues, since this ● Transfers to the person subrogated the credit with all the rights thereto appertaining, either
failure amounts to a WAIVER. against the debtor or against third persons, be they guarantors or possessors of mortgages,
● NOTE: A prescribed debt, constituting as it does a moral or natural obligation, may be the subject to stipulation in a conventional subrogation
cause or consideration of a new obligation to pay therefor. ● Stipulation of the parties shall govern

Article 1299. If the original obligation was subject to a suspensive or resolutory condition, the new BASIS CONVENTIONAL SUBROGATION ASSIGNMENT OF CREDIT
obligation shall be under the same condition, unless it is otherwise stipulated. (n) Effect Extinguishes the original obligation and The transfer of the credit/right does not
creates a new one extinguish or modify the obligation. The
EFFECTS OF CONDITION IN NOVATION transferee becomes the new creditor for
1. If the original obligation was subject to a CONDITION (suspensive/resolutory) the new the same obligation.
obligation shall be under the same condition, unless the contrary is stipulated. Need for Consent of Debtor’s consent is NOT necessary Debtor’s consent NOT required
○ If the condition is suspensive, and not complied with –– NO obligation Debtor (notification is enough for the validity of
○ If the condition is resolutory, and complied with –– NO obligation the assignment)
○ In either case, it would fail the requisite of a previous valid obligation
2. If the new obligation and the old obligation are subject to different conditions: Effectivity Begins from the moment of Begins from the notification of the
○ If the conditions can stand together (compatible conditions): subrogation debtor
i. If both are fulfilled – the new obligation becomes demandable Curability of defect The defect in the old obligation may be The defect in the credit or rights is not
ii. If only the condition affecting the old obligation is fulfilled – old obligation is or vice cured such that the new obligation cured by its mere assignment to a third
revived while the new obligation loses its force becomes valid person.
iii. If only the condition affecting the new obligation is fulfilled – there is no NOTE: As far as the effects of these transactions are concerned, there is no material differences
novation since the requisite of a previous valid and effective obligation would be between subrogation and assignment of credit.
lacking
○ If the conditions are incompatible – the effect is to extinguish the old obligation so that
only the new obligation remains and whose demandability/effectivity depend upon the Article 1302. It is presumed that there is legal subrogation:
fulfillment or non-fulfillment of the condition affecting it (1) When a creditor pays another creditor who is preferred, even without the debtor’s
knowledge;
(2) When a third person, not interested in the obligation, pays with the express or tacit approval
Article 1300. Subrogation of a third person in the rights of the creditor is either legal or conventional. of the debtor;
The former is not presumed, except in cases expressly mentioned in this Code; the latter must be (3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the
clearly established in order that it may take effect. (1209a) obligation pays, without prejudice to the effects of confusion as to the latter’s share. (1210a)

SUBROGATION — The substitution of a third person (subrogee) in the place of a creditor (subroger) PRESUMPTION OF LEGAL SUBROGATION
with the reference to a lawful claim or right so that he who is substituted succeeds to the right of the ● GR: Legal subrogation is not presumed
other in relation to the claim or right, including its remedies and securities. ● XPN: Except in the three cases enumerated, subrogation takes place by operation of law
● Doctrine of Substitution – It contemplates full substitution such that it places the party even without the consent of the parties.
subrogated in the shoes of the creditor, and he may use all means which the creditor could
employ to enforce payment When a creditor pays another creditor who is preferred, even without the debtor’s knowledge
● Subrogee cannot succeed to a right not possessed by the subrogor. ● This takes place whether or not the debtor had knowledge of the payment
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 67
 ● Neither the knowledge nor the consent of the debtor is required ○ The old creditor, who still remains a creditor as to balance
● The non-preferred creditor who has paid the preferred credit steps into the shoes of the ○ The new creditor who is a creditor to the extent of what he had paid the creditor
preferred creditor vis-á-vis the debtor ● In case of insolvency of the debtor, the old creditor is given a preferential right under Art.
● The subrogation includes the preference enjoyed by the original (preferred) creditor 1304 to recover the remainder as against the new creditor.
● The accessory rights acquired by the non-preferred creditor extend only to the credit to which ○ Preference creates simply a right of one creditor to be paid first the proceeds of the
he has been subrogated sale of property as against another creditor.
● The debtor can set up against the subrogee-creditor any defenses he could have set up ○ If the right claimed is not asserted and maintained, it is lost.
against the original creditor, unless the debtor has previously waived such right
● The subrogation will extend to the full amount of the credit due, even if the non-preferred
creditor actually paid a lesser amount, provided the original creditor accepted sum paid as full
payment CONTRACTS
CHAPTER 1
When a third person, not interested in the obligation, pays with the express or tacit approval of GENERAL PROVISIONS
the debtor
● The consent — whether express or tacit — of the debtor to the third person’s act of payment
gives rise to the subrogation CHAPTER 1 – GENERAL PROVISIONS
● This should be correlated with Arts. 1236 and 1237 1305 Definition of Contract
When a third person with interest in the obligation pays even without the knowledge of debtor 1306 Autonomy of Contracts and Limitations
● Should any of the interested parties (co-debtors, guarantors, and owners of the thing given as 1307 Innominate Contracts
security) pay the amount owed, subrogation takes place in favor of the payor, whether such
payment is made with or without the debtor’s knowledge or consent 1308 Mutuality of Contract
● Rules on merger/confusion may restrict effects of subrogation 1309 Determination of Performance by a Third Person
● In case of solidary obligations, right to recover from co-debtors is only insofar as that outside 1310 Effect where Determination is Inequitable
his own share
1311 Relativity of Contracts
Article 1303. Subrogation transfers to the person subrogated the credit with all the rights thereto 1312 Third Persons Bound by Contracts Real Rights
appertaining, either against the debtor or against third persons, be they guarantors or possessors of 1313 Right of Creditor to Impugn Contracts Intended to Defraud
mortgages, subject to stipulation in a conventional subrogation. (1212a)
1314 Liability of Third Person Responsible for Breach of Contract
EFFECTS OF TOTAL SUBROGATION 1315 Consensuality of Contracts
● To transfer to the new creditor the credit and all the rights and actions that could have been 1316 Real Contracts
exercised by the former creditor either against the debtor or against third person (guarantors /
1317 Unauthorized Contracts
mortgagors)
● In other words, except only for the change in the person of the creditor, the obligation remains
the same as before the novation Article 1305. A contract is a meeting of minds between two persons whereby one binds himself, with
● The effect as provided in Art. 1303 may not be modified by agreement. respect to the other, to give something or to render some service. (1254a)
● May not be modified by agreement IF for legal subrogation. If conventional subrogation,
contrary stipulation will govern.
STATUTORY DEFINITION OF CONTRACT
EXCEPTION TO ART. 1296 A contract is a meeting of minds between two persons whereby one binds himself, with respect to the
● Art 1296 states that accessory obligations may subsist only insofar as they may benefit third other, to give something or to render some service.
persons who did not give their consent. ● Mexican Code definition (Art. 1792) – A contract is an agreement between two or more
● Under Article 1303, accessory obligations are not extinguished. persons to create, convey, modify, or extinguish an obligation
● According to commentators, Article 1303 is an exception to Article 1296. ● Sanchez Roman – A contract is a juridical convention manifested in legal fromm, by virtue of
● If there is a change in the creditor under Article 1303, the guarantor is not released since it which one or more persons bind themselves in favor of another, or others, or reciprocally, to
doesn‘t make a difference. What the guarantor guarantees is the integrity of the debtor. the fulfillment of a prestation to give, to do or not to do

BRIEF HISTORY
Article 1304. A creditor, to whom partial payment has been made, may exercise his right for the Contracts (cum-trahere): To draw together/contractus: a drawing together are one of the five
remainder, and he shall be preferred to the person who has been subrogated in his place in virtue of enumerated sources of obligation in our Code.
the partial payment of the same credit. (1213)
NUMBER OF PARTIES IN A CONTRACT
EFFECTS OF PARTIAL SUBROGATION There must be at least two persons or parties.
● Here, there are two creditors: ● BALANE — Two persons should instead read: “two or more parties”
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 68
 ○ Party is more accurate to avoid ambiguity in auto-contracts adequate instrument by which man acquiesce the means required for common life and social
● Auto-Contracts → A single person may contract with himself where he represents distinct cooperation
interests subject to specific prohibitions of law against the presence of adverse or conflicting
interests. CHARACTERISTICS OF CONTRACTS
○ Guardians, executors, or administrators cannot acquire by purchase property of ● Autonomy of contracts (Art 1306)
persons under their guardianship/administration. (1491) ● Obligatoriness of contracts (Arts. 1159 and 1315)
○ If an agent has been authorized to end money at interest, he cannot borrow it ● Mutuality of contracts (Art 1308)
without principal’s consent. (1890) ● Relativity of contracts (Art 1311)
● Consensuality of contracts (Art 1315)
TERMINATION/CANCELLATION OR SUSPENSION OF PRE-EXISTING CONTRACTS
● Fully covered in Art 1305 CLASSIFICATIONS OF CONTRACTS – Determined by its nature or character as determined by
● As a rule, the method of terminating a contract is primarily determined by the stipulation of principles of law, principally, the intention of the parties (Art 1371)
the parties
○ Unilateral termination of a contract by a party is violative of the principle of 1. According to name or designation
mutuality of contracts (Art 1308) a. Nominate – Where the contract has a particular name
● Contract may be superseded by a compromise agreement provided it is not contrary to law, b. Innominate (Art 1307) – Where the contract does not have a specific name
morals, good customs, public order or public policy (Art 1306) 2. According to perfection
● A contract may provide that it shall come to an end at the option of one, or either of the a. Consensual
parties and such stipulation, when fairly entered into, will be enforced if not contrary to equity b. Real (Arts 1315, 1316)
and good conscience 3. According to cause
○ If the party given the option acted in bad faith, he may be liable for abuse of right a. Onerous – Where there is a material cause (consideration)
● Where one party opts to cancel an existing agreement and the other party expresses its b. Remuneratory or remunerative
conformity, the parties enter into another contract for the dissolution of the previous one, and c. Gratuitous (Art 1350) – Where the cause is liberality (lucrative)
they are bound by their contract 4. According to form
● When a contract is suspended by reason of a lawful order, it temporarily ceases to be a. Informal, or common
operative. It again becomes operative when a condition occurs or a situation arises b. Formal, solemn or simple (Art 1356)
warranting the termination of the suspension of the contract. 5. According to obligatory force
a. Valid (Art 1306)
TERMINATION OF CONTRACT RESCISSION OF CONTRACT b. Rescissible (Chapter 6)
Congruent with an action for unlawful detainer; Declare a contract void in its inception and to put c. Voidable (Chapter 7)
Necessarily entails enforcement of its terms prior an end to it as though it never were d. Unenforceable (Chapter 8)
to the declaration of its cancellation e. Void or inexistent (Chapter 9)
6. According to person obliged
Need not undergo judicial intervention since parties Not merely to terminate and release parties from a. Unilateral
themselves may exercise such option; Only upon obligations but it is to abrogate the contract from b. Bilateral (Art 1191)
disagreement as to how it should be undertaken the beginning and restore the parties to their 7. According to dependence to another contract
may the parties resort to courts relative positions prior to the contract. a. Preparatory – When it is entered into as a means to an end
i. Ex. Agency, partnership
CONTRACT OBLIGATIONS b. Accessory – When it is dependent upon another contract it secures or guarantees for its
One of the sources of obligations (1157) Legal tie or relation itself that exists after a contract existence and validity
has been entered into i. Ex. Mortgage, guaranty
c. Principal – When it does not depend for its existence and validity upon another contract but is
There can be no contract if there is no obligation. But an obligation may exist without a contract.
an indispensable condition for the existence of an accessory contract
i. Ex. Sale, lease
CONTRACT AGREEMENT 8. According to status
Agreements enforceable through legal proceedings Broader than contract because it may not have all a. Executory – When it has not yet been completely performed by both parties
the elements of a contract b. Executed – When it has been fully and satisfactorily carried out by both parties (Art 1403)
Agreements which cannot be enforced by action in 9. According to dependence of part of contract to other parts
the courts are merely moral or social agreements a. Indivisible (or entire) – When each part of the contract is dependent upon the other parts for
satisfactory performance
All contracts are agreements.
i. Ex. Sale of a dining room table and 8 matching chairs
But not all agreements are contracts.
b. Divisible – When one part of the contract may be satisfactorily performed independently of
the other parts (Arts. 1223 - 1225)
IMPORTANCE OF A CONTRACT – Necessity of completing the limitations of man and his insufficiency i. Ex. Sale of rocking chair and a pair of shoes
to obtain by himself the means necessary for the fulfillment of his purposes; Contract is the most 10. According to risks involved

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 69

 a. Commutative – When the undertaking of one party is considered the equivalent of that of the ○ What is not expressly or impliedly prohibited by law is allowed or may be done,
other except when the contract or any act for that matter is found to be injurious to the
i. Ex. Sale, lease public interest or the common good the State has the power and duty to promote
b. Aleatory – When it depends upon an uncertain event or contingency both as to benefit or loss and protect in the exercise of its police power
(Art 2021) ○ All contractual obligations are subject to the possible exercise of police power of
i. i. Ex. Insurance, Sale of a hope (sweepstakes tickets) the state
11. According to liability/obligation created ■ Otherwise, important and valuable reforms may be precluded by the
a. Unilateral – When it creates an obligation on the part of only one of the parties simple device of entering contracts for the purpose of doing that which
i. Ex. Commodatum, gratuitous deposit otherwise may be prohibited by law
b. Bilateral – When it gives rise to reciprocal obligations for both parties ○ Mere enforcement of one of the conditions deemed imposed in all contracts
i. Ex. Sale, lease ● A contract intended to circumvent the law is void
● Relevant Civil Code provisions
Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions ○ Art 1409 (1) – A contract cannot be given effect if it is contrary to law because law
as they may deem convenient, provided they are not contrary to law, morals, good customs, public is superior to a contract
order, or public policy. (1255a) ○ Art. 5 – Acts executed against the provisions of mandatory or prohibitory laws are
void, except when the law itself authorizes their validity
○ Arts. 1159, 1315 – Although a contract is the law between the parties, the
AUTONOMY OF CONTRACTS contracting parties must respect the law which is deemed to be an integral part of
● Both a constitutional and statutory right every contract.
○ Right to enter into contracts
○ Right to choose with whom one desires to contract Morals
● Art. III, Sec. 10 of the 1987 Constitution prohibits the passage of any law impairing the ● Deal with norms of good and right conduct evolved in a community
obligation contracts ● May differ at times and places and with each group of people
○ Refers only to legally valid contracts ● Generally behavioral norms; Not static
○ Cannot be invoked as against the police power of the states ● Often embodied in law BUT those referred to here are those not expressed in legal provisions
● There is no absolute right to enter into any kind of contract ○ Monetary payment to live as common-law spouses without the benefit of marriage
● This article underlies the entirety of contracts. ○ Agreement to pay usurious interest
○ Render service as a servant without compensation
VALIDITY OF CONTRACTS PRESUMED
● Valid contracts Those that meet all the legal requirements for the type → of agreement Good Customs
involved and the limitations on contractual stipulations and are legally binding and ● Consist of habits and practices which through long usage have been followed and enforced
enforceable by society or some part of it as binding rules of conduct
● Legal presumption is always on the validity of contracts ● Has the force of law once recognized and enforced by law
● Courts are enjoined to move with the necessary caution and prudence in holding contracts ● Custom must be proved as a fact, according to rules of evidence (Art 12, Art 1376)
void ● Frequently overlap with morals
○ The binding force of a contract must be recognized as far as it is legally possible to
do so Public Order → Refers principally to public safety although it has been considered to mean also the
○ The general characterization of a contract as defective without stating facts public weal
showing its defectiveness, is a mere conclusion of law ● Ex. Contract legalizing the commission of adultery or concubinage

LIMITATIONS ON CONTRACTUAL STIPULATIONS Public Policy → Principle under which freedom of contract or private dealing is restricted for the good
Law Rule of conduct, just, obligatory, promulgated by legitimate → authority, and of common of the community
observance and benefit ● Broader than public order; May refer to public safety and considerations which are moved by
● Fundamental requirement that the contract entered into must be in accordance with, and not the common good
repugnant to, an applicable law ● Examples:
● Provisions of positive law existing at the time of the execution of the contract are deemed ○ Agreements agreeing not to prosecute crimes
embodied and written in every contract ○ Perpetual restrictions on the right to ownership
● Parties to a contract are charged with the knowledge of existing law at the time they enter ○ Contingent fees that are deemed unreasonable
into the contract and at the time it is to become operative ○ Lower due diligence standard for common carriers
● Person is presumed to be more knowledgeable about the law of his country than an alien ○ Contract that restrains a man from entering into a trade or business without either a
● Where a contract is entered into by the parties on the basis of the law then obtaining, the limitation as to time or place
repeal or amendment of said law will not affect the terms of the contract, nor impair the rights ○ Warrants of attorney to confess judgment
of the parties ○ Parties agreeing to operate under a “kabit system”
○ Applicable even if one of the parties is the government
● Police Power
○ Police power is superior to private rights
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 70
Article 1307. Innominate contracts shall be regulated by the stipulations of the parties, by the PROOF OF ALLEGED DEFECT IN CONTRACT
provisions of Titles I and II of this Book, by the rules governing the most analogous nominate ● Must be conclusively proved since the validity and fulfillment of contracts cannot be left to the
contracts, and by the customs of the place. (n) will of one of the contracting parties
● Duty of every contracting party to learn and know the contents of a document before he signs
and delivers it.
CLASSIFICATION OF CONTRACTS ACCORDING TO NAME OR DESIGNATION
1. Nominate Contract – That which has a specific name or designation in law (Ex. RELEASE OF OBLIGOR FROM COMPLIANCE
Commodatum, lease, agency, sale, etc.) ● Mere fact that a party to a contract has made a bad bargain, may not be a ground for setting
2. Innominate Contract – That which has no specific name or designation in law aside the agreement
● When the prestation in obligations to do becomes legally or physically impossible without the
KINDS OF INNOMINATE CONTRACT fault of the obligor, the debtor may be released (Art. 1266)
1. Do ut des – I give that you may give ● When the performance of the contract has become so difficult as to be manifestly beyond the
2. Do ut facias – I give that you may do contemplation of the parties, the obligor may also be released in whole or in part (Art. 1267)
3. Facio ut des – I do that you may give
4. Facio ut facias – I do that you may do MUTUALITY AND TEH RIGHT OF WAIVER AND RESOLUTION
What the principle of mutuality interdicts is the grant to one of the parties of the unilateral power to
REASONS AND BASIS FOR INNOMINATE CONTRACTS determine his own obligation or that of the debtor, or the grant to the debtor of the unilateral power to
Impossibility of anticipating all forms of agreement on one hand and the progress of man’s sociological release himself from obligation.
and economic relationships 1. The principle of mutuality is not violated when a party reduces the other party’s obligation or
● No one shall unjustly enrich himself at the expense of another makes it less burdensome, or discharges the obligation by renouncing the right to demand
performance.
RULES GOVERNING INNOMINATE CONTRACTS 2. Neither is mutuality contravened in the exercise by the aggrieved party of the right of
1. The agreement of the parties resolution as provided in Art. 1191
2. The provisions of the Civil Code on obligations and contracts
3. The rules governing the most analogous contracts
4. The customs of the place Article 1309. The determination of the performance may be left to a third person, whose decision
shall not be binding until it has been made known to both contracting parties. (n)

Article 1308. The contract must bind both contracting parties; its validity or compliance cannot be left
to the will of one of them. (1256a) DETERMINATION OF PERFORMANCE BY A THIRD PERSON
● Here, the obligation does not depend upon a potestative condition
● Requirement of Notice — Decisions of the third person shall bind the parties only after it
MUTUALITY OF CONTRACTS has been made known to the both of them
● Both (or all) parties must be bound
● PURPOSE — To nullify a contract containing a condition which makes its fulfillment or
pre-termination dependent exclusively upon the uncontrolled will of one of the contracting Article 1310. The determination shall not be obligatory if it is evidently inequitable. In such case, the
parties courts shall decide what is equitable under the circumstances. (n)
● Flows from the legal tie which is the essence of all contracts
● Without this, it cannot be said that the contract has the force of law between them. It renders EFFECT WHERE DETERMINATION IS INEQUITABLE
the contract void. ● The power of the third person granted in the preceding article is always subject to the
● It is entirely licit to leave fulfillment to the will of either of the parties in the negative form of principles of justice, equity, and good faith.
rescission. ● Any abuse by the third person of his power is subject to judicial review and remedy.

