OBLICON Reviewer

OBLIGATIONS AND CONTRACTS
REVIEWER
TITLE I – OBLIGATIONS (c) NEGATIVE OBLIGATION – the obligation not

to do (which naturally inludes not to give)
CHAPTER 1 D. From the viewpoint of persons obliged -
GENERAL PROVISIONS ―sanction‖ -
(a) UNILATERAL – where only one of the parties
1156. An obligation is a juridical necessity to give, to is bound (e.g. Plato owes Socrates P1,000.
do, or not to do. Plato must pay Socrates.)
(d) BILATERAL – where both parties are bound
JURIDICAL NECESSITY – juridical tie; connotes that in case of (e.g. In a contract of sale, the buyer is
noncompliance, there will be legal sanctions. obliged to deliver)
- may be:
 An obligation is nothing more than the duty of a (b.1) reciprocal
person (obligor) to satisfy a specific demandable (b.2) non-reciprocal – where performance by one is non-
claim of another person (obligee) which, if breached, dependent upon performance by the other
is enforceable in court.
ELEMENTS OF OBLIGATION
 A contract necessarily gives rise to an obligation but a) ACTIVE SUBJECT – (Creditor / Obligee) the person who
an obligation does not always need to have a is demanding the performance of the obligation;
contract. b) PASSIVE SUBJECT – (Debtor / Obligor) the one bound to
perform the prestation or to fulfill the obligation or duty;
DAMAGES – sum of money given as a compensation for the c) PRESTATION – (to give, to do, or not to do) object;
injury or harm suffered by the obligee for the violation of his subject matter of the obligation; conduct required to be
right. observed by the debtor;
d) EFFICIENT CAUSE – the JURIDICAL TIE which binds the
KINDS OF OBLIGATION parties to the obligation; source of the obligation.
A. From the viewpoint of ―sanction‖ - e) CAUSA (causa debendi/causa obligationes) - why
(a) CIVIL OBLIGATION – that defined in Article obligation exists
1156; an obligation, if not fulfilled when it
becomes due and demandable, may be PRESTATION (Object)
enforced in court through action; based on 1. TO GIVE – delivery of a thing to the creditor (in sale,
law; the sanction is judicial due process deposit, pledge, donation);
(b) NATURAL OBLIGATION – a special kind of 2. TO DO – covers all kinds of works or services
obligation which cannot be enforced in court (contract for professional services);
but which authorizes the retention of the 3. NOT TO DO – consists of refraining from doing some
voluntary payment or performance made by acts (in following rules and regulations).
the debtor; based on equity and natural law.
(i.e. when there is prescription of duty to Requisites of Prestation / Object:
pay, still, the obligor paid his dues to the 1) licit (if illicit, it is void)
obligee – the obligor cannot recover his 2) possible (if impossible, it is void)
payment even there is prescription) the 3) determinate or determinable (or else, void)
sanction is the law, but only conscience had 4) pecuniary value
originally motivated the payment.
(c) MORAL OBLIGATION – the sanction is  INJURY – wrongful act or omission which causes loss
conscience or morality, or the law of the or harm to another
church. (Note: If a Catholic promises to hear  DAMAGE – result of injury (loss, hurt, harm)
mass for 10 consecutive Sundays in order to
receive P1,000, this obligation becomes a 1157. Obligation arises from – (1) law; (2) contracts;
civil one.) (3) quasi-contracts; (4) acts or omissions punished by
B. From the viewpoint of subject matter - law; (5) quasi-delicts.
(a) REAL OBLIGATION – the obligation to give
(b) PERSONAL OBLIGATION – the obligation to (1) LAW (Obligation ex lege) – imposed by law itself; must
do or not to do (e.g. the duty to paint a be expressly or impliedly set forth and cannot be presumed
house, or to refrain from committing a - [See Article 1158]
nuisance)
C. From the affirmativeness and negativeness of the (2) CONTRACTS (Obligation ex contractu) – arise from
obligation - stipulations of the parties: meeting of the minds / formal
(a) POSITIVE OR AFFIRMATIVE OBLIGATION – agreement
the obligation to give or to do - must be complied with in good faith because it is the ―law‖
page 1
REVIEWER
between parties; neither party may unilaterally evade his Code itself.
obligation in the contract, unless:  Special laws – refer to all other laws not contained in
a) contract authorizes it the Civil Code.
b) other party assents
1159. Obligations arising from contracts have the force
Note: of law between the contracting parties and should be
Parties may freely enter into any stipulations, provided they complied with in good faith.
are not contrary to law, morals, good customs, public order or
public policy CONTRACT – meeting of minds between two persons whereby
- [See Article 1159] one binds himself, with respect to the other, to give, to do
something or to render some service; governed primarily by
(3) QUASI-CONTRACTS (Obligation ex quasi-contractu) – the agreement of the contracting parties.
arise from lawful, voluntary and unilateral acts and which are
enforceable to the end that no one shall be unjustly enriched VALID CONTRACT – it should not be against the law, contrary
or benefited at the expense of another to morals, good customs, public order, and public policy.
- 2 kinds:
a. Negotiorum gestio - unauthorized management;  In the eyes of law, a void contract does not exist and
This takes place when a person voluntarily takes no obligation will arise from it.
charge of another‘s abandoned business or
property without the owner‘s authority OBLIGATIONS ARISING FROM CONTRACTS – primarily
b. Solutio indebiti - undue payment; This takes governed by the stipulations, clauses, terms and conditions of
place when something is received when there is their agreements.
no right to demand it, and it was unduly
delivered thru mistake  If a contract‘s prestation is unconscionable (unfair)
- [See Article 1160] or unreasonable, even if it does not violate morals,
law, etc., it may not be enforced totally.
(4) DELICTS (Obligation ex maleficio or ex delicto) – arise
from civil liability which is the consequence of a criminal  Interpretation of contract involves a question of law.
offense
- Governing rules: COMPLIANCE IN GOOD FAITH – compliance or performance in
1. Pertinent provisions of the RPC and other penal laws accordance with the stipulations or terms of the contract or
subject to Art 2177 Civil Code agreement.
[Art 100, RPC – Every person criminally liable for a felony is
also civilly liable] FALSIFICATION OF A VALID CONTRACT – only the
2. Chapter 2, Preliminary title, on Human Relations ( unauthorized insertions will be disregarded; the original terms
Civil Code ) and stipulations should be considered valid and subsisting for
3. Title 18 of Book IV of the Civil Code – on damages the partied to fulfill.
- [See Article 1161]
1160. Obligations derived from quasi-contracts shall be
(5) QUASI-DELICTS / TORTS (Obligation ex quasi-delicto subject to the provisions of chapter 1, title 17 of this
or ex quasi-maleficio) – arise from damage caused to another book.
through an act or omission, there being no fault or
negligence, but no contractual relation exists between the QUASI-CONTRACT – juridical relation resulting from lawful,
parties voluntary and unilateral acts by virtue of which, both parties
- [See Article 1162] become bound to each other, to the end that no one will be
unjustly enriched or benefited at the expense of the other.
1158. Obligations from law are not presumed. Only
those (1) expressly determined in this code or (2) in  There is no consent - consent is PRESUMED.
special laws are demandable, and shall be regulated by
the precepts of the law which establishes them; and as (1) NEGOTIORUM GESTIO – juridical relation
to what has not been foreseen, by the provisions of this which takes place when somebody
code. voluntarily manages the property affairs of
another without the knowledge or consent
 Unless such obligations are EXPRESSLY provided by of the latter; owner shall reimburse the
law, they are not demandable and enforceable, and gestor for necessary and useful expenses
cannot be presumed to exist. incurred by the latter for the performance of
 The Civil Code can be applicable suppletorily to his function as gestor.
obligations arising from laws other than the Civil (2) SOLUTIO INDEBITI – something is received
page 2
REVIEWER
when there is no right to demand it and it obligation to pay for the damage done, there being fault or
was unduly delivered through mistake; negligence but there is no pre-existing contractual relation
obligation to return the thing arises on the between parties.
part of the recipient. (e.g. If I let a
storekeeper change my P500 bill and by REQUISITES:
error he gives me P560, I have the duty to a. omission
return the extra P60) b. negligence
c. damage cause to the plaintiff
1161. Civil obligations arising from criminal offenses d. direct relation of omission, being the cause, and
shall be governed by the penal laws, subject to the the damage, being the effect
provisions of Article 2177, and of the pertinent e. no pre-existing contractual relations between
provisions of Chapter 2, Preliminary in Human parties
Relations, and of Title 18 of this book, regulating
damages. Fault or Negligence – consists in the omission of that diligence
which is required by the nature of the obligation and
Governing rules: corresponds with the circumstances of the person, time, and
1. Pertinent provisions of the RPC and other penal laws of the place.
subject to Art 2177 Civil Code
[Art 100, RPC – Every person criminally liable for a felony is BASIS DELICTS QUASI-DELICTS
also civilly liable] 1. INTENT Criminal / Negligence
2. Chapter 2, Preliminary title, on Human Relations ( malicious
Civil Code ) 2. INTEREST Affects PUBLIC Affects PRIVATE
3. Title 18 of Book IV of the Civil Code – on damages interest interest
3. LIABILITY Criminal and Civil liability
 Every person criminally liable for a felony is also civil liabilities
criminally liable (art. 100, RPC) 4. PURPOSE Purpose – Indemnification
punishment
CRIMINAL LIABILITY INCLUDES: 5.COMPROMISE Cannot be Can be compromised
(a) RESTITUTION – restoration of property compromised
previously taken away; the thing itself shall 6. GUILT Proved beyond Preponderance of
be restored, even though it be found in the reasonable evidence
possession of a third person who has doubt
acquired it by lawful means, saving to the
latter his action against the proper person
who may be liable to him.
(b) REPARATION OF THE DAMAGE CAUSED – Note:
court determines the amount of damage: The SC in Sagrada v. Naccoco implied that the sources of
price of a thing, sentimental value, etc. obligation in Art 1162 is exclusive. Many commentators
(c) INDEMNIFICATION FOR CONSEQUENTIAL believe, however that it should not be. At present, there is
DAMAGES – includes damages suffered by one more possible source of obligations - PUBLIC OFFER
the family of the injured party or by a third (Public Offer is in fact a source of obligation in
person by reason of the crime. the German Civil Code) – Ateneo memory aid
Effect of acquittal in criminal case: *** The enumeration in 1157 is not scientific because in
a. when acquittal is due to reasonable doubt – no civil reality there are only 2 sources of obligations: law and
liability contract (quasi-contract, delicts, and quasi-delicts are
b. when acquittal is due to exempting circumstances – there imposed by law) [Leung Ben v. O'Brien, 38 Phil. 182]
is civil liability
c. when there is preponderance of evidence – there is civil CHAPTER 2
liability NATURE AND EFFECT OF OBLIGATIONS
1163. Every person obliged to give something is also

1162. Obligations derived from quasi-delicts shall be obliged to take care of it with the proper diligence of a
governed by the provisions of chapter 2, title 17 of this good father of a family, unless the law or the
book, and by special laws. stipulation of the parties requires another standard of
care.
QUASI-DELICT (culpa aquiliana) – an act or omission by a
person which causes damage to another giving rise to an  Speaks of an obligation to care of a DETERMINATE
page 3
REVIEWER
thing (that is one which is specific; a thing identified yet the owner of the property before the delivery.
by its individuality) which an obligor is supposed to
deliver to another. � ACTUAL DELIVERY – actual delivery of a thing from the
 Reason: the obligor cannot take care of the whole hand of the grantor to the hand of the grantee (presonally),
class/genus or manifested by certain possessory acts executed by the
grantee with the consent of the grantor (realty).
DUTIES OF DEBTOR: � CONSTRUCTIVE TRADITION – representative of symbolical
in essence and with intention to deliver the ownership.
 Preserve or take care of the things due.
 DILIGENCE OF A GOOD FATHER – a good father FRUITS:
does not abandon his family, he is always ready 1. NATURAL – spontaneous products of the soil, the
to provide and protect his family; ordinary care young and other products of animals;
which an average and reasonably prudent man 2. INDUSTRIAL – produced by lands of any cultivation
would do. or labor;
 ANOTHER STANDARD OF CARE – extraordinary 3. CIVIL – those derived by virtue of juridical relation.
diligence provided in the stipulation of parties.
 FACTORS TO BE CONSIDERED – diligence 1165. When what is to be delivered is a determinate
depends on the nature of obligation and thing, the creditor … may compel the debtor to make
corresponds with the circumstances of the delivery. If the thing is indeterminate or generic, he
person, time, and place. may ask that the obligation be complied with at the
expense of the debtor. If the obligor delays or has
** Debtor is not liable if his failure to deliver the thing is due promised to deliver the same ting to two or more
to fortuitous events or force majeure… without negligence or persons who do not have the same interest, he shall be
fault in his part. responsible for any fortuitous event until he has
effected the delivery.
 Deliver the fruits of a thing
 Deliver the accessions/accessories DETERMINATE THING
 Deliver the thing itself  something which is susceptible of particular
 Answer for damages in case of non-fulfillment or breach designation or specification;
 obligation is extinguished if the thing is lost due to
1164. The creditor has a right to the fruits of the thing fortuitous events.
from the time the obligation to deliver it arises. INDETERMINATE THING
However, he shall acquire no real right over it until the  something that has reference only to a class or
same has been delivered to him. genus;
 obligation to deliver is not so extinguished by
REAL RIGHT (jus in re) – right pertaining to person over a fortuitous events.
specific thing, without a passive subject individually
determined against whom such right may be personally REMEDIES FOR FAILURE OF DELIVERY (determinate thing)
enforced. 1. Complaint for specific performance – an action to
 a right enforceable against the whole world compel the fulfillment of the obligation.
2. Complaint for rescission of the obligation – action to
PERSONAL RIGHT (jus ad rem) – a right pertaining to a rescind
person to demand from another, as a definite passive subject, 3. Complaint for damages – action to claim for
the fulfillment of a prestation to give, to do or not to do. compensation of damages suffered
 a right enforceable only against a definite person or
group of persons.  As a general rule, ―no person shall be responsible for
those events which could not be foreseen, or which,
 Before the delivery, the creditor, in obligations to though foreseen, are inevitable, except:
give, has merely a personal right against the debtor 1. in cases expressly specified by the law
– a right to ask for delivery of the thing and the 2. when it is stipulated by the parties
fruits thereof. 3. when the nature of the obligation requires
 Once the thing and the fruits are delivered, then he assumption of risk
acquires a real right over them.  An indeterminate thing cannot be object of
 Ownership is transferred by delivery which could be destruction by a fortuitous event because genus
either actual or constructive. (Art. 1477) � never perishes.
 The remedy of the buyer when there is no delivery
despite demand is to file a complaint for ―SPECIFIC 1166. The obligation to give a determinate thing
PERFORMANCE AND DELIVERY‖ because he is not includes that of delivering all its accessions and
page 4
REVIEWER
accessories, even though they may not have been

mentioned.
ORDINARY DELAY – mere failure to perform an obligation at
ACCESSIONS – fruits of the thing or additions to or the appointed time.
improvements upon the principal LEGAL DELAY (DEFAULT) – tantamount to non-fulfillment of
 those which are naturally or artificially attached to the the obligation and arises after an extrajudicial or judicial
thing demand was made upon the debtor.
ACCESSORIES – things included with the principal for the KINDS OF DEFAULT:
latter‘s embellishment, better use, or completion a) MORA SOLVENDI – delay on the part
of the debtor to fulfill his obligation;
When does right to fruits arise? – from the time the obligation REQUISITES:
to deliver arises 1. failure of the obligor to perform obligation on
 Conditional – from the moment the condition the DATE agreed upon;
happens 2. demand (j/ej) by the creditor;
 With a term/period – upon the expiration of the 3. failure to comply with such demand
term/period
 Simple – from the perfection of the contract EFFECTS:
1) debtor – liable for damages and
1167. If a person obliged to do something fails to do it, interests
the same shall be executed at his cost. This same rule 2) debtor – liable for the loss of a thing
shall be observed if he does it in contravention of the due to a fortuitous event
tenor of the obligation … it may be decreed that what
has been poorly done be undone. KINDS:
1) mora solvendi ex re – default in real
THREE SITUATIONS: obligations (to give)
a) Debtor‘s failure to perform an obligation 2) mora solvendi ex persona – default in
 creditor may do the obligation, or by another, at personal obligations (to do)
the expense of the debtor;
 recover damages b) MORA ACCIPIENDI – delay on the
b) Performance was contrary to the terms agreed part of the creditor to accept the
upon performance of the obligation;
 order of the court to undo the same at the Effects:
expense of the debtor 1. creditor – liable for damages
c) Performance in a poor manner 2. creditor – bears the risk of loss of the thing
 order of the court to undo the same at the 3. debtor – not liable for interest from the time of
expense of the debtor creditor‘s delay
4. debtor – release himself from the obligation
1168. When the obligation consists in NOT DOING and
the obligor does what has been forbidden him, it shall c) COMPENSATIO MORAE – delay of the
also be undone at his expense. obligors in reciprocal obligation.
Effect: the default of one compensates the default of
1169. Those obliged to deliver or to do something incur the other; their respective liabilities shall be offset
in delay from the time the obligee judicially or equitable.
extrajudicially demands from them the fulfillment of
their obligation.  Default / Delay in negative obligation is not possible.
However, the demand by the creditor shall not be (In negative obligation, only fulfillment and violation
necessary in order that delay may exists: are possible)
 When the law or obligation so expressly declares; 1170. Those who in the performance of their
 When from the nature of the contract, time us the obligations are guilty of fraud, negligence, or delay,
essence and motivating factor for its and those who in any manner contravene the tenor
establishment; thereof, are liable for damages.
 When demand would be useless (prestation is
impossible); FRAUD (dolo) – deliberate intentional evasion of the faithful
 In reciprocal obligations, from the moment one of fulfillment of an obligation;
the parties fulfills his obligation; NEGLIGENCE (culpa or fault) – voluntary act or omission of
 When the debtor admits he is in default diligence, there being no malice, which prevents the normal
page 5
REVIEWER
fulfillment of an obligation; NATURE OF Direct, Incidental to the

DELAY (mora) – default or tardiness in the performance of an NEGLIGENCE substantive and performance of the
obligation after it has been due and demandable; independent obligation.
CONTRAVENTION OF TERMS OF OBLIGATION (violatio)– GOOD FATHER OF Complete and Not complete and
violation of terms and conditions stipulated in the obligation; THE FAMILY proper defense proper defense in the
this must not be due to a fortuitous event. DEFENSE (parents, selection of
guardian, employees.
employers)
1171. Responsibility arising from fraud is demandable PRESUMPTION OF No presumption There is presumption
in all obligations. Any waiver of an action for future NEGLIGENCE – injured party – defendant must
fraud is void. must prove prove that there was
negligence of the no negligence in the
 To allow such waiver will necessarily render the defendant. carrying out of the
obligatory force of contracts illusory. terms of the contract.
 The law does not prohibit waiver of an action for
damages based on fraud already committed.
1173. The fault or negligence of the obligor consists in
 Any deliberate deviation from the normal way of
the omission of that diligence which is required by the
fulfilling the obligation may be a proper basis for
nature of the obligation and corresponds with the
claim for damages against the guilty party.
circumstances of the persons, of he time and of the
place… If the law or contract does not state the
INCIDENTAL FRAUD – committed in the performance of an
diligence which is to be observed in the performance,
obligation already existing because of a contract.
that which is expected if a good father of a family shall
CAUSAL FRAUD – employed in the execution of contract in
be required.
order to secure consent; remedy is annulment bec of vitiation
of consent.
FRAUD distinguished from NEGLIGENCE
FRAUD NEGLIGENCE
1172. Responsibility arising from negligence in the
performance of every kind of obligation is also There is deliberate intention There is no deliberate
demandable, but such liability may be regulated by the to cause damage. intention to cause damage.
courts, according to circumstances. Liability cannot be Liability may be mitigated.
mitigated.
Court‘s discretion because: Waiver for future fraud is Waiver for future negligence
(a) negligence depends upon the void. may be allowed in certain
circumstances of a case – good or bad cases:
faith of the obligor may be considered 1. gross – can never be
as well as the conduct or misconduct of excused in advance;
the obligee; against public policy
(b) it is not as serious as fraud. 2. simple – may be
excused in certain cases
Negligence – lack of foresight or knowledge
Imprudence – lack of skill or precaution DILIGENCE – the attention and care required of a person in a
given situation and is opposite of negligence.
TEST OF NEGLIGENCE
Did the defendant, in doing the alleged negligent act, use the NEGLIGENCE – consists in the omission of that diligence
reasonable care and caution which an ordinary prudent man which is required by the nature of the particular obligation
would have used in the same situation? and corresponds with the circumstances of the persons, of the
time, and of the place.
TWO TYPES OF NEGLIGENCE:
KINDS of DILIGENCE:
Basis 1. Culpa 2. Culpa 1. DILIGENCE OF A GOOD FATHER – a good father
Aquiliana Contractual does not abandon his family, he is always ready
(Quasi-delict) (Breach of to provide and protect his family; ordinary care
contract) which an average and reasonably prudent man
DEFINITION Negligence Negligence in the would do.
between parties performance of 2. Diligence required by the law governing the
not so related by contractual obligation particular obligation
pre-existing 3. Diligence stipulated by the parties
contract
page 6
REVIEWER
1174. Except in cases expressly specified by the law, or USURY LAW – makes the usurers criminally liable if the
when it is otherwise declared by stipulation, or when interest charged on loans are more that the limit prescribed
the nature of the obligation requires the assumption of by law.
risk, no person shall be responsible for those events  This law is repealed – Circular No. 905 of the Central
which could not be foreseen, or which, though Bank has expressly removed the interest ceilings
foreseen, were inevitable. prescribed by the USURY LAW.
FORTUITOUS EVENT – an occurrence or happening which 1176. The receipt of the principal by the creditor
could not be foreseen or even if foreseen, is inevitable; without reservation with respect to the interest, shall
absolutely independent of human intervention; act of God. give rise to the presumption that said interest has been
paid.
FORCE MAJEURE - an event caused by the legitimate or The receipt of a later installment of a debt without
illegitimate acts of persons other than the obligor; there is reservation as to prior installments, shall likewise raise
human intervention. the presumption that such installments have been paid.
 conditions which exempt obligor from liability:  These are mere presumptions.
1. event is independent of the will of obligor  To be sure – write the interest and the dates covered
2. it must either be unforeseeable or unavoidable by such payment in the receipt.
3. occurrence must render it impossible for the debtor
to fulfill the obligation in a normal matter 1177. The creditors, after having pursued the property
4. the obligor is free of partiipation in injury to creditor. in possession of the debtor to satisfy their claims, may
exercise all the rights and bring all the actions of the
REQUISITES OF FORTUITOUS EVENT: latter for the same purpose, save those which are
1. Independent of the human will (or at least of the inherent in his person; they may also impugn the acts
obligor‘s) which the debtor may have done to defraud them.
2. Unforeseen or unavoidable
3. Of such character as to render it impossible for REMEDIES AVAILABLE TO CREDITORS FOR THE
the obligor to comply with his obligation in a SATISFACTION OF THEIR CLAIMS:
normal manner 1. Exact fulfillment with right to damages
4. Obligor – free from any 2. Exhaustion of the debtor‘s properties still in his
participation/aggravation of the injury to the possession – writ of attachment (before judgment)
obligee (no negligence or imprudence) or writ of execution (for final judgment not yet
executed)
EXEPTIONS: 3. ACCION SUBROGATORIA – an action where the
1. When it is expressly stipulated that he shall be liable creditor whose claims had not been fully satisfied,
even if non-performance of the obligation is due to may go after the debtors (3rd person) of the
fortuitous events; defendant debtor.
2. When the nature of the obligation requires the 4. ACCION PAULIANA – an action where the creditor
assumption of risk; files an action in court for the RESCISSION of acts or
3. When the obligor is in delay; contracts entered into by the debtor designed to
4. When the obligor has promised the same thing to defraud the former.
two or more persons who do not have the same
interest; 1178. Subject to the laws, all rights acquired in virtue
5. When the possessor is in bad faith and the thing lost of an obligation are transmissible, if there has been no
or deteriorated due to fortuitous event; stipulation to the contrary.
6. When the obligor contributed to the loss of the thing.
EXCEPTIONS:
1175. Usurious transactions shall be governed by a) Those not transmissible by their nature like
special laws. purely personal rights;
b) Those not transmissible by provision of law;
USURY – contracting for or receiving interest in excess of the c) Those not transmissible by stipulation of parties.
amount allowed by law for the loan or use of money, goods,
etc. CHAPTER 3
DIFFERENT KINDS OF OBLIGATIONS
SIMPLE LOAN – one of the parties delivers to another, money
or other consumable thing upon the condition that the same Section 1 – Pure and Conditional Obligations
amount of the same kind and quality shall be paid.
1179. Every obligation whose performance does not
page 7
REVIEWER
depend upon a future or uncertain event, or upon a constitutes the condition; if such condition does not take
past event unknown to the parties, is demandable at place, it would be as of the conditional obligation had never
once. existed.
Every obligation which contains a resolutory condition (e.g. promise to give a car after graduating from law school
shall also be demandable, without prejudice to the as cum laude)
effects of the happening of the event.
Resolutory Condition – the rights and obligations already
CONDITION – an event which is both future and uncertain existing are under threat of extinction upon the happening or
upon which the existence or extinguishment of an obligation fulfillment of such condition.
is made to depend. (e.g. donation by reason of marriage – the celebration of
marriage is a resolutory condition; if the marriage did not
PURE OBLIGATION – an obligation which does not contain any push through, the donation may be revoked)
condition or term upon which the fulfillment is made to
depend; immediately demandable by the creditors and the 1182. When the fulfillment of the condition depends
debtor cannot be excused from not complying with his upon the sole will of the debtor, the conditional
prestation. obligation shall be void. If it depends upon chance or
upon the will of a third person, the obligation shall take
CONDITIONAL OBLIGATION – an obligation subject to a effect in conformity with the provisions of this Code.
condition.
a) Suspensive Obligation – its fulfillment gives rise  Applies only to suspensive conditions.
to an obligation; the demandability of the
obligation or the effectivity of the contract can
take place only after the condition has been 3 KINDS OF CONDITIONS UNDER THIS ARTICLE:
fulfilled. 1. POTESTATIVE – a suspensive condition
b) Resolutory Obligation – its happening which depends upon the will of one of the
extinguishes the obligation which is already contracting parties = if at the sole will of
existing; the debtor, it is void; if at the creditor‘s, still
valid. this is to prevent the establishment of
1180. When the debtor binds himself to pay when his illusory obligations.
means permit him to do so, the obligation shall be 2. CASUAL – the condition depends upon
deemed to be one with a period, subject to the chance or the will of a third person;(i.e.
provisions of Article 1197. cellphone warranty)
3. MIXED – the condition depends partly upon
 Speaks of a period depending on the will of the the will of the parties and partly upon
DEBTOR. If its purpose is to delay, immediate action chance or the will of a third person;
is allowed. The court fixes the terms. (example ni Atty. De Chavez: passing the
bar)
PERIOD – a future and certain event upon the arrival of
which, the obligation subject to it either arises or is 1183. Impossible conditions, those contrary to good
extinguished. customs or public policy and those prohibited by law
shall annul the obligation which depends upon them. If
INDICATIONS OF A TERM OR PERIOD: the obligation is divisible, that part thereof which is not
When the debtor binds himself to pay – affected by the impossible or unlawful condition shall
 when his means permit him to do so be valid.
 little by little The condition not to do an impossible thing shall be
 as soon as possible considered as not having been agreed upon.
 from time to time
 as soon as I have the money POSSIBLE CONDITION – if it is capable of realization or
 in partial payment actualization according to nature, law, public policy or good
 when in the position to pay customs.
1181. In conditional obligations, the acquisition of 2 KINDS OF IMPOSSIBLE CONDITIONS:

rights, as well as the extinguishment or loss of those 1. Physically Impossible – cannot exist or cannot be done in
already acquired, shall depend upon the happening of its nature;
the event which constitutes the condition. 2. Legally Impossible – contrary to law, good customs, or
public policy.
Suspensive Condition – the acquisition of rights by the
creditor depends upon the happening of the event which When a conditional obligation is VOID – impossible conditions
page 8
REVIEWER
annul the obligation which depends upon them; the obligor 1184 1185
knows his obligation cannot be fulfilled, he has no intention to (POSITIVE SUSPENSIVE) (NEGATIVE SUSPENSIVE)
comply with his obligation. Jose obliges himself to give Jose obliges himself to give the
the pregnant woman Maria pregnant woman Maria P5000 if
When a conditional obligation is VALID – if the condition is P5000 if she would give birth she would NOT give birth on
negative (not to do an impossible thing), it is disregarded and on or before December 30. December 30.
the obligation is rendered pure and valid. a. Jose is LIABLE if Maria a. Jose is NOT LIABLE if Maria
gives birth on or before gives birth on December 30.
Only the affected obligation is void, if the obligation is December 30.
divisible, and the part thereof not affected by the impossible b. Jose is NOT LIABLE if b. Jose is LIABLE if Maria DID
condition is valid. Maria gives birth after NOT give birth on December 30
December 30. – if Maria gives birth BEFORE or
Only the condition is void if there is already a pre-existing AFTER December 30.
obligation and it does not depend upon the fulfillment of the c. If Maria would have a c. If Maria would have a
condition which is impossible. miscarriage before December miscarriage before December
30, the obligation is 30, the obligation is deemed
1184. The condition that some event happen at a EXTINGUISHED. FULFILLED.
determinate time shall extinguish the obligation as
soon as the time expires or if it has become indubitable
that the event will not take place.
1186. The condition shall be deemed fulfilled when the
Positive condition – refers to the fulfillment of an event or obligor voluntarily prevents its fulfillment.
performance of an act  This provision speaks of the DOCTRINE OF
CONSTRUCTIVE FULFILLMENT
Negative condition – refers to the non-fulfillment or non-
performance of an act. - REQUISITES:
1. The condition is SUSPENSIVE;
POSITIVE SUSPENSIVE CONDITION 2. The obligor ACTUALLY PREVENTS the fulfillment of
The obligation is extinguished: the condition;
1. As soon as the TIME EXPIRES without the event 3. He acts VOLUNTARILY.
taking place;
2. As soon as it has become certain that the EVENT  Malice or fraud is not required, as long as his
WILL NOT TAKE PLACE although the time specified purpose is to prevent the fulfillment of the condition.
has not yet expired.  No person shall profit by his own wrong.
** TIME is the condition – should happen for the obligation to 1187. The effects of a conditional obligation to give,
extinguish. once the condition has been fulfilled, shall retroact to
the day of the constitution of the obligation.
1185. The condition that some event will not happen at Nevertheless, when the obligation imposes reciprocal
a determinate time shall render the obligation effective prestations upon the parties, the fruits and interests
from the moment the time indicated has elapsed, or if it during the pendency of the condition shall be deemed
has become evident that the event cannot occur. to have been mutually compensated. If the obligation is
If no time has been fixed, the condition shall be unilateral, the debtor shall appropriate the fruits and
deemed fulfilled at such time as may have probably interests received, unless from the nature and
been contemplated, bearing in mind the nature of the circumstances of the obligation it should be inferred
obligation. that the intention of the person constituting the same
was different.
** This is a condition of non-happening of a future event. In obligations to do and not to do, the courts shall
determine, in each case, the retroactive effect of the
The obligation shall become effective and binding: condition that has been complied with.
a) From the moment the time indicated has elapsed
without the event taking place;  Applies only to fulfilled suspensive conditions.
b) From the moment it has become evident that the  Retroactive statute
event cannot occur, although the time indicated has  The effects of the obligation is deemed to commence
not yet elapsed. not from the fulfillment of the obligation but from the
day of its constitution (similar to the legitimation of a
1184 -vs- 1185 natural child)
page 9
REVIEWER
 The article does not require the delivery of fruits or 1190. When the conditions have for their purpose the
payment of interests accruing (accumulating) before extinguishment of an obligation to give, the parties,
the fulfillment of the suspensive condition. upon the fulfillment of said conditions, shall return to
each other what they have received.
 Obligations to do or not to do – the retroactive effect In case of the loss, deterioration or improvement of the
shall be determined by the court using its sound thing, the provisions which, with respect to the debtor,
discretion without disregarding the intentions of the are laid down in the preceding article shall be applied
parties. to the party who is bound to return.
As for the obligations to do and not to do, the
1188. The creditor may, before the fulfillment of the provisions of the second paragraph of Article 1187 shall
condition, bring the appropriate actions for the be observed as regards the effect of the
preservation of his right. extinguishment of the obligation.
The debtor may recover what during the same time he
has paid by mistake in case of a suspensive condition.  Refers to the fulfillment of a resolutory condition.
 When the resolutory condition happened, the
Preservation of the rights of CREDITOR – the debtor may obligation is considered as if it did not exist.
render nugatory (not serious, ignore) the obligation upon the  The parties are bound to return or restore whatever
happening of the obligation. they have received from each other – ―reciprocal
 Action for prohibition restraining the alienation of the restitution‖
thing pending the happening of the suspensive  Donation by reason of marriage – if the marriage
condition; does not happen, such donation should be returned
 Action to demand security if the debtor has become to the donor.
insolvent;  Loss, deterioration and improvement – governed by
 Action to set aside alienations made by the debtor in 1189.
fraud of creditors;  In obligations to do and not to do, the courts shall
 Actions against adverse possessors to interrupt the determine, in each case, the retroactive effect of the
running prescriptive period. condition that has been complied with.
 To have his rights annotated in the registry.
1191. The power to rescind obligations is implied in
Rights of the DEBTOR – entitled to recover what has been reciprocal ones, in case one of the obligors should not
paid by mistake prior to the happening of the suspensive comply with what is incumbent upon him.
condition. The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment
1189. When the conditions have been imposed with the of damages in either case. He may also seek rescission,
intention of suspending the efficacy of an obligation to even after he has chosen fulfillment, if the latter should
give, the following rules shall be observed in case of become impossible.
the improvement, loss or deterioration of the thing The court shall decree the rescission claimed, unless
during the pendency of the condition: there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights
LOSS of third persons who have acquired the thing, in
(1) debtor without fault – obligation is accordance with Articles 1385 and 1388 and the
extinguished Mortgage Law.
(2) debtor with fault – obligation to pay
damages RECIPROCAL – arise from same causse; each is a debtor and
creditor of the other
DETERIORATION
1. debtor without fault – impairment is to RESCISSION – resolution or cancellation of the contract
be borne by the creditor  Applies only to reciprocal obligations where two
2. debtor with fault – creditor chooses: parties are mutually debtor and creditor of each
rescission of obligation, fulfillment, other in the same transaction. The cause must be
indemnity identical ad the obligations must arise
simultaneously.
IMPROVEMENT  The party who can demand rescission should be the
1. by nature or time – improvement: inure to the party who is ready, willing, and able to comply with
benefit of the creditor his own obligations while the other is not capable to
2. at the expense of the debtor – granted to the perform his own.
usufructuary
REMEDIES:
page 10
REVIEWER
1. Specific performance or fulfillment of Term – length of time sure to come

obligation with damages; Condition – fact or event uncertain to come
2. Rescission of contract with damages.
Basis Period/Term Condition
Effect of rescission: the parties must surrender whatever they 1. TIME Always refers to Can refer to past
have received from the other, and the obligation to pay is FUTURE events unknown to
extinguished. the parties
2. FULFILLMENT Sure to happen at May or may not
If there is an express stipulation of automatic rescission an exact date or happen.
between parties – such resolution shall take place only after indefinite time but
the creditor has notified the debtor of his choice of rescission sure to come.
subject to judicial scrutiny. 3. INFLUENCE Merely fixes the May cause the arising
time for the or cessation of the
1192. In case both parties have committed a breach of demandability or obligation.
the obligation, the liability of the first infractor shall be performance of
equitably tempered by the courts. If it cannot be obligation.
determined which of the parties first violated the
contract, the same shall be deemed extinguished, and
each shall bear his own damages. REQUISITES:
3. Future
FIRST INFRACTOR KNOWN 4. Certain, sure to come
The liability of the first infractor should be equitably reduced. 5. Physically or legally possible
– equitably offset each other‘s damages.
1194. In case of loss, deterioration or improvement of
FIRST INFRACTOR CANNOT BE DETERMINED the thing before the arrival of the day certain, the rules
The court shall declare the extinguishment of the obligation in Article 1189 shall be observed.
and each shall bear his own damages.
1195. Anything paid or delivered before the arrival of
Section 2 – Obligations with a Period the period, the obligor being unaware of the period or
believing that the obligation has become due and
1193. Obligations for whose fulfillment a day certain demandable, may be recovered, with the fruits and
has been fixed, shall be demandable only when that interests.
day comes.
Obligations with a resolutory period take effect at once,  The payment or delivery is done before the arrival of
but terminate upon arrival of the day certain. the period.
A day certain is understood to be that which must
necessarily come, although it may not be known when. CONSEQUENCES:
If the uncertainty consists in whether the day will come 1. If he was not aware of the period or he
or not, the obligation is conditional, and it shall be believes that the obligation has become due
regulated by the rules of the preceding Section. and demandable – he can recover what he
paid or delivered including fruits and
PERIOD / TERM – consists in a space or length of time upon interests;
the arrival of which, the demandability or the extinguishment 2. If he was aware and he paid voluntarily –
of an obligation is determined; it may be definite (exact date he cannot recover the delivery made; it is
or time is known) or indefinite (arrival of date is unknown but deemed a waiver of the benefit of the term
sure to come). and the obligation is considered already
- Future + Certain event matured.
GENERAL CLASSIFICATIONS:  The presumption is that the debtor knew that the
a) EX DIE / SUSPENSIVE PERIOD – from a day debt was not yet due. He has the burden of proving
certain give rise to the obligation; suspensive that he was unaware of the period.
effect.
b) IN DIEM / RESOLUTORY PERIOD – arrival of a 1196. Whenever in an obligation a period is designated,
term certain terminated the obligation; it is presumed to have been established for the benefit
resolutory effect. of both the creditor and the debtor, unless from the
tenor of the same or other circumstances it should
appear that the period has been established in favor of
one or of the other.
page 11
REVIEWER
 PRESUMPTION: Obligation with a period is for the  If the obligation does not state and intend a period,
benefit of both the creditor and debtor. the court is not authorized to fix a period.
 EXCEPTION: when it appears that the period is for  The court must fix the duration of the period to
the benefit of one or the other prevent the possibility that the obligation may never
be fulfilled or to cure a defect in a contract whereby
 This cannot apply when the court was authorized by it is made to depend solely upon the will of one of
the parties to fix a reasonable term. the parties.
 The benefit of the term may be the subject of Court cannot fix the period:
stipulation of the parties. 1. If there is a period agreed upon by the
1. Term is for the benefit of the debtor alone – parties and it has already lapsed or expired.
he cannot be compelled to pay prematurely, 2. From the very moment the parties give
but he can if he desires to do so. their acceptance and consent to the period
- Example: A obliges himself to pay B within 5 years. A fixed by the court, it becomes a law
cannot be compelled to pay prematurely, but he can pay governing their contract.
anytime within 5 years (A will benefit because he can pay
anytime he wants as long as it is within 5 years; B will not 1198. The debtor shall lose every right to make use of
benefit from the interests if A decides to pay early). the period:
2. Term is for the benefit of the creditor – He (1) When after the obligation has been contracted, he
may demand fulfillment even before the becomes insolvent, unless he gives a guaranty or
arrival of the term but the debtor cannot security for the debt;
require him to accept payment before the (2) When he does not furnish to the creditor the
expiration of the stipulated period. guaranties or securities which he has promised;
- Example: A borrows money from B and is obliged to make (3) When by his own acts he has impaired said
the payment on December 5. B may compel A to make the guaranties or securities after their establishment, and
payment before December 5, but A may not compel B to when through a fortuitous event they disappear, unless
receive the payment before December 5 (B will benefit from he immediately gives new ones equally satisfactory;
the interests that will accrue before December 5). (4) When the debtor violates any undertaking, in
consideration of which the creditor agreed to the
 The creditor may have reasons other than the period;
maturity of interest, that‘s why, unless the creditor (5) When the debtor attempts to abscond.
consents, the debtor has no right to accelerate the
time of payment even if the premature tender The period is disregarded and the obligation becomes pure
includes an offer to pay the principal and interest in and immediately demandable: [IGIVA]
full.
 [I] When debtor becomes insolvent;
1197. If the obligation does not fix a period, but from  The insolvency need not be judicially
its nature and the circumstances it can be inferred that declared. It is sufficient that debtor could
a period was intended, the courts may fix the duration not pay his debts due to lack of money or
thereof. funds.
The courts shall also fix the duration of the period  [G] When the debtor does not furnish guaranties or
when it depends upon the will of the debtor. securities;
In every case, the courts shall determine such period  [I] When guaranties or securities given have been
as may under the circumstances have been probably impaired or have disappeared;
contemplated by the parties. Once fixed by the courts,  If security was lost through debtor‘s fault -
the period cannot be changed by them. impairment
 If security was lost through fortuitous event -
JUDICIAL PERIOD – period designated by the court. disappearance
CONTRACTUAL PERIOD – period fixed by the parties in their  [V] When debtor violates an undertaking;
contract. If such undertaking is the reason for the creditor to agree
with such period.
Court will fix a period:  [A] When debtor attempts to abscond (escape).
1. When no period is mentioned, but it is inferable from Mere attempt to abscond is sufficient. It is an indication of
the nature and circumstances of the obligation that a bad faith.
period was intended by the parties.
2. When the period is dependent upon the will of the Section 3 – Alternative Obligations
debtor.
page 12
REVIEWER
1199. A person alternatively bound by different  There being but one prestation available, this
prestations shall completely perform one of them. prestation becomes a simple obligation.
The creditor cannot be compelled to receive part of one
and part of the other undertaking. 1203. If through the creditor's acts the debtor cannot
make a choice according to the terms of the obligation,
OBLIGATIONS WITH PLURAL PRESTATIONS: the latter may rescind the contract with damages.
1. CONJUNCTIVE/COMPOUND OBLIGATION - an
obligation where the debtor has to perform ALL the (1) If the debtor could not make a choice due to
several prestations in the contract to extinguish the the creditor‘s act of making the prestations
obligation. impossible, debtor may RESCIND the
2. ALTERNATIVE OBLIGATION – an obligation where contract with damages - rescission takes
the debtor is required to fulfill ONLY ONE of the place at the initiative of the debtor.
several prestations to extinguish the obligation. (2) If the debtor is being prevented to choose
3. FACULTATIVE OBLIGATION – an obligation where the only a particular prestation, and there are
debtor is bound to perform ONLY ONE prestation, others available, he is free to choose from
with a reserved right to choose another prestation as them, after notifying the creditor of his
SUBSTITUTE for the principal. decision.
1200. The right of choice belongs to the debtor, unless 1204. The creditor shall have a right to indemnity for
it has been expressly granted to the creditor. damages when, through the fault of the debtor, all the
The debtor shall have no right to choose those things which are alternatively the object of the
prestations which are impossible, unlawful or which obligation have been lost, or the compliance of the
could not have been the object of the obligation. obligation has become impossible.
The indemnity shall be fixed taking as a basis the value
Implied grant to the creditor is not allowed. If it does not of the last thing which disappeared, or that of the
appear on the agreement as to whom among them has the service which last became impossible.
right to choose, it is the debtor who can choose. Damages other than the value of the last thing or
service may also be awarded.
1201. The choice shall produce no effect except from
the time it has been communicated.  If the impossibility of all the objects of the
alternative obligation is caused by the debtor, the
1. The choice shall not produce any legal effect creditor is entitled to damages.
until it has been duly communicated to the other  If such impossibility is caused by a fortuitous event,
party. the obligation is extinguished and the debtor is
2. It can be done in writing, verbally, impliedly, or released from responsibility, unless the contrary is
any unequivocal means. stipulated by the parties.
3. Once the choice has been communicated to the  The creditor cannot claim for damages if the debtor
other party: can still perform the remaining prestations.
1. The obligation is now LIMITED only to the  The damages that may be recovered is based on the
PRESTATION CHOSEN, with all the natural last thing which disappeared or the service which
consequences flowing therefrom; became impossible. This last one is converted into a
2. The choice is IRREVOCABLE. simple obligation.
a. The performance of prestation without announcing
the choice to the creditor is NOT BINDING. 1205. When the choice has been expressly given to the
b. The consent of the other party is NOT REQUIRED in creditor, the obligation shall cease to be alternative
making the choice – that will in effect frustrate the from the day when the selection has been
clear intention of the law and the nature of the communicated to the debtor.
alternative obligation. Until then the responsibility of the debtor shall be
c. If there is delay in the making of choice – punish the governed by the following rules:
one who is supposed to exercise the right of choice
for the delay he caused – court may order the debtor A. only one thing lost – fortuitous event – creditor
to make a choice, or creditor to make the choice chooses from the remainder – debtor delivers the
within certain period, or court makes the choice. choice to creditor;
B. only one remains – debtor delivers the same to the
1202. The debtor shall lose the right of choice when creditor;
among the prestations whereby he is alternatively C. only one thing lost – fault of the debtor
bound, only one is practicable. 1. creditor may choose any one of the
remainders;
page 13
REVIEWER
2. creditor may choose the price or value of considered as joint obligation.

the one which was lost;
3. may choose 1 or 2 plus damages CONSEQUENCES OF SOLIDARITY:
D. all things lost – fault of the debtor – creditor may 1. Passive Solidarity – full payment made by anyone of
choose the price of ANYONE of the things, with the solidary debtors extinguishes the obligation. The
damages if warranted. one who paid can claim reimbursement from his co-
debtors as regards their corresponding shares in the
The same rules shall be applied to obligations to do or obligation.
not to do in case one, some or all of the prestations A, B, & C are solidary debtors of D in the sum of P900.
should become impossible. D can demand payment of the entire obligation when it
becomes due, from any one of the debtors or from all of them
 This article applies only when the right of choice has at the same time.
been expressly granted to the creditor. If C paid the whole P900 to D, he may claim reimbursement
from A and B.
1206. When only one prestation has been agreed upon,
but the obligor may render another in substitution, the 2. Active Solidarity – full payment to any of the
obligation is called facultative. creditors extinguishes the obligation. The creditor
The loss or deterioration of the thing intended as a who received the entire amount will be liable to pay
substitute, through the negligence of the obligor, does the corresponding shares of his co-creditors in
not render him liable. But once the substitution has accordance with their internal agreement.
been made, the obligor is liable for the loss of the
Garfield owes the sum of P40,000 to Mickey, Minnie, Donald,
substitute on account of his delay, negligence or fraud.
and Pluto, who are solidary creditors. Garfield can pay anyone
of them. If Mickey received the P40,000, he is liable to pay
 If loss or deterioration happened before substitution
the corresponding shares of his co-creditors.
is made, obligor is not liable; after substitution is
communicated, he is liable for loss (through delay,
negligence or fraud) MIXED SOLIDARITY
Section 4 – Joint and Solidary Obligations a. Solidary Debtors, Joint Creditors

 P9,000.00 – total debt
1207. The concurrence of two or more creditors or of Debtors (Solidary) Creditors (Joint)
two or more debtors in one and the same obligation Aida pays P4,500.00 John = P 4,500.00
does not imply that each one of the former has a right Lorna pays P4,500.00 Marsha P 4,500.00
to demand, or that each one of the latter is bound to Fe
render, entire compliance with the prestation. There is
a solidary liability only when the obligation expressly b. Joint Debtors, Solidary Creditors
so states, or when the law or the nature of the  P 9,000.00 – total debt
obligation requires solidarity. Debtors (Joint) Creditors (Solidary)
Aida (P 3,000.00) John (can claim from debtors)
INDIVIDUAL OBLIGATION – one debtor and one creditor Lorna (P 3,000.00) Marsha (-same-)
Fe (P 3,000.00)
COLLECTIVE OBLIGATION – two or more debtors and two or
more creditors
1208. If from the law, or the nature or the wording of
1. JOINT – entire obligation is to be paid or the obligations to which the preceding article refers the
performed proportionately by the debtors; contrary does not appear, the credit or debt shall be
2. SOLIDARY – each one of the debtors are presumed to be divided into as many shares as there
obliged to pay the entire obligation, each are creditors or debtors, the credits or debts being
one of the creditors has the right to demand considered distinct from one another, subject to the
from any of the debtors, the fulfillment of Rules of Court governing the multiplicity of suits.
the entire obligation;
A. Passive Solidarity – solidarity on the part of  This provision speaks of JOINT DIVISIBLE
the DEBTORS OBLIGATION.
B. Active Solidarity – solidarity on the part of
the CREDITORS.  When there is a concurrence of several creditors or
 SOLIDARITY SHOULD BE EXPRESSED – law, of several debtors in one and in the same obligation,
stipulation, nature of obligation. there is a presumption that the obligation is joint.
 When the obligation is ambiguous, it must be  Each of the creditors shall be entitled to demand only
page 14
REVIEWER
the payment of his proportionate share of the credit. damages. Batman and Robin will be liable only for P
 Each of the debtors may be compelled to pay only 750,000.00 each.
his proportionate share of the debt.
 The credits or debts shall be considered distinct from  The act of one is not binding (others must concur)
one another.
1210. The indivisibility of an obligation does not
CONSEQUENCES OF JOINT OBLIGATION: necessarily give rise to solidarity. Nor does solidarity of
1. Each debtor – liable for a proportionate part of the itself imply indivisibility.
entire debt;
Thales, Socrates, Plato, & Aristotle owe P100 to Bruce Lee  Solidarity is expressed in the stipulations of the
= 4 debts and 1 credit party, law governing the obligation, or the nature of
Each of them owes Bruce Lee P25 the obligation.
Bruce Lee cannot collect the entire P100 from any one of
them. INDIVISIBLE OBLIGATION – an obligation where the
2. Each creditor – entitled to a proportionate part of the prestation or object to be delivered cannot be performed by
credit; parts without altering its essence or substance.
Piggy owes P100 to Froggy and Fishy
= 1 debt and 2 credits Basis Indivisibility Solidarity
Froggy can only collect 50 from Piggy, 1. Nature Refers to the Refers to the tie
Same with Fishy prestation of the existing between
3. Demand made by one creditor upon one debtor contract parties of the
produces the effects of default only as between obligation (who is
them, but not with respect to the others; liable)
2. Number of Does not require Requires plurality of
Bubbles demanded payment from Buttercup; Buttercup was
subjects / parties plurality of parties parties
in default. This does not mean that the others are in default
3. Effect of breach Obligation is The liability, even if
too because Bubbles did not demand from them.
of obligation converted into converted into
4. The interruption of prescription caused by the
monetary indemnity for
demand made by one creditor upon one debtor will
obligation for damages, remains
not benefit the co-creditors;
indemnity for solidary.
Wittgenstein extended the period in which Tarski should have damages – each
paid his debt to him. This does not mean that the same debtor is liable
extension applies to Tarski's debt to Davidson. only for his part in
5. The insolvency of one debtor will not increase the the indemnity.
liability of his co-debtors, nor will it allow a creditor
to demand anything from the co-creditors.
1211. Solidarity may exist although the creditors and
If Husserl and Merleau-Ponty are debtors of Sartre for
the debtors may not be bound in the same manner and
P1,000,000.00 and Husserl becomes insolvent, the liability of
by the same periods and conditions.
Merleau-Ponty will only be P500,000.00 representing his
proportional share of ½ in the whole obligation.
 The solidarity of the debtors is not affected even if
different terms and conditions are made applicable to
1209. If the division is impossible, the right of the them.
creditors may be prejudiced only by their collective  Enforcement of the terms and conditions may be
acts, and the debt can be enforced only by proceeding made at different times. The obligations which have
against all the debtors. If one of the latter should be matured can be enforced while those still undue will
insolvent, the others shall not be liable for his share. have to be awaited. Enforcement can be made
against any one of the solidary debtors although it
JOINT INDIVISIBLE OBLIGATION – an obligation where can happen that a particular obligation chargeable to
solidarity is not provided and the prestation or object is not a particular debtor is not yet due. He will be
susceptible of division; its fulfillment requires the concurrence answerable for all the prestations which fall due
of all debtors, while doing each one‘s parts. although chargeable to the other co-debtors.
Batman and Robin jointly obliged themselves to deliver a Sad Face, Happy, and Fanny got a loan of P150 from Smiley.
brand new Toyota Fortuner worth P1,500,000.00 to They signed a promissory note solidarily binding themselves
Superman. The object, a vehicle, is indivisible. They must to pay Smiley under the following terms:
deliver the thing jointly. In case of breach, the obligation is Sad Face will pay P50 with 3% on December 30,
converted into monetary obligation for indemnity for 2006
page 15
REVIEWER
Happy will pay P50 with 4% on December 30, 2007 1215. Novation, compensation, confusion or remission
Fanny will pay P50 with 5% on December 30, 2008 of the debt, made by any of the solidary creditors or
On December 31, 2006, Smiley can collect his P50 with 3% with any of the solidary debtors, shall extinguish the
from any one of the debtors, but not the whole P150 because obligation, without prejudice to the provisions of
it is not yet entirely due. The maturity of the other amounts Article 1219.
should still be awaited. If maturity comes, Smiley can collect The creditor who may have executed any of these acts,
from any of the debtors, because they are expressly solidary as well as he who collects the debt, shall be liable to
in liabilities, and not affected by the secondary stipulations. the others for the share in the obligation corresponding
to them.
1212. Each one of the solidary creditors may do
whatever may be useful to the others, but not anything NOVATION – obligations are modified by:
which may be prejudicial to the latter. 1. Changing their object or principal conditions;
2. Substituting the person of the debtor; and
 Every solidary creditor is benefited by the useful acts 3. Subrogating (placing) a third person in the rights of
of any one of them. the creditor. [Art. 1291, CC]
 If a solidary creditor performs an act which is not fair
to his co-creditors, the act may have valid legal COMPENSATION – takes place when two persons, in their own
effects or the obligation of the debtor due to them right, become creditors and debtors of each other
may be extinguished, but the performing creditor  the amount of one is covered by the amount of the other
shall be liable to his co-creditors. Erap borrowed P100 from Fernando.
Fernando borrowed P75 from Erap.
 Question: May solidary creditors perform an act Erap‘s obligation to Fernando is now P25 only, because the
that is beneficial to others? original obligation was offset by Fernando‘s supposed-to-be
obligation to Erap.
1213. A solidary creditor cannot assign his rights
without the consent of the others. CONFUSION – takes place when the characters of creditor
and debtor are merged in the same person.
Assign – transfer of right Tito pays his debt to Vic with a check payable to ―cash‖.
Vic paid his debt to Joey with the same check.
 The assignee does not become a solidary creditor, Joey paid his debt to Tito, with the same check Tito issued to
and any payment made upon him by the debtor does Vic.
not extinguish the obligation. He is considered a Tito becomes paid by his own check. He becomes the debtor
STRANGER, and his acts are not binding to the and the creditor of himself at the same time.
solidarity.
REMISSION – the gratuitous abandonment by the creditor of
 DOCTRINE OF MUTUAL AGENCY - In solidary his right; acceptance of the obligor is necessary.
obligations, the act of one is act of the others.
 Exceptions to the doctrine:  These 4 modes of extinguishing obligations are acts
1. Art. 1212 – a creditor may not perform an act prejudicial to the other solidary co-creditors because
prejudicial to other creditors these have the effect of extinguishing the debt or
2. Art. 1213 – a creditor cannot transfer his right obligation which is due to all of them.
without consent  The only recourse of the co-creditors is to let the one
who executed any of those acts be liable for the
1214. The debtor may pay any one of the solidary shares corresponding to all his co-creditors (in their
creditors; but if any demand, judicial or extrajudicial, internal agreement).
has been made by one of them, payment should be
made to him. 1216. The creditor may proceed against any one of the
solidary debtors or some or all of them simultaneously.
 The debtor can pay any one of the solidary creditors. The demand made against one of them shall not be an
Such payment when accepted by any of the solidary obstacle to those which may subsequently be directed
creditors will extinguish the obligation. against the others, so long as the debt has not been
 To avoid confusion on the payment of the obligation, fully collected.
the debtor is required to ay only to the demanding
creditor and that payment is sufficient to effect the  When there is passive solidarity, the creditor can
extinguishment of the obligation. proceed against:
 In case two or more demands made by the other 1. Any of the solidary debtors;
creditors, the first demand must be given priority. 2. Some of the solidary debtors;
page 16
REVIEWER
3. All of the solidary debtors, simultaneously. (siyempre, 'pag nagbayad na, wala nang obligation,
wala na ding ire-remit...)
Extrajudicial demands - first demand shall not prevent
subsequent demands on the other co-debtors, if co-debtor  Any belated (delayed) remission by the creditor of
first to have been required to fulfill obligation did not act on the share of any of the debtor has no effect on the
it. internal relationship of the co-debtors.
1217. Payment made by one of the solidary debtors Payment before remission: A, B, and C solidarily owe D
extinguishes the obligation. If two or more solidary P1,500.00. B paid the entire obligation. After which, D
debtors offer to pay, the creditor may choose which remitted the share of C. B can collect P500.00 each from A
offer to accept. and C even if the share of C in the obligation had been
He who made the payment may claim from his co- remitted.
debtors only the share which corresponds to each, with
the interest for the payment already made. If the
Remission before payment: A, B, and C solidarily owe D
payment is made before the debt is due, no interest for
P1,500.00. D remitted the share of C. Thereafter, B paid the
the intervening period may be demanded.
entire obligation. B can collect P500.00 from A but not from
When one of the solidary debtors cannot, because of
C. However, B may ask D to give back P500, which is the
his insolvency, reimburse his share to the debtor
supposed-to-be share of C.
paying the obligation, such share shall be borne by all
his co-debtors, in proportion to the debt of each.
 After the prior payment of the entire obligation,
there is nothing to remit because the obligation had
Payment – consists in the delivery of the thing or the
rendition (rendering) of the service whish is the object of the been extinguished.
obligation.
1220. The remission of the whole obligation, obtained
Interest – compensation for the use of borrowed money by one of the solidary debtors, does not entitle him to
reimbursement from his co-debtors.
Partial payment – the solidary debtor who made the partial
payment is entitles to be reimbursed only for such amount of  There is nothing to be reimbursed because he did
money which he had paid and which exceeds his own share in not spend any money, the remission being a
gratuitous act.
the obligation.
If one of the debtors is insolvent and could not pay his share 1221. If the thing has been lost or if the prestation has
become impossible without the fault of the solidary
in the obligation, all solidary debtors including the paying
debtor shall share proportionately in the settlement of the debtors, the obligation shall be extinguished.
corresponding share of the insolvent debtor. [In short, his co- If there was fault on the part of any one of them, all
shall be responsible to the creditor, for the price and
debtors will save his ass.]
the payment of damages and interest, without
1218. Payment by a solidary debtor shall not entitle prejudice to their action against the guilty or negligent
debtor.
him to reimbursement from his co-debtors if such
payment is made after the obligation has prescribed or If through a fortuitous event, the thing is lost or the
become illegal. performance has become impossible after one of the
solidary debtors has incurred in delay through the
No reimbursement if: judicial or extrajudicial demand upon him by the
creditor, the provisions of the preceding paragraph
shall apply.
1. Obligation PRESCRIBES
 The creditor did not make any demand for more than
10 years. Loss of the thing or impossibility of prestation –
1. NO FAULT – solidary debtors –
2. Obligation becomes ILLEGAL
 Law has been passed, making such prestation illegal. obligation is extinguished
2. FAULT of any one of them – all are
liable because of their mutual agency
1219. The remission made by the creditor of the share
which affects one of the solidary debtors does not 3. FORTUITOUS EVENT – delay on the
release the latter from his responsibility towards the part of the debtors – all will be liable
co-debtors, in case the debt had been totally paid by
anyone of them before the remission was effected.  If the thing due was not lost, but there is merely a
delay, fraud or negligence on the part of one of the
solidary debtors, all (including the innocent) debtors
 Atty De Chavez: Ito ay provision sa tanga...
page 17
REVIEWER
will share in the payment of the PRINCIPAL monetary obligation which is not divisible.
prestation. The damages and interest imposed will  The guilty debtor is liable for damages.
be borne by the guilty debtor.
 Obligation to deliver is converted into an obligation 1225. For the purposes of the preceding articles,
to pay indemnity when there us loss or impossibility obligations to give definite things and those which are
of performance. not susceptible of partial performance shall be deemed
to be indivisible.
1222. A solidary debtor may, in actions filed by the When the obligation has for its object the execution of
creditor, avail himself of all defenses which are derived a certain number of days of work, the accomplishment
from the nature of the obligation and of those which of work by metrical units, or analogous things which by
are personal to him, or pertain to his own share. With their nature are susceptible of partial performance, it
respect to those which personally belong to the others, shall be divisible.
he may avail himself thereof only as regards that part However, even though the object or service may be
of the debt for which the latter are responsible. physically divisible, an obligation is indivisible if so
provided by law or intended by the parties.
DEFENSES OF A SOLIDARY DEBTOR: In obligations not to do, divisibility or indivisibility shall
be determined by the character of the prestation in
1. Defense arising from the nature of the obligation – each particular case.
such as payment, prescription, remission, statute of
frauds, presence of vices of consent, etc. The following are considered INDIVISIBLE obligations:
2. Defenses which are personal to him or which 1. Obligation to give definite things
pertains to his own share alone – such as minority, 2. Obligations which are not susceptible of partial
insanity and others purely personal to him. performance
3. Defenses personal to the other solidary creditors but 3. Even though the object or service may be physically
only as regards that part of the debt for which the divisible, it is indivisible if:
other creditors are liable. a. the law so provides
b. when the parties intended it to be indivisible
Section 5 – Divisible and Indivisible Obligations
The following obligations are deemed DIVISIBLE:
1223. The divisibility or indivisibility of the things that 1. When the object of the obligation is the execution of
are the object of obligations in which there is only one a certain number of days of work
debtor and only one creditor does not alter or modify 2. When the object of the obligation is the
the provisions of Chapter 2 of this Title. accomplishment of work measured in units
3. When the object of the obligation is susceptible of
DIVISIBILITY – refers to the susceptibility of an obligation to partial compliance
be performed partially. 4. When the object of the obligation is such that the
 Obligation to deliver 100 sacks of rice or a particular debtor is required to pay in installments
type
INDIVISIBILITY – refers to the non-susceptibility of an  If the contract is divisible, and a part of it is illegal,
obligation to partial performance. the illegal part is void, and the rest shall be valid and
 Obligation to deliver a particular computer set enforceable.
 If the contract is indivisible, and a part of it is illegal,
If a thing could be divided into parts and as divided, its value the entire contract is void.
is impaired disproportionately, that thing is INDIVISIBLE.  Partial performance of an indivisible obligation is
tantamount to non-performance.
1224. A joint indivisible obligation gives rise to
indemnity for damages from the time anyone of the Section 6 – Obligations with a Penal Clause
debtors does not comply with his undertaking. The
debtors who may have been ready to fulfill their 1226. In obligations with a penal clause, the penalty
promises shall not contribute to the indemnity beyond shall substitute the indemnity for damages and the
the corresponding portion of the price of the thing or of payment of interests in case of noncompliance, if there
the value of the service in which the obligation is no stipulation to the contrary. Nevertheless,
consists. damages shall be paid if the obligor refuses to pay the
penalty or is guilty of fraud in the fulfillment of the
JOINT INDIVISIBLE OBLIGATION – the object is indivisible obligation.
but the liability of the parties is joint. The penalty may be enforced only when it is
demandable in accordance with the provisions of this
 The unfulfilled undertaking (duty) is converted into a Code.
page 18
REVIEWER
PENALTY CLAUSE 1228. Proof of actual damages suffered by the creditor

 Purposes: Jurado book is not necessary in order that the penalty may be
 This is an accessory obligation attached to the demanded.
principal obligation, which imposes an additional
liability in case of breach of the principal obligation. d. As long as the agreement or contract is breached.
 It pushes the debtor to perform his obligation e. The mere non-fulfillment of the principal obligation
faithfully and without delay – within the period entitles the creditor to the penalty stipulated.
agreed upon, or else, he suffers a fixed civil penalty f. The purpose of the penalty clause is precisely to
without need of proving the damages of the other avoid proving damages.
party.
1229. The judge shall equitably reduce the penalty
The penalty imposable is a substitute for the indemnity for: when the principal obligation has been partly or
a. damages irregularly complied with by the debtor. Even if there
b. payment of interest in case of breach of obligation has been no performance, the penalty may also be
1. unless the contrary is stipulated! reduced by the courts if it is iniquitous or
unconscionable.
EXCEPTIONS – additional damages may be recovered from
the following acts: JUDICIAL REDUCTION OF PENALTY
4. If the debtor refuses to pay the penalty  Principal obligation – partly complied with by the
5. If the debtor is guilty of fraud in the fulfillment debtor (but not in indivisible obligation, because it is
of the obligation tantamount to non-compliance)
6. If there is express stipulation that the other  Principal obligation – complied not in accordance
damages or interests are demandable to the with the tenor of the agreement (refers to irregular
penalty in the penal clause performance)
 Penalty – iniquitous or unconscionable
1227. The debtor cannot exempt himself from the
performance of the obligation by paying the penalty,  Judge‘s power to reduce penalties are limited to
save in the case where this right has been expressly private contracts.
reserved for him. Neither can the creditor demand the
fulfillment of the obligation and the satisfaction of the INIQUITOUS OR UNCONSCIONABLE – when it is revolting to
penalty at the same time, unless this right has been the conscience or common sense; grossly disproportionate to
clearly granted him. However, if after the creditor has the damages suffered.
decided to require the fulfillment of the obligation, the
performance thereof should become impossible without PENALTY NOT ENFORCEABLE:
his fault, the penalty may be enforced. 1. Impossible performance of principal
obligation due to fortuitous events
 A debtor cannot evade from payment of his principal 2. Creditor prevented the debtor from fulfilling
obligation by choosing to pay the penalty stipulated, the obligation
except when the debtor is EXPRESSLY granted with 3. Penalty is contrary to good morals or good
the right to substitute the penalty for the principal customs
obligation. – an obligation with penalty clause cannot 4. Both parties are guilty of breach of contract
be turned to facultative obligation unless expressly 5. Breach of contract by the creditor
stipulated in the contract. 6. None of the parties committed any willful or
 The creditor cannot demand the stipulated fulfillment culpable violation of the agreement
of the principal obligation and the penalty at the
same time, except 1230. The nullity of the penal clause does not carry
a. when the creditor was clearly given the right to with it that of the principal obligation.
enforce both the principal obligation and The nullity of the principal obligation carries with it
penalty; that of the penal clause.
b. when the creditor has demanded fulfillment of
the obligation but cannot be fulfilled due to the Because the penal clause is only an accessory to the principal
1. debtor‘s fault – creditor may demand obligation, it cannot exist alone.
for penalty If the penal clause is void, the principal obligation remains
2. creditor‘s fault – he cannot claim the enforceable.
penalty
3. fortuitous event – principal obligation The nullity of penal clause does not mean the nullity of the
and penalty are extinguished principal.
page 19
REVIEWER
For example: b.) integrity – prestation must be fulfilled completely