BASIS FOR PRINCIPLE Article 1311. Contracts take effect only between the parties, their assigns and heirs, except in case
● Obligatory force of contracts or vinculum juris where the rights and obligations arising from the contract are not transmissible by their nature, or by
● Essential equality of contracting parties stipulation or by provision of law. The heir is not liable beyond the value of the property he received
from the decedent.
RENUNCIATION OR VIOLATION OF CONTRACT
● No party can renounce or violate the law of the contract unilaterally or without the consent of If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment
the other provided he communicated his acceptance to the obligor before its revocation. A mere incidental
● Just as nobodycan be forced to enter into a contract, no one may be permitted to change his benefit or interest of a person is not sufficient. The contracting parties must have clearly and
mind or disavow and go back upon his own acts, or to proceed contrary, to the prejudice of deliberately conferred a favor upon a third person. (1257a)
the other party.
● A party to a contract is liable for damages for breach or violation thereof
● The government is not immune from liability for damages for breach of contract RELATIVITY OF CONTRACTS
GR: Contracts take effect only between the parties; thus, only the parties may sue to enforce it (through
performance or damages for breach of contract) or to set it aside
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 71
EFFECTIVITY OF CONTRACT EXTENDS TO HEIRS AND ASSIGNS ○ Before such communication, the contracting parties may set aside or revoke the
● Heirs and assigns take the place of the contracting parties and assume the contractual stipulation through their mutual consent
relationship ○ No specific form of communication, may be express or implied
● Among the assigns are the new debtor or the new creditor in novation and the assignee in 6. The third person must have communicated his acceptance to the obligor before its revocation
assignment of credit ○ Acceptance need not be in a certain (express/implied) form; it must be
● Generally, these assigns are the successors-in-interest of the original contracting parties UNCONDITIONAL
● With respect to heirs, as far as money debts are concerned, the unpaid creditor should
pursue his claim against the estate REMEDY IN CASE OF BREACH OR NON-PERFORMANCE OF STIPULATION POUR AUTRUI
● Either the 3rd person or the other contracting party may institute an action for specific
EXCEPTION TO TRANSFERABILITY RULE performance or resolution, with damages
● If the said contract is purely personal ● Credit card holder is considered a third party in a stipulation pour autrui
● Death of the original contracting party will extinguish the contract
● Other XPNs: Article 1312. In contracts creating real rights, third persons who come into possession of the object of
○ By stipulation of the parties the contract are bound thereby, subject to the provisions of the Mortgage Law and the Land
○ By provision of law Registration Laws. (n)
EXCEPTIONS TO RULE OF RELATIVITY
1. Accion Pauliana (Arts. 1177, 1381) – When a 3rd person may institute in order to set aside THIRD PERSONS BOUND BY CONTRACTS CREATING REAL RIGHTS
or rescind a contract entered into by his debtor which has the effect of prejudicing him ● XPN to GR that a contract binds only the parties (Art. 1311)
○ It is a rescissory action involving a contract in fraud of creditors so even the ● Real Right → Binding against the whole world and attaches to the property over which it is
creditors are third party, they have a cause of action because they are protected exercised wherever it goes
■ Art. 1313. Creditors are protected in cases of contracts intended to
defraud them WHEN REAL RIGHT IS REGISTERED
2. Accion Directa – When a 3rd person is allowed by law to sue to enforce a contract ● Real estate mortgage
○ A direct, and not a subrogatory action by a creditor against the debtor’s debt, a ● Contract subjecting certain real properties to the payment of certain debts, registered in
remedy which gives the creditor the prerogative to act in his own name, such accordance with the Property Registration Decree
as the actions of the lessor against the sublessee (Art. 1652), the laborer of an ● What constitutes the real right is the publicity given by the Registry, not by the contract since
independent contractor against the owner (Art. 1729), the principal against the this prejudices the right of third persons
subagent (Art. 1893), and the vendora-retro against the transferee of the vendee
(Art. 1608) WHEN REAL RIGHT IS NOT REGISTERED
3. In some contracts creating real rights (Art. 1312) ● Third persons who acted in good faith are protected under the provisions of the Property
4. Stipulations pour autrui (Art. 1311, Par. 2) → One in favor of a 3rd person conferring a clear Registration Decree
and deliberate benefit upon him ● Persons dealing with registered land have the legal right to rely on the fact of TCTs and to
○ Was initially not allowed in old Roman law but allowed now because the minds of dispense with the need to inquire any further unless there are actual knowledge of facts.
the two parties may unite upon an act to be performed in favor of a third person
and the law will now enforce it Article 1313. Creditors are protected in cases of contracts intended to defraud them. (n)

REQUIREMENTS OF STIPULATION POUR AUTRUI

1. The contracting parties clearly and deliberately conferred a favor to the third person — the RIGHT OF CREDITOR TO IMPUGN CONTRACTS INTENDED TO DEFRAUD THEM
favor is not an incidental benefit; ● XPN to GR that a contract binds only the parties
○ Must be clearly and deliberately conferred by the contracting parties ● This is Accion Pauliana
2. There is a stipulation in favor of a third person and it is a part, not the whole, of the contract; ● Example: Contracts undertaken by a debtor in fraud of his creditor without the knowledge of
○ If this weren’t present, the contractual stipulation would fall under Art. 1317 since if the latter
it constituted the whole of the contract, the parties would be acting on behalf of the ● May sue to rescind the contract
third persons
3. The favor is unconditional and uncompensated; RIGHT OF CREDITOR TO ENFORCE CONTRACTS OF DEBTOR WITH A THIRD PERSON
○ If, in the contract, the 3rd person is bound to perform a prestation or obligation, he ● Those who put their labor upon or furnish materials for a piece of work undertaken by the
becomes a party to said contract and he would not then be a third party contractor have an action against the owner up to the amount owing from the latter to the
4. The contracting parties do not represent, or are not authroized by, the third party; and contractor on the time the claim is made (Art. 1729)
○ If either contradicting party are acting as representative, then the latter would not ● The lessor may recover rent due from a sublessee since the sublessee is subsidiarily liable to
be a third party but one of the contracting parties and the rules on agency would the lessor for any rent due from the lessee (Art. 1652)
apply
5. The third person communicated his or her acceptance of the favor before its revocation
○ This makes it binding
○ Must be communicated to the obligor

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 72

Article 1314. Any third person who induces another to violate his contract shall be liable for damages ● Unless the contracting party is sued based on culpa contractual
to the other contracting party. (n) ○ Here, liability can be joint

LIABILITY OF THIRD PERSON RESPONSIBLE FOR BREACH OF CONTRACT Article 1315. Contracts are perfected by mere consent, and from that moment the parties are bound
● If you think about it, it’s a quasi-delict because he is NOT party to a contract not only to the fulfillment of what has been expressly stipulated but also to all the consequences
● Rule of American law; Also under the general principles of Philippine law which, according to their nature, may be in keeping with good faith, usage and law. (1258)
● A contractual right is property
● Article 1314 recognizes an instance when a stranger to a contract can be sued for damages OBLIGATORY FORCE OF CONTRACT
for his unwarranted interference with the contract of another without legal justification or ● Relate to Article 1159: Obligations arising from contracts have the force of law between the
excuse. parties and should be complied with in good faith (1159)
● The tort or wrongful conduct recognized in Art. 1314 is known as “interference with ● GR: Contracts are perfected by mere consent — the principle of consensuality (1315)
contractual relations.” ● XPN: Real contracts, such as deposit, pledge, and commodatum are not perfected until the
delivery of the object of the obligation (1316)
INTERFERENCE WITH CONTRACTUAL RELATIONS
● Considered a tort or wrongful conduct Article 1316. Real contracts, such as deposit, pledge and commodatum, are not perfected until the
● Presupposes that the contract interfered with is valid and the third person has knowledge of delivery of the object of the obligation. (n)
the existence of the contract or must have known of it after a reasonable inquiry
● “Induce” — Refers to situations where a person causes another to choose one course of
conduct by persuasion or intimidation CLASSIFICATION OF CONTRACTS ACCORDING TO PERFECTION
○ Violates the property rights of a party in a contract to reap the benefits that should 1. Consensual – That which is perfected by mere consent (Art 1315)
result therefrom a. Ex. Sale, lease, agency
○ Injunction is the appropriate remedy to prevent a wrongful interference with 2. Real – That which is perfected, in addition to the above, by the delivery of the thing subject
contracts by strangers to such contracts where the legal remedy is insufficient and matter of the contract (Art 1316)
the resulting injury is irreparable (Yu v. CA) a. Ex. Depositum, pledge, commodatum
3. Solemn – That which requires compliance with certain formalities prescribed by law such
REQUISITES OF TORTIOUS INTERFERENCE prescribed form being thereby an essential element thereof
1. Existence of a valid contract
2. Knowledge on the part of the third person of the existence of contract STAGES IN THE LIFE OF A CONTRACT
3. Interference of the third person is without legal justification or excuse 1. Preparation or Negotiation
a. Includes all the steps taken by the prospective parties beginning from the time they
Malice is not necessary manifest interest in entering into the contract
● Sufficient that defendant must be driven by purely impious reasons to injure the plaintiff b. Not yet arrived at aunty definite agreement
● His act cannot be justified c. Either party may stop the negotiations or withdraw offers made
2. Perfection or Birth
WHERE LEGAL JUSTIFICATION EXISTS a. Takes place when the parties have come to a definite agreement or meeting of the
GR: Justification for interfering with the business relations of another exists where the actor’s motive is minds regarding the terms
to benefit himself. b. Upon concurrence of the essential elements of the contract
● Such does not exist where his sole motive is to cause harm to other. 3. Consummation or Termination
● It is not necessary that the interferer’s interest outweigh that of the party whose rights are a. Occurs when the parties have fulfilled or performed their respective obligations or
invaded, and that an individual acts under an economic interest that is substantial, not merely undertakings agreed upon in the contract and the contact may be said to have
de minimis, such that wrongful and malicious motives are negatived, for he acts in been full accomplished or executed, resulting in extinguishment
self-protection. b. Once consummated, its existence and binding effect can no longer be disputed
● It is sufficient if the impetus of his conduct lies in a proper business interest rather than in c. Contract may also be terminated after its perfection not by performance, but by
wrongful motives mutual agreement of the parties

The third person is not liable where sufficient justification for interference or inducement can be shown. HOW CONTRACTS ARE PERFECTED
● Third person dissuades another who has entered into a dangerous contract with a bona fide ● Until the contract is perfected, it cannot, as an independent source of obligation, serve as a
purpose of benefiting the other person binding juridical relation
● Seller giving notice to prospective buyer that unpaid seller has not yet been paid by the ● Consensual contracts
vendor ○ As a general rule, contracts are perfected by mere consent of the parties regarding
● Lessee has the right to sublease the premises leased the subject matter and the cause of the contract
○ Obligatory in whatever form they have been entered into as long as all the
REMEDY essential elements are met
As far as the 3rd person is concerned, it’s considered based on a quasi-delict ○ Almost all contracts are consensual as to perfection
● Liability of joint tortfeasors is solidary
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 73
 ○ In the absence of delivery, perfection does not transfer title or create real right yet, condition imposed merely for the performance of the obligation gives the other party
it gives rise to obligations binding upon both parties options and/or remedies to protect his interests
● Real contracts 4. Adjustment of rights of parties by court – In the exercise of its equity jurisdiction, the court
○ Exception to the general rule may adjust the rights of parties in accordance with the circumstances obtaining at the time
○ Perfected by the delivery, actual or constructive, of the object of the obligation of rendition of judgment
■ Ex: Pledge, mutuum, or commodatum ○ Particularly applicable when there has been a depreciation of currency
○ Have for their purpose restitution because they contemplate the return by a party of 5. Courts have no power to amend or modify the stipulations of the parties
what has been received from another or its equivalent
● Solemn contracts PERTINENT PROVISIONS OF LAW DEEMED INCORPORATED IN CONTRACTS
○ XPN to GR ● Any agreement or contract to be enforceable in this jurisdiction is understood to incorporate
○ When the law requires that a contact be in some form to be valid (Arrt 1356), it is therein the pertinent provision or provisions of law specifying the rights and obligations of the
necessary for its perfection, the prescribed form being an essential requisite of the parties under such contract. (CIR vs. United States Lines Co.)
contract ● An existing law enters into and forms part of a valid contract without the need for the parties
○ Ex: Donation of real property must be embodied in a public instrument (Art 749) expressly making reference to it.
■ XPN: In case of statutory forms or solemn agreements, it is the assent ● Freedom of contract recognized by the Civil Code while it empowers the parties to establish
and concurrence (the meeting of the minds) of the parties, and not the such stipulations, etc. as they may deem convenient is limited by the requirement that they
setting down of its terms, that constitutes a binding contract. should not be “contrary to law”
(Montelibano v. Bacolod-Murcia Milling Co., Inc)
Article 1317. No one may contract in the name of another without being authorized by the latter, or
EFFECT OF PERFECTION OF THE CONTRACT unless he has by law a right to represent him.
From the moment the parties come to an agreement on a definite subject matter and valid
consideration, they are bound: A contract entered into in the name of another by one who has no authority or legal representation, or
1. To the fulfillment of what has been expressly stipulated who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly,
2. To all the consequences which according to their nature, may be in keeping with good faith, by the person on whose behalf it has been executed, before it is revoked by the other contracting
usage, and law party. (1259a)
EXECUTION OF CONTRACT
● Execution → Not limited to the signing orr concluding of the contact but includes ss well the UNAUTHORIZED CONTRACTS ARE UNENFORCEABLE
performance or implementation or accomplishment of all terms and conditions of such ● GR: When a person enters into a contract for and in the name of another, without authority
contract to do so, the contract does NOT bind the latter
● Signing is not generally a legal requirement in entering a contract when there is a meeting of ● XPN: He ratifies the contract
the minds ● Under Art. 1317, a contract entered into in the name of another by one who has no authority
● Consent may either be express or implied, unless the law specifically requires a particular is unenforceable against the former unless it is ratified by him before it is revoked by the
manner or form of expressing such consent other contracting party.
○ One who approved or authorized such contract may be considered a party and ○ There is said to be no consent and consequently, no contract when the agreement
equally liable is entered into by one on behalf of another who has never given him authorization
■ Example: Even if the consignee is not a signatory to the contract of therefore unless he has by law a right to represent the latter. (Heirs of Sevilla v.
carriage between the shipper and the carrier, the consignee can be Sevilla)
bound by the contract. ● A contract involves free will of the parties and only he who enters into the contract be bound
● Good faith and regularity are always presumed thereby.
○ Burden of proving otherwise rests on the one claiming such ● An unauthorized contract is not to be confused with a contract for the benefit of a third
person. (Art 1311, Par 2)
GUIDE IN PERFORMANCE OF CONTRACT ● Discussed again under Art 1403
1. Scope and limit of contractual obligation – Provides guide to settle questions that may arise
between parties in absence of a stipulation Examples:
○ First, determine the nature of the contract 1. In a sale, Y claimed that he was an agent of X, even if not. The contract cannot be enforced
○ Second, Obligation arising from the same shall be performed in accordance with against X.
good faith, usage, and law 2. The agent is authorized to lease the property but the agent instead sells the property. The
○ Aside from the express contract, an implied one may arise from the conduct of principal is not bound.
parties.
2. Observance of terms and conditions thereof – A judicial or quasi-judicial body cannot impose UNAUTHORIZED CONTRACTS CAN BE CURED ONLY BY RATIFICATION
upon the parties a judgment different from their real agreement or against the terms and Mere lapse of time cannot give efficacy ot such a contract
conditions of the contract 1. Defect is such that it cannot be cured except by the subsequent ratification (Art 1405) of the
3. Condition imposed on perfection of a contract/performance of obligation – A condition person in whose name the contract was entered into or by his duly authorized agent and not
imposed on the perfection of a contract results in the failure of a contract while a by any other person so empowered.
2. The ratification must be clear and express so as not to admit any doubt or vagueness.
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 74
 3. The effects of ratification retroact to the moment of the celebration of the contract. ○ Imposes the essential elements upon the parties
○ Presumes the natural
WHEN A PERSON IS BOUND BY THE CONTRACT OF ANOTHER ○ Authorizes the accidental
1. Person entering into the contract must be duly authorized, expressly or impliedly, by the 2. Will
person in whose name he contracts or he must have, by law, a right to represent him ○ Yields or conforms to the essential elements
(guardian or an administrator) ○ Accepts, until it rejects, the natural
2. He must act within his power ○ Creates or establishes the accidental
○ The law is decisive in the first class, supplementary in the second, and permissive
A contract entered into by an agent in excess of his authority is unenforceable against the principal, but in the third
the agent is personally liable to the party with whom he contracted where such party was not given ○ Absent one of the essential requisites, no contract can arise
sufficient notice of the limits of the powers granted by the principal. (Art. 1897) ○ The non-observance of the natural or accidental elements may affect the effectivity
but not the validity of the contract
CHAPTER 2
ESSENTIAL REQUISITES OF CONTRACTS TWO TYPES OF VOID CONTRACTS
1. Void ab initio – Where one of the elements in Art. 1318 are not present
2. Those provided for as void under Art. 1409 of the New Civil Code
GENERAL PROVISIONS
1318 Essential Requisites of Contracts NO CONFLICTS RULE
● No conflicts rule on essential validity of contract is expressly provided for in our law
● Alternative rule adopted by most legal systems → Intrinsic validity of the contract must be
Article 1318. There is no contract unless the following requisites concur: governed by lex contractus or “proper law of the contract” aka law voluntarily agreed upon by
(1) Consent of the contracting parties; the parties
(2) Object certain which is the subject matter of the contract; ● For PH → Allow parties to select the law applicable to their contract,
(3) Cause of the obligation which is established. (1261) ● subject to the limitation that it is not against the law, morals, or public policy of the forum and
that the chosen law must bear a substantive relationship to the transaction
● Rule on pari delicto does not apply to inexistent contracts or in absolutely simulated contracts
CLASSES OF ELEMENTS OF A CONTRACT
Essential Elements – Without these, a valid contract cannot exist
BALANE ON CONTRACTS WITHOUT CONSENT
● Clemente v. CA:
The following are the requisites of a contract:
○ All those elements in Art. 1318 must be present to constitute a valid contract; the
1. Common – Those present in all contracts
absence of one renders the contract void.
○ Consent
○ As one of the essential elements, consent when wanting makes the contract
○ Object
non-existent.
○ Cause of the obligation
● Articles 1327 to 1344 provides for contracts in which consent is absent, wanting, or defective.
2. Special – Those not common to all contracts or those which must be present only in or
They are considered not void, but voidable.
peculiar to certain specified contracts; Peculiarities may be:
● Want of consent does NOT make a contract void but only voidable.
○ As to form
● Simulated contracts are, as provided in Art. 1345 and 1346 and in the Clemente case, are
i. Ex: Public instrument in donation of immovable property, delivery in real
void. But, such contracts are not only devoid of consent but also of object and cause, making
contracts, etc.
them void on those grounds as well.
○ As to subject-matter
● Balane believes that our Code should contain provisions declaring void those contracts
i. Ex: Real property in antichresis, Personal property in pledge
entered into with absolutely no consent.
○ As to consideration or cause
i. Ex: Price in sale and in lease, liberality in commodatum
3. Extraordinary – Those which are peculiar to a specific contract SECTION 1 - CONSENT
○ Ex: Price in sales 1319 Consent
1320 Form of Acceptance
Natural Elements – Written by the law into the contract and exist even if not stipulated in the contract
● Ex: Warranties in sales, Right of resolution in reciprocal obligations 1321 Terms of the Offer
1322 Communication of Acceptance to Agent
Accidental Elements – Parties may voluntarily agree upon these
1323 When Offer Becomes Ineffective
GOOD FAITH 1324 Contract of Option
Immaterial in determining validity of a contract since it is not an essential element of contract.
1325 Business Advertisements and Public Offers
BASES OF CONTRACTS 1326 Advertisement of Bidders
1. Law
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 75
 1327 Capacity to Contract ○ UNLESS one or both parties consider that certain matters in addition to object and
cause should be agreed upon
1328 Lucid Interval
● Must meet as to all the terms and nothing is left open for further arrangement
1329 Modified Incapacity ● Changes must be made with the consent of the contracting parties
1330 Vices of Consent ● Whether there is meeting of the minds on the offer and acceptance depends on the
circumstances.
1331 Mistake
1332 Burden of Proof for Mistake/Fraud REQUISITES OF CONSENT
1. Plurality of subjects
1333 Knowledge of Risk 2. Capacity of the parties
1334 Mistake of Law 3. Intelligent and free will
4. Express or tacit manifestation of the parties’ intent
1335 Force and Intimidation
5. Conformity of intent and its manifestation
1336 Force and Intimidation by a Third Person
1337 Undue Influence OFFER — Proposal made by one party to another to enter into a contract
● More than an expression of desire or hope
1338 Causal Fraud ● Promise to act or to refrain from acting on condition that the terms are accepted by offeree
1339 Non-Disclosure as Fraud ● BALANE — Unilateral proposition which one party makes to the other for the celebration of a
contract
1340 Dolus Bonus
1341 Expression of Opinion REQUISITES OF OFFER
1342 Fraud by Third Person 1. Definite or Certain
○ The offer must be definite, so that upon acceptance, an agreement can be reached
1343 Representation Made in Good Faith on the whole contract
1344 Kinds of Fraud 2. Complete
○ The offer must be complete, indicating with sufficient clearness the kind of contract
1345 Simulation of Contract intended and definitely stating the essential conditions of the proposed contract as
1346 Absolutely and Relatively Simulated Contracts well as the non-essential ones desired by the offeror
3. Seriously Intended/Intentional
○ An offer without seriousness, made in such a manner that the other party would not
Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing fail to notice such lack of seriousness, is absolutely without juridical effects and
and the cause which are to constitute the contract. The offer must be certain and the acceptance cannot give rise to a contract (i.e. must not be made in jest, or a prank).
absolute. A qualified acceptance constitutes a counter-offer. ○ Offer made in jest or in anger or while emotionally upset or in other ways indicating
that the same was not seriously intended is not a valid offer.
Acceptance made by letter or telegram does not bind the offerer except from the time it came to his ○ When lack of serious intent to enter into a contract where such a condition was not
knowledge. The contract, in such a case, is presumed to have been entered into in the place where apparent to the offeree who honestly believed that the offer was seriously
the offer was made. (1262a) intended, does not invalidate the offer.

CONSENT — ACCEPTANCE — Manifestation by the offeree of his assent to the terms of the offer.
● Conformity of wills; ● Without acceptance, no meeting of minds
● Agreement of the will of one contracting party with that of another or others, upon the object ● Mere offer produces no obligation
and cause of the contract ● Even if the offer is accepted, no contract can come into existence if it is not certain or definite
● BALANE — Concurrence of offer and acceptance and the concurrence must be on the object
and cause of the contract REQUISITES OF ACCEPTANCE
○ The concurrence must be on the object and the cause of the prospective contract The acceptance, where express or tacit, must be:
○ But the parties may include additional matters as necessary for the meeting of 1. Unequivocal
minds before the contract is deemed by them as perfected 2. Unconditional or absolute
■ Ex: Terms of payment, mode of delivery, governing law, etc. ○ It is necessary that the acceptance be identical in all respect with that of the offer
so as to produce the consent or meeting of the minds necessary to perfect a
CONCURRENCE OF OFFER AND ACCEPTANCE contract
● It is the meeting of minds; Expresses their intent in entering into the contract respecting the ○ Such acceptance is one that is clearly made
subject matter and the cause or consideration thereof
● Mutual assent or agreement takes place BALANE —
● Even if neither has been delivered and notwithstanding that the parties have not affixed their ● The acceptance must not vary the terms of the offer. If it does, it is not an acceptance but a
signatures to its written form counter-offer.

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 76

 ● Amplified Acceptance – An acceptance that expands the coverage of the offer may either ● Public Offers
constitute an acceptance of the original offer, an offer covering the additional part or a ○ Public offers under present law can ripen into a contract only when an individual
counter-offer replacing the original offer. In a case such as this, the intent of the parties must who has knowledge of the offer communicates his acceptance to the offeror
prevail. ○ The mere performance of the terms of the offer can hardly be said to constitute
○ If it is clear that the meaning of the acceptance is positively and equivocally to acceptance
accept the offer, whether such request is granted or not, a contract is formed.
○ It will depend on the effect of the alteration ACCEPTANCE OF COMPLEX OFFERS
● The offeror may impose the manner of acceptance to be done by the offeree (Art. 1321). If ● If a single offer involves two or more contracts, it will depend upon the connection which
done differently, it constitutes a counter offer. exists between the contracts or the intent of the person making the offer whether partial
● Manifestation of the acceptance – may be expressed or implied acceptance will create a contract
● As a rule, partial acceptance will not give rise to the perfection of the contract where the
COGNITION THEORY things are interrelated in themselves.
● Our code follows the cognition principle or theory as opposed to the manifestation theory in ○ BUT it will give rise to a perfected contract where the relation between the things
determining when the offer the acceptance concur does not exist, except where, in either case, the intent of the offeror is otherwise
● This is clear from the provision in this article that “acceptance by letter or telegram does
not bind the offer except from the time it came to his knowledge” Article 1320. An acceptance may be express or implied. (n)
○ If during intervening time, the offer or acceptance is extinguished by death/insanity,
such offer or acceptance has no more effect
● It is the communication of the exercise of the party’s will and not merely the manifestation of FORM OF ACCEPTANCE OF OFFER
such exercise that gives legal effect to such exercise of the will ● Whether expressed or implied, the acceptance is effective only if communicated to the offeror
● The offer is deemed legally made when it comes to the offeree’s knowledge, whether actually ● Express – Through oral or written words
or constructively ● Implied – One that is inferred from the act or conduct
○ Constructive knowledge is where the letter or telegram is received by the offeror ● Silence – Silence is ambiguous. Silence in itself is neither acceptance nor rejection.
who for some reason did not read it but not where he could not have read it ○ Can it mean acceptance? One must look at the circumstances.
○ Presumption is that the offeror read the contents or came to know of the ● GR: Silence cannot be construed as acceptance
acceptance ● XPNs:
● Conversely, acceptance produces legal effect only when it similarly becomes known to the ○ Where the parties agree expressly or impliedly, that it shall amount to acceptance
offeror. ○ Where specific provisions of law so declare
● Revocation of offer or of acceptance ○ Where under the circumstance such silence constitutes estoppel
○ Any revocation by the offeror of the offer, as well as a revocation of the offeree of
his acceptance, will take effect only when such revocation comes to the other Article 1321. The person making the offer may fix the time, place, and manner of acceptance, all of
party’s knowledge. which must be complied with. (n)
■ May take place before the time of the contract is perfected
○ Crossed acceptance and revocation of offer
■ The problem arises when there is a time gap. Under Article 1319, there TERMS OF THE OFFER
is perfection of the contract when there is knowledge of the other party‘s ● The offeror has the right to determine the specifics of the offer: not only its terms, but also the
acceptance. This has serious consequences. duration, the time and the manner of acceptance of the offer.
■ Example: The offer was made in Bacolod on March 1. It was received in ● These must be complied with otherwise the offer is terminated.
Quezon City on March 3. On March 4, the offeree sends his acceptance. ● Acceptance departing from the terms of the order constitutes a counter offer.
On March 5, the offeror countermands offer. Now, both acceptance and ○ Has effect of extinguishing the original offer AND constitutes a new offer which
countermand of the offer are in the mail. Whichever reaches the original offer may accept or reject
destination first will be counted. ● When there is no fixed period for acceptance and the offer is made to a person present, the
○ Both the offer and acceptance may be revoked before the contract is perfected acceptance must be made immediately.
which takes place from the time the acceptance comes to the offerer’s knowledge. ● If however, there is a contract of option, the terms of the contract shall govern.

WHEN ACCEPTANCE WITH REQUEST FOR CHANGES IN OFFER IS NOT A COUNTER-OFFER Article 1322. An offer made through an agent is accepted from the time acceptance is communicated
● An acceptance of an offer may request certain changes in the terms of the offer and yet may to him. (n)
be a binding acceptance.
● So long as it is clear that the meaning of the acceptance is positively and unequivocally to
COMMUNICATION OF ACCEPTANCE TO AGENT
accept the offer, whether such request is granted or not, a contract is formed.
● If the offeror appoints a person to act on his behalf, there is created an agency for this
● When any elements of the contract are modified upon acceptance, such alteration amounts
purpose and as long as the representative acts within his competence, acceptance made
to a counter-offer.
known to him has the effect of acceptance communicated to the principal.
○ In the absence of adequate authority, the person is essentially only a messenger,
BALANE —
even if he acts with the knowledge of the person who sent him. In such a case, for
● Effect of Silence → Refer to Art. 1320
the consent to be effective it must be relayed to the proper party.
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 77
 ● The same rule applies to a person acting on the offeree’s behalf. WITHDRAWAL OF OFFER
○ If there is a proper agency, the agent’s acts and decisions are those of the Essentially the rule laid down in Art. 1324 is identical to that laid down in Art. 1479 par. 22, governing
offeree. Otherwise the person sent by the offeree is nothing more than a postman. options to buy or sell.

Article 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of RULES ON WITHDRAWAL OF OFFER
either party before acceptance is conveyed. (n) GR: When the offerer gives to the offeree a certain period within which to accept the offer, the general
rule is that the offer may be withdrawn as a matter of right at any time before acceptance
XPN: Unless there is a consideration supporting the offer (something paid or promised, in which case
WHEN OFFER BECOMES INEFFECTIVE the contract of option is deemed perfected)
● Consent involves the concurrence of offer and acceptance
● Death, civil interdiction, insanity or insolvency deprives the party concerned of contractual Dean emphasized the importance of the need to determine if there is a VALID withdrawal of offer before
capacity and hence will prevent such concurrence from taking place acceptance because this would hinge the consequence after: specific performance, damages (if there is).
● Applies to both parties
INSTANCES ON WITHDRAWAL OF OFFER (XPNs TO RULES ON WITHDRAWAL OF OFFER)
OTHER CAUSES FOR EXTINGUISHMENT OF OFFER 1. Offer unsupported by a distinct consideration
1. Death, civil interdiction, insanity or insolvency of either the offeror or the offeree before the ● In this situation, an offer is made and the offeror grants the offeree a period within which to
perfection of consent (Art 1323) accept
2. Rejection by the offeree ● The grant of the period is not supported by a distinct consideration (no compensation
3. Lapse of the period stated in the offer without acceptance being communicated by the offeree distinct and separate from the price)
to the offeror (Art 1324) ● Rules:
4. Qualified or conditional acceptance (Counter-offer) ○ The offeror has a right to withdraw the offer even before the expiration of the period
5. Communication by the offeror to the offeree of the revocation or withdrawal of his offer before granted to the offeree
acquiring knowledge of the offeree’s acceptance (note: this is only possible if there is no ○ The withdrawal of the offer takes effect upon its communication to the offeree
binding contract of option) ○ Pending notice to the offeree of the withdrawal of the offer, the offer subsists and
6. Loss of the thing constituting the object of the prestation before the perfection of consent (Art should the offeree, before said notice of withdrawal, communicate his acceptance
1262) to the offeror, a perfected contract arises
○ The right of the offeror to withdraw the offer before the lapse of the period should
Article 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be not be exercised whimsically or arbitrarily
withdrawn at any time before acceptance by communicating such withdrawal, except when the option ■ Otherwise, he may be held liable for damages
is founded upon a consideration, as something paid or promised. (n)
2. Offer supported by a distinct consideration
● In this situation, the offeree gives a consideration distinct from the price (he pays for the
CONTRACT OF OPTION – Preparatory contract giving a person for a consideration a certain period period granted to him)
and under specified conditions within which to accept the offer of the offeror ● The consideration distinct from the price may be money or any other thing of value
● Separate and distinct from principal contract ● Here, there is created an option contract. Option contract defined:
● Option – may also refer to right or privilege itself given to the offeree to accept an offer within ○ One necessarily involves the choice granted to another for a distinct or separate
a certain period consideration as to whether or not to purchase or to sell a determinate thing at a
predetermined price
OPTION PERIOD – Period given within which the offeree must decide whether or not to enter into the ○ A preparatory contract in which one party grants to another for a fixed period
principal contract and at a determined price the privilege to buy or sell
● Meaning of separate or distinct consideration
OPTION MONEY – Money paid or promised to be paid as a distinct consideration for an option contract ○ Separate payment which is not part of the purchase price or of the consideration
● Not to be confused with earnest money which is actually a partial payment of the purchase for the contract which the offeror is offering to enter into with the offeree.
price ○ The prestation for which the offeree is paying a distinct price is the grant of the
● Consideration need not be monetary; it may be undertaking or other things but must be of period within which he can consider whether or not he should enter into the
value principal transaction.
○ The payment of an amount intended to form part of the purchase price does not
An UNCONDITIONAL MUTUAL PROMISE to buy and sell as long as the object is made determinate create an option contract
and the price is fixed can be obligatory on the parties, and compliance therewith may accordingly be ■ Such an amount will be considered as earnest money and will be proof of
exacted. the perfection of the contract of sale
■ An amount given by a prospective buyer merely as a deposit of what
A UNILATERAL PROMISE to buy or to sell a determinate thing not supported by any consideration would eventually become earnest money or down payment is not a
distinct from the price for which the thing was intended to be sold by or to the promisee (offeree) does distinct consideration
not bind the promisor (offerer) even if accepted, and may be withdrawn at any time. ■ Earnest money –– actually a partial payment of the purchase price and is
considered proof of the perfection of the contract thus presupposes that
there is already a sale with the buyer bound to pay the balance
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 78
 an acceptance is not made within the time fixed,
3. Right of First Refusal the owner is no longer bound by his offer and the
● The right of first refusal is a contractual grant, not of the sale of property but of the first option is at an end.
priority to buy in the event the owner sells the same Test – Whether the agreement could be specifically enforced
○ BALANE — Not covered by the Civil Code
● Here, the object is determinable but the exercise of the right to buy is conditioned on
the seller’s decision to sell on terms which are not yet certain Article 1325. Unless it appears otherwise, business advertisements of things for sale are not definite
● Enforceability of right of first refusal offers, but mere invitations to make an offer. (n)
○ Enforceable through an action for specific performance either against the optioner
or grantor or the vendee BUSINESS ADVERTISEMENTS
■ If the vendee acted in good faith only an action for damages against the ● Advertisements are by definition public notices
optioner will lie ○ Generally public notice of things for sale such as those found in print, visual, audio
○ Only after the optionee has failed to exercise his right can the owner sell the or social media contain only the barest of details which are hardly sufficient to
property to another party under the same terms and conditions offered to the constitute an offer contemplated in this section
optionee or under the terms and conditions more favorable to the owner ● This article treats advertisements as mere invitations to make an offer or as preludes to
● Need for separate consideration negotiations between the party publishing the advertisement and an interest party
● Applicability of the Statute of Frauds ● If exceptionally the advertisement contains data which are definite, then such advertisement
○ Not being one of the contracts enumerated in the Statute of Frauds (Art. 1403(2)), will constitute an offer
a right of first refusal need not be in writing to be enforceable
○ Rosencorr v. CA: The Supreme Court has held that the right of first refusal need PUBLIC OFFERS
not be written to be unenforceable since it is not included in the Statute of Frauds. ● GR: When an offer is made to a particular person, no one else can accept
Also, if the vendee is in good faith, he may not be compelled by specific ● XPN: When it is a general offer or one that is made to the public or to a particular class of
performance since he relied on a title which is clean. The remedy is to go after the persons
vendor. ○ These may be accepted by anyone
● Can a right of first refusal be withdrawn? ○ Cannot be ascertained to a certain person immediately
○ Considering the similarity in nature between an option contract and a right of first ○ As soon as there is an acceptance by a person falling within the class to whom the
refusal, and in light of the fact that they are governed by the same rules as to offer is made, there is a binding contract.
enforceability and need for separate consideration, it is logical to conclude that the
rules on withdrawal or revocation applicable to contracts of option apply as
well to a right of first refusal Article 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser
○ Thus, a gratuitous right of first refusal is revocable upon notice to the grantee is not bound to accept the highest or lowest bidder, unless the contrary appears. (n)
while an onerous one (supported by a distinct consideration) cannot be
withdrawn by the grantor ADVERTISEMENT FOR BIDDERS
An advertisement to submit bids is similar to the notice referred to in the preceding article. It is not the
RIGHT OF FIRST REFUSAL OPTION CONTRACT advertiser making the offer but the bidder.
Contractual grant not of the sale of a property but A preparatory contract in which one party grants to ● GR: Advertisers are NOT bound to accept either the highest or the lowest bidder
of the first priority to buy the property in the event another for a fixed period and at a determined ● XPNs:
the owner sells the same price the privilege to buy or sell or to decide ○ When the contrary appears such as when the advertiser binds himself to accept
whether or not to enter into a principal contract the highest or the lowest bid.
○ When a law requires the advertiser to accept the highest or lowest bid
May not be supported by consideration Must be supported by consideration
● One who submits a bid not only signifies assent to the terms and conditions of a proposal, but
The object is determinate but there is neither a The offer is definite and the object and cause is impliedly binds himself to them, if and when the bid is considered
definite offer to sell nor a determinate price determinate. ● This right should not be exercised arbitrarily or capriciously so as to constitute abuse of right
Exercise is dependent upon the grantor’s eventual Option granted for a fixed period and at a
intention to enter into a binding juridical relation determined price. (Lacking these two essential
Article 1327. The following cannot give consent to a contract:
with another and on terms, including the price that requisites, what is involved is only a right of first
(1) Unemancipated minors;
are yet to be firmed up. refusal).
(2) Insane or demented persons, and deaf-mutes who do not know how to write. (1263a)

RIGHT OF FIRST REFUSAL OPTION CONTRACT

CAPACITY — To form a valid and legal agreement, it is necessary that there be a party capable of
Unaccepted offer; States the terms and conditions Fixes definitely the relative rights and obligations of contracting and a party capable of being contracted with
on which the owner is willing to sell his property, if both parties at the time of its execution; Offer and
the holder elects to accept them within the time acceptance are concurrent, since the minds of the CLASSIFICATIONS OF CAPACITY
limited. If the holder does so elect, he must give contracting parties meet in the terms of the 1. Natural Capacity
notice to the other party, and the accepted offer agreement
thereupon becomes a valid and binding contract. If
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 79
 ○ Only natural persons have this BUT in order that they may have full capacity to RATIONALE — These persons may easily be victims of fraud as they are not capable of
contract, they must not only have the natural capacity to contract, but also the legal understanding or knowing the nature or import of their actions.
capacity
○ Absent of natural capacity results in natural incapacity Article 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of
■ Based on nature or real absence of aptitude to consent, i.e., insane drunkenness or during a hypnotic spell are voidable. (n)
2. Legal Capacity
○ Refers to natural and artificial persons
○ Absence of legal capacity results in legal incapacity LUCID INTERVAL – Temporary period of sanity
■ Based on positive provisions of law ● If an insane or demented person enters into a contract during a lucid interval, it is valid.
■ Exist as limitations of natural capacity, i.e., civil interdiction ● Must be shown that there is a full return of the mind to sanity as to enable him to understand
○ Legal incapacities are primarily based — the contract he is entering into
■ On the existence of superior rights of third persons, like the incapacity of ● A contract entered into by a person under guardianship for insanity will be upheld, provided, it
the insolvent is shown that at the time of entering into the said contract, he was not insane, or that his
■ On the ground of public policy, or for the protection of public interest, as mental defect, if mentally deranged, did not interfere with or affect his capacity to appreciate
in the case of the incapacity of certain specially disqualified persons the meaning and significance of the transaction entered into by him.
enumerated in Art. 1491 to purchase certain kinds of property ○ His insanity must be presumed to continue at the moment of contracting, but such
presumption is prima facie and may be rebutted.
PRESUMPTION — Capacity to give consent is presumed
● Civil Code does not define who has capacity. It defines those who do not have. DRUNKENNESS AND HYPNOTIC SPELL – Renders a contract voidable
● Person of advanced years or who has physical infirmities is not automatically incapacitated. It ● Impair the capacity of a person to give intelligent consent
must be shown by clear and convincing evidence that his age or infirmities impair his mental ● Equivalent to temporary insanity
faculties severely. ● It is not required that such state was procured by the circumvention of the other party
● When capacity is shown to have previously existed in other acts done or contracts entered ● Admit of degrees or stages
into, it is presumed to continue. ● Rule applies to intake of any other substance (like drugs or hallucinogens)
● Burden is on the party who asserts incapacity.
Article 1329. The incapacity declared in article 1327 is subject to the modifications determined by
VOIDABLE CONTRACT — Valid and binding until it is annulled by a proper action in court; Susceptible law, and is understood to be without prejudice to special disqualifications established in the laws.
of ratification (1264)

PERSONS WHO CANNOT GIVE CONSENT

There is no effective consent without the capacity to give such consent. It renders the contract voidable. GR: Contract entered into by the persons enumerated in 1327 are voidable
XPN: In certain cases, the incapacity may be modified by law (they can also give valid consent)
1. Unemancipated minors – Those under 18 years are still subject to parental authority
○ In the absence of false representations by a minor as to hsi age, the mere fact that the MODIFIED INCAPACITY AS DECLARED IN ART 1327
person believed him to be of age does not render the contract valid. ● Valid contract if entered through a guardian or legal representative
○ Misrepresentation by a minor as to his age does not estop him from denying that was of ● Valid contract where the minor who was near his majority age misrepresented his actual age and
age at the time he entered into a contract. convincingly led the other party to believe in his legal capacity
○ When a minor has already passed the age of puberty and is nearing the adult age ○ In order to hold a minor liable, the misrepresentation must be actual and not constructive
pretending to have already reached the age of majority enters into the sale of real ● When necessities such as food, are sold and delivered to a minor or other person without capacity
estate, it is valid because the other party had good reason to believe the minor’s to act, he must pay a reasonable price
capacity. ● A minor may contract for life, health, and accident, as long as the insurance is taken on his life and
2. Insane or demented persons – Insanity must exist at the time of contracting the beneficiary appointed is the minor’s estate or the minor’s father, mother, spouse, brother or
○ Unless proved otherwise, a person is presumed to be of sound mind at any particular sister
time and the condition is presumed too continue to exist ● If entered into by 2 minors, a contract is unenforceable
○ Deprive him of the discretion and understanding required for contractual consent
○ Mental state of the party at the time the contract is entered PERSONAL DEFENSE — Minority and incapacity due to insanity cannot be invoked by co-defendants
○ Include states of imbecility, idiocy, schizophrenia and various other medical or
psychological terms indicating mental disorder OTHER SPECIAL DISQUALIFICATIONS PROVIDED BY LAW
3. Deaf-mutes – Deaf and dumb 1. Person suffering accessory penalty of civil interdiction
○ If deaf-mute knows how to write, the contract is valid since he is capable of giving 2. Hospitalized lepers
intelligent consent 3. Prodigals (spendthrifts)
○ A contract entered into by a deaf-mute who knows how to read is valid although he 4. Deaf and dumb who are unable to read and write
cannot write because of some physical reasons. 5. Those who are of unsound mind even though they have lucid intervals
6. Those who, by reason of age, disease, weak mind and other similar causes, cannot without
outside aid, take care of themselves and manage their property
7. Insolvents until discharged
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 80
 8. Married women in specific cases
9. Husband and wife in certain circumstances regarding property CONSENT RELUCTANTLY GIVEN
10. Purchase of property by persons occupying positions of trust or confidence ● One acts voluntarily and independently in such cases
● There is no difference between this and when one who acts spontaneously and joyously
XPNs: Where it is voidable by:
● Reason for incapacity (Art. 1327 & 1328) or Article 1331. In order that mistake may invalidate consent, it should refer to the substance of the
● Of causes which vitiate consent thing which is the object of the contract, or to those conditions which have principally moved one or
● Where the incompetent has been placed under guardianship both parties to enter into the contract.
WEAKNESS OF MIND Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such
● If not caused by insanity, this alone cannot be a ground for avoiding a contract. identity or qualifications have been the principal cause of the contract.
● It is only when there is “great weakness of mind in a person executing a conveyance of land
arising from age, sickness or any other cause” can a person ask a court to interfere in order A simple mistake of account shall give rise to its correction. (1266a)
to set aside the conveyance.
● GR: A person is NOT incompetent to contract merely because of advanced years or by
reason of physical infirmities. MISTAKE OR ERROR – False notion of a thing or a fact material to the contract
● XPN: When such advanced age or infirmities have impaired the mental faculties as to
prevent the person from properly, intelligently, and firmly protecting his property rights, then NATURE OF MISTAKE
he is undeniably incapacitated. ● Art. 1331 refers to mistake of fact which may arise from ignorance or lack of knowledge
● The mistake contemplated in this article is substantial mistake of fact
○ The party would not have entered into the contract or given his consent had he
Article 1330. A contract where consent is given through mistake, violence, intimidation, undue known of the mistake
influence, or fraud is voidable. (1265a) ○ Mistake must be material and go to the essence of the contract
○ Not every mistake will make a contract voidable
CHARACTERISTICS OF CONSENT ● No material distinction between ignorance (absence of comprehension of a thing) and error
1. Intelligent – There is legal capacity to act; made with sufficient understanding (mistaken notion of a thing)
2. Free and voluntary – No threat or intimidation; no restraint on its exercise ○ In both cases, there is a failure or lack of knowledge regarding a thing
3. Conscious or spontaneous – No mistake, undue influence, or fraud (dolo causante or ● Although a mistake does not necessarily involve fraud or deceit, the effect of these two
causal fraud) factors is the same, mainly, to deprive the party of intelligent consent.
○ In this sense, mistake is broader than fraud and subsumes it.
CAUSES THAT VITIATE CONSENT/VICES OF CONSENT
1. Violence or force (Art. 1335) ELEMENTS OF MISTAKE OF FACT
2. Intimidation or threat or duress In order that mistake may vitiate consent, it must refer to:
3. Error or Mistake (Art. 1331) 1. The substance of the thing which is the object of the contract; or
4. Fraud or deceit (Art. 1338) 2. Those conditions which have principally moved one or both parties to enter into the
5. Undue Influence (Art. 1337) contract; or
○ Test will be the intent of the parties as derived from the relevant or attendant
FACTORS VITIATING INTELLIGENCE circumstance such as their agreement, preliminary negotiations, and purpose of
1. Incapacity the contract
2. Mistake 3. The identity or qualifications of one of the parties, provided, the same was the principal
3. Fraud cause of the contract
○ Usually qualifications
FACTORS VITIATING FREEDOM ○ Nationality, skin color, religious affiliation, civil status, ethnic or linguistic affiliation
1. Violence are generally NOT principal or even relevant qualifications but may be
2. Intimidation determinative in some circumstances.
3. Fraud
WHEN NOT VITIATING
Notes: As long as it does not go to the essence of the contract
● Defects of the will and impairs the characteristics of consent 1. Error as regards the incidents of a thing or accidental qualities
● Courts are given wide discretion to weigh facts and circumstances of such cases ○ Not taken as the principal consideration of the contract
○ Example: accessibility of a residential house to means of transportation; maximum
CAUSES VITIATING CONSENT CAUSES OF INCAPACITY speed of car
Temporary More or less permanent ○ XPN: the error is caused by fraud of the other party (Art. 1338)
2. Mistake as to quantity or amount
Refer to contract itself Refer to person entering the contract ○ XPN: it goes to the essence of the contract
Both make a contract voidable or annullable only 3. Error as regards the motives of the contract
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 81
 ○ XPN: motives constitute a condition or cause of the contract
4. Mistake as regards the identity or qualifications of a party EFFECT OF KNOWLEDGE OF RISK
○ The reason that contracts are entered into more in consideration of the things or ● It is assumed that he is willing to take chances and cannot claim mistake
services which form their subject matter rather than persons ● True when the contract is aleatory in nature1
○ XPN: when such identity or qualifications have been the principal cause of the ● Agreement becomes a contract of hazard (aleatory contract) or one subject to a suspensive
contract (Art. 1331, par. 2) condition.
■ Contracts which have for their object obligations to do requiring personal
qualifications of the debtor or those involving trust and confidence Example:
■ Example: partnership, agency, commodatum, guaranty deposit B bought a parcel of land from S who informed him before the contract was perfected that the land was
5. Error which could have been avoided by the party alleging it involved in a litigation in which C is the claimant. In case the land is recovered later on by C, B cannot
○ Refers to: allege mistake in his contract because he knew the risk that the land might later on be recovered by C.
■ A fact known to him
■ He should have known by the exercise of ordinary diligence Article 1334. Mutual error as to the legal effect of an agreement when the real purpose of the parties
■ So patent and obvious that nobody could have made it is frustrated, may vitiate consent. (n)

Article 1332. When one of the parties is unable to read, or if the contract is in a language not MISTAKE OF LAW
understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that Arises from ignorance of some provisions of law, or form an erroneous interpretation of its meaning, or
the terms thereof have been fully explained to the former. (n) from an erroneous conclusion as to the legal effect of an agreement, on the part of one of the parties.