In case of non-payment of P10,000, P1,000 per day as  Time of payment – the payment or performance
penalty shall be imposed. It is a void contract but it is not an must be on the date stipulated (may be made even
excuse that you don't have to pay the principal which is on Sundays or on any holiday, although some states
P10,000. like the Negotiable Instruments Law states that
payment in such case may be made on the next
CHAPTER 4 succeeding business day)
EXTINHGUISHMENT OF OBLIGATIONS  The burden of proving that the obligation has been
extinguished by payment devolves upon the debtor
GENERAL PROVISIONS who offers such a defense to the claim of the plaintiff
creditor
1231. Obligations are exringuished:
5. by payment or performance
 The issuance of a receipt is a consequence of usage
and good faith which must be observed (although
6. by loss of the thing due
our Code has no provision on this) and the refusal of
7. by condonation or remission
the creditor to issue a receipt without just cause is a
8. by confusion or merger of the rights of
ground for consignation under Art 1256 ( if a receipt
creditor and debtor
has been issued by payee, the testimony alone of
9. by compensation
payer would be insufficient to prove alleged
10. by novation
payments)
Other causes of extinguishment of obligations, such as
annulment, rescission, fulfillment of a resolutory
1234. If the obligation has been substantially
condition, and prescription, are governed elsewhere in
performed in good faith, the obligor may recover as
this Code.
though there had been a strict and complete
fulfillment, less damages suffered by the obligee.
1232. Payment means not only the delivery of money
but also the performance, in any other manner of an  In order that there may be substantial performance
obligation. of an obligation, there must have been an attempt in
good faith to perform, without any willful or
Payment means not only delivery of money but also the intentional departure therefrom
performance.  The non-performance of a material part of a contract
will prevent the performance from amounting to a
 It is the fulfillment of the prestation due that substantial compliance
extinguishes the obligation by the realization of the  A party who knowingly and willfully fails to perform
purposes for which it was constituted his contract in any respect, or omits to perform a
 It is a juridical act which is voluntary, licit and made material part of it cannot be permitted under the
with the intent to extinguish an obligation protection of this rule to compel the other party to
perform; and the trend of the more recent decisions
 Requisites:
is to hold that the percentage of omitted or irregular
1. person who pays
performance may in and of itself be sufficient to
2. the person to whom payment is made
show that there has not been a substantial
3. the thing to be paid
performance
4. the manner, time and place of payment etc
 The paying as well as the one receiving should have
 The party who has substantially performed may
enforce specific performance of the obligation of the
the requisite capacity
other party or may recover damages for their breach
 Kinds: upon an allegation of performance, without proof of
1. normal –when the debtor voluntarily performs the complete fulfillment.
prestation stipulated
2. abnormal – when he is forced by means of a judicial
 The other party, on the other hand, may by an
independent action before he is sued, or by a
proceeding either to comply with prestation or to pay
counterclaim after commencement of a suit against
indemnity
him, recover from the first party the damages which
he has sustained by the latter‘s failure to completely
1233. A debt shall not be understood to have been
fulfill his obligation
paid unless the thing or service in which the oligatoin
consists has been completely delivered or rendered, as
1235 – When the oblige accepts the performance,
the case may be.
knowing its incompleteness or irregularity, and without
 States 2 requisites of payment: expressing any protest or objection, the obligation is
a.) identity of prestation - the very thing or service due must deemed fully complied with
be delivered or released  A person entering into a contract has a right to insist
page 20
REVIEWER
on its performance in all particulars, according to its 1238. Payment made by a third person who does not
meaning and spirit. But if he chooses to waive any of intend to be reimbursed by the debtor is deemed to be
the terms introduced for his own benefit, he may do a donation, which requires the debtor’s consent/ but
so. the payment is in any case valid as to the creditor who
 But he is not obliged to accept anything else in place has accepted it
of that which he has contracted for and if he does ART 1239. In obligations to give, payment made by one
not waive this right, the other party cannot recover who does not have the free disposal of the thing due
against him without performing all the stipulations and capacity to alienate it shall not be valied, without
on is part prejudice to the provisions of article 1427 under the
 To constitute a waiver, there must be an intentional Title on “Natural Obligations”
relinquishment of a known right. A waiver will not  consignation will not be proper here. In case the
result from a mere failure to assert a claim for creditor accepts the payment, the payment will not
defective performance/payment. There must have be valid except in the case provided in article 1427
been acceptance of the defective performance with
actual knowledge if the incompleteness or defect, 1240. Payment shall be made to the person in whose
under circumstances that would indicate an intention favor the obligation has been constituted, or his
to consider the performance as complete and successor in interest, or any person authorized to
renounce any claim arising from the defect receive it
 A creditor cannot object because of defects in  the authority of a person to receive payment for the
performance resulting from his own acts or directions creditor may be
a.) legal – conferred by law (e.g.,guardian of the
1236. The creditor is not bound to accept payment or incapacitated, administrator of the estate of the deceased)
performance by a third person who has no interest in b.) conventional – when the authority has been given by
the fulfillment of the obligation, unless there is a the creditor himself (e.g., agent who is appointed to collect
stipulation to the contrary. Whoever pays for another from the debtor
may demand from the debtor what he has paid, except  payment made by the debtor to a wrong party does
that if he paid without the knowledge or against the not extinguish the obligation as to the creditor
will of the debtor, he can recover only insofar as the (void), if there is no fault or negligence which can be
payment has been beneficial to the debtor imputed to the latter (even when the debtor acted in
 Reason for this article: whenever a third person pays utmost good faith, or through error induced by the
there is a modification of the prestation that is due. fraud of the 3rd person). It does not prejudice the
 Generally, the 3rd person who paid another‘s debt is creditor and the accrual of interest is not suspended
entitled to recover the full amount he paid. The law, by it
however limits his recovery to the amount by which
the debtor has been benefited, if the debtor has no 1241. Payment to a person who is incapacitated to
knowledge of, or has expressed his opposition to administer his property shall be valid if he has kept the
such payment thing delivered, or insofar as the payment has been
 If the debt has been remitted, paid compensated or beneficial to him. Payment made to a third person shall
prescribed, a payment by a third person would also be valid insofar as it has redounded to the benefit
constitute a payment of what is not due; his remedy of the creditor. Such benefit to the creditor need not be
would be against the person who received the proved in the following cases:
payment under such conditions and not against the (1) If after the payment, the third person acquires the
debtor who did not benefit from the payment creditor's rights;
 payment against debtor‘s will – even if payment of (2) If the creditor ratifies the payment to the third
the third party is against the will of the debtor, upon person;
payment by the third party, the obligation between (3) If by the creditor's conduct, the debtor has been led
the debtor and creditor is already extinguished to believe that the third person had authority to receive
the payment. (1163a)
1237. Whoever pays on behalf of the debtor without  payment shall be considered as having benefited the
the knowledge or against the will of the latter, cannot incapacitated person if he made an intelligent and
compel the creditor to subrogate him in his rights, such reasonable use thereof, for purposes necessary or
as those arising from a mortgage, guaranty or penalty useful to him, such as that which his legal
 This article gives to the third person who paid only a representative would have or could have done under
simple personal action for reimbursement, without similar circumstances, even if at the time of the
the securities, guaranties and other rights recognized complaint the effect of such use no longer exists
in the creditor, which are extinguished by the (e.g., taxes on creditor‘s property, money to
payment extinguish a mortgage on creditor‘s property)
 the debtor is not released from liability by a payment
page 21
REVIEWER
to one who is not the creditor nor one authorized to protest or disposes of it or consumes it
receive the payment, even if the debtor believed in
good faith that he is the creditor, except to the 1245. Dation in payment, whereby property is alienated
extent that the payment inured to the benefit of the to the creditor in satisfaction of a debt in money, shall
creditor be governed by the law of sales. (n)
 in addition to those mentioned above, payment to a  This is the delivery and transmission of ownership of
third person releases the debtor: a thing by the debtor to the creditor as an accepted
a.) when, without notice of the assignment of credit, he equivalent of the performance of the obligation.
pays to the original creditor  The property given may consist not only of a thing
b.) when in good faith he pays to one in possession of the but also of a real right (such as a usufruct)
credit
 even when the creditor receives no benefit from the
 Considered as a novation by change of the object
payment to a third person, he cannot demand  Where the debt is money, the law on sale shall
payment anew, if the mistake of the debtor was due govern; in this case, the act is deemed to be a sale
to the fault of the creditor with the amount of the obligation to the extent that
it is extinguished being considered as price
1242. Payment made in good faith to any person in  Difference between Dation and Cession (see Art.
possession of the credit shall release the debtor. 1255)
(1164)
 the person in possession of the credit is neither the 1246. When the obligation consists in the delivery of an
creditor nor one authorized by him to receive indeterminate or generic thing, whose quality and
payment, but appears under the circumstances of circumstances have not been stated, the creditor
the case, to be the creditor. He appears to be the cannot demand a thing of superior quality. Neither can
owner of the credit, although in reality, he may not the debtor deliver a thing of inferior quality. The
be the owner (e.g., an heir who enters upon the purpose of the obligation and other circumstances shall
hereditary estate and collects the credits thereof, but be taken into consideration. (1167a)
who is later deprived of the inheritance because of  If there is disagreement between the debtor and the
incapacity to succeed) creditor as to the quality of the thing delivered, the
 it is necessary not only that the possession of the court should decide whether it complies with the
credit be legal, but also that the payment be in good obligation, taking into consideration the purpose and
faith other circumstances of the obligation
 Both the creditor and the debtor may waive the
1243. Payment made to the creditor by the debtor after benefit of this article
the latter has been judicially ordered to retain the debt  see Art. 1244
shall not be valid. (1165)
 the payment to the creditor after the credit has been 1247. Unless it is otherwise stipulated, the
attached or garnished is void as to the party who extrajudicial expenses required by the payment shall
obtained the attachment or garnishment, to the be for the account of the debtor. With regard to judicial
extent of the amount of the judgment in his favor. costs, the Rules of Court shall govern. (1168a)
 This is because the payment is the debtor‘s duty and
 The debtor upon whom garnishment order is served
it inures to his benefit in that he is discharged from
can always deposit the money in court by way of
the burden of the obligation
consignation and thus relieve himself from further
liability
1248. Unless there is an express stipulation to that
effect, the creditor cannot be compelled partially to
1244. The debtor of a thing cannot compel the creditor
receive the prestations in which the obligation consists.
to receive a different one, although the latter may be of
Neither may the debtor be required to make partial
the same value as, or more valuable than that which is
payments.
due. In obligations to do or not to do, an act or
However, when the debt is in part liquidated and in
forbearance cannot be substituted by another act or
part unliquidated, the creditor may demand and the
forbearance against the obligee's will. (1166a)
debtor may effect the payment of the former without
 Upon agreement of consent of the creditor, the waiting for the liquidation of the latter. (1169a)
debtor may deliver a different thing or perform a  The creditor who refuses to accept partial prestations
different prestation in lieu of that stipulated. In this does not incur delay except when there is abuse of
case there may be dation in payment or novation right or if good faith requires acceptance
 The defects of the thing delivered may be waived by  This article does not apply to obligations where there
the creditor, if he expressly so declares or if, with are several subjects or where the various parties are
knowledge thereof, he accepts the thing without bound under different terms and conditions
page 22
REVIEWER
Court.(1171a)
1249. The payment of debts in money shall be made in  Since the law fixes the place of payment at the
the currency stipulated, and if it is not possible to domicile of the debtor, it is the duty of the creditor to
deliver such currency, then in the currency which is go there and receive payment; he should bear the
legal tender in the Philippines. The delivery of expenses in this case because the debtor cannot be
promissory notes payable to order, or bills of exchange made to shoulder the expenses which the creditor
or other mercantile documents shall produce the effect incurs in performing a duty imposed by law and
of payment only when they have been cashed, or when which is for his benefit.
through the fault of the creditor they have been  But if the debtor changes his domicile in bad faith or
impaired. after he has incurred in delay, then the additional
In the meantime, the action derived from the original expenses shall be borne by him
obligation shall be held in the abeyance. (1170)
 LEGAL TENDER means such currency which in a
 When the debtor has been required to remit money
to the creditor, the latter bears the risks and the
given jurisdiction can be used for the payment of
expenses of the transmission. In cases however
debts, public and private, and which cannot be
where the debtor chooses this means of payment, he
refused by the creditor
bears the risk of loss.
 so long as the notes were legal tender at the time
they were paid or delivered, the person accepting
SUBSECTION 1
them must suffer the loss if thereafter they became
APPLICATION OF PAYMENTS
valueless
 the provisions of the present article have been
1252. He who has various debts of the same kind in
modified by RA No. 529 which states that payments
favor of one and the same creditor, may declare at the
of all monetary obligations should now be made in
time of making the payment, to which of them the
currency which is legal tender in the Phils. A
same must be applied. Unless the parties so stipulate,
stipulation providing payment in a foreign currency is
or when the application of payment is made by the
null and void but it does not invalidate the entire
party for whose benefit the term has been constituted,
contract
application shall not be made as to debts which are not
 A check, whether a manager‘s check or an ordinary
yet due.
check is not legal tender and an offer of the check in
If the debtor accepts from the creditor a receipt in
payment of debt is not a valid tender of payment
which an application of the payment is made, the
former cannot complain of the same, unless there is a
1250. In case an extraordinary inflation or deflation of
cause for invalidating the contract. (1172a)
the currency stipulated should supervene, the value of
the currency at the time of the establishment of the  Requisites:
obligation shall be the basis of payment, unless there is 1. 1 debtor and 1 creditor only
an agreement to the contrary. (n) 2. 2 or more debts of the same kind
3. all debts must be due
 Applies only where a contract or agreement is
4. amount paid by the debtor must not be
involved. It does not apply where the obligation to
sufficient to cover the total amount of all
pay arises from law, independent of contracts
the debts
 Extraordinary inflation of deflation may be said to be
that which is unusual or beyond the common
 It is necessary that the obligations must all be due.
Exceptions: (1) whe there is a stipulation to the
fluctuations in the value of the currency, which
contrary; and (2) the application of payment is made
parties could not have reasonably foreseen or which
by the party for whose benefit the term or period has
was manifestly beyond their contemplation at the
been constituted (relate to Art. 1196).
time when the obligation was constituted
 It is also necessary that all the debts be for the same
1251. Payment shall be made in the place designated in kind, generally of a monetary character. This
the obligation. There being no express stipulation and includes obligations which were not originally of a
if the undertaking is to deliver a determinate thing, the monetary character, but at the time of application of
payment shall be made wherever the thing might be at payment, had been converted into an obligation to
the moment the obligation was constituted. In any pay damages by reason of breach or
other case the place of payment shall be the domicile of nonperformance.
the debtor.  If the debtor makes a proper application of payment
 If the debtor changes his domicile in bad faith or but the creditor refuses to accept it because he
after he has incurred in delay, the additional wants to apply it to another debt, such creditor will
expenses shall be borne by him. These provisions incur in delay
are without prejudice to venue under the Rules of  RIGHT OF DEBTOR TO MAKE APPLICATION. If at the
time of payment, the debtor does not exercise his
page 23
REVIEWER
right to apply it to any of his debts, the application a debt with interest, (4) a debt in which the debtor is
shall be understood as provided by law, unless the solidarily liable with another. Partial payment was
creditor makes the application and his decision is made by the debtor, without specification as to
accepted by the debtor. This application of payment which the payment should be applied.
can be made by the creditor only in the receipt The most onerous is (4), followed by (2), then
issued at the time of payment (although the (3), then (1). Consequently, payment shall be
application made by creditor may be contested by made in that order.
the debtor if the latter‘s assent to such application
was vitiated by such causes as mistake, violence, SUBSECTION 2
intimidation, fraud, etc) PAYMENT BY CESSION
 The debtor and the creditor by agreement, can
validly change the application of payment already 1255. The debtor may cede or assign his property to his
made without prejudice to the rights of third persons creditors in payment of his debts. This cession, unless
acquired before such agreement there is stipulation to the contrary, shall only release
the debtor from responsibility for the net proceeds of
1253. If the debt produces interest, payment of the the thing assigned. The agreements which, on the
principal shall not be deemed to have been made until effect of the cession, are made between the debtor and
the interests have been covered. (1173) his creditors shall be governed by special laws. (1175a)
 Interest paid first before principal  Cession is a special form of payment whereby the
 Applies both to compensatory interest (that debtor abandons or assigns all of his property for the
stipulated as earnings of the amount due under the benefit of his creditors so that the latter may obtain
obligation) and to interest due because of delay or payment of their credits from the proceeds of the
mora on the part of the debtor property.
 SC held that this provision applies only in the  Requisites:
absence of a verbal or written agreement to the 1. plurality of debts
contrary (merely directory, not mandatory) 2. partial or relative insolvency of the debtor
3. acceptance of cession by the creditors
1254. When the payment cannot be applied in  Kinds of Cession:
accordance with the preceding rules, or if application 1. Contractual (Art. 1255)
can not be inferred from other circumstances, the debt 2. Judicial (Insolvency Law)
which is most onerous to the debtor, among those due,  Must be initiated by debtors
shall be deemed to have been satisfied. If the debts  Requires two or more creditors, debtors insolvent,
due are of the same nature and burden, the payment cession accepted by creditors
shall be applied to all of them proportionately. (1174a)  Such assignment does not have the effect of making
 As to which of 2 debts is more onerous is the creditors the owners of the property of the
fundamentally a question of fact, which courts must debtor unless there is an agreement to that effect
determine on the basis of the circumstances of each
case
 Debts are not of the same burden (1st par.)– Rules:
 Difference between Dation and Cession
1. Oldest are more onerous than new ones DATION CESSION
2. One bearing interest more onerous than one may be 1 creditor many creditors
that does not
3. secured debt more onerous than unsecured does not require insolvency requires partial or relative
one insolvency
4. principal debt more onerous than guaranty delivery of a thing delivery of all the property
5. solidary debtor more onerous than sole
debtor transfer of ownership of the no transfer of ownership (only
6. share in a solidary obligation more onerous property of possession and
to a solidary debtor administration)
7. liquidated debt more onerous than a novation
unliquidated
 Debts are of the same burden (2nd par.)– the payment extinguishes the effect is merely to release
payment shall be applied to all of them pro rata or obligation (to the extent of debtor from the net proceeds
proportionately. the value of the thing of the property; hence, partial
 Example: debtor owes his creditor several debts, all delivered) extinguishment of obligation.
of them due, to wit: (1) unsecured debt, (2) a debt
secured with mortgage of the debtor's property, (3)
SUBSECTION 3
page 24
REVIEWER
TENDER OF PAYMENT AND CONSIGNATION of the obligation

4. [D] The amount or thing due was placed at the
1256. If the creditor to whom tender of payment has disposal of the court
been made refuses without just cause to accept it, the 5. [N] After the consignation had been made the
debtor shall be released from responsibility by the persons interested had been notified thereof
consignation of the thing or sum due.
Consignation alone shall produce the same effect in the  If the reason for consignation is the unjust refusal of
following cases: the creditor to accept payment, it must be shown:
(1) When the creditor is absent or unknown, or does 1. That there was previous tender of payment, without
not appear at the place of payment; which the consignation is ineffective
(2) When he is incapacitated to receive the payment at 2. That the tender of payment was of the very thing
the time it is due; due, or in case of money obligations that legal
(3) When, without just cause, he refuses to give a tender currency was offered
receipt; 3. That the tender of payment was unconditional and
(4) When two or more persons claim the same right to 4. That the creditor refused to accept payment without
collect; just cause
(5) When the title of the obligation has been lost.
(1176a)  Exception to requirement for tender of payment:
 Tender of payment : manifestation made by the [AIR-TT]
debtor to the creditor of his desire to comply with his 1. [A] When creditor is absent or unknown or does not
obligation; The act of the debtor of offering to the appear at place of payment
creditor the thing or amount due 2. [I] When he is incapacitated to receive payment
 Consignation : Deposit of the object or the amount 3. [R] When he refuses to give receipt, without just
due with the proper court after refusal or inability of cause
the creditor to accept the tender of payment 4. [T] When two or more persons claim same right to
collect
 Tender of payment by certified check is valid; a mere 5. [T] When title of the obligation has been lost
check would also be valid for tender of payment if
the creditor makes no prompt objection, but this
 The 1st and 2nd Special Requisites of Consignation
does not estop the latter from later demanding
are embodied in Article 1256.
payment in cash
 As to the 2nd requisite ([L] – legal cause) the
 When a tender of payment is made in such a form following musst be present:
that the creditor could have immediately realized (a) the tender of payment must have been made prior to
payment if he had accepted the tender, followed by a the consignation
prompt attempt of the debtor to deposit the means (b) that it must have been unconditional [e.g. where the
of payment in court by way of consignation, the debtor tendered a check for P3,250 to the creditor as
accrual of interest on the obligation will be payment of a debt conditioned upon the signing by
suspended from the date of such tender. But when the latter of a motion to dismiss a complaint for legal
the tender of payment is not accompanied by the separation, such tender of payment is invalid.]
means of payment, and the debtor did not take any (c) that the creditor must have refused to accept the
immediate step to make a consignation, then the payment without just cause [it is not necessary for
interest is not suspended from the time of such the court where the thing or the amount is deposited
tender. to determine whether the refusal of the creditor to
accept the same was with or without just cause. The
 GENERAL REQUISITES OF VALID CONSIGNATION vs question will be resolved anyway in a subsequent
SPECIAL REQUISITES proceeding. Hence, the mere refusal of the creditor
General Req : relative to payment (Arts. 1232 - to accept the tender of payment will be sufficient
1251) (Manresa)]
Special Req : very nature of consignation (Arts.
1256 – 1258) 1257. In order that the consignation of the thing due
may release the obligor, it must first be announced to
 Special Requisites of consignation: [DLN-DN] the persons interested in the fulfillment of the
1. [D] There was a debt due obligation.
2. [L] The consignation of the obligation was made The consignation shall be ineffectual if it is not made
because of some legal cause provided in the present strictly in consonance with the provisions which
article regulate payment. (1177)
3. [N] That previous notice of the consignation has
 The lack of notice does not invalidate the
been given to persons interested in the performance
consignation but simply makes the debtor liable for
page 25
REVIEWER
the expenses placed at the disposal of the judicial authority

 The tender of payment and the notice of  The effects of consignation are: 1.) the debtor is
consignation sent to the creditor may be made in the released in the same manner as if he had performed
same act. In case of absent or unknown creditors, the obligation at the time of the consignation
the notice may be made by publication because this produces the same effect as a valid
payment, 2.) the accrual of interest on the obligation
 1st paragraph of this article – pertains to the 3rd is suspended from the moment of consignation, 3.)
Special Requisite of Consignation ([N] Previous the deteriorations or loss of the thing or amount
Notice) consigned occurring without fault of the debtor must
- Tender of Payment vs Previous Notice : the former be borne by the creditor, because the risks of the
is a friendly and private act manifested only to the thing are transferred to the creditor from the
creditor; the latter is manifested also to other moment of deposit 4.) any increment or increase in
persons interested in the fulfillment of the obligation. value of the thing after the consignation inures to
 2nd paragraph of this article – pertains to the General the benefit of the creditor.
Requisites of Consignation (Arts. 1232-1251), which  When the amount consigned does not cover the
must be complied with entire obligation, the creditor may accept it,
reserving his right to the balance. If no reservations
1258. Consignation shall be made by depositing the are made, the acceptance by the creditor of the
things due at the disposal of judicial authority, before amount consigned may be regarded as a waiver of
whom the tender of payment shall be proved, in a further claims under the contract
proper case, and the announcement of the consignation
in other cases. 1261. If, the consignation having been made, the
The consignation having been made, the interested creditor should authorize the debtor to withdraw the
parties shall also be notified thereof. (1178) same, he shall lose every preference which he may
 1st paragraph hereof - 4th Special Requisite of have over the thing. The co-debtors, guarantors and
Consignation ([D] Disposal of the Court) sureties shall be released. (1181a)
- this is complied with if the debtor depostis the  When the consignation has already been made and
thing or amount with the Clerk of Court the creditor has accepted it or it has been judicially
 2nd paragraph hereof - 5th Special Requisite of declared as proper, the debtor cannot withdraw the
Consignation ([N] Subsequent Notice) thing or amount deposited unless the creditor
- this is to enable the creditor to withdraw the goods consents thereto. If the creditor authorizes the
or money deposited. debtor to withdraw the same, there is a revival of
the obligation, which has already been extinguished
1259. The expenses of consignation, when properly by the consignation, and the relationship of debtor
made, shall be charged against the creditor. (1179) and creditor is restored to the condition in which it
 The consignation is properly made when: was before the consignation. But third persons,
1.) after the thing has been deposited in court, the creditor solidary co-debtors, guarantors and sureties who are
accepts the consignation without objection and without any benefited by the consignation are not prejudiced by
reservation of his right to contest it because of failure to the revival of the obligation between the debtor and
comply with any of the requisites for consignation; and the creditor
2.) when the creditor objects to the consignation but the
court, after proper hearing, declares that the consignation has SECTION 2
been validly made LOSS OF THE THING DUE
*in these cases, the creditor bears the expenses of the 1262. An obligation which consists in the delivery of a
determinate thing shall be extinguished if it should be
consignation
lost or destroyed without the fault of the debtor, and
before he has incurred in delay.
1260. Once the consignation has been duly made, the
When by law or stipulation, the obligor is liable even
debtor may ask the judge to order the cancellation of
for fortuitous events, the loss of the thing does not
the obligation. Before the creditor has accepted the
extinguish the obligation and he shall be responsible
consignation, or before a judicial declaration that the
for damages. The same rule applies when the nature of
consignation has been properly made, the debtor may
the obligation requires the assumption of risk.
withdraw the thing or the sum deposited, allowing the
obligation to remain in force. (1180) 1263: In an obligation to deliver a generic thing, the
 Consignation has a retroactive effect and the loss or destruction of anything of the same kind does
payment is deemed to have been made at the time not extinguish the obligation. (n)
of the deposit of the thing in court or when it was
page 26
REVIEWER
1264. The courts shall determine whether, under the parties