BURDEN OF PROOF IN CASE OF MISTAKE OF FRAUD EFFECT OF MISTAKE OF LAW — Does not invalidate consent because “ignorance of the law excuses
GR: When a person signs a document, the presumption is it is done with full knowledge of its contents no one from compliance therewith”
and consequences. Should he allege fraud or mistake, the allegation must be sufficiently proven.
XPN: Art. 1332 – When one of the parties is unable to read, or if the contract is in a language not WHEN DOES MISTAKE OF LAW VITIATE CONSENT
understood by him GR: Mistake of law does not vitiate consent
● The party enforcing the contract is duty bound to show that there has been no fraud or XPN: When there is mistake on a doubtful question of the law or on the construction of its application
mistake and that the terms of contract have been fully explained to the former in a language ● This is analogous to mistake of fact, the maxim ignorance of the law excuses no one should
understood by him. have no proper application
● Necessary in the Philippines where there is still a fairly large number of the population who
remain illiterate REQUISITES FOR APPLICATION
● Policy promoting social justice 1. The mistake must be mutual error
● Illiterate persons who cannot read are negligent if they fail to procure some reliable person to 2. It must be as to the legal effect of an agreement
read the contract and explain it to them before they sign 3. It must frustrate the real purpose of the parties

REQUIREMENTS FOR APPLICATION UNILATERAL MISTAKE OF LAW

● Must be established convincingly that the illiterate or the party at a disadvantage due to his ● Traditional and more widely held position: ignorance of the law excuses no one (Art. 3)
mental weakness, ignorance or other handicap could not read or language is not understood whether unilateral or mutual (when not falling within the situation mentioned above) does not
by him vitiate consent
● Only after sufficient proof of such fact, may the burden of proving that the terms of the ● Another school of thought holds that a mistake of law, if material to the contract, vitiates
contract had been explained to the disadvantaged party be shifted to the party enforcing the consent and prevents a valid contract from arising
contract. ○ Art. 3 should not be viewed with such remorseless rigidity
○ Flexibility on acting by mistake on a doubtful or difficult question of law
REQUISITES
1. One of the parties to the contract is illiterate or unfamiliar with the language in which the Article 1335. There is violence when in order to wrest consent, serious or irresistible force is
contract is written employed.
2. Mistake (or fraud) is alleged by said party
There is intimidation when one of the contracting parties is compelled by a reasonable and
DUTY TO PROVE — Does not apply to a party who is not seeking to enforce the contract well-grounded fear of an imminent and grave evil upon his person or property, or upon the person or
● Provision contemplates a situation where the consent of one contracting party was given but property of his spouse, descendants or ascendants, to give his consent.
vitiated by mistake or fraud by the other
To determine the degree of intimidation, the age, sex and condition of the person shall be borne in
DUTY OF COURTS WHEN ONE OF THE PARTIES IS AT A DISADVANTAGE

Article 1333. There is no mistake if the party alleging it knew the doubt, contingency or risk affecting 1
Art. 2010. By an aleatory contract, one of the parties or both reciprocally bind themselves to give or to do something
the object of the contract. (n) in consideration of what the other shall give or do upon the happening of an event which is uncertain, or which is to
occur at an indeterminate time. (1790)
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 82
mind. FACTORS TO DETERMINE DEGREE OF INTIMIDATION
1. Age
A threat to enforce one’s claim through competent authority, if the claim is just or legal, does not 2. Sex, and
vitiate consent. (1267a) 3. Condition of the person
4. Other circumstance

NATURE OF VIOLENCE OR FORCE Note: If a contract is signed merely out of reverential fear or fear of displeasing a person to whom
● Violence requires the employment of physical force respect and obedience are due, the contract is valid because reverential fear itself does not annul
● Force employed must be serious or irresistible consent in the absence of actual threat. Unless, the fear so deprives one of a reasonable freedom of
● It is essential that the force employed must be the determining cause or reason for giving choice as to justify the reasonable inference that undue influence has been exercised. (See Art. 1337)
consent
● Can either be caused by a contracting party or a stranger to the contract (Art. 1336) THEORY OF COLLECTIVE OF GENERAL DURESS
● There must be specific acts or instance of such nature and magnitude as to have, in
REQUISITES OF VIOLENCE themselves, inflicted fear or terror upon the subject that his execution of the questioned deed
1. Force must be serious or irresistible or act cannot be considered voluntary
2. Force must be the direct and determining cause in obtaining consent ● If party is compelled by a reasonable and well-grounded fear, this cannot apply

NATURE OF INTIMIDATION OF THREAT VIOLENCE INTIMIDATION

● Intimidation need not resort to physical force
● Intimidation is internal; violence is external Refers to physical compulsion Refers to moral compulsion
● Substantial evidence must support the annulment of consent External or prevents the will to manifest itself Internal or induces the performance of an act
● If the threat is to enforce a just or legal claim, it is justified as long as it is within realm of law
Article 1336. Violence or intimidation shall annul the obligation, although it may have been employed
REQUISITES OF INTIMIDATION OR THREAT by a third person who did not take part in the contract. (1268)
1. It must produce a reasonable and well-grounded fear of an evil and that the person making it
can and will carry it out
2. Evil or threatened harm must be imminent and grave/serious VIOLENCE OR INTIMIDATION BY A THIRD PERSON
3. Evil must be upon his person or property, or his spouse, descendants or ascendants To make the contract voidable, it is necessary that the violence or intimidation must be of the character
4. It is the determining cause of the contract, or must have caused the consent to be given in Art 1335
5. Threatened act must be unjust or unlawful
● A threat to enforce one’s claim through competent authority, if the claim is just or UNDUE INFLUENCE BY A THIRD PERSON
legal, does not vitiate consent (Art. 1335, par. 4) ● The code is silent on the effect of undue influence employed by a third person on one of the
○ Such a threat is proper within the realm of the law as a means to enforce contracting parties.
collection. ● Balane thinks this should be included in addition to violence and intimidation as a vitiating
○ Example: Foreclosure of mortgaged property in case of default in factor even if perpetrated by a third person.
payment of a debt is a legal remedy afforded by law to a creditor; hence,
a threat to foreclose the mortgage, would not, per se, vitiate consent. MEANING OF THIRD PERSON
● The threat to enforce a right, should not be aimed at a result which is contrary to A third person is one who acts without the authority (express or tacit) or consent of a contracting party.
law or morals, or which is unjust and contrary to good faith.
○ Although it is lawful to exercise rights, it is not always lawful to use them Article 1337. There is undue influence when a person takes improper advantage of his power over
for purposes different from those for which they were created. the will of another, depriving the latter of a reasonable freedom of choice. The following
○ Thus, although it is lawful to report crimes, the threat to report it may be circumstances shall be considered: the confidential, family, spiritual and other relations between the
illicit if the purpose is not to cooperate in the discovery and prosecution parties, or the fact that the person alleged to have been unduly influenced was suffering from mental
of the crime, but to obtain some prestation from the culprit which weakness, or was ignorant or in financial distress. (n)
otherwise could not be obtained and which does not constitute indemnity
for damages for the crime committed.
● Thus, the rule is, generally, a threat to do something lawful does not constitute UNDUE INFLUENCE
intimidation. ● Must be of a kind that so overpowers and subjugates the mind of a party as to destroy
○ Example: If you do not marry my daughter, I’ll report you to the IBP. This his free agency and make him express the will of another, rather than his own
is not unlawful because the person did commit immorality. ● It is the most subjective among the factors vitiating freedom
● Sometimes, though, it may constitute intimidation. ● The two variable are:
○ Example: A saw B commit murder. A threatened B that he will report him a. The ascendancy of the active subject
to the police unless B gives A his house. This is intimidation because b. The emotional or psychological vulnerability of the passive subject
there is no connection between the crime and the contract.
ELEMENTS
1. A person who can be influenced
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 83
 2. The fact that undue or improper influence was exerted b. Insidious machinations – deceitful scheme or plot with an evil design or with a
3. Submission to the overwhelming effect of such unlawful conduct fraudulent purpose
c. False representation may be made by conduct
PROOF — Depends upon circumstances of each case as established by clear and convincing d. Fraud – refers to all kinds of deception; deemed to comprise anything calculated to
evidence deceive; resorted by someone to secure an unfair advantage by which another is
cheated
DISTINGUISHED FROM DUE INFLUENCE e. Deceit – a species of fraud; false representation of a material fact, by false or
● Undue influence is attained by superiority of will, mind, or character under circumstances misleading allegations or by omission or concealment which deceives or is
which give dominion over the will of another to such an extent as to destroy free agency or to intended to deceive another.
constrain him to do against his will what he is unable to refuse 2. Committed not only by misrepresentation but also by means of concealing or omitting to
● Examples of due influence: state material facts
a. Solicitation a. Fraudulent misrepresentation and fraudulent concealment are of the same genre.
b. Importunity The failure to disclose the truth must be coupled with the intent to deceive and to
c. Argument profit from that deception.
d. Persuasion
e. Advertisements Requisites of Causal Fraud
● If a competent person has once assented to a contract freely and fairly, he is bound to it 1. There must be misrepresentation or nondisclosure (1338, 1339) by a party prior to or
simultaneous to the consent or creation of the contract
CIRCUMSTANCES FOR CONSIDERATION 2. Must be serious in character (1334)
● Confidential, family, spiritual, and other relations between the parties 3. Must have been employed by only one of the contracting parties
● Mental weakness ○ If committed by third person, does not vitiate consent unless done in connivance
● Ignorance with or at least with the knowledge of the favored contracting party (1342)
● Financial distress of the person alleged to have been unduly influenced (Art. 1337, Art. 1332) 4. Must be made in bad faith or with intent to deceive the other party who had no knowledge of
the fraud
UNDUE INFLUENCE INTIMIDATION 5. Must have induced the consent of the other contracting party
Presupposes a pre-existing power which the Presupposes no such antecedent power 6. Must be alleged and proved by clear and convincing evidence; Never presumed
perpetrator has over the will of the passive subject
BALANE:
Does not necessarily involve something Involves something wrongful in the threatened act 1. Must have been employed by only one of the contracting parties
wrongful either in the threatened act or in the or in the threat itself 2. Must have induced the other party to enter into the contract
threat itself. Involves exercise of moral suasion, 3. Must have been serious
authority, appeal to emotional ties, or bonds of 4. Should have caused damage or injury
affection
Extent of restriction not as radical but must be Extent of restriction on freedom is more radical According to Balane, the test is if the fraud was the efficient factor in the giving of consent, then it is
strong enough to deprive the victim of volition serious fraud. Otherwise, it is either incidental or harmless, because the consent would have been
required for contractual freedom given anyway.

DOLO INCIDENTAL
Article 1338. There is fraud when, through insidious words or machinations of one of the contracting
● Does not play a decisive role in inducing consent.
parties, the other is induced to enter into a contract which, without them, he would not have agreed to.
● Determination of whether the dolo is causante or incidental is often a question of fact
(1269)
dependent on the particular circumstances of the case: the resolution of the question always
depends on whether the deceit employed was the cause of the consent or not.
CAUSAL FRAUD (Dolo Causante) ● Although consent is not vitiated, there is a liability for damages.
Fraud employed by one party prior to or simultaneous with the execution of the contract to secure the
consent of the other
Article 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are
● Used by a party to induce the other to enter into a contract without which the latter would not
bound by confidential relations, constitutes fraud. (n)
have agreed to, taking into account the circumstances of the case
● Fraud must be that which determines or is the essential cause of the contract
● Involved the use of deceit or deception Concealment – Failure to communicate that which a party to a contract knows and ought to
● Must be distinguished from fraud in Art. 1170 communicate; equivalent to misrepresentation
● Silence or concealment by itself does not constitute fraud. It must presuppose a purpose or
How Committed design to hide facts which other party ought to know
Through insidious words or machinations (Art. 1338) or by concealment (Art. 1339) ● Injured party may seek to annul or cancel a contract:
1. Insidious words or machinations – include false promises, exaggerated expectations or ○ Whether the failure to disclose is intentional or unintentional as long as there is a
benefits, abuse of confidence, fictitious names, qualities, or power duty to disclose
a. It is not necessary that they constitute criminal act
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 84
 ○ According to good faith such disclosure should be made and the other party is ● If the fraud perpetrated by the third person causes mutual substantial error, the contract
misled or deceived in entering into the contract becomes voidable on the ground of mistake.
● If unintentional, basis of action for annulment is mistake, not fraud but mistake or error (Art.
1343) Article 1343. Misrepresentation made in good faith is not fraudulent but may constitute error. (n)
○ If unintentional and there is no duty to disclose, parties are bound by the contract
● When a minor fails to disclose his minority, it does not per se constitute fraud unless it is
actual deceit. To hold a minor liable, the fraud must be actual and not constructive.Mere EFFECT OF REPRESENTATION MADE IN GOOD FAITH
failure to disclose does not hold him liable. ● Misrepresentation without intent to deceive (as when made through negligence or an
inaccurate knowledge of the facts) will preclude fraud but could induce mistake on the part of
REQUISIES OF NON-DISCLOSURE TO CONSTITUTE FRAUD the other party.
1. The undisclosed fact or facts are material to the contract ● But for mistake to exist so as to vitiate consent, it must involve any of the things enumerated
2. There is a duty to reveal the same in Art. 1331.
3. The non-disclosure is accompanied or motivated by deceit
Article 1344. In order that fraud may make a contract voidable, it should be serious and should not
Article 1340. The usual exaggerations in trade, when the other party had an opportunity to know the have been employed by both contracting parties.
facts, are not in themselves fraudulent. (n)
Incidental fraud only obliges the person employing it to pay damages. (1270)
DOLUS BONUS
● Literally “good fraud” refers to dealer’s talk, the kind of exaggerations in advertisement the TWO KINDS OF FRAUD
public is familiar with 1. Causal Fraud (Dolo Causante/Fraud as Deceit) – Fraud employed to secure the consent of
● The ancient principle still governs in this regard. the other party to enter into the contract
○ Caveat emptor: buyer beware 2. Incidental Fraud – Fraud employed to secure the consent of the other party but which only
○ Where the means of knowledge are at hand and equally available to all parties, renders the party who employs it liable for damages since it is not serious enough to render a
one will not be heard to say that he has been deceived contract voidable
● Representations that do not appear on the face of the contract and these do not bind the ○ Different from Art 1170 and 1171 which refer to fraud occurring in the performance
parties of a pre-existing obligation under a valid contract and do not vitiate consent

Article 1341. A mere expression of an opinion does not signify fraud, unless made by an expert and Article 1345. Simulation of a contract may be absolute or relative. The former takes place when the
the other party has relied on the former’s special knowledge. (n) parties do not intend to be bound at all; the latter, when the parties conceal their true agreement. (n)

EXPRESSION OF OPINION SIMULATION OF A CONTRACT

● The mere expression of an opinion, either by one of the parties or by a third person does not Act deliberately deceiving others, by feigning or pretending by agreement, the appearance of a contract
in itself constitute fraud, whether the opinion subsequently turns out to be accurate or not. which is neither non-existent or concealed or is different from that which was really executed
● Such expression will be fraudulent if accompanied by deceit and induces consent. It becomes ● It is the declaration of a fictitious will, deliberately made by agreement of the parties in order
dolo causante. to produce for the purpose of deception the appearance of a juridical act which does not exist
● Misrepresentation must refer to facts, not opinions or is different from that which was really executed.

REQUISITES BASIC CHARACTERISTICS – The apparent contract is not really desired or intended to produce legal
1. Must be made by an expert effects expressed by its wordings or in any way alter the judicial situation of the parties
2. Contracting party has relied on the expert’s opinion
3. Opinion turned out to be false or erroneous PURPOSE
● To hide the parties’ true intent, or to deceive or defraud third persons
● Nullified because of the absence of true consent which is essential to a valid and enforceable
Article 1342. Misrepresentation by a third person does not vitiate consent, unless such contract
misrepresentation has created substantial mistake and the same is mutual. (n)
Requisites for Simulation
FRAUD BY A THIRD PERSON 1. An outward declaration of will different from the will of the parties
GR: Third person has no connection with a contract and a misrepresentation by him does not vitiate 2. False appearance must have been intended by mutual agreement
consent. 3. Purpose is to deceive third persons
XPN: If the misrepresentation by 3rd person creates substantial mistake and it affects both parties,
contract may be annulled principally on the ground of mistake, even if deceit was without complicity of INTENTION OF THE PARTIES – This is the primary consideration in determining the true nature of a
one of the parties contract and whether it is simulated or not
● Fraud must be committed by one party on the other ● Determined from the express terms of the agreement as well as from their contemporaneous
○ Fraud committed by a debtor upon his co-debtor cannot be raised as a defense and subsequent acts
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 85
 Article 1347. All things which are not outside the commerce of men, including future things, may be
SIMULATED CONTRACTS FRAUDULENT CONTRACTS the object of a contract. All rights which are not intransmissible may also be the object of contracts.
Fictitious contracts Serious, real and intended for the attainment of a
prohibited result No contract may be entered into upon future inheritance except in cases expressly authorized by law.
Intended to hide the violation of a law
All services which are not contrary to law, morals, good customs, public order or public policy may
likewise be the object of a contract. (1271a)

Article 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does
not prejudice a third person and is not intended for any purpose contrary to law, morals, good OBJECT OF A CONTRACT
customs, public order or public policy binds the parties to their real agreement. (n) Subject matter; The thing to be delivered or the service to be rendered
● Object of every contract is the obligation created
● Thing, service, or right which is the object of the obligation is also the object of the contract
ABSOLUTELY SIMULATED CONTRACTS ● The object of the contract is the prestation. Thus, it is always the conduct which is to be
When the contract does not really exist and the parties don’t intend to be bound at all by it observed. It is not a concrete object like a car. In a contract of sale, the object is the delivery
● The parties do not intend to be bound at all, either under the apparent contract or any other of the object and not the object itself.
contract. ● The provisions on object however, blur the distinction between the object of the contract, the
● An absolutely simulated or fictitious contract is void (Article 1346) prestation, and the object of the prestation. According to Balane, these provisions are not
● Example: X pretends to sell his car to avoid tax liability. However X has no real intention to fatal though.
sell the car.
● Consent, object, and cause are absent. KINDS OF OBJECT OF CONTRACT
● Not susceptible to ratification ● Object certain is the second essential element of a valid contract
● Parties may recover from each other what they may have given under the “contract” ● Maybe things (ex. Sale of property), rights (ex. Assignment of credits), or services (ex.
● The pari delicto rule does not apply to absolutely simulated contracts because pari delicto agency)
only applies to contracts which are void on account of the illegality of the cause or object.
○ Absolutely contracts, although void, do not fall under the pari delicto rule because REQUISITES OF THINGS AS OBJECT OF CONTRACT
the reason for their nullity is absolute want of subject-matter, cause, and consent. 1. The thing must be within the commerce of men; that is, it can legally be the subject of
commercial transaction
RELATIVELY SIMULATED CONTRACTS 2. Must be in existence or capable of coming into existence
When the contract entered into by the parties is different from their true agreement or the parties 3. Must be licit and not contrary to law, morals, good customs, public order, or public policy
state a false cause in the contract to conceal their real agreement 4. Must be possible, legally or physically
● One that is disguised under the appearance of another contract. 5. Must be determinate as to its kind and at least determinable as to its quantity
● The parties genuinely intend to enter into a contract but conceal the true nature of the 6. Must be transmissible
intended contract by giving it the semblance of another agreement.
● The parties are still bound by their real agreement, provided it does not prejudice a 3rd REQUISITES OF SERVICES AS OBJECT OF CONTRACT
person and is not intended for a purpose contrary to law, morals, good customs, public order, 1. The service must be within the commerce of men
or public policy 2. Must be possible, legally or physically
● The law will apply the rules of the true contract and not the ostensible contract. 3. Must be determinate or determinable w/o the need of a new contract between the parties
● Example: X has many creditors, and they are going after X‘s car. X cannot donate his car to Y
since the creditors will just resort to accion pauliana. So, X antedates a contract of sale, RIGHTS AS OBJECT OF CONTRACT
selling his car to Y, except that X‘s intention is to donate his car to Y. GR: All rights may be the object of a contract
○ The ostensible contract is sale but there is a true contract intended by the parties is XPNs: When they are intransmissible by their nature, by stipulation or by provision of law
that of donation. ● Political right
● The essential requisites of a contract are present and the simulation refers only to the content ● Marital and parental rights
or terms of the contract. ● Right to public office
● Pari delicto rule does not apply where both the object and cause are licit and simulation is
only on the consent FUTURE THINGS AS OBJECT OF CONTRACT
GR: Future things can be valid objects of contracts
SECTION 2 - OBJECT OF CONTRACTS ● The term — “in potency” means that the object will come into existence in the future
1347 Concept of Object ● In such a case, the coming into existence of a thing will be a suspensive condition
● If the other party is contractually liable to perform his prestation whether or not the thing
1348 Impossibility comes into existence, it partakes the nature of an aleatory contract and in such a case, the
1349 Quantity of Object real object is the hope of the thing coming into existence
XPNs:
● Donations (Art. 751)
● Contracts over future inheritance (Arts. 137, 905)
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 86
FUTURE INHERITANCE — Any property or right not in existence or capable of determination at the ○ If not specifically pre-determined, the quantity of the object must be capable of
time of the contract, that a person may inherit in the future determination without need of a new agreement between the parties.
● Inheritance ceases to be future upon death of decedent; thus may be the object of a contract
SECTION 3 - CAUSE OF CONTRACTS
REQUISITES OF INHERITANCE TO BE CONSIDERED FUTURE AND VOID
1350 Cause
1. The succession has not yet been Opened at the time of the contract
2. The object of the contract forms Part of the inheritance 1351 Motive
3. The promissor has, with respect to the object, an Expectancy of a right which is purely 1352 Absence of Cause
hereditary in nature
1353 Statement of False Cause
VALIDITY OF CONTRACTS UPON FUTURE INHERITANCE 1354 Presumption of Existence and Legality of Cause
GR: A contract concerning future inheritance is void. These cannot be the source of any right nor the
creator of any obligation between the parties. 1355 Effects of Lesion
XPN: Unless expressly authorized by law
● Future spouses who agree in any other property regime other than ACP Article 1350. In onerous contracts the cause is understood to be, for each contracting party, the
● Partition of property by act inter vivos by a person takes effect upon death prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit
● Future inheritance cannot be renounced which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor.
(1274)
Article 1348. Impossible things or services cannot be the object of contracts. (1272)
CAUSE – Essential, direct or proximate purpose or reason which the contracting parties have in view at
KINDS OF IMPOSSIBILITY the time of entering into the contract
1. Physical – When a thing or service in the very nature of things cannot exist or be performed ● “Why” of the contract, the essential reason which moves the contracting parties to enter into
a. Absolute – When the act cannot be done in any case so that nobody can perform it the contract
b. Relative – When it arises from the special circumstances of the case ● Civil Code term for consideration in Anglo-America or common law
2. Legal – When the thing or service is contrary to law, morals, good customs, public order, or
public policy DISTINGUISHED FROM ENGLISH DOCTRINE OF CONSIDERATION
a. Act is contrary to law either because it is forbidden by a penal law or a rule of law ● Consideration may consist either in some legal right, interest, benefit or advantage conferred
makes it impossible to be done. upon the promissor, to which he is otherwise not lawfully entitled or rin some legal detriments,
prejudice, ploss or disadvantage suffered or undertaken by the promisee other than to such
EFFECT OF PHYSICAL IMPOSSIBILITY ON VALIDITY OF CONTRACT as he is at the time of consent bound to suffer
● Absolute Impossibility – nullifies the contract ● English doctrine of considerations is narrower than the continental doctrine of causa
● Relative Impossibility – If temporary, does not nullify; If permanent, it annuls the contract
DISTINGUISHED FROM OBJECT
Article 1349. The object of every contract must be determinate as to its kind. The fact that the ● In a bilateral agreement like purchase and sale, the cause for one is the subject matter or
quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is object for the other and vice versa
possible to determine the same, without the need of a new contract between the parties. (1273) ● Distinction is only a matter of viewpoint

CAUSE OBJECT
QUANTITY OF OBJECT NEED NOT BE DETERMINATE
● Need not be specified with absolute certainty As to Remuneratory Contracts
● Sufficient that it is possible to determine the same without the need of a new contract The service or benefit which is remunerated The thing which is given in remuneration
between the parties The liberality of the donor or benefactor The thing which is given or donated
● When the obligation consists in the delivery of a generic things, whose quality and As to Gratuitous Contracts
circumstances have not been stated, Article 1246 governs
The liberality of the donor or benefactor The thing which is given or donated
● Balane:
○ The object need not be individualized. It must be determinate as to its kind or As to the Thing
species. Prestation or promise of a thing or service by the The thing or service itself
○ The quantity of the object may be indeterminate, so long as the right of the creditor other
is not rendered illusory As to Contracting Parties
Different with respect of each party May be same for both of the parties
DETERMINATE OR DETERMINABLE
1. Determinate as to Kind
○ If the contract does not specify what the object is, the contract is void CLASSIFICATIONS OF CONTRACTS ACCORDING TO CAUSE
2. Determinable as to Quantity 1. Onerous – One the cause of which, for each contracting party, is the prestation or promise of
a thing or service by the other
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 87
 2. Remuneratory – One the cause of which is the service or benefit which is remunerated ○ Implies that there is a cause but the same is unlawful or illegal
3. Gratuitous – One the cause of which is the mere liberality of the benefactor or giver ○ The cause is unlawful if it is contrary to law, morals, good customs, public order, or
public policy
LIBERALITY AS CAUSE IN CONTRACTS OF BENEFICENCE ○ Contracts with unlawful cause are null and void
● Deemed causa only in acts of pure beneficence or those designed solely and exclusively to ● False Cause – Art. 1353
procure the welfare of the beneficiary without any intent of procuring any satisfaction for the ● Inadequacy or cause/lesion – Contract is valid but under certain conditions, it is rescissible
donor (See Art. 1381 [1])
● Where the idea of self-interest is totally absent on the part of the transferor
Article 1353. The statement of a false cause in contracts shall render them void, if it should not be
REQUISITES OF CAUSE proved that they were founded upon another cause which is true and lawful. (1276)
1. It must be Real and not fictitious or simulated
2. It must be Licit
3. It must Exist at the time the contract is entered into A false cause is inexistent and the contract would then be void for absence of cause. It may be:
1. Erroneous – always produces inexistence of a contract. If the cause is false, the contract is
rendered void because the same does not exist.
Article 1351. The particular motives of the parties in entering into a contract are different from the 2. Simulated – does not always produce inexistence of contract because it may happen that
cause thereof. (n) the hidden but true cause is sufficient to support the contract. If the parties can show that
there is another cause and that such is true and lawful, then the parties shall be bound by
MOTIVE their true agreement. (Art. 1346)
● Purely personal or private reason which a party has in entering into a contract
● Condition of the mind which incites to action, but also includes the inference as to the ● If a false cause is stated in the contract, the agreement will be valid only if there is a genuine
existence of such condition from an external fact of a nature to produce such a condition cause supporting the contract.
● This article establishes a rebuttable presumption of absence of cause should the stated
CAUSE MOTIVE cause be shown to be false.
Immediate or direct reason Remote or indirect reason ● The party seeking to uphold the contract has the burden of proof to show that there is a
genuine and lawful cause.
Always known to the other contracting party May be unknown
Essential element of a contract Not essential
Article 1354. Although the cause is not stated in the contract, it is presumed that it exists and is
Illegality affects the validity of the contract Illegality does not render the contract void lawful, unless the debtor proves the contrary. (1277)
Essential reason which moves the contracting Particular reason of a contracting party which does
parties to enter into it and justifies the creation of not affect the other party PRESUMPTION OF EXISTENCE AND LEGALITY OF CAUSE
an obligation through their will GR: The cause, even if unstated in the contract, is presumed to be existing, genuine, and lawful
● This is without prejudice to special requirements of form such as the Statute of Frauds.
WHEN MOTIVE REGARDED AS CAUSE XPNs:
GR: Motive does not affect validity of a contract ● Art. 1353 - where the existence liceity of the cause will have to be proved if the stated cause
XPNs: is shown to be false
1. When such motive predetermines the cause of the contract ● Contracts of option, where a consideration distinct from the price is required.
2. Made the condition for the efficacy of the contract
3. Founded on a fraudulent purpose to prejudice third persons The presumption is only prima facie and must yield to contrary evidence. To overcome such
4. Blend to the degree that the contract entered into is null and void presumption, the alleged lack of consideration must be shown by preponderance of evidence.

Article 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause Article 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a
is unlawful if it is contrary to law, morals, good customs, public order or public policy. (1275a) contract, unless there has been fraud, mistake or undue influence. (n)

ABSENCE OR WANT OF CAUSE – There is a total lack of any valid consideration for the contract LESION
● Any damage caused by the fact that the price is unjust or inadequate
EFFECTS OF LACK, ILLEGALITY, FALSITY OR INADEQUACY OF CAUSE ● It is the injury suffered in consequence of inequality of situation, by one party who does not
● Absence of Cause receive the full equivalent for what he gives in a commutative contract, like sale.
○ Contracts without cause confer no right and produce no legal effect
○ Contract which is absolutely simulated GR: Lesion or inadequacy of cause does not in itself invalidate a contract
○ Contracts without lawful cause do not produce effect as well as without cause ● Example: Price of thing sold
● Failure of cause XPNs: Lesion will invalidate a contract:
○ Does not render a contract void 1. When there has been fraud, mistake, or undue influence (Art. 1355)
● Illegal/Unlawful Cause 2. In cases specified by law (Art. 1381)
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 88
 Note:
EFFECTS OF LESION ● The non-observance of the required form renders the contract void
1. Lesion in itself does not affect the cause of the contract, nor does it invalidate the contract ● Neither can the parties compel each other through a judicial process to execute the required
2. If lesion is the result of vitiated consent, the contract will be voidable on account of the form.
vitiation of the consent ○ This is because such a suit assumed that the contract is binding and enforceable
3. In certain cases, lesion can render a contract or judicial transaction recissible as in cases which cannot apply because such contract is void
falling under Art. 1381, pars. 1 and 2; and Art. 1088
a. Art. 1381 (1) - Those which are entered into by guardians whenever the wards 2. Those which require a specific form (e.g., in writing) is required for enforceability
whom they represent suffer lesion by more than one-fourth of the value of the a. Those covered by the Statute of Frauds (Art. 1403 (2))
things which are the object thereof; ■ The law requires that they be in writing. If not in writing, the contract is
b. Art. 1381 (2) - Those agreed upon in representation of absentees, if the latter suffer valid, but, upon the objection of a party, it cannot be proved and,
the lesion stated in the preceding number therefore, it cannot be enforced unless it is ratified.
c. Art. 1088 - Should any of the heirs sell his hereditary rights to a stranger before the b. Art. 1443
partition, any or all of the co-heirs may be subrogated to the rights of the purchaser
by reimbursing him for the price of the sale, provided they do so within the period of Note:
one month from the time they were notified in writing of the sale by the vendor. ● The non-observance of the required form renders the contract valid but unenforceable
● Neither can the parties compel each other through a judicial process to execute the required
CHAPTER 3 form.
FORM OF CONTRACTS ○ This is because such a suit assumes that the contract is binding and enforceable
which cannot apply because such contract is unenforceable

CHAPTER 3 - FORM OF CONTRACTS 3. Those which are required to be in a public document not for validity or enforceability but for
1356 Form of Contracts effectivity against third persons or for registration (Art. 1357 and 1358)

1357 Note: Inasmuch is the contract is both valid and enforceable, the execution of public instrument
Nature and Requirement of Writing
1358 becomes a mere matter of form and convenience

For contracts falling under (1) and (2), the prescribed form is absolute and indispensable, either for
Article 1356. Contracts shall be obligatory, in whatever form they may have been entered into, validity or for enforceability. If the form required for validity or enforceability of a contract is not
provided all the essential requisites for their validity are present. However, when the law requires that observed, the parties cannot avail of the right granted under Art. 1357.
a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in
a certain way, that requirement is absolute and indispensable. In such cases, the right of the parties TWO ASPECTS OF CONTRACTS
stated in the following article cannot be exercised. (1278a) 1. Intent or will
2. Expression of such intent or will – It is necessary, in order that the will may produce legal
FORM OF CONTRACTS effect, that it be expressed. The expression of the will is its form.
Refers to the manner in which a contract is executed or manifested
CONTRACTS ACCORDING TO FORM
GR: 1. Informal or common contract – may be entered into in whatever form, provided all
● De Leon: A contract is binding and obligatory between the parties regardless of the form it essential requisites for their validity are present.
may have been entered into, provided all the essential elements (consent, subject matter & ○ This refers only to consensual contracts
cause are present) for a valid contract are present. ○ May be oral or written
● Balane: Contracts are consensual; perfected by mere consent, provided that all the essential 2. Formal or solemn contract – required by law for its efficacy to be in a certain specified form
elements for a valid contract are present.
XPNs: Article 1357. If the law requires a document or other special form, as in the acts and contracts
1. Those which a specific form is essential for validity enumerated in the following article, the contracting parties may compel each other to observe that
a. Donation of real property – public instrument form, once the contract has been perfected. This right may be exercised simultaneously with the
b. Donation of personal property the value of which exceeds P5,000 – donation and action upon the contract. (1279a)
acceptance in writing
c. Sale of land through agent – authority of the agent in writing
● As between the parties, the form is not indispensable since they are allowed by law to compel
d. Contract of antichresis – principal and interest in writing
the other to observe the proper form and this right may be exercised simultaneously with the
e. Stipulation to pay interest – in writing
action to enforce the contract
f. Contract of partnership – if immovables: in public instrument and attached a signed
● It is essential, however, before a party may be compelled to execute the required form, that
inventory of the immovables
the contract be both valid and enforceable
g. Transfer or sale of large cattle – registered and certificate of transfer
● This article gives the coercive power to reciprocally compel the execution of formalities
h. Negotiable instruments – in writing
required by the law once the essential elements for validity is present
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 89
 instrument to the end that such true intention may be expressed.
Article 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation, transmission, modification or If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the
extinguishment of real rights over immovable property; sales of real property or of an parties, the proper remedy is not reformation of the instrument but annulment of the contract.
interest therein are governed by articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal SOURCE OF PROVISION OR REFORMATION OF INSTRUMENT
partnership of gains; ● Taken from the principles of equity in common law
(3) The power to administer property, or any other power which has for its object an act
appearing or which should appear in a public document, or should prejudice a third person; DEFINITION
(4) The cession of actions or rights proceeding from an act appearing in a public document. ● Reformation – remedy in equity by means of which a written instrument is made or
construed so as to express or conform to the real intention of the parties when some error or
All other contracts where the amount involved exceeds five hundred pesos must appear in writing, mistake has been committed. (Bentir v Leanda)
even a private one. But sales of goods, chattels or things in action are governed by articles 1403, No. ● Reformation of instrument – What is reformed is not the contract itself, but the instrument
2 and 1405. (1280a) embodying the contract.
● Rationale – equity orders reformation of an instrument in order that the true intention of the
NATURE AND REQUIREMENT OF WRITING contracting parties may be expressed; the courts do not attempt to make a contract for the
● Contract falling under Art. 1358 – should be contained in a public document (or in the last parties.
paragraph, in writing, even a private one) ○ It would be unjust & inequitable to allow the enforcement of a written instrument
● Nature of requirement: neither for validity nor enforceability which does not reflect or disclose the real meeting of the minds of the parties.
● These contracts are valid & binding and enforceable even without a public document ● Procedure – Rule 63 of the Rules of Court
a. Reason: Writing is required for the purpose of registration, or of facilitating proof
of contract, or of affecting third persons REQUISITES FOR REFORMATION
● Effect of absence of a document – does not affect validity 1. There must be an existing valid contract i.e., there must have been a genuine meeting of the
● Remedy of compelling each other through a proper court action to execute the document is minds
proper. 2. The contract must have been reduced to writing
● These agreements must be in writing to be enforceable: 3. The document failed to reflect the true intent of the parties
1. If the agreement is under the Statute of Fraud (Art. 1381) and 4. The failure have been caused by mistake, fraud, inequitable conduct, accident or relative
2. Last paragraph of the article regarding sales of personality, at a price of at least P500 simulation

CHAPTER 4 CAUSES/GROUNDS FOR REFORMATION

REFORMATION OF INSTRUMENTS 1. Mutual Mistake
2. Fraud
3. Concealment amounting to Fraud
CHAPTER 4 - REFORMATION OF INSTRUMENTS 4. Incase of Ignorance, Lack of Skill, negligence or bad faith on the part of the person drafting
1359 Reformation of Instrument the instrument or the clerk or typist
5. Equitable Mortgage
1360 Principles Governing Reformation
1361 Nature of Mistake REFORMATION ANNULMENT
1362 Fraud or Inequitable Conduct As to Validity of Contract
1363 Nature of Fraud Presupposes that there is a valid contract but the The contract was not validly entered into as when
document/instrument executed does not express their minds did not meet or if the consent was
1364 Nature of Mistake their true intention vitiated
1365 Mortgage or Pledges As to Effect
1366 When Reformation Not Allowed Gives lives to the contract by making the Involves a complete nullification of the contract
instrument conform to the true intention of the
1367 Estoppel
parties
1368 Transmissibility of Reformation
1369 Rules of Court REFORMATION INTERPRETATION
Remedy in equity by means of which a written Is the act of making intelligible what was before not
instrument is made or construed so as to express understood, ambiguous, or not obvious; a method
Article 1359. When, there having been a meeting of the minds of the parties to a contract, their true
or conform to the real intention of the parties by which the meaning of language is
intention is not expressed in the instrument purporting to embody the agreement, by reason of
ascertained
mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 90

In granting reformation, therefore, equity is not The determination of the meaning attached to intention of the parties, the courts may order that the instrument be reformed.
really making a new contract for the parties, but is the words written or spoken which make the
confirming and perpetuating the real contract contract.
between the parties NATURE OF MISTAKE
● This article refers to mistakes or inaccuracies in the document which are caused by the clerk
or draftsmen due to a variety of causes
● The remedy of reformation – at the instance of both contracting parties
Article 1360. The principles of the general law on the reformation of instruments are hereby adopted
insofar as they are not in conflict with the provisions of this Code.
Article 1365. If two parties agree upon the mortgage or pledge of real or personal property, but the
instrument states that the property is sold absolutely or with a right of repurchase, reformation of the
PRINCIPLES GOVERNING REFORMATION instrument is proper.
● The principles of general law in resolving cases on reformation of instruments, without
indicating where those principles are to be found
MORTGAGE OR PLEDGES
○ Report of Code Commission identifies “American Law” as the source of the
● Theneed of reformation here is needed because the instrument neither reflects nor conforms
principles of general law.
to the true intention of the parties
○ Vague; could leave room for Courts to determine law since there are no standards
set
Article 1366. There shall be no reformation in the following cases:
(1) Simple donations inter vivos wherein no condition is imposed;
Article 1361. When a mutual mistake of the parties causes the failure of the instrument to disclose
(2) Wills;
their real agreement, said instrument may be reformed.
(3) When the real agreement is void.

NATURE OF MISTAKE
WHEN REFORMATION NOT ALLOWED OR NOT PROPER
● The mistake must be mutual & it must refer not to the agreement itself but the manner the
1. Simple donation – refers to all gratuitous donations (simple, remuneratory and modal [as to
true agreement is reflected or expressed in the instrument
the part that is granted gratuitously])
● If mistake affects the very agreement – it could render the agreement voidable if the matter is
● Must be one wherein no conditions is imposed
referred to in Art. 1331
● REASON — Donations are formal contracts. Form is essential for their validity. If
not executed in the proper form void, there is nothing to reform
Article 1362. If one party was mistaken and the other acted fraudulently or inequitably in such a way ● XPN: Onerous donations – these are considered onerous contracts, thus the
that the instrument does not show their true intention, the former may ask for the reformation of the document embodying them may be reformed
instrument. 2. Wills
● REASONS
FRAUD OR INEQUITABLE CONDUCT a. Where wills are not contracts
● The situation contemplated in this article – one where one of the parties was mistaken & the b. Wills are formal documents & are absolutely void if not in the proper form
other acted fraudulently or inequitably – the fraud or inequitable conduct of the latter may 3. Void Agreements
have brought about the: (1) mistake in the former (2) may have been co-existent, not a ● Where the real agreement is void, there is no legal justification for reformation,
causative, circumstance there is law, no contract between parties
● Mistake – must NOT refer to the agreement itself BUT to the manner in which the agreement ● A void contract, even if contained in a document reflective of the intent of the
is reflected in the instrument. parties, remains void
○ Mistake as to the agreement itself could vitiate consent
Article 1367. When one of the parties has brought an action to enforce the instrument, he cannot
Article 1363. When one party was mistaken and the other knew or believed that the instrument did subsequently ask for its reformation.
not state their real agreement, but concealed that fact from the former, the instrument may be
reformed. ESTOPPEL
● Basis of article: leased on estoppel
NATURE OF FRAUD ● When a contracting party sues on the document, he is admitting in effect the document’s
● The fraud of one party consists merely in his failure to disclose to the other party the failure of accuracy & faithfulness
the instrument to reflect the true agreement ● To allow him to seek reformation is equivalent to allowing him to take inconsistent positions.
● It is fraud of a passive nature
● The party mistaken may demand the appropriate reformation of the instrument Article 1368. Reformation may be ordered at the instance of either party or his successors in interest,
if the mistake was mutual; otherwise, upon petition of the injured party, or his heirs and assigns.
Article 1364. When through the ignorance, lack of skill, negligence or bad faith on the part of the
person drafting the instrument or of the clerk or typist, the instrument does not express the true

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 91

TRANSMISSIBILITY OF REFORMATION
● The right of action for reformation may be exercised by – the party prejudiced or his PAR 1 – INTERPRETATION ACCORDING TO LITERAL SENSE OF WORDS
successors in interest, or, if the mistake as to the accuracy of the document is mutual, by ● When the terms of the agreement are so clear and explicit that they do not justify an attempt
either party or their successors in interest to read into it any alleged intention of the parties, the terms are to be understood literally just
● GR: The right is transmissible to the party’s heirs, successors-in-interest as they appear on the face of the contract.
● XPN: Unless the contract Is intuit personae in which case the contract and all rights arising ● When the true intent and agreement of the parties is established, it must be given effect and
thereunder are extinguished by the death of the party prevail over the bare words of the written agreement.
○ Common sense & experience tells us that words used in the contract should be
Article 1369. The procedure for the reformation of the instrument shall be governed by rules of court understood in their literal, ordinary and grammatical sense, because such sense is
to be promulgated by the Supreme Court. presumably what the parties intended
● Plain Meaning Rule: Intent is deduced from the language employed by the parties and the
terms of the contract, when unambiguous, as in the instant case, are conclusive in the
CHAPTER 5 absence of averment and proof of mistake or fraud – the question being not what the
INTERPRETATION OF CONTRACTS intention was, but what is expressed in the language used
○ Only when the contract provision is vague or ambiguous that courts are permitted
to resort to interpretation of its terms to determine the true intent of the contracting
CHAPTER 5 - INTERPRETATION OF CONTRACTS parties.
1370 Rules for Interpretation and Construction of Contracts ○ There is ambiguity when the written words or terms used in the contract can be
reasonably interpreted one way or another.
1371 Contemporaneous and Subsequent Acts ● Rule 130, Sections 10 & 14
1372 General Terms ○ Sec. 10 – Interpretation of writing according to its legal meaning – the language of
1373 Stipulations with Several Meanings a writing is to be interpreted according to the legal meaning it bears in the place of
its execution, unless the parties intended otherwise
1374 Presumption of Validity and Principle of Integral Concordance ○ Sec. 14 – Peculiar significance of terms – the terms of a writing are presumed to
1375 Use of Ambiguous Words have been used in their primary and general acceptance, but evidence is
admissible to show that they have a local, technical, or otherwise peculiar
1376 Usage and Custom signification, and were so used and understood in the particular instance, in which
1377 Use of Obscure Words case the agreement must be construed accordingly
○ Art. 790 – laws down a similar rule
1378 Irresoluble Doubt
1379 Principles of Interpretation in Rules of Court PAR 2 – CONFLICT BETWEEN WORDS & INTENT
● The controlling norm is the INTENT of the parties
● It is a cardinal rule in the interpretation of contracts that in case of doubt the intention of the
Article 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties should always prevail because their will has the force of law between
contracting parties, the literal meaning of its stipulations shall control. them.
● The words are presumed to give expression to the intent: the words are indicators of intent;
If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over This presumption is overthrown if there is a variance between words & intent. In such a case,
the former. (1281) intent prevails.
○ It is necessary for the court to determine a contract’s meaning from:
Interpretation of a contract is the process or method of discovering and determining the meaning of i. Language used in the contract
the terms or words used by the parties in their written contract. ii. Conduct or acts of the parties
● It involves a question of law since a contract is in the nature of law as between the parties ● Doctrine of Noscitur a Sociis – A proper construction may be had by considering the
and their successors in interest. company of words in which the term or phrase in question is found or with which it is
associated.
RULES FOR INTERPRETATION AND CONSTRUCTION OF CONTRACTS
● Articles 1370 to 1379 lay down rules for the application, interpretation and construction of Article 1371. In order to judge the intention of the contracting parties, their contemporaneous and
contracts subsequent acts shall be principally considered. (1282)
● These rules apply to interpretation of statutes and wills
● These rules are found in Rule 130, Sections 10 to 19 of the Rules of Court
○ Where the parties have reduced their contract into writing, the contents of the CONTEMPORANEOUS AND SUBSEQUENT ACTS AS GUIDES TO INTERPRETATION
writing constitutes the sole repository of the terms of the agreement between the ● Basic Rule: Always to determine and give effect to the intent of the parties
parties. Whatever is not found in the writing must be understood as waived and ● Lim Yhi Luya v CA:
abandoned. Generally, therefore, there can be no evidence of the terms of the ○ Where the parties to a contract have given a practical construction to the terms
contract other than the contents of the writing, unless it is alleged and proved that thereof by their contemporaneous or subsequent conduct, as by acts in partial
the intention of the parties is otherwise. performance, such interpretation may be considered by the court in determining its
meaning and ascertaining the intention of the parties.
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 92
 ○ It is helpful to take into account the acts of the parties at the time of the contract & ● A contract shall be interpreted integrally or holistically –– all parts of the contract should
subsequent thereto, as such acts relate to the contract. Such acts are indicators be, if possible, interpreted in such a way that all the parts fit together, without conflict or
of intent. inconsistency
● Section 13. Interpretation according to circumstances. — For the proper construction of an ● Rule 130, Sec 11
instrument, the circumstances under which it was made, including the situation of the subject ○ Section 11 – Instrument construed so as to give effect to all provisions. — In
thereof and of the parties to it, may be shown, so that the judge may be placed in the position the construction of an instrument, where there are several provisions or particulars,
of those who language he is to interpret. such a construction is, if possible, to be adopted as will give effect to all. (11)
● In determining the intention of the parties under Art. 1371, the courts may consider “the
relations existing between the parties and the purpose of the contract.” (Manzanilla v INTERPRETATION OF SEPARATE WRITINGS OF A CONTRACT
Waterfields Industries Corp.) ● Separate writings to be read and interpreted together – Where the contract is contained in
● Antecedent circumstances under which the contract was made may also be considered. several documents or in two or more separate writings all of them must be taken together to
○ The reason behind and the circumstances surrounding the execution are of determine the intention of the parties.
paramount importance to place the interpreter in the situation occupied by the ○ A contract may be encompassed in several instruments even though every
parties concerned at the time the writing was executed. instrument is not signed by the parties, since it is sufficient if the unsigned
instruments are clearly identified or referred to and made part of the signed
NAME OR TITLE NOT CONCLUSIVE OF TRUE NATURE OF CONTRACT instrument or instruments.
● The way the contracting parties do or perform their respective obligations stipulated or ○ Similarly, a written agreement of which there are two (2) copies, one signed by
agreed upon may be shown and inquired into, and should such performance conflict with the each of the parties, is binding on both to the same extent as though there had only
name or title given the contract by the parties, the former must prevail over the latter. been one (1) copy of the agreement and both had signed it.
● The courts are not bound to rely upon the name or title given the contract by the parties. The ○ Complementary-contracts-construed-together doctrine – read and interpreted
essence of the contract determines what law should apply between the contracting together to eliminate inconsistencies and render the parties’ intention effective
parties. ○ No Segregation Principle – certain stipulations cannot be segregated and then
● Denomination or title given by the parties to their contract is not conclusive of the nature of its made to control (Art. 1374)
contents. ● Impairment or loss of right not favored – Construction of the terms of a contract, which
would amount to impairment or loss of right is not favored. Conservation and preservation,
Article 1372. However general the terms of a contract may be, they shall not be understood to not waiver, abandonment or forfeiture of a right is the rule.
comprehend things that are distinct and cases that are different from those upon which the parties
intended to agree. (1283) Article 1375. Words which may have different significations shall be understood in that which is most
in keeping with the nature and object of the contract. (1286)
GR: Generalia verba sunt generaliter intellegenda –– general terms are to be understood in a general
sense WORDS WITH DIFFERENT MEANINGS
XPN: The normative & controlling factor however, is the intent of the parties. ● Refers to words in a contract which may have more than one meaning
● The interpretation and application even of general and inclusive terms cannot go beyond the ● The words themselves may cause some ambiguity, uncertainty, or confusion
intent of the parties ● In order to clarify them and thus discover true intent of parties, the words should be
interpreted and understood in that sense most conformable to the nature and purpose of
Article 1373. If some stipulation of any contract should admit of several meanings, it shall be the contract
understood as bearing that import which is most adequate to render it effectual. (1284)
Article 1376. The usage or custom of the place shall be borne in mind in the interpretation of the
If one interpretation makes a contract valid or effective and the other makes it illegal or meaningless, ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established.
the former interpretation is one which is warranted by the rule in Art. 1373. (1287)