circumstances, the partial loss of the object of the 4. the contract is for a future prestation. If the
obligation is so important as to extinguish the contract is of immediate fulfillment, the gross
obligation. (n) inequality of the reciprocal prestations may be
involve desion or want of cause.
1265. Whenever the thing is lost in the possession of
the debtor, it shall be presumed that the loss was due 1268. When the debt of a thing certain and determinate
to his fault, unless there is proof to the contrary, and proceeds from a criminal offense, the debtor shall not
without prejudice to the provisions of article 1165. This be exempted from the payment of its price, whatever
presumption does not apply in case of earthquake, may be the cause for the loss, unless the thing having
flood, storm, or other natural calamity. (1183a) been offered by him to the person who should receive
it, the latter refused without justification to accept it.
 3rd paragraph of Art. 1165: whe the obligor delays, (1185)
or has promised to deliver the same thing to two or
more persons who do not have the same interest, he Example: X hit Y; Y claim damages for X and X run after the
shall be liable for any fortuitious event until he has insurance. The insurance is not the 3rd party
effected the delivery
 Hence, in cases where Art. 1165, par. 3 is applicable, 1269. The obligation having been extinguished by the
even if the debtor can prove that the loss of the loss of the thing, the creditor shall have all the rights of
thing in his possession was not through his fault or action which the debtor may have against third persons
that it was through a fortuitous event, he shall still by reason of the loss. (1186)
be liable to the creditor for damages.
NOTE:
1266. The debtor in obligations to do shall also be * There is no such thing as loss of a generic thing
released when the prestation becomes legally or
physically impossible without the fault of the obligor. 1270. Condonation or remission is essentially
(1184a) gratuitous, and requires the acceptance by the obligor.
It may be made expressly or impliedly.
LEGAL IMPOSSIBILITY : may either be - One and the other kind shall be subject to the rules
1. direct (when the law prohibits the performance or which govern inofficious donations. Express
execution of the work agreed upon, i.e. when it is condonation shall, furthermore, comply with the forms
immoral or dangerous) of donation. (1187)
2. indirect (the law imposes duties of a superior
character upon the obligor which are incompatible 1271. The delivery of a private document evidencing a
with the work agreed upon, although the latter may credit, made voluntarily by the creditor to the debtor,
be perfectly licit, as where the obligor is drafted for implies the renunciation of the action which the former
military service or for a civil function) had against the latter.
If in order to nullify this waiver it should be claimed to
PHYSICAL IMPOSSIBILTY : examples – death of the debtor;
be inofficious, the debtor and his heirs may uphold it by
when there is an accident...
proving that the delivery of the document was made in
virtue of payment of the debt. (1188)
1267. When the service has become so difficult as to be
manifestly beyond the contemplation of the parties, the
1272. Whenever the private document in which the
obligor may also be released therefrom, in whole or in
debt appears is found in the possession of the debtor, it
part. (n)
shall be presumed that the creditor delivered it
DOCTRINE OF UNFORESEEN EVENT voluntarily, unless the contrary is proved. (1189)
(rebus sic stantibus)
It refers to obligation "to do" (personal obligation) 1273. The renunciation of the principal debt shall
Parties are presumed to have the risk extinguish the accessory obligations; but the waiver of
It does not apply aleatory contracts (insurance contract) the latter shall leave the former in force. (1190)
Excluded highly speculative business (stock exchange)
Monatory obligations are excluded (governed by 1357) 1274. It is presumed that the accessory obligation of
pledge has been remitted when the thing pledged, after
Requisites: its delivery to the creditor, is found in the possession of
1. event or change in the circumstances could have the debtor, or of a third person who owns the thing.
been foreseen of the time of the execution contract (1191a)
2. it makes the performance of the contract extremely
difficult but not impossible SECTION 4
3. the event must not be due to the act of any of the CONFUSION OR MERGER OF RIGHTS
page 27
REVIEWER
equal).
1275. The obligation is extinguished from the time the  As to origin
characters of creditor and debtor are merged in the 1. it may be legal;
same person. (1192a) 2. facultative;
 Merger or confusion is the meeting in one person of 3. conventional;
the qualities of creator and debtor with respect to 4. or judicial.
the same obligation. It erases the plurality of ■ It is legal when it takes place by operation
subjects of the obligation. Further, the purposes for of law because all requisites are present.
which the obligation may have been created are ■ It is facultative when it can be claimed by
considered as fully realized by the merger of the one of the parties, who, however, has the
qualities of debtor and creditor in the same person. right to object to it, such as when one of
 Requisites of merger or confusion are: the obligations has a period for the benefit
(1) It must take place between the creditor and the of one party alone and who renounces that
principal debtor, period so as to make the obligation due.
(2) the very same obligation must be involved, for if ■ It is conventional when the parties agree to
the debtor acquires rights from the creditor, but not compensate their mutual obligations even if
the particular obligation in question in question there some requisite is lacking.
will be no merger, ■ It is judicial when decreed by the court in a
(3) the confusion must be total or as regards the case where there is a counterclaim.
entire obligation.
 The effect of merger is to extinguish the obligation. From Dean Pineda:
Compensation Distinguished From Payment. In
1276. Merger which takes place in the person of the compensation, there can be partial extinguishment of the
principal debtor or creditor benefits the guarantors. obligation; in payment, the performance must be completer,
Confusion which takes place in the person of any of the unless waived by the creditor. Payment involves delivery of
latter does not extinguish the obligation. (1193) action, while compensation (legal compensation) takes place
 The extinguishment of the principal obligation by operation of law without simultaneous delivery.
through confusion releases the guarantor‘s because Compensation Distinguished from Merger. In
the obligation of the latter is merely accessory. When compensation, there are at least two persons who stand as
the merger takes place in the person of a guarantor, principal creditors and debtor of each other, in merger, there
the obligation is not extinguished. is only one person involved in whom the characters of creditor
and debtor are merged. In merger, there is only one
obligation, while in compensation, there are two obligations
1277. Confusion does not extinguish a joint obligation involved.
except as regards the share corresponding to the
creditor or debtor in whom the two characters concur. 1279. In order that compensation may be proper, it is
(1194) necessary:
(1) That each one of the obligors be bound principally,
SECTION 5 and that he be at the same time a principal creditor of
COMPENSATION the other;
(2) That both debts consist in a sum of money, or if the
1278. Compensation shall take place when two things due are consumable, they be of the same kind,
persons, in their own right, are creditors and debtors of and also of the same quality if the latter has been
each other. (1195)
stated;
 Compensation is a mode of extinguishing to the (3) That the two debts be due;
concurrent amount, the obligations of those persons (4) That they be liquidated and demandable;
who in their own right are reciprocally debtors and
(5) That over neither of them there be any retention or
creditors of each other. It is the offsetting of two controversy, commenced by third persons and
obligations which are reciprocally extinguished if communicated in due time to the debtor. (1196)
they are of equal value. Or extinguished to the
 For compensation to take place, the parties must be
concurrent amount if of different values. mutually debtors and creditors (1) in their own right,
 Kinds of Compensation: and (2) as principals. Where there is no relationship
 As to their effects of mutual creditors and debtors, there can be no
 compensation may be total (when compensation. Because the 1st requirement that the
the two obligations are of the same parties be mutually debtors and creditors in their
amount); or own right, there can be no compensation when one
 partial (when the amounts are not party is occupying a representative capacity, such as
page 28
REVIEWER
a guardian or an administrator. The 2nd requirement ‗unliquidated‘ when the amount is not fixed because
is that the parties should be mutually debtors and it is still subject to a dispute or to certain condition.
creditors as principals. This means that there can be It is not enough that the debts be liquidated. It is also
no compensation when one party is a principal essential that the same be demandable. A debt is demandable
creditor in one obligation but is only a surety or if it is not yet barred by prescription and it is not illegal or
guarantor in the other. invalid.
 The things due in both obligations must be fungible,  Fifth Requisite—That over neither of them there be
or things which can be substituted for each other. any retention or controversy, commenced by third
 Both debts must be due to permit compensation. persons and communicated in due time to the
 Demandable means that the debts are enforceable in debtor. >> A debt of a thing cannot be a subject of
court, there being no apparent defenses inherent in compensation if the same had been subject of a
them. The obligations must be civil obligations, garnishment of which the debtor was timely notified.
including those that are purely natural. An obligation When a credit or property had been properly
is not demandable, therefore, and not subject to garnished of attached, it cannot be disposed of
compensation, in the following cases: (1) when there without the approval of the court.
is a period which has not yet arrived, including the
cases when one party is in a state of suspension of 1280. Notwithstanding the provisions of the preceding
payments; (2) when there is a suspensive condition article, the guarantor may set up compensation as
that has not yet happened; (3) when the obligation regards what the creditor may owe the principal
cannot be sued upon, as in natural obligation. debtor. (1197)
 A debt is liquidated when its existence and amount is  The liability of the guarantor is only subsidiary; it is
determined. Compensation can only take place accessory to the principal obligation of the debtor. If
between certain and liquidated debts. the principal debtor has a credit against the creditor,
which can be compensated, it would mean the
From Dean Pineda: extinguishment of the guaranteed debt, either totally
The five requisites of a legal compensation are or partially. This extinguishment benefits the
enumerated in the Article. All requisites must be present guarantor, for he can be held liable only to the same
before compensation can be effectual. extent as the debtor.
6. First Requisite—That each of the obligators be bound
principally and that he be at the same time a From Dean Pineda:
principal creditor of the other. >>The parties must Exception to the Rule On Compensation; Right of
be mutual creditor and debtor of each other and Guarantor to Invoke Compensation Against Creditor. The
their relationship is a principal one, that is, they are general rule is that for compensation to operate, the parties
principal debtor and creditor of each other. must be related reciprocally as principal creditors and debtors
 Second Requisite—That both debts consist in such a of each other. Under the present Article, the guarantor is
sum of money, or if the things due are consumable, allowed to set up compensation against the creditor.
they be of the same kind, and also of the same
quality if the latter has been stated. >>When the 1281. Compensation may be total or partial. When the
debts consist of money, there is not much of a two debts are of the same amount, there is a total
problem when it comes to compensation to the compensation. (n)
concurrent amount. It is a matter of mathematical  Total Compensation—debts are of the same amount.
computation. When the debt consist of things, it is  Partial Compensation—Debts are not of the same
necessary that the things are consumable which amount; operative only up to the concurrent
must be understood as ‗fungible‘ and therefore amount.
susceptible of substitution. More than that they must
be of the same kind. If the quality has been states, 1282. The parties may agree upon the compensation of
the things must be of the same quality. debts which are not yet due. (n)
 Third Requisite—That the two debts are due. >> A
debt is ‗due‘ when its period of performance has
 Voluntary compensation is not limited to obligations
which are not yet due. The parties may compensate
arrived. If it is a subject to a condition, the condition
by agreement any obligations, in which the objective
must have already been fulfilled. However, in
requisites provided for legal compensation are not
voluntary compensation, the parties may agree upon
present. It is necessary, however, that the parties
the compensation of debts which are not yet due.
should have the capacity to dispose of the credits
 Fourth Requisite—That they be liquidated and which they compensate, because the extinguishment
demandable. >> A debt is considered ‗liquidated‘ of the obligations in this case arises from their wills
when its amount is clearly fixed. Of if it is not yet and not from law.
specially fixed, a simple mathematical computation
will determine its amount or value. It is
page 29
REVIEWER
1283. If one of the parties to a suit over an obligation the same rule applies. If he consents to the
has a claim for damages against the other, the former assignment, he waives compensation even of debts
may set it off by proving his right to said damages and already due, unless he makes a reservation.
the amount thereof. (n)  But if the debtor was notified of the assignment, but
Art. 1284. When one or both debts are rescissible or he did not consent, and the credit assigned to a third
voidable, they may be compensated against each other person matures after that which pertains to the
before they are judicially rescinded or avoided. (n) debtor, the latter may set up compensation when the
 Although a rescissible or voidable debt can be assignee attempts to enforce the assigned credit,
compensated before it is rescinded or annulled, the provided that the credit of the debtor became due
moment it is rescinded or annulled, the decree of before the assignment. But it f the assigned credit
rescission or annulment is retroactive, and the matures earlier than that of the debtor, the assignee
compensation must be considered as cancelled. may immediately enforce it, and the debtor cannot
Recission of annulment requires mutual restitution; set up compensation, because the credit is not yet
the party whose obligation is annulled or rescinded due.
can thus recover to the extent that his credit was  If the debtor did not have knowledge of the
extinguished by the compensation, because to that assignment, he may set up by way of compensation
extent he is deemed to have made a payment. all credits maturing before he is notified thereof.
Hence, if the assignment is concealed, and the
1285. The debtor who has consented to the assignment assignor still contracts new obligation in favor of the
of rights made by a creditor in favor of a third person, debtor, such obligation maturing before the latter
cannot set up against the assignee the compensation learns of the assignment will still be allowable by
which would pertain to him against the assignor, way of compensation. The assignee in such case
unless the assignor was notified by the debtor at the would have a personal action against the assignor.
time he gave his consent, that he reserved his right to
the compensation. 1286. Compensation takes place by operation of law,
If the creditor communicated the cession to him but the even though the debts may be payable at different
debtor did not consent thereto, the latter may set up places, but there shall be an indemnity for expenses of
the compensation of debts previous to the cession, but exchange or transportation to the place of payment.
not of subsequent ones. (1199a)
If the assignment is made without the knowledge of  This article applies to legal compensation and not to
the debtor, he may set up the compensation of all voluntary compensation.
credits prior to the same and also later ones until he
had knowledge of the assignment. (1198a) 1287. Compensation shall not be proper when one of
 Assignment after Compensation. When compensation the debts arises from a depositum or from the
has already taken place before the assignment, obligations of a depositary or of a bailee in
inasmuch as it takes place ipso jure, there has commodatum.
already been an extinguishment of one of the other Neither can compensation be set up against a creditor
of the obligations. A subsequent assignment of an who has a claim for support due by gratuitous title,
extinguished obligation cannot produce any effect without prejudice to the provisions of paragraph 2 of
against the debtor. The only exception to this rule is Article 301. (1200a)
when the debtor consents to the assignment of the E. The prohibition of compensation when one of the
credit; his consent constitutes a waiver of the debts arises from a depositum (a contract by virtue
compensation, unless at the time he gives consent, of which a person [depositary] receives personal
he informs the assignor that he reserved his right to property belonging to another [depositor], with the
the compensation. obligation of safely keeping it and returning the
 Assignment before compensation. The assignment same) or commodatum (a gratuitous contract by
may be made before compensation has taken place, virtue of which one of the parties delivers to the
either because at the time of assignment one of the other a non-consumable personal property so that
debts is not yet due or liquidated, or because of the latter may use it for a certain time and return it)
some other cause which impedes the compensation. is based on justice. A deposit of commodatum is
As far as the debtor is concerned, the assignment given on the basis of confidence in the depositary of
does not take effect except from the time he is the borrower. It is therefore, a matter of morality,
notified thereof. If the notice of assignment is the depositary or borrower performs his obligation.
simultaneous to the transfer, he can set up  With respect to future support, to allow its
compensation of debts prior to the assignment. If extinguishment by compensation would defeat its
notice was given to him before the assignment, this exemption from attachment and execution. , and
takes effect at the time of the assignment; therefore may expose the recipient to misery and starvation.
page 30
REVIEWER
Common humanity and public policy forbid this impliedly.

consequence. Support under this provision should be  No Compensation. Even when all the requisites for
understood, not only referring to legal support, to compensation occur, the compensation may not take
include all rights which have for their purpose the place in the following cases: (1) When there is
subsistence of the debtor, such as pensions and renunciation of the effects of compensation by a
gratuities. party; and (2) when the law prohibits compensation.
(Unless otherwise indicated, commentaries are sourced from
1288. Neither shall there be compensation if one of the the Civil Code book IV by Tolentino).
debts consists in civil liability arising from a penal
offense. (n) SECTION 6
 If one of the debts consists in civil liability arising NOVATION
from a penal offense, compensation would be HOW OBLIGATIONS ARE MODIFIED
improper and inadvisable because the satisfaction of
such obligation is imperative.
1291. Obligations may be modified by:
 The person who has the civil liability arising from (1) Changing their object or principal condition
crime is the only party who cannot set up the (2) Substituting the person of the debtor
compensation; but the offended party entitled to the (3) Subrogating a third person in the rights of a
indemnity can set up his claim in compensation of creditor
his debt.
Art. 1289. If a person should have against him several
 Novation is the extinguishment of an obligation by a
substitution or change of the obligation by a
debts which are susceptible of compensation, the rules
subsequent one which extinguishes or modifies the
on the application of payments shall apply to the order
first either by:
of the compensation. (1201)
changing the object or principal conditions
 It can happen that a debtor may have several debts by substituting the person of the debtor
to a creditor. And vice versa. Under these subrogating a third person in the rights of the creditor
circumstances, Articles 1252 to 1254 shall apply.  Novation is a juridical act of dual function. At the
time it extinguishes an obligation it creates a new
1290. When all the requisites mentioned in Article 1279 one in lieu of the old
are present, compensation takes effect by operation of  Classification of Novation
law, and extinguishes both debts to the concurrent  as to nature
amount, even though the creditors and debtors are not 1. Subjective or personal – either
aware of the compensation. passive or active. Passive if there is
 Legal compensation takes place from the moment substitution of the debtor. Active if
that the requisites of the articles 1278 and 1270 co- a third person is subrogated in the
exist; its effects arise on the very day which all its rights of the creditor.
requisites concur. 2. Objective or real – substitution of
 Voluntary of conventional compensation takes effect the object with another or
upon the agreement of the parties. changing the principal conditions
 Facultative compensation takes place when the 3. Mixed – Combination of subjective
creditor declares his option to set it up. and objective
 Judicial compensation takes place upon final  as to form
judgment.  Express – parties declare that the old obligation is
 Effects of Compensation: substituted by the new
(1) Both debts are extinguished to the concurrent amount;  Implied – an incompatibility exists between the old
(2) interests stop accruing on the extinguished obligation of and the new obligation that cannot stand together
the part extinguished;  as to effect
(3) the period of prescription stops with respect to the 2. Partial – when there is only a modification or change
obligation or part extinguished; in some principal conditions of the obligation
(4) all accessory obligations of the principal obligation which 1. Total – when the old obligation is completely
has been extinguished are also extinguished. extinguished
 Renunciation of Compensation. Compensation can be  Requisites of Novation:
renounces, either at the time an obligation is  A previous valid obligation
contracted or afterwards. Compensation rests upon a  Agreement of all parties
potestative right, and a unilateral decision of the  Extinguishment of the old contract – may be express
debtor would be sufficient renunciation. of implied
Compensation can be renounced expressly of  Validity of the new one
page 31
REVIEWER
TITLE II. 3. Accidental elements – those which are agreed by the

CONTRACTS parties and which cannot exist without stipulated
CHAPTER 1 * Stages of a Contract:

GENERAL PROVISIONS 4. 3 stages:
1. Preparation, conception, or generation – period of
GENERAL PROVISIONS negotiation and bargaining, ending at the moment of
agreement of the parties
Art. 1305. A contract is a meeting of the minds 2. Perfection or birth of the contract – the moment when the
between two persons whereby one binds himself, with parties come to agree on the terms of the contract
respect to the other to give something or to render 3. Consummation or death – the fulfillment or performance of
some service. the terms agreed upon in any contract
* relate to Art. 1159 of CC
* Definition: 1306. The contracting parties may establish such
4. Sanchez Roman – a juridical convention manifested stipulations, clauses, terms & conditions as they may
in legal form, by virtue of which one or more persons bind deem convenient, provided they are not contrary to
themselves in favor of another or others, or reciprocally, to law, morals, good customs, public order, or public
the fulfillment of a prestation to give, to do or not to do. policy.
* Other Terms:  This article embodies the principle of autonomy of
c) Perfect promise – distinguished from a contract, in contracts
that the latter establishes and determines the obligations * Freedom to contract:
arising therefrom; while the former tends only to assure and 7. Any person has the liberty to enter into a contract so
pave the way for the celebration of a contract in the future. long as they are not contrary to law, morals, good customs,
d) Imperfect Promise – mere unaccepted offer public order or public policy.
e) Pact – a special part of the contract, sometimes 8. The legislature, under the constitution, is prohibited
incidental and separable for the principal agreement from enacting laws to prescribe the terms of a legal contract.
f) Stipulation – similar to a pact; when the contract is * Validity of Stipulations:
an instrument, it refers to the essential and dispositive part, 3. Any and all stipulations not contrary to law, morals,
as distinguished from the exposition of the facts and good customs, public order or public policy is valid
antecedents upon which it is based. * Trust Receipts:
* Number of Parties: 5. Trust receipts, as contracts, in a certain manner
 The Code states ―two persons‖; what is partake of the nature of a conditional sale as provided by the
meant actually is ―two parties‖. For a contract to exist, there Chatter Mortgage Law, that is, the importer becomes the
must be two parties. absolute owner of the imported merchandise as soon as he
 A party can be one or more persons. had paid its price.
* Husband & Wife: * Other Stipulations:
c. Husbands and wives cannot sell to each other as a (3) Other valid stipulations: Venue of Action, Escalation
protection of the conjugal partnership. clauses, & Limitation of carrier‘s liability
d. They can however enter into a contract of agency. * Compromises:
* Auto-contracts: 3. Compromises create reciprocal concessions so that
4. It means one person contracts himself. parties avoid litigation.
5. As a general rule, it is accepted in our law. The 4. The Court must approve it and once approved, the
existence of a contract does not depend on the number of parties are enjoined to comply strictly and in good faith with
persons but on the number of parties. the agreement.
6. There is no general prohibition against auto- * Juridical Qualification:
contracts; hence, it should be held valid. 4. Juridical Qualification is different from validity. It is
* Contracts of Adhesion: the law that determines juridical qualification.
5) Contracts prepared by another, containing provisions 5. The contract is to be judged by its character and
that he desires, and asks the other party to agree to them if courts will look into the substance and nor to the mere from
he wants to enter into a contract. of the transaction.
Example: transportation tickets * Limitations on Stipulation:
f. It is valid contract according to Tolentino because 3. An act or a contract is illegal per se is on that by
the other party can reject it entirely. universally recognized standards us inherently or by its
* Characteristics of Contracts: nature, bad, improper, immoral or contrary to good
4. 3 elements: conscience.
1. Essential elements – without which there is no contract; * Contrary to law:
they are a) consent, b) subject matter and c) cause 3. Freedom of contract is restricted by law for the good
2. Natural elements – exist as part of the contract even if the of the public.
parties do not provide for them, because the law, as 4. It is fundamental postulate that however broad the
suppletory to the contract, creates them freedom of the contracting parties may be, it does not go so
page 32
REVIEWER
far as to countenance disrespect for or failure to observe a do ut des (I give that you may give) – An agreement in which
legal prescription. The Statute takes precedence. A will give one thing to B, so that B will give another thing to
Examples: A.
3. A promissory note which represents a gambling debt do ut facias (I give that you may do) – An agreement under
is unenforceable in the hands of the assignee. which A will give something to B, so that B may do something
4. Stipulations to pay usurious interests are void. for A.
5. A contract between to public service companies to facio ut facias (I do that you may do) – An agreement under
divide the territory is void because it impairs the control of which A does something for B, so that B may render some
the Public Service Commission. other service for A.
6. Agreement to declare valid a law or ordinance is facio ut des (I do that you may give) – An agreement under
void. which A does something for B, so that B may give something
* Contrary to Morals: to A.
d) Morals mean good customs or those generally * Analogous contracts:
accepted principles of morality which have received some kind 3) Innominate contracts, in the absence of stipulations
of social and practical confirmation. and specific provisions of law on the matter, are to be
Examples: governed by rules applicable to the most analogous contracts.
d. a promise to marry or nor to marry, to secure legal
separation, or to adopt a child Art. 1308. The contract must bind both contracting
e. a promise to change citizenship, profession, religion parties; its validity or compliance cannot be left to the
or domicile will of one of them.
f. a promise not to hold public office or which limits the
performance of official duties * Principle of Mutuality of Contract:
g. a promise to enter a particular political party or 3. The binding effect of contract on both parties is
separate from it based on the principles:
h. contracts which limit in an excessive manner the  that obligations arising from contracts have the
personal or economic freedom of a person force of law between the contracting parties
i. to make an act dependent on money or some  that there must be mutuality between the
pecuniary value, when it is of such a nature that it should not parties based on their essential equality, to which is
depend thereon; payment to kill another. repugnant to have one party bound by the contract leaving
* Contrary to Public Order: the other free therefrom.
4. Public order means the public weal or public A contract containing a condition which makes its fulfillment
policy. It represents the public, social, and legal interest in dependent exclusively upon the uncontrolled will of one of the
private law that which is permanent and essential in contracting parties is void.
institutions, which, even if favoring some individual to whom * Unilateral Cancellation:
the right pertains, cannot be left to his own will. Just as nobody can be forced to enter into a contract, in the
5. A contract is said to be against public order if the same manner once a contract is entered into, no party can
court finds that the contract as to the consideration or the renounce it unilaterally or without the consent of the other.
thing to be done, contravenes some established interest of Nobody is allowed to enter into a contract, and while the
society, or is inconsistent with sound policy and good morals, contract is in effect, leaves, denounces or disavows the
or tends clearly to undermine the security of individual rights. contract to the prejudice of the other.
Examples: * When Stipulated:
(d) Common carrier cannot stipulate for exemption for F. However, when the contract so stipulates that one
liability unless such exemption is justifiable and reasonable may terminate the contract upon a reasonable period is valid.
and the contract is freely and fairly made. G. Judicial action for the rescission of the contract is no
(e) Payment to intermediaries in securing import longer necessary when the contract so stipulates that it may
licenses or quota allocations. be revoked and cancelled for the violation of any of its terms
(f) Contract of scholarship stipulating that the student and conditions. This right of rescission may be waived.
must remain in the same school and that he waives his right * Express Agreement:
to transfer to another school without refunding the school The article reflects a negative form of rescission as valid.
Negative Form of Rescission – a case which is frequent in certain
Art. 1307. Innominate contracts shall be regulated by contracts, for in such case neither is the article violated, nor
the stipulations of the parties, by the provisions of is there any lack of equality of the persons contracting; such
Titles I & II of this Book, by the rules governing the as cancellation of a contract due to default or non-payment or
most analogous nominate contracts, and by the failure to do service.
customs of the place.
Art. 1309. The determination of the performance may
INNOMINATE CONTRACTS – those which lack individuality be left to a third person, whose decision shall not be
and are not regulated by special provisions of law. binding until it has been made known to both
contracting parties.
* Innominate Contracts:  Exception to Art. 1308 (Mutuality of Contract)
page 33
REVIEWER
 A third person may be called upon to decide whether * Annulment of contracts:

or not performance has been done for the fulfillment of the 7. A third person cannot ask for a contract‘s annulment
contract. Such decision becomes binding when the contracting because he is not party to it.
parties have been informed of it. 8. Exception: when it is prejudicial to his rights, the
third person may ask for its rescission.
Art. 1310. The determination shall be obligatory if it is * Contracts bind heirs:
evidently inequitable. In such case, the courts shall  General rule: rights and obligations under a
decide what is equitable under the circumstances. contract are transmissible to heirs.
 Exception to Art. 1308 (Mutuality of Contract)  Heirs are not third persons because there is
11. However, when the decision cannot be arrived due to privity of interest between them and their predecessor.
inequity, the courts shall decide what is equitable for the * Intransmissible Contracts:
parties involved. 4. Exceptions:
5. contracts of purely personal in nature –
Art 1311. Contracts take effect only between the partnership and agency
parties, their assigns and heirs, except in case where 6. contracts for payment of money debts are
the rights and obligations arising from the contracts charged not to the heirs but to the estate of the decedent
are not transmissible by their nature, or by stipulation * Stipulations for Third Parties:
or by provision of law. The heir is not liable beyond the (3) Second paragraph creates an exception to the first.
value of the property he received from the decedent. (4) When there is such stipulation pour autrui, it can be
If a contract should contain some stipulation in enforced.
favor of a third person, he may demand its fulfillment (5) 2 Divisions:
provided he communicated his acceptance to the (6) those where the stipulation is intended for the
obligor before its revocation. A mere incidental benefit sole benefit of such third person
or interest of a person is not sufficient. The contracting (7) those where an obligation is due from the
parties must have clearly and deliberately conferred a promisee to the third person and the former seeks to
favor upon a third person. discharge it by means of such stipulation
 1st paragraph of this article embodies the principle of * Requisites of Article:
relativity of contract (d) To apply the second paragraph, the following are
necessary:
 Four exceptional instances where a contract may produce (e) stipulation in favor of a third persons
effect on third persons: Art. 1311-1314 (f) stipulation in favor of a third persons should be
a part, not the whole, of the contract
* Parties bound by contract: (g) clear and deliberate conferment of favor upon a
3. Generally, only the parties that agreed on the third person by the contracting parties and not a mere
contracts are bound by the contract. incidental benefit or interest
4. Transmission is possible to the heirs or assignees if (h) stipulation should not be conditioned or
so stipulated and in certain contracts. compensated by any kind of obligation whatever
* Third persons not bound: (i) that the third person must have communicated
4. It is s general rule that third parties are not bound his acceptance to the obligor before its revocation
by the acts of another. (j) neither of the contracting parties bears the legal
5. A contract cannot be binding upon and cannot be representation or authorization of the third party
enforced against one who is not a party to it, even if he has * Beneficiaries:
knowledge of such contract and has acted with knowledge 4. A stipulation may validly be made in favor of
thereof. indeterminate persons, provided that they can be determined
6. Important Latin maxim: Res inter alio acta aliis in some manner at the time when the prestation from the
necque nocet prodest. stipulation has to be performed.
* Third persons affected: * Test of Beneficial Stipulation:
c) There are exceptions to the rule. They are: 4. To constitute a valid stipulation pour autrui, it must
d) A contract creating a real right affects third be the purpose and intent of the stipulating parties to benefit
persons who may have some right over the thing. (article the third person, and it is not sufficient that the third person
1312) may be incidentally benefited by the stipulation.
e) A contract may reduce the properties of a debtor 5. Test of Beneficial Stipulation: intention of the parties
and thus diminish the available security for the claims of as disclosed by their contract.
creditors. (article 1313) 6. To apply this, it matters not whether the stipulation
f) In some cases as in composition in insolvency is in the nature of a gift or whether there is an obligation
and in suspension of payments, certain agreements are made owing from the promisee to the third person.
binding by law on creditors who may not have agreed thereto. * Acceptance of Third Party:
* Enforcement of contract: 5. Stipulation pour autrui has no binding effect unless it
d) Only a party to the contract can maintain an action to is accepted by the third party.
enforce the obligations arising under said contract. 6. Acceptance is optional to the third person: he is not
page 34
REVIEWER
obliged to accept it.

7. It may be in any form, express or implied, written or Jurisprudential basis: Manila Railroad Co. vs. Compañia
oral Transatlantica
8. There is no time limit to acceptance until the 1. ...the process must be accomplished by
stipulation is revoked before the third person‘s acceptance. distinguishing clearly between the right of action arising from
* Rights of Parties: the improper interference with the contract by a stranger
c. The original parties, before acceptance of the third thereto, considered as an independent act generative of civil
persons, still have the right to revoke or modify the contract. liability, and the right of action ex contractu against a party to
* Dependence on Contract: the contract resulting form the breach thereof.
(e) Right of the third person emanates from the * Extent of Liability:
contract; defenses are also available against the contract. (3) The extent of liability of a third person interfering is
(f) If after the third person has accepted the stipulation limited to the damage that the other party incurred.
and the parties failed to perform or defaulted, he can sue (4) Liability is solidary, the offending party and the third
wither for specific performance or resolution, with indemnity person, because in so far as the third person is concerned, he
for damages, as authorized by article 1191. commits a tortious act or a quasi-delict, for which solidary
* Who may revoke: responsibility arises.
(b) General Rule: it pertains to the other contracting
party or promisee, who may exercise it without the consent of Art 1315. Contracts are perfected by mere consent, and
the promisor. But it may be agreed that the revocation should from that moment the parties are bound not only to the
have the consent of the promisor. fulfillment of what has been expressly stipulated but
(c) The right of revocation cannot be exercised by the also to all the consequences which, according to their
heirs or assignees of the promisee; they might not want to nature, may be in keeping with good faith, usage and
honor the decedent‘s promise. law.
* Collective contracts: * embodies the Principle of Consensuality:
(c) Definition: contracts where the law authorizes the 4. Perfection of a contract, in general: the moment
will of the majority to bind a minority to an agreement from which it exists; the juridical tie between the parties
notwithstanding the opposition of the latter, when all have a arises from that time.
common interest in the juridical act. 5. Perfection of Consensual Contracts: the mere
consent which is the meeting of the minds of the parties upon
Art 1312. In contracts creating real rights, third the terms of the contract
persons who come into possession of the object of the 1. consent may not be expressly given.
contract are bound thereby, subject to the provisions of * Binding Effect of Consensual Contracts:
the Mortgage Law and the Land Registration laws. 2. The binding force of such contracts are not limited to
* Real Rights in Property what is expressly stipulated, but extends to all consequences
 A real right directly affects property subject to it; which are the natural effect of the contract, considering its
hence, whoever is in possession of such property must true purpose, the stipulations it contains, and the object
respect that real right. involved.
Art 1313. Creditors are protected in cases of contracts Art 1316. Real contracts, such as deposit, pledge or
intended to defraud them. commodatum, are not perfected until the delivery of
* Contracts in Fraud of Creditors the object of the obligation.
 When a debtor enters into a contract in fraud of his  Exception to Art. 1315 or Principle of Consensuality
creditors, such as when he alienated property gratuitously
without leaving enough for his creditors (article 1387), the * Perfection of real contracts:
creditor may ask for its rescission. Real contract is not perfect by mere consent. The delivery of
the thing is required.
Art 1314. Any third person who induces another to Delivery is demanded, neither arbitrary nor formalistic.
violate his contract shall be liable for damages to the
other contracting party. Art 1317. No one may contract in the name of another
* see Arts. 1177 and 1380 without being authorized by the latter, or unless he has
* Interference of Third Persons: by law a right to represent him.
 If a third person induced a party to violate his side of A contract entered into in the name of another by
the contract, the other party may sue the third person for one who has no authority or legal representation, or
damages. who has acted beyond his powers, shall be
 Requisites: unenforceable, unless it is ratified, expressly or
 the existence of a valid contract impliedly, by the person on whose behalf it has been
 knowledge by the third person of the existence of a executed, before it is revoked by the other contracting
contract party.
 interference by the third person in the contractual * Ratification necessary:
relation without legal justification  A contract entered into in behalf of another who has
page 35
REVIEWER
not authorized it is not valid or binding on him unless he

ratifies the transaction.  In descending order, the law imposes the essential
 When ratified, he is estopped to question the legality elements, presumes the natural and authorizes the
of the transaction. accidental.
 Kinds of ratification:  Conversely, the will of the contracting parties
1. express conforms to the first, accepts or repudiates the second and
2. implied establishes the third.
 The ratification has a retroactive effect from the
moment of its celebration, not from its ratification. SECTION 1
 Before ratification, the contract is in a state of
suspense; its effectivity depends on its ratification. The other CONSENT
party must not do anything prior to ratification that shall
prejudice the rights of the other party. Art. 1319. Consent is manifested by the meeting of the
 When not ratified, the person who entered into a offer and the acceptance upon the thing and the cause
contract in behalf of another without authority becomes liable which are to constitute the contract. The offer must be
to the other party, if he did not inform the latter that he does certain and the acceptance absolute. A qualified
not have any representation or authority. acceptance constitutes a counter-offer.
 When such deficiency or lack of authority has been Acceptance made by letter or telegram does not bind
relayed to the other, he cannot claim for damages against he the offerer except from the time it came to his
person without authority. knowledge. The contract, in such a case, is presumed to
have been entered into in the place where the offer
CHAPTER 2 was made. (1262a)
 CONSENT (cum sentire) : agreement of wills.
ESSENTIAL REQUISITES OF CONTRACTS  CONSENT (as applied to contracts) : concurrence of
the wills of the contracting parties with respect to the object
GENERAL PROVISIONS and the cause which shall constitute the contract
 Requisites:
Art. 1318. There is no contract unless the following  consent must be manifested by the concurrence
requisites concur: of the offer and the acceptance (Arts. 1319-1326);
(1) Consent of the contracting parties;  contracting parties must possess the necessary
(2) Object certain which is the subject matter of the legal capacity (Arts. 1327-1329); and
contract;  consent must be intelligent, free, spontaneous
(3) Cause of the obligation which is established. (1261) and real (Arts. 1330-1346)
 There must be at least 2 parties to every contract.  Forms: Consent may either be express or implied.
The number of parties, however, should not be confused with There is also a presumptive consent, which is the basis of
the number of persons. quasi-contracts.
 A single person can represent 2 parties, and one  Manifestation: Consent is manifested by the
party can be composed of 2 or more persons. concurrence of offer and acceptance with respect to the
 Consent presupposes capacity. There is no effective object and the cause of the contract. Once there is such a
consent in law without the capacity to give such consent. manifestation, the period or stage of negotiation is
 REQUISITES of CONTRACT IN GENERAL: terminated. If consensual, the contract is perfected.
- may either be =  A unilateral proposition must be definite
■ ESSENTIAL= without which there would be (distinguished from mere communications), complete (stating
no contract; the essential and non-essential conditions desired by the
 COMMON = present in all contracts offeror), and intentional (serious) when accepted by another
= Consent, object and cause [COC] party for such proposition to form a valid contract.
 SPECIAL =present only in certain  According to Tolentino, however, a unilateral promise
contracts (e.g. delivery in real contracts or form in solemn is not recognized by our Code as having obligatory force. To
ones) be so, there must be an acceptance that shall convert it into a
 EXTRAORDINARY = peculiar to a contract.
specific contract (e.g. price in a contract of sale)  Mental reservation—when a party makes a
■ NATURAL = derived from the nature of the declaration but secretly does not desire the effects of such
contract, and as a consequence, ordinarily accompany the declaration. The mental reservation of the offeror, unknown
same, although they can be excluded by the contracting to the other, cannot affect the validity of the offer.
parties if they so desire  Complex offers: In cases where a single offer
■ ACCIDENTAL = those which exist only when involves two or more contracts, the perfection where there is
the contracting parties expressly provide for them for the only partial acceptance will depend upon the relation of the
purpose of limiting or modifying the normal effects of the contracts between themselves, whether due to their nature,
contract. or due to the intent of the offeror.
 Simultaneous offers: As a rule, the offer and the
page 36
REVIEWER
acceptance must be successive in order that a contract may before acceptance is conveyed. (n)
arise. When there are crossed offers, however, no contract is  The disappearance of either party or his loss of
formed unless one of the parties accepts the offer received by capacity before perfection prevents the contractual tie from
him. being formed.
 Acceptance must not qualify the terms of the offer to
produce a contract. It should be unequivocal, Art. 1324. When the offerer has allowed the offeree a
 Successive agreements: If the intention of one or certain period to accept, the offer may be withdrawn at
both parties is that there be concurrence on all points, the any time before acceptance by communicating such
contract is not perfected if there is a point of disagreement— withdrawal, except when the option is founded upon a
even if there is already agreement on the essential elements consideration, as something paid or promised. (n)
of the contract. c) It is not the moment of sending but the time of
 Meanwhile, if there is no declaration that agreement receipt of the revocation or acceptance which is controlling.
on an accessory or subordinate matter is necessary, the d) The delay in transmission is at the risk of the sender,
contract will be perfected as soon as there is concurrence on because he is the one who selects the time and the manner of
the object and the cause. making the transmission.
 Intermediary: If he carries the offer and the e) Contract of Option: This is a preparatory contract in
acceptance in written form, the rule applicable to acceptance which one party grants to the other, for a fixed period and
by letter will apply (see illustration below). If carries the offer under specified conditions, the power to decide whether or
verbally, and the acceptance is also verbal, the perfection of not to enter into a principal contract. It must be supported by
the contract will be at the moment he makes the acceptance an independent consideration, and the grant must be
known to the offeror. exclusive.
 By correspondence: When the offer to buy was
written or prepared in Tokyo, and the acceptance thereof in Art. 1325. Unless it appears otherwise, business
Manila was sent by the offeree by airmail to and received by advertisements of things for sale are not definite
the offeror in Tokyo, the contract is presumed to have been offers, but mere invitations to make an offer. (n)
entered into in Tokyo.  Sales advertisements: A business advertisement of
 Effect of silence: Modern jurists require the following things for sale may or may not constitute a definite offer. It is
in order that silence may produce the effect of tacit not a definite offer when the object is not determinate.
acceptance—1) that there is a duty or the possibility to  When the advertisement does not have the
express oneself; 2) that the manifestation of the will cannot necessary specification of essential elements of the future
be interpreted in any other way; 3) that there is a clear contract, it cannot constitute of an offer. The advertiser is
identity in the effect of the silence and the undisclosed will. free to reject any offer that may be made.
 The general rule, however, is that silence is
ambiguous and does not authorize any definite conclusion. Art. 1326. Advertisements for bidders are simply
Circumstances will have to be taken into consideration. invitations to make proposals, and the advertiser is not
 Withdrawal of offer: Both the offer and the bound to accept the highest or lowest bidder, unless
acceptance can be revoked before the contract is perfected. the contrary appears. (n)
d) In judicial sales, however, the highest bid must
Art. 1320. An acceptance may be express or implied. necessarily be accepted.
(n)
 Implied acceptance may arise from acts or facts Art. 1327. The following cannot give consent to a
which reveal the intent to accept, such as the consumption of contract:
the things sent to the offeree, or the fact of immediately (1) Unemancipated minors;
carrying out of the contract offered. (2) Insane or demented persons, and deaf-mutes who
do not know how to write. (1263a)
Art. 1321. The person making the offer may fix the  Unemancipated minors cannot enter into valid
time, place, and manner of acceptance, all of which contracts, and contracts entered into by them are not binding
must be complied with. (n) upon them, unless upon reaching majority they ratify the
3. The offer with a period lapses upon the termination same.
of the period. Thus the acceptance, to become effective, must  Insane persons: It is not necessary that there be a
be known to the offeror before the period lapses. previous of declaration of mental incapacity in order that a
contract entered into by a mentally defective person may be
Art. 1322. An offer made through an agent is accepted annulled; it is enough that the insanity existed at the time the
from the time acceptance is communicated to him. (n) contract was made.
 An intermediary who has no power to bind either the  Being deaf-mute is not by itself alone a
offeror or the offeree is not an agent; his situation is similar disqualification for giving consent. The law refers to the deaf-
to that of a letter carrier. mute who does not know how to write.
Art. 1323. An offer becomes ineffective upon the death, Art. 1328. Contracts entered into during a lucid interval
civil interdiction, insanity, or insolvency of either party are valid. Contracts agreed to in a state of drunkenness
page 37
REVIEWER
or during a hypnotic spell are voidable. (n) error as to person, is a cause vitiating consent, if such
 The use of intoxicants does not necessarily mean a qualifications have been the principal cause of the contract.
complete loss of understanding. The same may be said of  A mistake as to the motive of a party does not affect
drugs. But a person, under the influence of superabundance the contract; to give it such effect would destroy the stability
of alcoholic drinks or excessive use of drugs, may have no of contractual relations. When the motive has, however, been
capacity to contract. expressed and was a condition of the consent given,
 In hypnotism and somnambulism, the utter want of annulment is proper—because an accidental element is, by
understanding is a common element. the will of the parties, converted into a substantial element.
f) Art. 1329. The incapacity declared in Article 1327 is
subject to the modifications determined by law, and is Art. 1332. When one of the parties is unable to read, or
understood to be without prejudice to special if the contract is in a language not understood by him,
disqualifications established in the laws. (1264) and mistake or fraud is alleged, the person enforcing
 The Rules of Court provide a list of incompetents the contract must show that the terms thereof have
who need guardianship: persons suffering from the penalty of been fully explained to the former. (n)
civil interdiction, hospitalized lepers, prodigals, deaf and
dumb who are unable to write and read, those of unsound Art. 1333. There is no mistake if the party alleging it
mind (even though they have lucid intervals), and persons knew the doubt, contingency or risk affecting the
not being of unsound mind but by reason of age, disease, object of the contract. (n)
weak mind, and other similar causes cannot, without outside  To invalidate consent, the error must be excusable.
aid, take care of themselves and manage their property— It must be a real error and not one that could have been
becoming an easy prey for deceit and exploitation. avoided by the party alleging it. The error must arise from
 Special disqualification: Persons declared insolvent or facts unknown to him.
bankrupt, husband and wife (incapacity to sell property to  A mistake that is caused by manifest negligence
each other). cannot invalidate a juridical act.
 The incapacity to give consent to contracts renders
the contract merely voidable, while special disqualification Art. 1334. Mutual error as to the legal effect of an
makes it void. agreement when the real purpose of the parties is
frustrated, may vitiate consent. (n)
Art. 1330. A contract where consent is given through  Three requisites under this article: 1) the error must
mistake, violence, intimidation, undue influence, or be as to the legal effect of an agreement; 2) it must be
fraud is voidable. (1265a) mutual; and 3) the real purpose of the parties is frustrated.
6. Requisites of consent: 1) It should be intelligent or  The legal effects include the rights and obligations of
with an exact notion of the matter to which it refers; 2) It the parties, not as stipulated in the contract, but as provided
should be free; and 3) It should be spontaneous. by the law. The mistake as to these effects, therefore, means
7. Defects of the will: intelligence is vitiated by error; an error as to what the law provides should spring as
freedom by violence, intimidation, or undue influence; and consequences from the contract in question.
spontaneity by fraud.  An error as to the nature or character is always
essential, and makes the act juridically inexistent.
Art. 1331. In order that mistake may invalidate
consent, it should refer to the substance of the thing Art. 1335. There is violence when in order to wrest
which is the object of the contract, or to those consent, serious or irresistible force is employed.
conditions which have principally moved one or both There is intimidation when one of the contracting
parties to enter into the contract. parties is compelled by a reasonable and well-grounded
Mistake as to the identity or qualifications of one of the fear of an imminent and grave evil upon his person or
parties will vitiate consent only when such identity or property, or upon the person or property of his spouse,
qualifications have been the principal cause of the descendants or ascendants, to give his consent.
contract. To determine the degree of intimidation, the age, sex
A simple mistake of account shall give rise to its and condition of the person shall be borne in mind.
correction. (1266a) A threat to enforce one's claim through competent
 Ignorance and error are 2 different states of mind. authority, if the claim is just or legal, does not vitiate
Ignorance means the complete absence of any notion about a consent. (1267a)
particular matter, while error or mistake means a wrong or g. Duress is that degree of constraint or danger either
false notion about such matter. actually inflicted (violent) or threatened and impending
 Annulment of contract on the ground of error is (intimidation), sufficient to overcome the mind and will of a
limited to cases in which it may reasonably be said that person of ordinary firmness.
without such error the consent would not have been given. h. Violence refers to physical force or compulsion, while
 An error as to the person will invalidate consent intimidation refers to moral force or compulsion.
when the consideration of the person has been the principal i. Requisites of violence: 1) That the physical force
cause of the same. employed must be irresistible or of such degree that the
 Mistake as to qualifications, even when there is no victim has no other course, under the circumstances, but to
page 38
REVIEWER
submit; and 2) that such force is the determining cause in  Kinds of fraud: 1) dolo causante—which determines
giving the consent to the contract. or is the essential cause of the consent; 2) dolo incidente—
j. Requisites of intimidation: 1) that the intimidation which does not have such a decisive influence and by itself
must be the determining cause of the contract, or must have cannot cause the giving of consent, but refers only to some
caused the consent to be given; 2) that the threatened act be particular or accident of the obligation.
unjust or unlawful; 3) that the threat be real and serious,  Dolo causante can be a ground for annulment; dolo
there being an evident disproportion between the evil and the incident cannot be a ground for annulment.
resistance which all men can offer; and 4) that it produces a  The result of fraud is error on the part of the victim.
reasonable and well-grounded fear from the fact that the  Requisites of fraud: 1) it must have been employed
person from whom it comes has the necessary means or by one contracting party upon the other; 2) it must have
ability to inflict the threatened injury. induced the other party to enter into the contract; 3) it must
have been serious; 4) and it must have resulted in damage or
Art. 1336. Violence or intimidation shall annul the injury to the party seeking annulment.
obligation, although it may have been employed by a
third person who did not take part in the contract. Art. 1339. Failure to disclose facts, when there is a
(1268) duty to reveal them, as when the parties are bound by
Art. 1337. There is undue influence when a person confidential relations, constitutes fraud. (n)
takes improper advantage of his power over the will of  Silence or concealment, by itself, does not constitute
another, depriving the latter of a reasonable freedom of fraud, unless there is a special duty to disclose certain facts,
choice. The following circumstances shall be or unless according to good faith and the usages of
considered: the confidential, family, spiritual and other commerce, the communication should be made.
relations between the parties, or the fact that the  Thus, the innocent non-disclosure of a fact does not
person alleged to have been unduly influenced was affect the formation of the contract or operate to discharge
suffering from mental weakness, or was ignorant or in the parties from their agreement.
financial distress. (n)
 In intimidation, there must be an unlawful or unjust Art. 1340. The usual exaggerations in trade, when the
act which is threatened and which causes consent to be other party had an opportunity to know the facts, are
given, while in undue influence there need not be an unjust or not in themselves fraudulent. (n)
unlawful act. In both cases, there is moral coercion. c) Tolerated fraud includes minimizing the defects of
 Moral coercion may be effected through threats, the thing, exaggeration of its good qualities, and giving it
expressed or implied, or through harassing tactics. qualities that it does not have. This is lawful
 Undue influence is any means employed upon a misrepresentation known as dolus bonus. This is also called
party which, under the circumstances, he could not well lawful astuteness.
resist, and which controlled his volition and induced him to d) These misrepresentations are usually encountered in
give his consent to the contract—which otherwise he would fairs, markets, and almost all commercial transactions. They
not have entered into. do not give rise to an action for damages, either because of
 A contract of adhesion is one in which one of the their insignificance or because the stupidity of the victim is
parties imposes a ready-made form of contract, which the the real cause of his loss.
other party may accept or reject, but which the latter cannot e) The thinking is that where the means of knowledge
modify. These are contracts where all the terms are fixed by are at hand and equally available to both parties, one will not
one party and the other has merely ―to take it or leave it.‖ be heard to say that he has been deceived.
 A contract of adhesion is construed strictly against
the one who drew it. Public policy protects the other party Art. 1341. A mere expression of an opinion does not
against oppressive and onerous conditions. signify fraud, unless made by an expert and the other
party has relied on the former's special knowledge. (n)
Art. 1338. There is fraud when, through insidious c. An opinion of an expert is like a statement of fact,
words or machinations of one of the contracting and if false, may be considered a fraud giving rise to
parties, the other is induced to enter into a contract annulment.
which, without them, he would not have agreed to.
(1269) Art. 1342. Misrepresentation by a third person does not
 Fraud is every kind of deception, whether in the form vitiate consent, unless such misrepresentation has
of insidious machinations, manipulations, concealments, or created substantial mistake and the same is mutual.
misrepresentations, for the purpose of leading another party (n)
into error and thus executing a particular act.  The general rule is that the fraud employed by a
 Fraud produces qualified error; it induces in the third person upon one of the parties does not vitiate consent
other party an inexact notion of facts. The will of another is and cause the nullity of a contract.
maliciously misled by means of false appearance of reality.  Exception: If one of the parties is in collusion with
 ―Insidious words or machinations‖ include false the third person, or knows of the fraud by the third person,
promises; exaggeration of hopes or benefits; abuse of and he is benefited thereby, he may be considered as an
confidence; and fictitious names, qualifications, or authority. accomplice to the fraud, and the contract becomes voidable.
page 39
REVIEWER
Art. 1343. Misrepresentation made in good faith is not