Article 1374. The various stipulations of a contract shall be interpreted together, attributing to the USAGE AND CUSTOM AS AIDS TO INTERPRETATION
doubtful ones that sense which may result from all of them taken jointly. (1285) ● Usage and customs, whether general or local, form part of the mind set and presupposition of
the parties when they enter into an agreement
○ It can thus be fairly presumed that, in the absence of any contract stipulation in the
PRESUMPTION OF VALIDITY contract, they intended their agreement to be conformable to these customs and
● Public policy favors the validity of the contracts – in case of doubt presumes such validity. usages
This is in conformity with the principle of contractual freedom ○ Should there be any ambiguity in the contractual stipulations, those usage and
● Where the instrument is susceptible to two interpretations, one which will make it invalid and customs may therefore be resorted to for clarification
illegal, and another which will make it valid and legal, the latter interpretation should be
adopted. HISTORY
○ Ut res magis valeat quam pereat – that thing may be valid rather than be nullified ● In the old code – it was provided in Art. 6
● In the present code this is recognized in:

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 93

 ○ Article 11. Customs which are contrary to law, public order or public policy shall ● Sec. 11. Instrument construed so as to give effect to all provisions. — In the
not be countenanced construction of an instrument where there are several provisions or particulars. such a
○ Article 12. A custom must be proved as a fact, according to the rules of evidence construction is, if possible, to be adopted as will give effect to all.
● Rule 130, Sec. 19 of the ROC – lays down the same rule ● Sec. 12. Interpretation according to intention; general and particular provisions. — In
the construction of an instrument, the intention of the parties is to be pursued; and when a
Article 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party general and a particular provision are inconsistent, the latter is paramount to the former. So a
who caused the obscurity. (1288) particular intent will control a general one that is inconsistent with it.
○ When a general and a particular provision are inconsistent, the particular provision
will control.
RATIONALE ● Sec. 13. Interpretation according to circumstances. — For the proper construction of an
● Equitable principle that no one should be allowed to profit from his wrongful conduct instrument, the circumstances under which it was made, including the situation of the subject
● Nemo commodum potest de iniuria propria sua – no one can benefit from his own wrong thereof and of the parties to it, may be shown, so that the judge may be placed in the position
of those whose language he is to interpret.
Example: A party who causes an ambiguity –– i.e. a party who drafted the agreement, cannot profit ● Sec. 14. Peculiar signification of terms. — The terms of a writing are presumed to have
from that ambiguity; on the contrary, such ambiguity should be resolved against him and in favor of the been used in their primary and general acceptation, but evidence is admissible to show that
other party (Lim Yhi Luya v CA) they have a local, technical, or otherwise peculiar signification, and were so used and
understood in the particular instance, in which case the agreement must be construed
Article 1378. When it is absolutely impossible to settle doubts by the rules established in the accordingly
preceding articles, and the doubts refer to incidental circumstances of a gratuitous contract, the least ● Sec. 15. Written words control printed. — When an instrument consists partly of written
transmission of rights and interests shall prevail. If the contract is onerous, the doubt shall be settled words and partly of a printed form, and the two are inconsistent, the former controls the latter.
in favor of the greatest reciprocity of interests. ● Sec. 16. Experts and interpreters to be used in explaining certain writings. — When the
characters in which an instrument is written are difficult to be deciphered, or the language is
not understood by the court, the evidence of persons skilled in deciphering the characters, or
EFFECT OF IRRESOLVABLE DOUBT who understand the language, is admissible to declare the characters or the meaning of the
language.
Purpose ● Sec. 17. Of two constructions, which preferred. — When the terms of an agreement have
● To dispel any doubt or ambiguity as to the intent of the parties been intended in a different sense by the different parties to it, that sense is to prevail against
● The contract is law as between the parties and their intent must always prevail either party in which he supposed the other understood it, and when different constructions of
● If, however, there exists doubt as to such intent, which proves incapable of resolution, the a provision are otherwise equally proper, that is to be taken which is the most favorable to the
provisions of this article shall apply party in whose favor the provision was made.
● Sec. 18. Construction in favor of natural right. — When an instrument is equally
If the doubt refers to Incidental Circumstances susceptible of two interpretations, one is favor of natural right and the other against it, the
● If the contract is gratuitous – the contract shall be interpreted in favor of the least former is to be adopted.
transmission of rights ● Sec. 19. Interpretation according to usage. — An instrument may be construed according
○ Since the grantor receives nothing in return of his act, it is better to err on the side to usage, in order to determine its true character.
of the less than of greater transmission and thus minimize the diminution of the
grantor’s patrimony.
○ i.e. donation CHAPTER 6
● If the contract is onerous – the resolution of the doubt should be in favor of the greatest RESCISSIBLE CONTRACTS
reciprocity between the parties
○ This is fully in accordance with the nature of onerous contracts, which involves an CHAPTER 6 - RESCISSIBLE CONTRACTS
exchange of values
1380 Rescission
If the doubt refers to Principal Circumstances 1381
● The contract is void Kinds of Rescissible Contracts
● Such a contract would fall under Art. 1409, Par. 6 1382
1383 Subsidiary Nature of Rescission
Article 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be 1384 Extent of Rescission
observed in the construction of contracts. (n) 1385 Mutual Restitution
1386 When Rescission Not Available
SUMMARY OF RELEVANT PROVISIONS IN THE RULE 130, RULES OF COURT
● Sec. 10. Interpretation of a writing according to its legal meaning. — The language of a 1387 Presumption of Fraud of Creditors
writing is to be interpreted according to the legal meaning it bears in the place of its 1388 Liability of Acquirer in Bad Faith
execution, unless the parties intended otherwise.
1389 Computation of Prescriptive Period

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 94

 ● Things are restored to their condition prior to the celebration of the valid contract. Thus, its
DEFECTIVE CONTRACTS purpose is to make ineffective the contract validly entered into.

● The methodical classification under the New Civil Code is towards greater clarity and ART. 1381 ART. 1191
refinement Rescission by reason of lesion or Rescission (Resolution) on account of
● In the Old Code, the distinction between the voidable and void contracts was in no sense economic prejudice breach of stipulations
clear. Based on economic damage or
● Defective contracts, in the order of their defectiveness or seriousness: Basis Premised on breach of faith
prejudice
1. Rescissible [Arts. 1380 - 1389] – One that has caused a particular economic
damage to one of the parties or to a third person and may consequently be set Nature of Action Subsidiary remedy Primary remedy/principal action
aside even if intrinsically valid Only as much as is necessary to make
2. Voidable [Arts. 1390 - 1402] – One in which the consent of one of the parties is Extent good the damage suffered by the injured
defective, either on account of want of capacity, or of the vitiation of said consent; it party (Art. 1384)
is effective unless judicially set aside Abrogation of the contract from the
3. Unenforceable [Arts. 1403 - 1408] – One that, for lack of authority, or of writing, or Termination of the obligation and release of
beginning and restoration of the parties
for incompetence of both parties, cannot be given effect unless properly ratified. Effect the parties from further obligations from
to their relative positions as if no contract
● Strictly speaking, the term defective (intrinsic) contracts only refer to voidable and each other
has been made. Void from its inception
unenforceable contracts Who May May be demanded by a third party
○ Rescissible contracts contain all the elements of contract and are therefore in Only by a party to the contract
Institute Action prejudiced by the contract
conformity with contract law. The defect is extrinsic.
○ Void contract cannot be referred to as contracts at all. Power of the The Court has no power to grant an The Court may grant a period or term for
● Practically, defective contracts are used as a term because they all fall outside the ambit of Courts extension for performance the performance of the obligation
valid contracts and yet each of them produce legal consequences. Various reasons of equity are grounds Non-performance is the only ground for the
Causes
○ Sen. Tolentino observes that the classification does not include the relatively for rescission right to rescission
ineffective contracts or those contracts which are ineffective only with respect to Contracts which Applies to either reciprocal or unilateral Applies only to reciprocal obligations where
certain parties, but are effective as to other persons. may be obligations and whether the contract has one party has failed to comply with what is
■ Assignment of the lease by the lessee without the consent of the lessor rescinded been fully fulfilled or not incumbent upon him
is ineffective only as regards the lessor Prescriptive
■ Void as to the rhid parties, but valid as between the parties 4 years 10 years
Period
■ Transfer of a debt by the debtor to another, without the consent of the
creditor, is ineffective as to the creditor 1. Both presuppose contracts validly entered into and existing (this
■ The payment by a debtor to his creditor after the credit has been distinguishes rescission from annulment, in which there is a defect which
Similarities
garnished or attached by a third person, is ineffective as to the latter vitiates the contract); and
○ Relatively ineffective contracts’ ineffectiveness, with respect to the party 2. Both require mutual restitution when declared proper
concerned, is produced ipso jure. On the other hand, voidable contracts do not Note: The term “resolution” is based on Art. 1124 of the Old Civil Code but the present Code uses
become inoperative unless an action to annul it is instituted and allowed “rescission”

BASIS OF RESCISSION — Presupposes economic damage or prejudice, either to one of the parties of
Article 1380. Contracts validly agreed upon may be rescinded in the cases established by law. (1290) a third person.

RESCISSION REQUISITES OF RESCISSION

● Remedy granted by law to the contracting parties and even to third parties, to obtain Balane:
compensation for the damages caused by a contract, even if valid, by man of the 1. The contract must fall under Art 1381 or 1382
replacement of things to the state prior to the celebration of that. 2. The injured party must have no other means of obtaining reparation for the economic
● Process or equitable remedy designated to render inofficious a contract validly entered into damage suffered by him (Art 1383)
and normally binding, by reason of external conditions, causing an economic prejudice to a 3. The injured party must be able to return whatever he may be obliged to return if the contract
party or his creditors. is declared rescinded (Art 1385, Par 1)
● Not to be confused with Art. 1191 (Resolution). 4. The object of the contract must not have passed legally to a third party in good faith (Art.
1385, Par 2 and 3)
RESCISSIBLE CONTRACTS
● Those that are validly agreed upon because all the essential elements exist, and therefore, De Leon:
legally effective, but in the cases established by law, the remedy of rescission is granted in 1. The contract must be Validly agreed upon
the interest of equity 2. There must be Lesion or pecuniary prejudice or damage to one of the parties or to a third
● A rescissible contract is valid until rescinded. It is defective only in the sense that it causes person (Art. 1381)
economic or pecuniary damage to one of the parties or to a third person 3. The rescission must be based upon a case Especially provided by law (Arts. 1380-1382)

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 95

 4. The object of the contract must not legally be in the Possession of third persons who did not ACCION PAULIANA (Art. 1381, Par. 3)
act in bad faith (Art. 1385, par. 2) ● Creditors, after having pursued the property in possession of the debtor to satisfy their claims
5. The Period for filing the action for rescission must not have prescribed (Art. 1389) may exercise all the rights and bring all the actions of the latter for the same purpose, save
6. 6. There must be No other legal remedy to obtain reparation for the damage (Art. 1383) those which are inherent in his person; they may also impugn the acts which the debtor may
7. The party asking for rescission must be able to Return what he is obliged to restore by have done to defraud them (Article 1177).
reason of the contract (Art. 1385, par. 1) ● Exception to the principle of relativity of contracts
● Part of the comprehensive right given to unpaid creditors to exhaust the property and assets
Article 1381. The following contracts are rescissible: of their debtors in order to obtain satisfaction of their claims
(1) Those which are entered into by guardians whenever the wards whom they represent suffer ● A remedy of last resort; cannot be instituted except when the party suffering damage has
lesion by more than one-fourth of the value of the things which are the object thereof; no other legal means to obtain reparation for the same
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in
the preceding number; Requisites of Accion Pauliana
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect 1. The plaintiff asking for rescission has a Credit prior to the alienation, although demandable
the claims due them; later
(4) Those which refer to things under litigation if they have been entered into by the defendant ○ Credit must have arisen before the alienation as subsequent creditors cannot be
without the knowledge and approval of the litigants or of competent judicial authority; prejudiced by prior alienation made by the debtor
(5) All other contracts specially declared by law to be subject to rescission. (1291a) ○ The credit need not be due at the time of the alienation but it must be due at the
time of the filing of the acción pauliana
2. The debtor has made a Subsequent contract conveying a patrimonial benefit to a third
CLASSIFICATION OF RESCISSIBLE CONTRACTS person
1. Rescissible because of lesion or prejudice [Arts. 1381 (1) and (2) and 1018] 3. The creditor has no Other legal remedy to satisfy his claim
2. Rescissible on account of fraud or bad faith [Arts. 1381 (3) and (4), and 1382] ○ Acción pauliana is subsidiary; it is a last recourse remedy available only after the
3. By special provisions of law are susceptible of rescission creditor has exhausted all the property of the debtor that is not exempt from
execution
BY A GUARDIAN ON BEHALF OF HIS WAR (Art. 1381, Par 1) AND BY A REPRESENTATIVE ON 4. The act being impugned is Fraudulent
BEHALF OF AN ABSENTEE (Art. 1381, Par. 2) ○ For fraud to exist, the debtor must be aware that the alienation will cause prejudice
● Share the common feature of lesion in excess of 1⁄4 of the value of the subject matter of the to the creditor by depriving the latter of the means to obtain full satisfaction for his
contract credit. Such awareness, even if falling short of strict malice, is sufficient to
● Lesion – Economic injury suffered, as a consequence of inequality, by one who does not constitute fraud.
receive the full equivalent of what he gives in a commutative contract 5. The third person who received the property conveyed, if it is by onerous title, has been an
○ Economic prejudice or pecuniary damage which one of the parties suffers by virtue Accomplice in the fraud.
of a contract which is disadvantageous to him
○ Extent of Lesion – Not enough that there is lesion; Must exceed 1⁄4 of the ● In determining whether or not a certain conveyance is fraudulent, the question in every case
thing’s value is whether the conveyance was a bona fide transaction or trick and contrivance to defeat
● Scope of Operation of Pars. 1 & 2 creditors, or whether it conserves to the debtor a special right.
○ If the contract is one which requires court approval, these paragraphs will not be ● Fraud may be actual or presumed (Art 1387)
applicable (Art. 1386) ○ In gratuitous dispositions, the fraud is presumed. (Art. 1387 par. 1)
■ Rule 95, Sec 1 of Rules of Court ○ In onerous contracts, fraud is presumed when, at the time of the alienation,
■ In sales, disposition, or encumbrances of real property of the ward, the judgment or writ of attachment has been rendered against the debtor. (Art. 1387,
guardian has to obtain prior judicial approval par. 2)
● If such approval is obtained, the contract cannot be rescinded, ■ Need not necessarily be concerning the item or property that had been
even if there is lesion in the proportion specified disposed of in suspicious circumstances.
● If approval is not obtained, the contract will not be rescissible ○ It can only be fraud of creditors that gives rise to a rescission of the offending
but unenforceable under Art. 1317 contract.
○ If there is no need for judicial approval, then it will be rescissible if it results in ○ Circumstances which may constitute proofs or badges of fraud:
lesion in the proportion specified. 1. Inadequacy or fictitious cause or consideration
■ Such contract involved personal property of the ward or absentee 2. Alienation of the property while the suit is pending (This is what par. 4
● Another case of transaction rescissible for lesion is that in Art 1098: when, in the partition of explicitly refers to)
the decedent’s estate, one of co-heirs suffers lesion of at least 1⁄4 of his share. This may be 3. Sale of the thing on credit when vendor is insolvent
judicial or extrajudicial. 4. Evidence of large indebtedness or complete insolvency
● The amount or extent of such lesion must at least be determinable at the time of transaction 5. Transfer of all or most of the debtor’s property especially when he is
○ The contract will not be rescissible if the lesion is caused by supervening events financially embarrassed, and
which could not be reasonably foreseen 6. The vendee’s failure to take possession of the property
● The ward of absentee himself is the proper party to demand the rescission 7. The fact that the transfer is made between father and son when there are
present any of the above circumstances

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 96

 ● When the plaintiff has a right of rescission: Good or bad faith of transferee
○ If the alienation is gratuitous, the good or bad faith of the transferee is immaterial. ● Article 1539. The obligation to deliver the thing sold includes that of placing in the control of
It is sufficient that the donor-debtor did not reserve enough property. the vendee all that is mentioned in the contract, in conformity with the following rules:
○ If the alienation is onerous, the complicity of the transferee is required. The
contract will be rescissible only if the transferee acted in bad faith.
If the sale of real estate should be made with a statement of its area, at the rate of a certain
UNAUTHORIZED CONTRACTS OF THINGS UDNER LITIGATION (Art. 1381, Par. 4) price for a unit of measure or number, the vendor shall be obliged to deliver to the vendee, if
● Article 1381 (4) refers to a contract executed by the defendant in a suit involving the the latter should demand it, all that may have been stated in the contract; but, should this be
ownership or possession of a thing, when such contract is made without the knowledge and not possible, the vendee may choose between a proportional reduction of the price and the
approval of the plaintiff or the court. rescission of the contract, provided that, in the latter case, the lack in the area be not less
● The thing the defendant sold is under the litigation. If you enter into such a contract, you have than one-tenth of that stated.
to apply for approval to the Court and the Court will ask the plaintiff in that particular case to
comment as to that particular contract. If the Court approves, then it is no longer subject to The same shall be done, even when the area is the same, if any part of the immovable is not
rescission. of the quality specified in the contract.
● Requisites
1. There is a pending litigation over the thing alienated at the time of its alienation The rescission, in this case, shall only take place at the will of the vendee, when the inferior
2. The plaintiff obtains a favorable judgment in the suit (i.e. he acquires the thing) value of the thing sold exceeds one-tenth of the price agreed upon.
● When the plaintiff has a right of rescission
○ Same rules as Art 1381, Par 3 Nevertheless, if the vendee would not have bought the immovable had he known of its
○ If the alienation is gratuitous, the good or bad faith of the transferee is immaterial. smaller area of inferior quality, he may rescind the sale. (1469a)
○ If the alienation is onerous, the complicity of the transferee is required. The
contract will be rescissible only if the transferee acted in bad faith. ● Article 1556. Should the vendee lose, by reason of the eviction, a part of the thing sold of
● Remedy of rescission is given also to third parties who are not party to the contract such importance, in relation to the whole, that he would not have bought it without said part,
● Art. 1384 (4) seeks to protect the binding effect of the court’s impending adjudication vis-à-vis he may demand the rescission of the contract; but with the obligation to return the thing
the thing subject of litigation regardless of which among the contending claims therein would without other encumbrances that those which it had when he acquired it.
subsequently be upheld.
● Accordingly, a definitive judicial determination with respect to the thing subject of litigation is He may exercise this right of action, instead of enforcing the vendor's liability for eviction.
not a condition sine qua non before the rescissory action contemplated under Art. 1384 (4)
may be instituted. The same rule shall be observed when two or more things have been jointly sold for a lump
sum, or for a separate price for each of them, if it should clearly appear that the vendee
SPECIAL CASES OF RESCISSION (Art. 1381, Par. 5) would not have purchased one without the other. (1479a)
● Catch-all clause
● Art 1526 (Right of unpaid seller of goods to rescind). Subject to the provisions of this Title, ● Article 1560. If the immovable sold should be encumbered with any non-apparent burden or
notwithstanding that the ownership in the goods may have passed to the buyer, the unpaid servitude, not mentioned in the agreement, of such a nature that it must be presumed that the
seller of goods, as such, has: vendee would not have acquired it had he been aware thereof, he may ask for the rescission
(1) A lien on the goods or right to retain them for the price while he is in possession of of the contract, unless he should prefer the appropriate indemnity. Neither right can be
them; exercised if the non-apparent burden or servitude is recorded in the Registry of Property,
(2) In case of the insolvency of the buyer, a right of stopping the goods in transitu after unless there is an express warranty that the thing is free from all burdens and encumbrances.
he has parted with the possession of them;
(3) A right of resale as limited by this Title; Within one year, to be computed from the execution of the deed, the vendee may bring the
(4) A right to rescind the sale as likewise limited by this Title. action for rescission, or sue for damages.

● Article 1534. An unpaid seller having the right of lien or having stopped the goods in transitu, One year having elapsed, he may only bring an action for damages within an equal period, to
may rescind the transfer of title and resume the ownership in the goods, where he expressly be counted from the date on which he discovered the burden or servitude. (1483a)
reserved the right to do so in case the buyer should make default, or where the buyer has
been in default in the payment of the price for an unreasonable time. The seller shall not ● Article 1567. In the cases of articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect
thereafter be liable to the buyer upon the contract of sale, but may recover from the buyer between withdrawing from the contract and demanding a proportionate reduction of the price,
damages for any loss occasioned by the breach of the contract. with damages in either case. (1486a)

The transfer of title shall not be held to have been rescinded by an unpaid seller until he has Article 1382. Payments made in a state of insolvency for obligations to whose fulfillment the debtor
manifested by notice to the buyer or by some other overt act an intention to rescind. It is not could not be compelled at the time they were effected, are also rescissible. (1292)
necessary that such overt act should be communicated to the buyer, but the giving or failure
to give notice to the buyer of the intention to rescind shall be relevant in any issue involving
the question whether the buyer had been in default for an unreasonable time before the right PAYMENTS MADE BY AN INSOLVENT DEBTOR OF UNCOMPELLABLE DEBTS (Art. 1382)
of rescission was asserted. (n) ● A debtor is insolvent if he does not have sufficient properties to meet his obligations. It is not
necessary that the debtor's insolvency be judicially declared.
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 97
 ○ Insolvency here means lack of assets to meet one’s legal obligations (factual Article 1385. Rescission creates the obligation to return the things which were the object of the
insolvency), the economic situation of a person which makes it impossible for him contract, together with their fruits, and the price with its interest; consequently, it can be carried out
to meet his obligations only when he who demands rescission can return whatever he may be obliged to restore.
○ De facto insolvency
● Makes rescissible those payments made by an insolvent debtor, of debts which the debtor Neither shall rescission take place when the things which are the object of the contract are legally in
cannot, at the time of the payment, be compelled to make the possession of third persons who did not act in bad faith.
○ Payments of obligations which are not legally demandable include those that are
fictitious, void, natural, prescribed, remitted, subject to a suspensive term that has In this case, indemnity for damages may be demanded from the person causing the loss. (1295)
not yet arrived, subject to a suspensive condition
● Payment is not a contract but a mode of extinguishing an obligation
● These payments are rescissible because they create an unfair advantage for the payee and THIRD REQUISITE
cause prejudice to the creditors whose credits are already existing and are or will in the future The injured party must be able to return whatever he may be obliged to return if the contract is declared
be demandable; considering that the payor does not have sufficient assets to pay his rightful rescinded (par. 1)
creditors ● This requisite is only applicable if the one who suffers the lesion is a party to the contract.
● Act of payment will not be rescissible if there are no creditors who will be prejudiced ● This requisite does not apply when a defrauded creditor resorts to accion pauliana.