fraudulent but may constitute error. (n)
Art. 1344. In order that fraud may make a contract

voidable, it should be serious and should not have been
employed by both contracting parties.
Incidental fraud only obliges the person employing it to
pay damages. (1270)
 Fraud is serious when it is sufficient to impress, or to
lead an ordinarily prudent person into error; that which
cannot deceive a prudent person cannot be a ground for
nullity.
 Besides being serious, the fraud must be the
determining cause of the contract. It must be dolo causante.
 When both parties use fraud reciprocally, neither one
has an action against the other; the fraud of one
compensates that of the other. Neither party can ask for the
annulment of the contract.
Art. 1345. Simulation of a contract may be absolute or

relative. The former takes place when the parties do
not intend to be bound at all; the latter, when the
parties conceal their true agreement. (n)
 Simulation is the declaration of a fictitious will,
deliberately made by agreement of the parties, in order to
produce, for the purposes of deception, the appearance of a
juridical act which does not exist or is different from that
which was really executed.
Art. 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 customs, public
order or public policy binds the parties to their real
agreement. (n)
c. In absolute simulation, there is color of a contract,
without any substance thereof, the parties not having any
intention to be bound.
d. In relative simulation, the parties have an agreement
which they conceal under the guise of another contract.
Example: a deed of sale executed to conceal donation.
e. 2 juridical acts under relative simulation: ostensible
act, that which the parties pretend to have executed; hidden
act, that which consists the true agreement between the
parties.
page 40
REVIEWER
SECTION 2. - Object of Contracts  The absolute or objective impossibility nullifies the