MUTUAL RESTITUTION
Article 1383. The action for rescission is subsidiary; it cannot be instituted except when the party ● Parties returning what they have received by virtue of the contract that has been rescinded
suffering damage has no other legal means to obtain reparation for the same. (1294) ● The extent of the mutual restitution depends on the extent of the rescission; may be total or
partial
SECOND REQUISITE
The injured party must have no other means of obtaining reparation for the economic damage suffered WHEN NOT APPLICABLE — In some rescissible contracts where damage is suffered by a third party
by him since such third party received nothing under the contract and therefore has nothing to return by virtue
of its rescission
1. Subsidiary remedy → a last-recourse remedy ● Art 1381, Par 3 and 4 and transactions in Art 1382
○ The party seeking rescission has the burden of proving that he has no other
remedy to obtain satisfaction for his claim than the rescission of the contract IF MUTUAL RESTITUTION IS REQUIRED, BUT CANNOT BE MADE
2. Independent Action ● If the party has lost the thing or if the thing has been passed to a third person in good faith in
○ A rescissible contract may be assailed directly only by a proper action in court, an onerous transaction – Indemnity for damages
and not indirectly or collaterally by way of defense. ● If the inability to return the thing is caused by a third person's wrongful conduct, the party
○ An independent action is necessary to prove that a contract is rescissible. It may prejudiced may recover damages from the tortfeasor
not be raised or set up in a summary proceeding through a motion.
Note: In accion pauliana, you need to prove that the third person is conniving with the debtor.
FROM WHOM REPARATION IS DEMANDABLE
1. Par. 1 and 2 of Article 1381 Article 1386. Rescission referred to in Nos. 1 and 2 of article 1381 shall not take place with respect to
○ Offended party → Ward or absentee contracts approved by the courts. (1296a)
○ Reparation may be obtained from → The vendee of the thing; or
guardian/representative, although the basis of such claim would be quasi-delict, not Article 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are
contractual presumed to have been entered into in fraud of creditors, when the donor did not reserve sufficient
2. Par. 3, 4, and 5 of Article 1381; and Article 1382 property to pay all debts contracted before the donation.
○ Reparation may be obtained from → The other contracting party
Alienations by onerous title are also presumed fraudulent when made by persons against whom some
Article 1384. Rescission shall be only to the extent necessary to cover the damages caused. (n) judgment has been rendered in any instance or some writ of attachment has been issued. The
decision or attachment need not refer to the property alienated, and need not have been obtained by
EXTENT OF RESCISSION the party seeking the rescission.
● The rescission shall only be to the extent of the creditor’s unsatisfied credit.
● Only as much as is necessary to make good the damage suffered by the injured party (pro In addition to these presumptions, the design to defraud creditors may be proved in any other manner
tanto) recognized by the law of evidence. (1297a)
● Since contract is intrinsically valid, it remains effective insofar as no economic damage has
been caused FRAUD — May be actual or presumed
● The policy of the law is to preserve or respect the contract, not to extinguish it.
● Only the creditor who brought action for rescission benefit from the rescission; those who are PRESUMPTION OF FRAUD OF CREDITORS
strangers to the action cannot benefit from its effects ● In gratuitous dispositions, it is presumed when the debtor-donor did not reserve sufficient
property to pay pre existing debts (Par 1)

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 98

 ● In onerous contracts, it is presumed when at the time of the alienation, judgment or writ of ● In cases falling under Par. 1 and 2 of Art. 1381, the prescriptive period shall commence
attachment has been rendered against the debtor (Par 2). running from the termination of the ward’s incapacity or of the absence as the case may be.
○ Need not necessarily be concerning the item or property that had been disposed of
in suspicious circumstances CHAPTER 7
○ Arises even if the decision or the judgment creditor or the person who was able to VOIDABLE CONTRACTS
acquire the writ of attachment is not the creditor who is suing for rescission

ACTUAL FRAUD — In the absence of the presumption of fraud, it must be proved by actual evidence, CHAPTER 7 - VOIDABLE CONTRACTS
whether direct or circumstantial 1390 Categories of Voidable Contracts
These circumstances may constitute proofs/badges of fraud: 1391 Prescriptive Period for Action to Annul
1. Inadequacy or fictitious cause or consideration 1392 Ratification
2. Alienation of the property while the suit is pending (This is what par. 4 explicitly refers to)
3. Sale of the thing on credit when vendor is insolvent 1393 Forms of Ratification
4. Evidence of large indebtedness or complete insolvency 1394 Ratification by Guardian
5. Transfer of all or most of the debtor’s property especially when he is financially
1395 Party to whom the right to Ratify Belongs
embarrassed, and
6. The vendee’s failure to take possession of the property 1396 Retroactivity
7. The fact that the transfer is made between father and son when there are present any of 1397 Exercise of Right to Annul
the above circumstances
1398 Mutual Restitution
Article 1388. Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify 1399 Effect of Incapacity to Mutual Restitution
the latter for damages suffered by them on account of the alienation, whenever, due to any cause, it 1400
should be impossible for him to return them. Restitution in Case of Loss of the Thing to be Returned
1401
If there are two or more alienations, the first acquirer shall be liable first, and so on successively. 1402 Effect of Failure to Restore on the Decree of the Annulment
(1298a)
Article 1390. The following contracts are voidable or annullable, even though there may have been
LIABILITY OF ACQUIRER IN BAD FAITH no damage to the contracting parties:
● If alienation is in fraud of creditors – The acquirer, upon proper demand, is liable to return it (1) Those where one of the parties is incapable of giving consent to a contract;
○ If the acquirer is unable to return the thing, he will be liable to indemnify the creditor (2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.
for damages
● Whether onerous or gratuitous, there will be BAD FAITH if the acquirer was aware that the These contracts are binding, unless they are annulled by a proper action in court. They are
alienation would prejudice the transferor’s creditors susceptible of ratification. (n)
● Arises irrespective of the cause of the inability of acquirer to return the thing, whether
negligence or fortuitous event
● Exception to the general rule that the only interest of the creditor is to obtain from the VOIDABLE CONTRACTS
patrimony of the debtor satisfaction of the obligation and third person incurs no liability for A voidable contract is a contract in which all of the essential elements for validity are present, but the
damages if he is willing and able to deliver element of consent is vitiated either by lack of legal capacity of one of the contracting parties or by
mistake, violence, intimidation, undue influence, or fraud.
● Suffer from an instrinsic defect – that of vitiated consent on the part of one of the parties
Article 1389. The action to claim rescission must be commenced within four years. ● Damage/injury is not necessary unlike rescissible contract
● Effective unless set aside
For persons under guardianship and for absentees, the period of four years shall not begin until the
termination of the former’s incapacity, or until the domicile of the latter is known. (1299) CHARACTERISTICS OF VOIDABLE CONTRACTS
1. Those where one of the parties is incapable of giving consent to a contract;
COMPUTATION OF PRESCRIPTIVE PERIOD 2. Those where the consent is vitiated by mistake, violence, intimidation, undue influence or
4 years counted from the celebration of the contract which caused the economic damage. fraud.
● Even if the debt is subject to a period that has not yet arrived, such debt became due from
the time the debtor lost his solvency CATEGORY 1 — INCAPACITATED
● If the fraudulent alienation was not known to the prejudiced creditor, the period should start ● Enumerated in Art. 1327
running only from the time he acquires knowledge thereof ○ Unemancipated minors
○ Insane or demented persons
EXCEPTION — Contracts falling under Par. 1 and 2 of Art. 1381 ○ Deaf-mutes who do not know how to write

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 99

 ● Minors – Where necessaries are sold and delivered to a minor or other person without Article 1392. Ratification extinguishes the action to annul a voidable contract. (1309a)
capacity to act, he must pay a reasonable price therefore. Necessaries include everything
that is indispensable for sustenance, dwelling, clothing, and medical attendance.
● Code speaks of gradation or distinction. A contract entered into by a minor, is voidable, RATIFICATION
regardless of how many years he falls short of the age of minority. ● Balane: The act or means by which an obligation or contract which suffers from the vice of
○ Where minor who is close to the age of majority misrepresents to the other curable nullity is rendered efficacious
contracting party that he is of age ● De Leon: Means that one under no disability voluntarily adopts and gives sanction to some
■ Contracts effected by minors who have already passed the age of defective or unauthorized contract, act, or proceeding which without his subsequent sanction
puberty and adolescence and are near the adult age, when they pretend or consent, would not be binding.
to have already reached the age of majority, while in fact they have not, ○ It is the voluntary choice, knowingly made, which amounts to a ratification of what
are valid, and cannot be permitted afterwards to excuse themselves from was thereto unauthorized and becomes the authorized act of the party making the
compliance with obligations assumed by them or seek their annulment. ratification.
This is in consonance with the rules of estoppel. (Mercado vs. Espiritu). ● Confirmation is the proper term for curing the defect of a voidable contract.
■ However in Braganza v, De Villa, the SC said that the misrepresentation ● Spanish code uses the term confirmacion (confirmation)
of an incapacitate person does not estop him from denying that he was ● Whether made expressly or impliedly, cleanses the contract from all its defects from the
of age, or from asserting that he was under age, at the time he entered moment it was constituted. The contract thus becomes valid. Hence, the action to annul is
into the contract. According to Professor Balane, this view is very logical. extinguished.
If the minor is too young to enter into contracts, he is too young to be
estopped. CONFIRMATION RATIFICATION ACKNOWLEDGEMENT
○ Contracts entered by minors of tender age – Code does not distinguish, as Mode or process of curing the Mode of curing the defect of a Premised on breach
compared to our Civil code defect of a voidable contract contract entered into on behalf of a
■ Balane believes that a distinction should be made such that contracts party by one who has no authority
entered by minors of tender age will be considered void and not just or who has acted in excess of his
voidable authority
■ Also applicable to an insane person who is similarly absolutely incapable
Applies to unenforceable contract Applies to contracts covered by the
of giving consent
under Art. 1317 and 1403(1) Statute of Frauds (Art. 1403(2))
CATEGORY 2 – VITIATED CONSENT The Code uses ratification to refer to all the three modes of curing defects of contracts.
● Five vitiating factors under Arts. 1330 to 13344
REQUISITES OF RATIFICATION
1. The contract is voidable under Article 1390
Article 1391. The action for annulment shall be brought within four years. 2. The ratification is made consciously and deliberately (i.e. with knowledge of the defect)
3. It must have been made after the cessation of the cause of voidability
This period shall begin: 4. It must be made by the party whose consent was defective or vitiated, or in proper cases, by
In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases. his guardian
In case of mistake or fraud, from the time of the discovery of the same.
EFFECTS OF RATIFICATION
And when the action refers to contracts entered into by minors or other incapacitated persons, from ● Curative – Converts the contract from a voidable one to a valid one
the time the guardianship ceases. (1301a) ○ If ratification takes palce during the pendency of an action to annul, action is tolled
and the cause of action is extinguished
PRESCRIPTIVE PERIOD FOR ACTION TO ANNUL ○ Once confirmed, it is cleansed of its defect and any action for annulment will be
4 years from the time of the cessation of the cause of the defect of the contract barred
● If vitiated by violence, intimidation, or undue influence – From the time the vitiating factor ● Retroactive – Retroactive to the moment of the perfection of the contract
ceases
● If vitiated by mistake or fraud – From the time the mistaken or defrauded party discovers Article 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit
the operative cause of the vitiation ratification if, with knowledge of the reason which renders the contract voidable and such reason
● If vitiated by minority or other incapacity – From cessation of guardianship having ceased, the person who has a right to invoke it should execute an act which necessarily
○ When there is no guardianship, period commences to run from the time contractual implies an intention to waive his right. (1311a)
capacity is attained or recovered
● The action for annulment will not prosper in the following:
○ If the contract has been confirmed (Article 1392) FORMS OF RATIFICATION
○ If the action to annul has prescribed (Article 1391) ● Express – Any statement or declaration by the party entitled to claim annulment that he is
○ When the thing which is the object of the contract is lost through the fault or fraud accepting or adopting the contract; May be written or oral
of the person who has a right to institute the proceedings (Article 1401, Par 1) ● Implied/Tacit – Any act, conduct, or behavior of the party entitled to annul, from which an
○ Estoppel intention to abide by or accept the contract may be reasonably inferred
○ Performance (total or partial) by the party whose consent was vitiated
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 100
 ○ Silence or acquiescence ● Party whose consent is vitiated
○ Acts showing adoption or approval of the contract
○ Acceptance and retention of benefits flowing from the contract RIGHT TO ANNUL — Belongs exclusively to the party whose consent is vitiated, his
successors-in-interest, and his subsidiaries; Party whose consent was not vitiated cannot annul the
Article 1394. Ratification may be effected by the guardian of the incapacitated person. (n) contract

RATIFICATION BY GUARDIAN Article 1398. An obligation having been annulled, the contracting parties shall restore to each other
● Refers to cases where the contracting party was incapacitated the things which have been the subject matter of the contract, with their fruits, and the price with its
● During period of incapacity, guardian may exercise the right of ratification on his behalf interest, except in cases provided by law.
● No need for court approval
In obligations to render service, the value thereof shall be the basis for damages. (1303a)

Article 1395. Ratification does not require the conformity of the contracting party who has no right to
bring the action for annulment. (1312) MUTUAL RESTITUTION
● Annulment of the contract creates the obligation of mutual restitution
● The purpose is to restore the parties to their original situation by mutual restitution
PARTY TO WHOM RIGHT TO RATIFY BELONGS ● Common feature of resolution of reciprocal obligations and annulment
● Only the party who has the right to have the voidable contract judicially set aside can confirm ● When the contract is annulled, it is cancelled and is regarded by law as never having existed
it (i.e., party whose consent was defective) ● The effects of annulment operate prospectively and do not, as a rule, retroact
● Act of ratification made by the party whose consent is vitiated does not need the other party’s
consent WHAT MUST BE RETURNED
● Each party must return to the other what he received by virtue of the contract
Article 1396. Ratification cleanses the contract from all its defects from the moment it was ● Each party must also return the fruits or their value produced by the thing while in the
constituted. (1313) possession of the party obliged to return
○ If the party obliged to return is in good faith, he has no obligation to return the fruits
accruing while good faith lasted.
RETROACTIVITY ○ If the party obliged to return is in bad faith, he shall be obliged to return the fruits
● When a voidable contract is confirmed, it is raised to the status of a valid contract that were actually received and could have been received.
● Consequences of validity are deemed to arise from the moment of its perfection
● Carries with it the waiver of the right to annul but only to the ground encompassed by the EXCEPTION – Qualified by equitable rule on unjust enrichment
confirmation
LIABILITY FOR DAMAGES – If the cause of the annulment is duress or fraud, the party employing it is
Article 1397. The action for the annulment of contracts may be instituted by all who are thereby liable for damages
obliged principally or subsidiarily. However, persons who are capable cannot allege the incapacity of
those with whom they contracted; nor can those who exerted intimidation, violence, or undue Article 1399. When the defect of the contract consists in the incapacity of one of the parties, the
influence, or employed fraud, or caused mistake base their action upon these flaws of the contract. incapacitated person is not obliged to make any restitution except insofar as he has been benefited
(1302a) by the thing or price received by him. (1304)

REQUISITES FOR THE EXERCISE OF THE RIGHT TO ANNUL EXCEPTION TO THE GENERAL RULE OF MUTUAL RESTITUTION
1. That the party must have an interest in the contract
2. That the victim and not the party at fault should be the party alleging the defect EXTENT OF INCAPACITATED PARTY’S OBLIGATION TO RESTORE
● Extends only to the benefit, if any, that the derived from the thing received by him by virtue of
WHO MAY INSTITUTE ACTION FOR ANNULMENT the contract
● Incapacitated party ○ If he was not benefitted, he is not obliged to restore what he had received but the
● Successors-in-interest of said party other contracting party is still bound to return what he had received, whether he
● Subsidiaries of the party whose consent is vitiated was benefited or not.
○ XPNs: ○ It is not necessary for the minor to be considered benefited that he invested the
i. They were aware of the defect of consent at the time of the celebration of thing or amount received. It is sufficient if he has kept it. (Art. 1241, par. 1)
the contract ○ The party who has capacity has the burden of proving the benefit or profit received
ii. The guaranty or suretyship was constituted precisely to assume liability by the incapacitated person.
in the event of the annulment of the obligation ○ Enrichment of incapacitated party is not presumed.
● Incapacitated person is not responsible for his acts
WHO MAY ASK FOR ANNULMENT OF VOIDABLE CONTRACTS ● Also another qualification to the duty of mutual restitution
● Guardian of a minor
● Guardian of an incapacitated person STANDARD TO MEASURE BENEFIT – Use to which a prudent person would have devoted the thing.
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 101
 ● Mutual restitution is a consequence of annulment
Article 1400. Whenever the person obliged by the decree of annulment to return the thing can not do ● The decree of annulment having been made, does not lose its force on account of the failure
so because it has been lost through his fault, he shall return the fruits received and the value of the to make restitution
thing at the time of the loss, with interest from the same date. (1307a)
CHAPTER 8
UNENFORCEABLE CONTRACTS

Article 1401. The action for annulment of contracts shall be extinguished when the thing which is the
object thereof is lost through the fraud or fault of the person who has a right to institute the CHAPTER 8 - UNENFORCEABLE CONTRACTS
proceedings. 1403 Unenforceable Contracts
1404 Governing Provisions
If the right of action is based upon the incapacity of any one of the contracting parties, the loss of the
thing shall not be an obstacle to the success of the action, unless said loss took place through the 1405 Ratification of Contracts in Statute of Frauds
fraud or fault of the plaintiff. (1314a) 1406 Remedy of Parties for Statute of Frauds
1407 Ratification/Confirmation
RESTITUTION IN CASE OF LOSS OF THE THING TO BE RETURNED
If the thing that is lost is that which the defendant (party with capacity) had to return: 1408 Right to Assail Unenforceability
A. If the loss occurs through the defendant’s fault, his obligation is not extinguished but is
converted to an indemnity for damages. Defendant is liable for:
○ Value of the thing at the time of the loss Article 1403. The following contracts are unenforceable, unless they are ratified:
○ Its fruits (1) Those entered into in the name of another person by one who has been given no authority or
○ Interest legal representation, or who has acted beyond his powers;
○ Damages (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following
B. If the loss was caused by a fortuitous event: cases an agreement hereafter made shall be unenforceable by action, unless the same, or
○ If defendant was in bad faith, he is liable to the same extent as if he were at fault some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by
○ If defendant was in good faith, there are two views: his agent; evidence, therefore, of the agreement cannot be received without the writing, or a
i. Sen Tolentino – Defendant remains liable but only for the price of the secondary evidence of its contents:
thing and its fruits; will not be liable for interest (a) An agreement that by its terms is not to be performed within a year from the making
ii. 2nd view – Relieved from the liability to restore thereof;
○ Appears more persuasive since as a general rule, FE excuse from liability (b) A special promise to answer for the debt, default, or miscarriage of another;
(c) An agreement made in consideration of marriage, other than a mutual promise to marry;
If the thing that is lost is that which the plaintiff (party whose consent was vitiated) had to (d) An agreement for the sale of goods, chattels or things in action, at a price not less than
return: five hundred pesos, unless the buyer accept and receive part of such goods and chattels,
A. If the loss occurs through plaintiff’s fault, the right to annul is extinguished or the evidences, or some of them, of such things in action, or pay at the time some part
○ Fault or fraud is only possible in cases of duress, fraud or mistake of the purchase money; but when a sale is made by auction and entry is made by the
B. If loss occurs through a fortuitous event auctioneer in his sales book, at the time of the sale, of the amount and kind of property
○ Tolentino – Plaintiff still has the right to annul provided he is willing and able to sold, terms of sale, price, names of the purchasers and person on whose account the
return the value of the thing lost sale is made, it is a sufficient memorandum;
○ Caguioa – Plaintiff retains the right to annul without any obligation to return the (e) An agreement for the leasing for a longer period than one year, or for the sale of real
value property or of an interest therein;
(f) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to a contract.
Article 1402. As long as one of the contracting parties does not restore what in virtue of the decree of
annulment he is bound to return, the other cannot be compelled to comply with what is incumbent
upon him. (1308) UNENFORCEABLE CONTRACTS
● A contract that cannot be sued upon or enforced in court by reason of defects provided by
law until and unless they are ratified according to law.
RATIONALE ● Although valid, are unenforceable, unless they are ratified.
● Applies where mutual restitution is applicable ● The mere lapse of time cannot give effect to such a contract
● Since the duty is mutual or reciprocal, failure or refusal of one party to restore excuses the ○ The defect is of a permanent nature and will exist as long as the unenforceable
other from compliance with his own obligation contract is not duly ratified by the person in whose name the contract was
executed
EFFECT OF FAILURE TO RESTORE ON THE DECREE OF THE ANNULMENT ● Cannot be assailed by a third person
● Decree of annulment remains binding and effective despite the failure to restore
● Any further consequences or effects which the annulled contract would have produced are KINDS OF UNENFORCEABLE CONTRACTS
barred 1. Those entered into on behalf of another either without or in excess of authority
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 102
 2. Those that do not comply with the Statute of Frauds ○ If the contract has been totally or partially performed, the exclusion of parol
3. Those were both contracting parties are legally incapable of giving consent. evidence would promote fraud or bad faith, for it would enable the defendant to
keep the benefits already derived by him from the transaction in litigation, and, at
1ST CATEGORY — Those entered into on behalf of another either WITHOUT or IN EXCESS OF the same time, evade the obligation, responsibilities, or liabilities assumed or
authority contracted by him thereby.
● The contract is unenforceable and not void; capable of ratification
● Two kinds of Contracts: TWO PRINCIPLES IN THE STATUTE OF FRAUDS
1. Those entered into by a person on behalf of another in excess of the former’s 1. Parol evidence is not admissible. However, there are 2 ways of bringing it out:
authority a. Failure to object by the opposing lawyer when parol evidence is used (Art. 1405)
2. Those entered into by a person on behalf of another with absolutely no authority – If there is no objection, then parol evidence is admitted
from the latter b. Acceptance of benefits (Art. 1405) – If there has been performance on 1 side and
● Unauthorized Contracts – those entered into in the name of another person by one who has the other side accepts, then the Statute of Frauds is not applicable. Also, estoppel
been given no authority or legal representation or who has acted beyond his powers sets in so by accepting performance, the defect is waived.
● Related Articles: 2. The Statute of Frauds applies only to executory contracts and not to those which have
○ This is based on Art. 1317 which provides that: been executed in whole or in part.
“A contract entered into in the name of another by one who has no ● “Executed” here means that there has been performance in part and acceptance
authority or legal representation, or who has acted beyond his powers, shall be by the other.
unenforceable, unless it is ratified, expressly or impliedly, by the person on whose
behalf it has been executed, before it is revoked by the other contracting party.” AGREEMENTS FALLING UNDER THE STATUTE OF FRAUDS
○ Professor Balane points out that there are various decisions made by the Supreme 1. An agreement that by its terms is not to be performed within a year from the making
Court when a person contracting on behalf of another has absolutely no authority thereof
from the latter and the Court questionably held that the contract is void for total ● Two View to interpret the phrase “performed within a year”
absence of consent instead of following the clear-cut provision in the Civil Code 1. Cannot be completed within a year
which provides that it must be unenforceable 2. Cannot be begun or commended within a year
○ Art 1898 provides that: ● Professor Balane points out the law refers to contracts which cannot be
“If the agent contracts in the name of the principal, exceeding the scope completed within a year
of his authority, and the principal does not ratify the contract it shall be void, if the ● “The impossibility of performance within one year is one arising from the terms of
party with whom the agent contracted is aware of the limits of the powers granted the contract itself and not because of natural or physical impossibility. The
to the principal. In this case, however, the agent is liable if he undertook to secure contract is within the Statute if the time for the full performance of the
the principal's ratification.” contract exceeds a year, although the excess be ever so little. Hence, to take
■ Again, Professor Balane points out that the contract referred to here is the agreement out of the Statute, it must clearly appear that the full performance
not void, but rather unenforceable has been made by one party within one year.”
○ Art. 1910 ● In any case, there must be a uniform ruling that performance on either side takes
“The principal must comply with all the obligations which the agent may the agreement out of the operation of the Statute of Frauds
have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the 2. A special promise to answer for the debt, default or miscarriage of another
principal is not bound except when he ratifies it expressly or tacitly” ● The contract covered by this paragraph is a contract of guaranty
○ Art. 2047. By guaranty, a person, called the guarantor, binds himself to
2ND CATEGORY — The Statute of Frauds the creditor to fulfill the obligation of the principal debtor in case the latter
Requirement of Writing should fail to do so.
● Contracts enumerated by it should be in writing. Writing must be signed ○ In a guaranty, the promise is merely subsidiary or collateral to the
○ Signed by – the party sought to be made liable under the agreement or by his duly promise of another (the original or principal debtor).
constituted agent or representative ● If a person binds himself solidarily with the principal debtor, this does not apply
● Lack of writing does not make the contract void. It merely bars suit for performance of breach. ● Oral guaranties are unenforceable under this paragraph
○ It is a defect that can be cured by acknowledgement or ratification ● The guaranty need not be for a contractual obligation.
○ A guaranty for the performance of an extra-contractual obligation, such
Basic Rules Underlying the Statute of Frauds as a quasi-delict is covered
1. It does not apply to actions which are neither for violation of the contract nor for the ● In order that this paragraph may apply, the original debtor must continue to be
performance thereof bound
2. It does not annul or make void the agreements that fail to comply with the requirement of ○ If the agreement releases the original debtor and the third person takes
writing; it merely bars an action for performance/breach his place, it becomes a novation.
3. It applies only to executory contracts (those which there has been no performance at all by
either part) 3. An agreement made in consideration of marriage, other than a mutual promise to marry.
○ In executory contracts, there is a wide field for fraud because, unless they be in
writing there is no palpable evidence of the intention of the contracting parties.

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 103

 ● Doesn’t mean it’s enforceable in Court either; In the FC one can’t file an action for ● The statute was devised to protect the parties in a contract of sale of real property
specific performance to ask one to marry you. You can’t ask someone to marry you so that no such contract is enforceable unless certain requisites, for purposes of
w/n it was mutual or not proof are met.
● What is excluded: Agreements constituting mutual promise to marry; remedy for
this is merely damages (Wassmer v Velez) 7. A representation as to the credit of a third person
● What is included: Collateral agreements which do not constitute a mutual promise ● Unenforceable quasi-delict
to marry but are made in contemplation of marriage; may be between the parties to ○ There is no contract between the person making the representation and
the intended marriage, or between a party to the intended marriage and a third the person being induced to extend credit to a third person
person, or between third parties ○ What this paragraph forbids is the presentation of oral evidence in a
1. Marriage settlements – should be in writing, for validity; not governed by claim for damages arising from quasi-delict
Statute of Frauds ○ If the inducement carries with it the promise or undertaking to answer for
2. Donations propter nuptias – governed by form required for donations the debtor's fault, that would constitute an undertaking to be a guarantor
inter vivos and will fall under par. 2 (b) of this article.
● Not applicable if the representation is made with fraudulent intent ○ If so, the
4. An agreement for the sale of goods, chattels or things in action at a price not less than Statute of Frauds will not apply and parol evidence will be admissible to prove a
500 pesos, unless the buyer accepts and receive part of such goods and chattel or the claim for damages
evidence, or some of them, of such things in action, or pay at the time some part of the ● Example: A wants to borrow money from C. C does not know A. C goes to B to ask
purchase money, but when a sale is made by auction and entry is made by the auctioneer in about A‘s credit standing. B says that A‘s credit standing is satisfactory even
his sales book at the time of sale of the amount and kind of the property sold, terms of sale, though B knows that A is insolvent. Under Article 1403, C can go after B if B‘s
price, names, persons on whose account the sale is made, it is a sufficient memorandum representation was in writing.
● All sales of personal property at a price of P500 or more
● The performance (by way of payment) must be at the time of sale in order to 8. Express trusts concerning an immovable or any interest therein
remove the contract from the coverage of Statute of Frauds ● Under Art. 1443, a writing is necessary, not for purposes of validity but to prove
○ Subsequent payment or performance (total or partial) if accepted by the such trusts.
other party will constitute ratification ○ Requires an express trust over an immovable or an interest therein
● Applies the principle that performance takes out the contract out of the coverage of to be in writing for purposes of proof
the Statute ● Oral express trusts over an immovable or an interest therein are not capable of
● Applies as well to contracts of barter or exchange of personal property proof.
○ If orally made, are unenforceable and can be considered as a species of
5. An agreement for the leasing of a longer period than one year, or for the sale of real contracts falling under the Statute of Frauds
property or of an interest therein
● As long as there is a sale of real property, the sale must be in writing. There is no THOSE WHERE BOTH PARTIES ARE INCAPABLE OF GIVING CONSENT
minimum. ● Neither party or his representative can enforce the contract unless it has been previously
● An oral contract for a supplemental lease of real property for a longer period than 1 ratified.
year is within the Statute of Frauds. ● Where only one party is incapacitated, the contract is voidable
● An agreement to enter into an agreement is also within the Statute of Frauds. ● Where both parties are incapacitated, the contract is unenforceable
● Covered under this paragraph: ● Effect of confirmation by one party:
1) Lease of real property for a period longer than 1 year ○ Confirmation by one party upgrades the contract to the status of voidable
2) Sale of real property or interest therein (no price floor indicated, ■ Voidable at the option of the party who has not ratified; the latter,
regardless of value) therefore, can enforce the contract against the party who has ratified
● Effect of performance: Takes the contract out of the operation of the Statute ■ Or, instead of enforcing the contract, the party who has not ratified it may
● Value of object of contract not material ask for annulment on the ground of his incapacity.
● Correlation with Art. 1874: If the sale of a piece of land is made through an agent: ○ For the contract to become valid, confirmation by both parties is
1) The authority of the agent must be in writing – otherwise the sale is void ● The proper term is “acknowledgment” and not ratification
(Art. 1874)
2) The sale itself must be in writing – otherwise the sale is unenforceable Article 1404. Unauthorized contracts are governed by article 1317 and the principles of agency in
(Art. 1403 [2][e]) Title X of this Book.
6. An agreement for the sale of property or of an interest therein
● No law or jurisprudence prescribes that the contract of sale be put in writing before These unenforceable contracts – falling under Par. 1 of the preceding article – are those into on behalf
such contract can validly cede or transmit rights over a certain real property of one party by a person without requisite authority
between the parties themselves.
● In the event that a third party disputes the ownership of the property, the person Article 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are
against whom the claim is brought cannot present any proof of sale, and, hence, ratified by the failure to object to the presentation of oral evidence to prove the same, or by the
has no means to enforce the contract. acceptance of benefits under them.
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 104
RATIFICATION OF CONTRACTS FALLING UNDER THE STATUTE OF FRAUDS
These unenforceable contracts are ratified/acknowledged by: CHAPTER 9 - VOID OR INEXISTENT CONTRACTS
1409 Void Contracts
1. Failure to object to oral evidence:
○ This failure amounts to waiver by the party, against whom the contract is being 1410 Action for Nullity
enforced, of his right to invoke the unenforceability of the contract 1411
2. Acceptance of benefits Pari Delicto Rule
○ Acceptance of benefits under the contract constitutes partial or total performance 1412
which removes the contract from the operation of the Statute 1413

Resisting a claim under an unenforceable contract may take the form of: 1414
1. A motion to dismiss 1415
2. An affirmative defense
1416 Exceptions to Pari Delicto Rule
3. A timely objection to the presentation of parol evidence
1417
Article 1406. When a contract is enforceable under the Statute of Frauds, and a public document is 1418
necessary for its registration in the Registry of Deeds, the parties may avail themselves of the right 1419
under Article 1357.
1420 Severability Rule
● The contracts referred to in this article are enforceable between the parties but are
unregistrable for lack of public document 1421 Right of Third Party to Set Up Defense of Nullity
● Example: Contract of sale of registered land which is embodied merely in a private document. 1422 Effect of Previous Illegal Contract
Such contract is valid and enforceable but unregistrable

REMEDY OF PARTIES Article 1409. The following contracts are inexistent and void from the beginning:
Either contracting party has the right to compel the other to execute the needed public document in (1) Those whose cause, object or purpose is contrary to law, morals, good customs, public
order to effect the registration of the contract in the Registry of Property. order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
Article 1407. In a contract where both parties are incapable of giving consent, express or implied
(4) Those whose object is outside the commerce of men;
ratification by the parent, or guardian, as the case may be, of one of the contracting parties shall give
(5) Those which contemplate an impossible service;
the contract the same effect as if only one of them were incapacitated.
(6) Those where the intention of the parties relative to the principal object of the contract
cannot be ascertained;
If ratification is made by the parents or guardians, as the case may be, of both contracting parties, the
(7) Those expressly prohibited or declared void by law.
contract shall be validated from the inception.
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.
RATIFICATION/CONFIRMATION BY ONE OR BOTH
● The ratification or confirmation may be made by:
VOID CONTRACTS → One which has no force and effect from the very beginning, as if it had never
1. The parents/guardians of the incapacitated or incompetent party or
been entered into and which cannot be validated either by time or by ratification
2. By both party himself after the cause for the incapacity of vitiation of consent has
● Furthest away from validity amongst all defective contracts
ceased
● A void contract is a no contract. The term void or inexistent contract is an oxymoron.
● Ratification/confirmation on both sides cures the contract of its defects and validates it
CHARACTERISTICS OF VOID CONTRACTS
Article 1408. Unenforceable contracts cannot be assailed by third persons. 1. Produce no Legal effect whatsoever, either in favor of or against anyone
2. Can neither be confirmed nor Ratified
RIGHT TO ASSAIL UNENFORCEABLE CONTRACTS 3. Right to set up the defense of Absolute nullity cannot be waived or renounced
● Unenforceable contracts cannot be attacked by strangers 4. An action for, or defense of, nullity is Imprescriptible
● Only the parties against whom they are sought to be enforced can set up the defense or 5. The defense of illegality of contract is not available to 3rd persons whose interests are not
unenforceability Directly affected
● Based on the same principle as that laid down in Article 1397 for voidable contracts 6. No action for annulment is necessary because the contract’s nullity exists Ipso jure
(Declaration of nullity merely declaratory)
7. If there has been performance, the Restitution of what has been delivered is in order, except
CHAPTER 9 in cases of pari delicto
VOID OR INEXISTENT CONTRACTS

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 105

PAR 1 – Those whose cause, object or purpose is contrary to law, morals, good customs, public ● Art 905
order or public policy ● Art 1347, par 2 - future inheritance
● Contractual freedom is limited (Art 1306) ● Art 1490 - husband & wife selling property to each other
● Article 1347 and 1352: The object of a contract and its cause must be licit. Here, these ● Art 1491
essential elements are vitiated and legally non-existent. ● Art 1492
○ Note: Purpose must NOT be interpreted to mean Motive ● Art 1689
● This should not be confused with the purpose of a contract since purpose is NOT an ● Art 1874
essential element. ● Art 2035
○ The purpose/motive of entering into a contact is distinct from the cause
○ A wrongful or illegal motive does not taint the contract with nullity. VOID CONTRACTS INEXISTENT CONTRACTS
○ Illegality of the motive annuls the contract only when such motive is so inextricably As to Requisites
linked with the cause as to constitute a condition precedent. (Art 1351)
○ Example: sale of a gun. In the US, it is legal so its sale is a contract. The purchaser Those where all of the requisites of a contract are Those where one or some or all of the requisites
buys the gun, the motive being to initiate a school shooting does NOT make the present but the cause, object, or purpose is essential for the validity of a contract are absolutely
sale of the gun void because the motive for the act has no effect on the sale. contrary to law, morals, good customs, public order lacking such that it could not come to existence,
or public policy, or the contract itself is prohibited or whether valid or void.
PAR 2 – Those which are absolutely simulated or fictitious declared void by law.
● Absolutely simulated contracts are void for want not only of consent but also subject matter As to Application of Pari Delicto
and cause. Principle of in pari delicto is applicable Principle of in pari delicto is not applicable
● It has no substance as the parties have no intention to be bound by it. (Art 1345 - 46) As to Effect
● The apparent contract is not really desired or intended to produce any legal effect
● no expectation as to consequences supposedly brought about by the contract May produce legal effects Cannot produce any effect
As to Scope
PAR 3 – Those whose cause or object did not exist at the time of the transaction Arts. 1409 Nos. 1, 3, 4, 5, 6, and 7 Arts. 1409 Nos. 2 and 3
● Wording is faulty or unclear since things which did not exist at the time of the transaction can
be objects of the contractual prestation such as sales of future things
RESCISSION NULLITY
● What is referred to is a contract whose cause or object could not have existed or could not
come into existence at the time of the transaction Based on prejudice, damage, or injury
Based on vice or defect of one or some of
○ Example: Pregnant pregnant – still can come to existence even though not yet Basis either to one of the contracting parties or
the essential elements of a valid contract
existing at the time of transaction to third persons
Effect Affects private interests Affects public interest
PAR 4 – Those whose object is outside the commerce of men Purpose Reparation of damages Imposition of sanctions
● Outside the commerce of men – things of public ownership such as sidewalks, public places, Considered valid and enforceable until
bridges, streets, etc. Things that are common to Defectiveness Contract has no legal effect at all
rescinded in an appropriate proceedings
● everybody such as air, sunlight, rain
● These are legally non-existent and the contract is void for lack of object. Nature of Action Subsidiary Principal action
● Object as an essential element, void for lack of object. Therefore, void. Who may assail Can be brought by a third person who is
A party whose interest is directly affected
the Contract prejudiced by the contract
PAR 5 – Those which contemplate an impossible service How the
● Read together with Art. 1348 which states that impossible things or services cannot be the Contract May be Only directly Directly or collectively
object of contracts. (1272) Assailed
● Impossible (physically or legally) – prohibited drugs, to kill a person (illicit things or services Susceptibility to
are also outside the commerce of men); to get soil from Mars, to construct a building in 1 year May be ratified Cannot be ratified
Ratification
PAR 6 – Those where the intention of the parties relative to the principal object of the contract Prescriptibility of
The action or defense for the declaration of
cannot be ascertained Action or Action may prescribe
nullity does not prescribe
● If there is ambiguity or uncertainty on the contractual intention of the parties, every effort Defense
allowed by the rules of evidence must be made to discover the parties’ true intent
● Doubts should be resolved in favor of validity and efficacy of the contract Article 1410. The action or defense for the declaration of the inexistence of a contract does not
● If, despite all possible efforts, the intent of the parties cannot be ascertained, the contract prescribe.
fails for being indeterminable

PAR 7 – Those expressly prohibited or declared void by law PRESCRIPTION

● Art 87, Family Code - Donations between spouses during marriage ● None. A void contract, being legally non-existent, cannot be cured by time.
● Art 485 ● Nullity of a contract is automatic and ipso jure. Void ab origine

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 106

 ○ Declaration of inexistence of a contract is DECLARATORY and not constitutive in ● Absolutely simulated contracts DO NOT fall because of absolute want of subject-matter,
nature (does not make it void because it’s already in itself void) cause and consent.
■ Sometimes necessary to institute an action for declaration of nullity as
when one of the parties is entitled to the restitution of what he has given DIFFERENCE BETWEEN 1411 & 1412
by reason of the void contract and the other party refuses to return it ● Art. 1411 – Reference to an act or prestation continues a criminal offense.
● Action or defense is imprescriptible ○ Take a look at the position of the parties whether both or only one is guilty
○ Does it fall under the first or second paragraph?
Article 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and ● Art. 1412 – Might have been a lawful or forbidden but DOES NOT constitute a criminal offense
the act constitutes a criminal offense, both parties being in pari delicto, they shall have no action
against each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code relative THINGS TO REMEMBER
to the disposal of effects or instruments of a crime shall be applicable to the things or the price of the ● If the situation given shows that the act or prestation constitutes a criminal offense, look at
contract. the position of the parties.
● Are both parties in pari delicto or is only one party guilty?
This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim ○ If both, remember that no action for specific performance of restitution can prosper
what he has given, and shall not be bound to comply with his promise. (1305) on either sides
● One party guilty – What about an action for restitution?
○ No action for specific performance on either side still
● First paragraph – both of them are guilty ○ Restitution in 1411 is allowed if it is the innocent party that demands it
● Second paragraph – none of them are guilty
WHEN ACT/PRESTATION CONSTITUTES A CRIMINAL OFFENSE (ART. 1411)
Article 1412. If the act in which the unlawful or forbidden cause consists does not constitute a BOTH PARTIES IN PARI DELICTO ONLY ONE PARTY GUILTY
criminal offense, the following rules shall be observed: No action for performance on either side No action for performance on either side (but it still
(1) When the fault is on the part of both contracting parties, neither may recover what he has constitutes a criminal offense)
given by virtue of the contract, or demand the performance of the other’s undertaking; No action for restitution on either side The guilty party CANNOT demand restitution of
(2) When only one of the contracting parties is at fault, he cannot recover what he has given by what he may have delivered, but the innocent
reason of the contract, or ask for the fulfillment of what has been promised him. The other, party can
who is not at fault, may demand the return of what he has given without any obligation to
comply with his promise. (1306)
WHEN ACT/PRESTATION DOES NOT CONSTITUTES A CRIMINAL OFFENSE BUT IS MERELY
UNLAWFUL OR FORBIDDEN (ART. 1412)
THE IN PARI DELICTO RULE BOTH PARTIES IN PARI DELICTO ONLY ONE PARTY GUILTY
● Applies ONLY to contracts are void on account of illegality of cause or object
○ NOT all void contracts are subject to this rule No action for performance on either side No action for performance on either side
○ Example: Absolutely simulated contract is not subject to the rule because in No action for restitution on either side The guilty party CANNOT demand restitution of
absolutely simulated, it is the consent, object, and cause of the contract that is what he may have delivered, but the innocent
simulated party can
● Where the parties are equally guilty, the position of the defendant is stronger.
○ Take note of the Doctrine of Unclean Hands Article 1413. Interest paid in excess of the interest allowed by the usury laws may be recovered by
● No action arises when BOTH parties are guilty. the debtor, with interest thereon from the date of the payment.
● No one should be allowed to invoke the protection of the law or to derive any benefit from his
wrongdoing.
● No one is entitled to relief or assistance as a result of his own wrongdoing. EXCEPTIONS TO THE PARI DELICTO RULE
● No one can seek judicial relief on account of his own wrongdoing ● Although both parties are culpable, one of them is entitled to recover under the void contract
or stipulation
ESSENCE — Denies to either party any right to enforce the contract, recover anything delivered ● Dictated by public policy because the prohibitions of these articles are intended for the
by virtue thereof, or demand damages as a consequence thereof. The law will leave the parties exactly protection of one of the contracting parties.
where they are and will afford them no relief.
USURIOUS INTEREST
RATIONALE ● Currently inoperative due to CB Circular 905
● Courts should not lend their good offices to mediating disputes among wrongdoers ○ Ceiling of interest rates has been removed at present thereby making usury
● Denying judicial relief to an admitted wrongdoer is an effective means of deterring illegality non-existence and decriminalizing it
○ But it has not stopped the Court to declaring void interests rates that are
SCOPE AND APPLICATION exorbitant, excessive and unconscionable rates
● Does NOT apply to all void contracts
● Applies only to contracts which are void on the account of the illegality of the cause of object EXCESSIVE INTEREST RATES
● Heirs of Espiritu v. Landrito:
OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 107
 ○ Although the Usury Law was suspended, nothing in it grants lenders carte balance Article 1418. When the law fixes, or authorizes the fixing of the maximum number of hours of labor,
to raise interest rates to levels which will enslave their borrowers or lead to a and a contract is entered into whereby a laborer undertakes to work longer than the maximum thus
hemorrhaging of the assets. fixed, he may demand additional compensation for service rendered beyond the time limit.
○ Stipulations authorizing iniquitous or unconscionable interests are contrary to
morals, if not against the law. These contracts are inexistent and void ab initio.
■ Under Article 1409, these contracts are inexistent and void ab initio.
○ Nullity of excessive interest rate DOES NOT affect principal contract Article 1419. When the law sets, or authorizes the setting of a minimum wage for laborers, and a
■ The principal itself remains due and it will bear the interest at the legal contract is agreed upon by which a laborer accepts a lower wage, he shall be entitled to recover the
rate. deficiency.
■ Legal rate at present is 6% p.a.
● In Castro De Leon Tan - It has been held in jurisprudence that parties to a loan agreement
have a wide latitude to stipulate on any interest rate but whenever they are unconscionable, LABOR LAWS – Sec. 83 and 99, Labor Code; Art XIII, Sec. 3, 1987 Constitution
they may still be declared illegal. INTENDED BENEFICIARY – Worker/laborer may demand the rightful amount fixed by law even if he
agreed to something less

Article 1414. When money is paid or property delivered for an illegal purpose, the contract may be
repudiated by one of the parties before the purpose has been accomplished, or before any damage Article 1420. In case of a divisible contract, if the illegal terms can be separated from the legal ones,
has been caused to a third person. In such case, the courts may, if the public interest will thus be the latter may be enforced.
subserved, allow the party repudiating the contract to recover the money or property.
RATIONALE – Seeks to encourage repudiation of the illegal purpose of the contract; Reward the
party’s change of heart Article 1421. The defense of illegality of contract is not available to third persons whose interests are
not directly affected.
REQUISITES OF ART. 1414
1. The contract must have an illegal purpose
RIGHT OF THIRD PARTY TO SET UP DEFENSE OF NULLITY
2. Money or property is delivered by virtue thereof
● Since a void contract produces no juridical effects, any person – whether a party to such
3. One of the parties repudiates the contract
contract or not – may invoke its nullity should anyone seek to enforce it against him.
4. Repudiation is made before the illegal purpose is accomplished
5. The public interest will be promoted or subserved by the return to the repudiating party of
what he has delivered Article 1422. A contract which is the direct result of a previous illegal contract, is also void and
inexistent.
Article 1415. Where one of the parties to an illegal contract is incapable of giving consent, the courts
may, if the interest of justice so demands allow recovery of money or property delivered by the BASIS OF RULE: A void contract produces no effect and gives rise to NO juridical consequences
incapacitated person. XPNs: Where the parties who have executed a void contract may subsequently enter into a valid
judicial transaction over the object of the previous void contract.
JUSTIFICATION – Incapacitated party is not really culpable, being incapable of giving consent
● Contemplates a voidable contract; Annullable at instance of the incompetent

Article 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by
the law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced,
recover what he has paid or delivered.

ILLUSTRATION
● Where a homestead grantee sells the land within the prohibited period of five years.

Article 1417. When the price of any article or commodity is determined by statute, or by authority of
law, any person paying any amount in excess of the maximum price allowed may recover such
excess.

REFERS TO – Violations of price control laws or regulations

INTENDED BENEFICIARY – A person purchasing an item beyond the price ceiling is given the right to
recover the excess

OBLIGATIONS AND CONTRACTS REVIEWER - Kinderbueno | Page 108