 The object of a contract is its subject matter. It is contract; the relative or subjective does not.
the thing, right, or service which is the subject-matter of the Art. 1349. The object of every contract must be
obligation arising from the contract. determinate as to its kind. The fact that the quantity is
 Requisites: 1) It must be within the commerce of not determinate shall not be an obstacle to the
man; 2) it must be licit, or not contrary to law, morals, good existence of the contract, provided it is possible to
customs, public policy, or public order; 3) it must be possible determine the same, without the need of a new
; and 4) it must be determinate as to its kind. contract between the parties. (1273)
 The thing must have definite limits, not uncertain or
Art. 1347. All things which are not outside the arbitrary.
commerce of men, including future things, may be the
object of a contract. All rights which are not  The quantity of the of the object may be
intransmissible may also be the object of contracts. indeterminate, so long as the right of the creditor is not
No contract may be entered into upon future rendered illusory.
inheritance except in cases expressly authorized by SECTION 3. - Cause of Contracts
law.  The cause of the contract is the ―why of the
3. All services which are not contrary to law, contract,‖ the immediate and most proximate purpose of the
morals, good customs, public order or public policy may contract, the essential reason which impels the contracting
likewise be the object of a contract. (1271a) parties to enter into it and which explains and justifies the
 Things which are outside the commerce of man: creation of the obligation through such contract.
1. Services which imply an absolute submission by  The cause as to each party is the undertaking or
those who render them, sacrificing their liberty, their prestation to be performed by the other. The object of the
independence or beliefs, or disregarding in any manner the contract is the subject matter thereof (e.g., the land which is
equality and dignity of persons, such as perpetual servitude sold in a sales contract). Consideration, meanwhile, is the
or slavery; reason, motive, or inducement by which a man is moved to
1. Personal rights, such as marital authority, the status bind himself by an agreement.
and capacity of a person, and honorary titles and distinctions;  Requisites: 1) it must exist; 2) it must be true; and
2. Public offices, inherent attributes of the public 3) it must be licit.
authority, and political rights of individuals, such as the right Art. 1350. In onerous contracts the cause is understood
of suffrage; to be, for each contracting party, the prestation or
3. Property, while they pertain to the public dominion, promise of a thing or service by the other; in
such as the roads, plazas, squares, and rivers; remuneratory ones, the service or benefit which is
4. Sacred things, common things, like the air and the remunerated; and in contracts of pure beneficence, the
sea, and res nullius, as long as they have not been mere liberality of the benefactor. (1274)
appropriated. 6. In onerous contracts, the cause need not be
 Even future things can be the object of contracts, as adequate or an exact equivalent in point of actual value,
long as they have the possibility or potentiality of coming into especially in dealing with objects which have a rapidly
existence. fluctuating price. There are equal considerations.
 The law, however, generally does not allow contracts 7. A remuneratory contract is one where a party gives
on future inheritance. A contract entered into by a something to another because of some service or benefit
fideicommissary heir with respect to his eventual rights would given or rendered by the latter to the former, where such
be valid provided that the testator has already died. The right service or benefit was not due as a legal obligation. The
of a fideicommissary heir comes from the testator and consideration of one is greater than the other‘s.
not from the fiduciary. 8. A gratuitous contract is essentially an agreement to
Art. 1348. Impossible things or services cannot be the give donations. The generosity or liberality of the benefactor
object of contracts. (1272) is the cause of the contract. There is nothing to equate.
 Things are impossible when they are not susceptible Art. 1351. The particular motives of the parties in
of existing, or they are outside the commerce of man. entering into a contract are different from the cause
Personal acts or services impossible when they beyond the thereof. (n)
ordinary strength or power of man.  Cause is the objective, intrinsic, and juridical reason
 The impossibility must be actual and for the existence of the contract itself, while motive is the
contemporaneous with the making of the contract, and not psychological, individual, or personal purpose of a party to
subsequent thereto. the contract.
 The impossibility is absolute or objective when  As a general principle, the motives of a party do not
nobody can perform it; it is relative or subjective when due to affect the validity or existence of a contract. Exceptions:
the special conditions or qualifications of the debtor it cannot When motive predetermines the purpose of the contract, such
be performed. as
 When the motive of a debtor in alienating property is
to defraud his creditors, the alienation is rescissible;
page 41
REVIEWER
1. When the motive of a person in giving his consent is generates a bilateral contract of purchase and sale upon
to avoid a threatened injury, as in the case of intimidation, acceptance.
the contract is voidable; and In other words, since there may be no valid contract without
2. When the motive of a person induced him to act on a cause or consideration, the promisor is not bound by his
the basis of fraud or misrepresentation by the other party, promise and may, accordingly, withdraw it. Pending notice of
the contract is voidable. his withdrawal, his accepted promise partakes of the nature
Art. 1352. Contracts without cause, or with unlawful of an offer to sell which, if accepted as in the case at bar,
cause, produce no effect whatever. The cause is results in a perfected contract of sale. Decision: for Sanchez.
unlawful if it is contrary to law, morals, good customs, ―An option implies the legal obligation to keep the offer to sell
public order or public policy. (1275a) open for the time specified. It could be withdrawn before
Art. 1353. The statement of a false cause in contracts acceptance, if there was no consideration for the option. But
shall render them void, if it should not be proved that once the offer to sell is accepted, a bilateral promise to sell
they were founded upon another cause which is true and to buy ensues, and the offeree ipso facto assumes the
and lawful. (1276) obligations of a purchaser.‖ – J. Antonio, concurring opinion.
 Where the cause stated in the contract is false, the HILL VS VELOSO
latter may nevertheless be sustained by proof of another licit July 24, 1915
cause. Maximina Veloso claimed that she was tricked by her son-in-
Art. 1354. Although the cause is not stated in the law Domingo Franco into signing a blank document,
contract, it is presumed that it exists and is lawful, unknowingly binding her to a debt of P6,319 to Michael & Co.
unless the debtor proves the contrary. (1277) She thought, according to her, she was made to sign to
 Unless the contrary is proved, a contract is acknowledge an obligation to pay for the guardianship of the
minor children of Potenciano Veloso (her brother?). And that
presumed to have a good and sufficient consideration. This
she learned of the true nature of the document (a promissory
presumption applies when no cause is stated in the contract.
note to Michael & Co.) only after Franco‘s death. But, clearly,
Art. 1355. Except in cases specified by law, lesion or
her signatures on the promissory note were obtained by
inadequacy of cause shall not invalidate a contract,
means of fraud.
unless there has been fraud, mistake or undue
HELD: Granted there was deceit in executing the Promissory
influence. (n)
Note to Michael & Co., still the deceit and error alleged could
 In case of lesion or inadequacy of cause, the general not annul the consent of Veloso nor exempt her from the
rule is that the contract is not subject to annulment. obligation incurred. The deceit, in order that it may annul the
 In cases provided by law, however, such as those consent, must be that which the law defines as a cause.
mentioned in Art 1381, the lesion is a ground for rescission of ―There is deceit when by words or insidious machinations on
the contract. the part of one of the contracting parties, the other is induced
 Gross inadequacy naturally suggests fraud and is to execute a contract which without them he would not have
evidence thereof, so that it may be sufficient to show it when made.‖ (Art 1269, Civil Code)
taken in connection with other circumstances. Franco was not one of the contracting parties who may have
CASES deceitfully induced the other contracting party, Michael & Co.,
SANCHEZ VS RIGOS to execute the contract. The one and the other of the
June 14, 1972 contracting parties, to whom the law refers, are the active
Nicolas Sanchez and Severina Rigos executed an ―Option to and passive subjects of the obligation, the party of the first
Purchase‖ whereby Rigos ―agreed, promised, and committed‘ part and the party of the second part who execute the
to sell to Sanchez a parcel of land for P1,510. The contract. The active subject and the party of the first part of
understanding was that the Option will be deemed the Promissory Note in question was Michael & Co., and the
―terminated and elapsed‖ if Sanchez fails to exercise his right passive subject and party of the second part were Veloso and
to buy said property within 2 years from the execution of the Franco. Veloso and Franco, therefore, composed a single
agreement. Sanchez did tender several payments within the contracting party in contractual relation with or against
specified period but Rigos rejected said payments, arguing Michael & Co.
that the Option was a unilateral promise to sell and was Franco, like any other person who might have induced Veloso
unsupported by any valuable consideration and by force of into signing the Promissory Note under the influence of
the Civil Code. And therefore, pointed out Rigos, the Option deceit, would be but a third person. Under the Civil Code,
was null and void. deceit by a third person does not in general annul consent.
HELD: The Option was not a contract to buy and sell. It did This deceit may give rise to more or less extensive and
not impose upon Sanchez the obligation to purchase Rigos‘ serious responsibility on the part of the third person (Franco)
property. It merely granted Sanchez an option to buy. There and a corresponding right of action for the contracting party
is nothing in the contract to indicate that Rigos‘ agreement or prejudiced (Veloso). [Veloso will probably just have to file an
promise was supported by a consideration ―distinct from the action against the estate of Franco.]
price‖ stipulated for the sale of land. Veloso ordered to pay Michael & Co.
Under Arts 1324 and 1479 of the Civil Code, however, a MAPALO VS MAPALO
unilateral promise to sell—although not binding as a contract May 19, 1966
in itself for lack of a separate consideration—nevertheless Spouses Miguel and Candida Mapalo—simple and illiterate
page 42
REVIEWER
farmers—donated the eastern half of their property to Maximo the contract is rescinded and set aside.
Mapalo, Miguel's brother, who was about to get married. Decision: For Santos.
Maximo, however, deceived Miguel and Maxima into signing a SANTOS VS HEIRS OF JOSE MARIANO AND ERLINDA
deed of absolute sale over the entire property in his favor. MARIANO-VILLANUEVA
Maximo and his notary public led the spouse to believe that October 24, 2000
the deed of sale covered only the eastern half of the property. Spouses Macario Mariano and Irene Peña-Mariano owned 6
The deed even stated an alleged consideration of P500, which parcels of land. When Macario died and left no will, his share
the spouses never received. Thirteen years later, Maximo sold over the properties passed on to his children and Irene.
the entire property to Evaristo, Petronila, Pacifico, and Miguel Irene, who was appointed the heirs‘ lawful representative and
Narciso—who first took possession of the eastern half and agent, subsequently executed an Affidavit of Merger whereby
later demanded Miguel and Candida to vacate the western she merged unto her name the land titles covering all the
half. The spouses moved to declare the deeds of sale over the properties in question. Over the years, she remarried and
western half of the property null and void. disposed of all 6 parcels of land in favor of one Raul Santos.
HELD: Consent in the case at bar was admittedly given, albeit The children learned of all this only after Irene‘s death.
under the influence of fraud. Accordingly, said consent, ISSUE: Whether the supposed contracts of sale of various
although defective, did exist. In such case, the defect in the pieces of real property entered into between Irene as vendor
consent would provide a ground for annulment of a voidable and the respective vendees were bona fide contracts, legal,
contract, not a reason for nullity ab initio. and binding upon the children—who were registered co-
As for the cause or consideration, liberality did not exist as owners of said real properties.
regards the western portion of the Mapalo property. There HELD: Even with a duly executed written document
was no donation with regard to the same. Under the Civil purporting to be a contract of sale, the Court cannot rule that
Code, contracts without a cause or consideration produce no the subject contracts of sale are valid, when the evidence
effect whatsoever. The alleged consideration of P500 in the presented in the courts below show that there had been no
deed of sale was totally absent as it was not received by the meeting of the minds between the supposed seller and
spouses. Decision: for Miguel and Candida. corresponding buyers of the parcels of land in the case at bar.
SANTOS VS COURT OF APPEALS The case is replete with evidence tending to show that there
August 1, 2000 was really no intention to sell the subject properties as far as
Rosalinda Santos sold her property in Parañaque to Carmen the children were concerned.
Caseda. Caseda gave an initial payment and took possession MMDA vs JANCOM
of the property, which she then leased out. Caseda, however, Facts: Jancom won the bid to operate the waste disposal site
suffered from bankruptcy and failed to pay the remaining in San Mateo, Rizal under the Build-Operate-Transfer (BOT)
balance. Santos re-possessed the property and collected the scheme.Aafter a series of meetings and consultations
rentals from the tenants thereof. Caseda sold her fishpond in between the negotiating teams of EXECOM and JANCOM, the
Batangas and raised money enough to pay the balance. BOT Contract for the waste-to-energy project was signed
Santos, however, wanted a higher price now taking into between JANCOM and the Philippine Government, represented
consideration the real estate boom in Metro Manila. Caseda by the Presidential Task Force on Solid Waste Management
filed a petition either to have Santos execute the final deed of through DENR Secretary Victor Ramos, CORD-NCR Chairman
conveyance over the property or, in default thereof, to Dionisio dela Serna, and MMDA Chairman Prospero Oreta. The
reimburse the amount she had already paid. BOT contract was submitted to President Ramos for approval
HELD: Taking into consideration the essential requisites of a but this was too close to the end of his term which expired
contract, the Court concluded that there was no transfer of without him signing the contract. President Ramos, however,
ownership simultaneous with the delivery of the property endorsed the contract to incoming President Joseph E.
purportedly sold to Caseda. The records clearly showed that, Estrada. However, due to the clamor of residents of Rizal
notwithstanding the fact that Caseda took possession of the province, President Estrada had, in the interim, also ordered
property, the title had remained always in the name of the closure of the San Mateo landfill. Due to these
Santos. Thus, the contract between Santos and Caseda was a circumstances, the Greater Manila Solid Waste Management
contract to sell—ownership is reserved by the vendor and is Committee adopted a resolution not to pursue the BOT
not to pass until full payment of the purchase price. contract with JANCOM. MMDA decided to hold a new bidding
Since the case at bar involves a contract to sell, a judicial for other waste management in other locations. Jancom won
rescission of the agreement is not necessary. In a contract to a court order compelling the MMDA to push through with their
sell, the payment of the purchase price is a positive contract.
suspensive condition. Failure to pay the price agreed upon is Issue: Was there a valid contract despite the lack of signature
not a mere breach, casual or serious, but a situation that by the President and valid notice of award?
prevents the obligation of the vendor to convey title from Held: Yes
acquiring an obligatory force. Thus, if the vendor should eject Ratio:
the vendee for failure to meet the condition precedent, he is 1. Article 1315 of the Civil Code, provides that a contract is
enforcing the contract and not rescinding it. perfected by mere consent. Consent, on the other hand, is
For comparative purposes, in a contract of sale, non-payment manifested by the meeting of the offer and the acceptance
of the price is a negative resolutory condition. The vendor has upon the thing and the cause which are to constitute the
lost ownership of the thing sold and cannot recover it unless contract (See Article 1319, Civil Code).
page 43
REVIEWER
2. In the case at bar, the signing and execution of the payment of the sum claimed in the complaint.
contract by the parties clearly show that, as between the The undertaking expressed in the note executed by a third
parties, there was a concurrence of offer and acceptance with person in favor of the woman, Salazar, by order of Cañizares
respect to the material details of the contract, thereby giving does not constitute a ratification or confirmation of the
rise to the perfection of the contract. obligation contracted to pay the sum lost in a monte game.
3. To illustrate, when petitioners accepted private Furthermore, it has not been proven that Canizares gave his
respondents‘ bid proposal (offer), there was, in effect, a consent to the subrogation
meeting of the minds upon the object (waste management Thus, the obligation of the supposed debtor, because of its
project) and the cause (BOT scheme). Hence, the perfection vicious origin, is not enforceable in court, it follows that no
of the contract. recovery can be had in this suit.
4. Despite the lack of valid notice of award, the defect was Dumez vs. NLRC
cured by the subsequent execution of the contract entered Facts:
into and signed by authorized representatives of the parties; Petitioner is a French company which hires Filipino workers
5. In any event, petitioners, as successors of those who through a ECCOI, a company existing in the
previously acted for the government (Chairman Oreta, et al), Philippines. Dumez needed 4 Senior Draftsmen who were
are estopped from assailing the validity of the notice of award willing to work for $600/month at Saudi Arabia. Private
issued by the latter. As private respondents correctly respondent Jose was among the draftsmen that were hired by
observed, in negotiating on the terms and conditions of the ECCOI in behalf of Dumez. The employment agreement of
BOT contract and eventually signing said contract, the Jose showed that his monthly base salary would be
government had led private respondents to believe that the $680. This discrepancy was discovered when Dumez began
notice of award given to them satisfied all the requirement of preparing the papers related to respondent‘s first month
the law. salary. The discrepancy was reported to ECCOI who in turn
6. There being a perfected contract, MMDA cannot revoke or claimed that it was a mere typographical error. Meanwhile,
renounce the same without the consent of the other. From Jose insisted on being paid $680 per month as stated in his
the moment of perfection, the parties are bound not only to employment agreement. Dumez eventually dismissed Jose on
the fulfillment of what has been expressly stipulated but also the grounds of ―surplus employee, excess of manpower and
to all the consequences which, according to their nature, may retrenchment.‖ A case was filed by Jose before the POEA and
be in keeping with good faith, usage, and law (Article 1315, then before the NLRC who ordered Dumez to pay the
Civil Code). The contract has the force of aw between the respondent‘s salary for the unexpired portion of 1 year.
parties and they are expected to abide in good faith by their Issue: WON there existed a valid contract between Dumez
respective contractual commitments, not weasel out of them. and Jose?
Just as nobody can be forced to enter into a contract, in the Held: NO
same manner, once a contract is entered into, no party can Ratio:
renounce it unilaterally or without the consent of the other. It The amount of monthly salary base was a prime consideration
is a general principle of law that no one may be permitted to of the parties in signing the employment contract. Mutual
change his mind or disavow and go back upon his own acts, mistake, however, prevented the proposed contract from
or to proceed contrary thereto, to the prejudice of the other arising.
party. Nonetheless, it has to be repeated that although the The mutual mistake here should be distinguished from a
contract is a perfected one, it is still ineffective or mistake which vitiates consent in a voidable contract.
unimplementable until and unless it is approved by the The element of consent was not present at all in this
President. case. There was no concurrence of the offer and acceptance
Palma vs Canizares upon the subject matter and the cause which are to constitute
Facts: the contract.
Saturnina Salazar and Juan Canizares took part in a game of In a situation wherein one or both parties consider that
chance. Canizares lost and as a result thereof, became certain matters or specifics, in addition to the subject matter
indebted to Salazar in the amount of $5,000. This was and the causa should be stipulated and agreed upon, the area
evidenced in a promissory note signed by the brother-in-law of agreement must extend to all points that the parties deem
of Canizares. Canizares paid 500, leaving a balance of 4500. material or there is no contract.
Salazar meanwhile, received 4500 from Palma. She indorsed Somoso vs. CA
the note to Palma who demanded the sum from Canizares. Facts:
Issue: Is Canizares under obligation to pay Palma? The spouses Somosa purchased from Conpinco one unit VHS
Held: No (23k) with accessories and one unit Cinema Vision (124.5k)
Ratio: with complete accessories. They made partial payments which
It is indubitable that the indebtedness of 5,000 pesos were evidenced by provisional receipts. However, by Aurgust
expressed in the note referred to arose in a monte game, a 27, 1979, no further payments were made. On November of
game of chance, and therefore expressly prohibited by law. the same year, petitioner demanded that Conpinco pull out
As the law does not allow an action for the recovery of money the VHS unit because ―it was not the unit requested for
won in such games (art. 1798 of the Civil Code), it follows demonstration.‖ Petitioner also requested the return of the
that the action brought by Palma can not be maintained, nor 15k deposit. In response, conpinco sent petitioners a
can any judgment be rendered by the courts directing the collection letter for the Cinema Vision and for the National
page 44
REVIEWER
VHS. Petitioners are claiming that there was no perfected  Marlene Dauden-Hernaez is a motion picture actress
contract of sale between them and respondent Conpinco as who has filed a complaint against private resp Hollywood Far
there was no meeting of the minds of the parties upon the East Productions Inc and its President Ramon Valuenzela to
thing which is the object of the contract and upon the price of recover P14, 700 representing a balance due to said actress
the said thing. Petitioners claim they only requested a for her services as leading actress in two motion pictures
demonstration. produced by the company and to recover damages.
Issue: WON there was a contract?  Her petition was dismissed by the lower court
Held: YES
because ―it was defective because not evidenced by any
Ratio:
written document, either public or private considering that the
The claims of petitioners are belied by the two documents of
claim is more than P500 ‖ thereby violating Article 1356 and
sale signed by the spouses as buyers which documents were
1358 of the Civil Code.
notarized.
Issue:
The acts of petitioners before and after the delivery of the
WON the court below abused its discretion in ruling that a
National VHS negates any claim that the set was delivered for
contract for personal services involving more than P500 was
demonstration purposes only and that there was no meeting
either invalid or unenforceable under the last par of 1358 of
of the minds between the parties as to the subject of the sale
the CC.
and its price. (delivery of checks as partial downpayment
Held:
etc.)
Yuvienco vs. Dacuycuy  Yes. The court below abused its discretion. There
Facts: was a misunderstanding of the role of the written form in
Petitioners were selling a parcel of land located in contracts, as ordained in the present CC.
Tacloban. They expressed willingness to sell the property at  The contractual system of our CC still follows that of
6.5M to private respondents as long as the latter would make the Spanish Code of 1889 and of the ―Ordenamiento de
known its decision to buy not later than July 31, 1978. The Alcala‖ (ah so Leghis) of upholding the spirit and intent of the
private respondents reply, thru a letter stated ―we agree to parties over formalities, hence, in general, contracts are valid
buy property proceed to Tacloban to negotiate details.‖ The and binding from their perfection regardless of the form,
respondents are now filing a complaint for specific whether they be oral of written as provided by Art 1315
performance which the petitioners want dismissed on the (Contracts are perfected by mere consent xxx) and by 1356 (
ground of lack of cause of action. The judge ruled negatively Contracts shall be obligatory in whatever form they may have
on the motion to dismiss. been entered into xxx).
Issue: WON the facts show the existence of a perfected  The essential requisites are present in the
contract of sale? contract- C-O-C.
Held: NO  However 1356 also provides two exceptions:
Ratio: a. Contracts for which the law itself requires that they
Art. 1319 CC: Consent is manifested by the meeting of the be in some particular form (writing) in order to make them
offer and the acceptance upon the thing and the cause which valid and enforceable (the so-called solemn contracts).
are to constitute the contract. The offer must be certain and Ex.
the acceptance absolute. A qualified acceptance constitutes a 1. donation of immovable property (in public ins) (Art. 749)
counter-offer. Acceptance made by letter or telegram does 2. donation of movables worth more than P5,000 (Art. 748)
not bind the offerer except from the time it came to his 3. contracts to pay interest in loans (mutuum) (Art. 1956).
knowledge. The contract, in such a case, is presumed to have 4. agreements contemplated in:
been entered into in the place where the offer was made. 4.1. Art 1744: Stipulation bet the common carrier and the
The telegram instructing Atty Gamboa to ―proceed to shipper or the owner limiting the liability of the former for the
Tacloban to negotiate details‖ is the key that negates and loss destruction or deterioration of the goods to a degree less
makes it legally impossible for the court to hold that than extraordinary diligence xxx
respondents‘ acceptance of petitioners offer, was the 4.2. Art 1773: A contract of partnership is void, whenever
―absolute‖ one that Art. 1319 requires. immovable property is contributed thereto, if an inventory of
―to negotiate‖ is practically the opposite of the idea that an said property is not made, signed by the parties, and
agreement has been reached. attached to the public instrument.
There was a failure of any meeting of the minds of the 4.3. Art. 1874: When a sale of a piece of land or any interest
parties. It was because of their past failure to arrive at an therein is through an agent, the authority of the latter shall
agreement that petitioners had to put an end to the be in writing; otherwise, the sale shall be void.
uncertainty by writing the letter dating July 12, 1978. 4.4. Art. 2134: The amount of the principal and of the
FORM OF CONTRACTS interest shall be specified in writing; otherwise the contract of
Dauden-Hernaez vs. De los Angeles (1969) antichresis shall be void.
This is a petition for a writ of certiorari to set aside certain Note: Antichresis: a contract whereby the creditor acquires
orders of the CFI of Quezon City dismissing a complaint for the right to receive the fruits of an immovable of his debtor,
breach of contract and damage, etc. with the obligation to apply them to the payment of the
Facts: interest, if owing and thereafter to the principal of his credit
(Art. 2132).
page 45
REVIEWER
a. Contracts that the law requires to be proved by some sum of P1,000 at the expiration of seven years in such a
writing (memorandum) of its terms as in those covered by manner that said land shall be under his care as long as we
the old Statute of Frauds, now Art. 1403(2) of the CC. (This is do not pay the redemption money‖.
needed for enforceability of the contract by an action in  In the absence of an express agreement, the right to
court). redeem the thing sold shall only last and may only be
 The basis error in the court‘s decision lies in exercised within 4 years counted from the date of the
overlooking that in our contractual system it is not enough contract (in this case, it shall be counted from 1889 when the
that the law should require that the contract be in writing, as said code went into effect). It has already expired when the
it does in Art. 1358. The law MUST further PRESCRIBE that action was brought in 1907.
without the writing the contract is not valid or enforceable by  Relevance of case under the title: It is a contract of
action.
sale with right to repurchase and it is valid, perfect and
7. Order set aside and case remanded to court of origin
efficient because the three requisites are present and is also
for further proceedings.
binding notwithstanding the fact that it has been drawn up as
Alano et al vs. Babasa (1908) a private document, and the legalization of a contract by
Facts: means of a public writing and its entry in the register are not
(k) Juana Cantos assisted by her husband Jose Alano essential solemnities or requisites for its validity and efficacy
filed a complaint against the defendant Jose Babasa alleging as between the contracting parties, but just conditions of
that the complainant Cantos has the right to repurchase the form which the law imposes in order that it may be effective
land which her father pledged to guarantee a debt of P1300 in and recorded agreement may be respected by the latter.
favor of Fulgencio Babasa and Maria Cantos, the parents of
the defendant (relative siguro ng complainant yung  Judgment affirmed.
defendant, pinsan siguro). REFORMATION OF INSTRUMENTS
(l) The contract entered into on July 18, 1883 stipulated Atilano vs. Atilano (1969)
a condition that the creditors should enjoy the usufruct of said Facts:
land from the date of contract and that for seven years to  In 1916, Eulogio Atilano I acquired by purchase from
take possession of the land as if their own and that after 7 Villanueva lot no. 535 in Zamboanga, obtained the transfer
years, the debtor is entitled to redeem the land by paying the certificate of title in his name and in 1920 divided the said lot
debt. into 5 parts identified as lots Nos. 535-A, 535-B, 535-C, 535-
(m) Petitioner claims that they talked to defendant and D, 535-D, 535-E.
that in the beginning engaged to permit its redemption later  On May 18, after the subdivision of the said lot, he
on offered to definitely purchase said land at an increase price executed a deed of sale cover lot E in favor of his brother
but plaintiff did not agree. Eulogio Atiliano II, who obtained lot E, and the three other
(n) Defendant made a general denial and alleged that lots were sold to other persons. Atilano I retained for himself
the land described had been sold with right of repurchase and only the remaining portion of the land presumably Lot A.
that the parents of the plaintiff had lived years after the  In 1952, Atilano II died, thus his widow and children
expiration of the 7-year period provided and that they never obtained the transfer certificate over E in their names as co-
exercised the right to repurchase. owners but in 1959 they decided to subdivide the lot and they
Issue: then discovered upon the results of the survey that the land
WON the plaintiff can repurchase the said land taking into they were actually occupying was lot A and not E.
consideration that the Civil Code was enacted in Dec. 1889
 Because of this, they demanded that Lot E be
which provides a different prescriptive period.
surrendered to them and offered to surrender Lot A to the
Held:
descendants of Atilano I but they refused. It is
No. Her action has already prescribed.
understandable that they wanted Lot E because it has an area
 The contract was entered into on July 18, 1883 and of 2612 sqm as compared to 1808 sqm of lot A.
the 7 year expiration has commenced on June 19, 1890 and
 Defendants (Atilano II descendants) answered that it
at that time the CC became effective already thus the
was just an involuntary error and that the intention of the
provisions of the Code can be applied on the case.
parties was to convey the lot correctly identified as A. Atilano
 Art. 1939 shall be the applicable to the case which I had been possessing and had his house on the portion
states that: Prescription, which began to run before the designated as E and in fact increased the area by purchasing
publication of this code, shall be governed by the prior laws; the adjacent lot from its owner Carpio.
but if, after this code became operative, all the time required
 RTC rendered judgment for the plaintiff on the sole
in the same for prescription has elapsed, it shall be effectual,
ground that since the property was registered under the Land
even if according to said prior laws a longer period of time
Registration Act, the defendants could not acquire it through
may be required.
prescription.
 Excerpt from the contract: ―it has been agreed to Issue:
between us that we shall convey to him the said land from WON the lower court was correct in rendering the judgment
this day, and that he will cause the same to be worked from for the plaintiff.
this date as if it were his own property for a period of seven Held:
years; that we shall have the right to redeem it for the said No. One sells or buys the property as he sees it, in its actual
page 46
REVIEWER
setting and by its physical metes and bounds, and not by the  This agreement was approved by Branch XXI of this
mere lot number assigned to it in the certificate or title. Court and a decision was rendered enjoining the parties
 The portion correctly referred to as lot A was already thereto to faithfully comply with the terms and conditions. But
in the possession of Atilano II who had constructed his the Pajarillaga‘s still did not comply with the compromise
residence therein even before the sale in his favor. agreement thus the sheriff levied on 27 pieces of heavy
 The sale was a simple mistake in the drafting of the equipment.
document. The mistake did not vitiate the consent of the  The Pajarillaga‘s claim that there was fraud because
parties or affect the validity and binding effect of the contract they signed the Compromise agreement without the help of
between them. their counsel and that it was just one-sided in favor of FNCB,
 The new CC provides a remedy for such a situation thus, filed for an annulment of the compromise agreement
by means of reformation of the instrument. This remedy is and the simulated lease agreement. (RTC and CA ruled in
available when, there having been a meeting of the minds of favor of the Pajarilla‘s)
the parties to a contract, their true intention is not expressed Issue:
in the instrument purporting to embody the agreement by WON annulment should be the proper remedy for the
reason of mistake, fraud, inequitable conduct or accident Pajarillaga spouses.
(1359). Held:
 In this case, the deed of sale executed in 1920 need f. No. According to the Court, their action for
no longer be reformed. The parties have retained possession annulment of the simulated lease agreement was seasonably
of their respective properties conformably to the real intention filed in 1979, within 10 years from the date of its execution in
of the parties to that sale, and all they should do is to execute 1974 (1144 CC). However the trial court and the CA should
mutual deeds of conveyance. have treated it as an action for reformation of contract.
Investors Finance Corporation vs. CA (1991) g. For when the true intention of the parties to a
Facts: contract is not expressed in the instrument purporting to
embody their agreement by reason of mistake, fraud,
 Before April 30, 1974 resp Richmann Tractors Inc, inequitable conduct or accident, the remedy of the aggrieved
with Pajarillaga as president were the owners of certain party is to ask for the reformation, not annulment, of the
construction equipment and being in need of financing (for instrument to the end that their true agreement may be
operation of their construction and logging business) went to expressed therein.
Investor‘s Finance Corporation (or FNCB Finance) with their h. If the true transaction between FNCB and Pajarillaga
equipment as collateral. In the documents which were or Richman Tractors—an loan with chattel mortgage—had
executed, it was made to appear that FNCB was the owner of been reflected in the documents, instead of a simulated
the equipments and that private resp were merely leasing financial leasing, the creditor-mortgagee (FNCB), upon the
them. As a consideration for the lease, private resp were to mortgagor‘s default in paying the debt, would have been
pay monthly amortizations over a period of 36 mos). entitled to seize the mortgaged machinery and equipment
 On April 30, 1974, petitioner FNCB Finance and from Pajarillaga for the purpose of foreclosing the chattel
respondent Richmann Tractors executed a Lease Agreement mortgage therein. The mortgagors would have had no cause
covering various properties described in the Lease Schedules of action for actual, moral and exemplary damages arising
attached to the Lease Agreement. As security for the payment from the replevin of their mortgaged machinery and
of resp Richmann‘s obligations under the Lease Agreement, equipment by the creditor, FNCB.
resp Pajarillaga‘s executed a Continuing Guaranty dated April INTERPRETATION OF CONTRACTS
30, 1974. Borromeo v CA 1972
 Richmann also applied for and was granted credit Facts: Jose A. Villamor, the debtor, borrowed from Canuto O.
financing facilities by petitioner in the amount of almost 1M Borromeo, the original creditor, a large sum of money for
payable in installments. which he mortgaged his house and lot. Said mortgage,
 Private respondents defaulted in their respective however, was not properly drawn up and registered, so that
obligations. FNCB demanded for the obligations to be fulfilled the mortgaged house and lot ended up attached to a separate
and thereafter filed a complaint for seizure. civil action initiated by a certain Mr. Miller against Villamor.
When Villamor was being pressed to settle his obligation with
 A writ of replevin was issued for the seizure of the
Borromeo, the former assured his creditor that he would still
heavy equipment and machineries subject of the lease
pay the debt and executed a written document promising to
agreement and when served upon the Pajarillaga‘s, they
pay his debt to Borromeo even after the lapse of ten years,
panicked and proceeded to the office of the FNCB and its
the legal prescriptive period for recovery of debts. The
counself and thereafter signed a Compromise agreement
creditor never instituted any action against the debtor within
which states among others that the Pajarillaga‘s acknowledge
the ten years following the execution of the said document
that plaintiff is the owner of all the properties and that they
Action to recover the sum from the debtor was filed only after
have been allowed to temporarily operated the properties
ten years and was rejected by CA for 2 main reasons: (1)ten-
under the direct control and supervision of plaintiff and/or its
year prescriptive period for recovery of debts had elapsed, (2)
representatives with the express understanding that
document promising to pay even after ten years was void
defendants acknowledge and recognize plaintiff‘s ownership
because promise was illegal, it being violative of principle
and right to repossess and take custody of said properties.
page 47
REVIEWER
―that a person cannot renounce future prescription‖. Riviera Filipina but the parties failed to agree on the price for
Issue: WON written document promising to pay after ten the subject property. Riviera Filipina, Inc. clearly expressed
years is void for being illegal. its refusal to go beyond the price of 5,000 per square meter.
Held: No. In the interpretation of the written document or Another interested party offered to purchase the same
contract wherein Villamor promised to pay his debt even after property for 5,300 per square meter. Riviera Filipina was well-
ten years, CA relied too heavily on the words employed in informed that there were other interested buyers but did not
said document without taking the intention of the parties into know of specific price offered by other party. Riviera Filipina
consideration. Reference to the prescriptive period of ten now filing suit against Reyes and 3rd party purchaser,
years is susceptible to the construction that only after the contending that their right of first refusal was violated
lapse thereof could the demand be made for the payment of because they were not given the opportunity to match the
the obligation. offer of 5,300 per square meter.
Prescriptive period to file action thus started to run only after Issue WON right of first refusal in the contract of lease may
ten years had lapsed. This is consistent with the actions and be interpreted as to require that the lessee have specific
intent of the two parties. knowledge of the price offered by other interested parties,
In declaring the said contract to be void, CA ran counter to thereby amounting to a right to match.
the well-settled maxim that between two possible Held No. ―Intention of the parties shall be accorded primordial
interpretations, that which saves rather than destroys is to be consideration and in case of doubt, their contemporaneous
preferred. and subsequent acts shall be principally considered.‖
Lim Yhi Luya v CA 1980 The actions of the two principal parties involved in the
Facts: Lim Yhi Luya entered into a contract of sale with contract of lease shaped their understanding and
private respondent, Hind Sugar Company, wherein the latter interpretation of the ―right of first refusal‖ to mean simply
sold to the former 4,085 piculs of sugar. The terms of the that should Reyes decide to sell the property during the term
contract which was drawn by the respondent company of the lease, such sale should first be offered to Riviera.
explicitly stated ―cash upon signing of this contract‖. Much of Riviera's stubborn approach in its negotiations with Reyes
the sugar was properly delivered to the plaintiff in the next showed crystal clear that there was never any need to
few months except for a remaining 350 piculs of sugar. When disclose such information.
plaintiff filed an action to compel the delivery of the remaining DEFECTIVE CONTRACTS:
350 piculs, private respondent company contended that no RESCISSIBLE CONTRACTS
payment had yet been made by the plaintiff, contrary to the Art. 1380. Contracts validly agreed upon may be
terms stipulated in their contract. Plaintiff had no receipt to rescinded in the cases established by law. (1290)
prove that payment had been made but contends that the Art. 1381. The following contracts are rescissible:
terms stipulated in the contract is sufficient proof that (1) Those which are entered into by guardians
payment had been made at around the time the contract was whenever the wards whom they represent suffer lesion
signed. by more than one-fourth of the value of the things
Issue: WON the statement ―cash upon signing of this contact‖ which are the object thereof;
in the contract of sale drawn up by the respondent company (2) Those agreed upon in representation of absentees,
may be interpreted as sufficient proof that payment had in if the latter suffer the lesion stated in the preceding
fact been made. number;
Held: Yes. Although the contract is ambiguous enough to (3) Those undertaken in fraud of creditors when the
admit of several valid interpretations, the interpretation to be latter cannot in any other manner collect the claims
taken shall not favor the respondent company since it is the due them;
party who caused the ambiguity in its preparation. (see Art (4) Those which refer to things under litigation if they
1377) The ambiguity raised by the use of the words or have been entered into by the defendant without the
phrases in the questioned provision must be resolved and knowledge and approval of the litigants or of
interpreted against the respondent company. competent judicial authority;
Respondent company's act of delivering to the petitioner four (5) All other contracts specially declared by law to be
delivery orders covering all the 4,035 piculs of sugar, viewed subject to rescission. (1291a)
in the light of the established fact that all sugar transactions Art. 1382. Payments made in a state of insolvency for
between petitioner and respondent are always in cash.. is a obligations to whose fulfillment the debtor could not be
clear confirmation of the fact that petitioner paid in cash the compelled at the time they were effected, are also
cost of the sugar.. on the very day that the contract was rescissible. (1292)
signed.. Art. 1383. The action for rescission is subsidiary; it
Riviera Filipina v CA 2002 cannot be instituted except when the party suffering
Facts Riviera Filipina, Inc. entered into a contract of lease damage has no other legal means to obtain reparation
with Juan Reyes involving 1,018 square meters of real for the same. (1294)
property owned by Reyes. Paragraph 11 of the lease contract Art. 1384. Rescission shall be only to the extent
expressly provided that ―lessee shall have the right of first necessary to cover the damages caused. (n)
refusal should the lessee decide to sell the property during Art. 1385. Rescission creates the obligation to return
the term of the lease.‖ When Reyes decided to sell the the things which were the object of the contract,
property in 1988, he entered into a series of negotiations with together with their fruits, and the price with its
page 48
REVIEWER
interest; consequently, it can be carried out only when Auditor/Superintendent and the Assistant Chief Chemist to
he who demands rescission can return whatever he produce the Mafran sauce in full swing, to recall the laborers
may be obliged to restore. dismissed (except for Francisco Sr.) and to hire additional
Neither shall rescission take place when the things daily laborers. The Mafran sauce produced was of inferior
which are the object of the contract are legally in the quality because of the absence of Francisco Sr. who alone
possession of third persons who did not act in bad knew the exact formula.
faith. GM Reyes also admitted that ―I consider the two months we
In this case, indemnity for damages may be demanded paid him (Francisco Sr.) is the separation pay.‖
from the person causing the loss. (1295) Thus Francisco Sr. filed an action for Rescission of the
Art. 1386. Rescission referred to in Nos. 1 and 2 of contract. Lower court dismissed the case. CA reversed:
Article 1381 shall not take place with respect to rescinded the contract and ordered UFC to 1. Return the
contracts approved by the courts. (1296a) Mafran Sauce formula and trademark 2. Pay Francisco Sr. his
Art. 1387. All contracts by virtue of which the debtor salary since Dec 1960 until the return of the Mafran formula
alienates property by gratuitous title are presumed to and trademark and 3. Pay attorney‘s fees and costs.
have been entered into in fraud of creditors, when the Held: CA correctly observed that UFC schemed and
donor did not reserve sufficient property to pay all maneuvered to ease out and dismiss Francisco Sr. from the
debts contracted before the donation. service as chief chemist, in flagrant violation of the Bill of
Alienations by onerous title are also presumed Assignment; and that the notice of recall was to placate
fraudulent when made by persons against whom some Francisco Sr. Therefore in addition UFC is 4. Enjoined from
judgment has been issued. The decision or attachment using in any manner said Mafran sauce trademark and
need not refer to the property alienated, and need not formula and 5. pay legal interest on Francisco Sr.‘s salary.
have been obtained by the party seeking the rescission. Doctrine:
In addition to these presumptions, the design to The general rule is that rescission of a contract will not be
defraud creditors may be proved in any other manner permitted for a slight or casual breach, but only for such
recognized by the law of evidence. (1297a) substantial and fundamental breach as would defeat the very
Art. 1388. Whoever acquires in bad faith the things object of the parties making the agreement. The question of
alienated in fraud of creditors, shall indemnify the whether a breach of a contract is substantial depends upon
latter for damages suffered by them on account of the the attendant circumstances.
alienation, whenever, due to any cause, it should be Recall: Art 1191 CC: The power to rescind obligations is
impossible for him to return them. implied in reciprocal ones, in case one of the obligors should
If there are two or more alienations, the first acquirer not comply with what is incumbent upon him.
shall be liable first, and so on successively. (1298a) The injured party may choose between the fulfillment and the
Art. 1389. The action to claim rescission must be rescission of the obligation with the payment of damages in
commenced within four years. either case. He may also seek rescission even after he has
For persons under guardianship and for absentees, the chosen fulfillment, if the latter should become impossible.
period of four years shall not begin until the The Court shall decree the rescission claimed, unless there be
termination of the former's incapacity, or until the just cause authorizing the fixing of a period.
domicile of the latter is known. (1299) This is understood to be without prejudice to the rights of
Notes: third persons who have acquired the thing, in accordance with
* 4 years from when? Example insane , from lucid interval Art 1385 and Art 1388 of the Mortgage Law.
ba? Tolentino: Art 1191 Rescission is used, instead of Resolution
* 1st remedy (since subsidiary action ang rescission) is to ask which is more apt.
for the amount of lesion to be repaired. Difference of Art 1191 to Art 1381:
UFC V CA J. J.B.L. Reyes:
May 13, 1970 A rescission for breach of contract under Art 1191 CC is not
Magdalo V. Francisco, Sr. invented the Mafran sauce, a food predicated on injury to economic interests of the party
seasoning made out of banana (ketchup?) and had the plaintiff, but on the breach of faith by the defendant, that
formula patented and the name registered as his own violates the reciprocity between the parties. It is not a
trademark. subsidiary action, and Art 1191 may be scanned without
In May 1960, Francisco Sr. entered into a contract with disclosing anywhere that the action for rescission thereunder
Universal Food Corporation entitled ―Bill of Assignment‖ is subordinated to anything other than the culpable breach of
wherein Francisco assigned the USE of the Mafran sauce his obligations by the defendant. This rescission is a principal
formula to UFC (right to mass produce and sell) in exchange action retaliatory in character, it being unjust that a party be
for a permanent assignment as Second Vice President and held bound to fulfill his promise, when the other violates his.
Chief Chemist with a salary of P300/month, and becoming a Hence the reparation of damages for the breach is purely
member of the Board of Directors. secondary.
On November 30, 1960 UFC dismissed Francisco and the staff In Art 1381, the cause of action is subordinated to the
working on the Mafran sauce on the pretense of scarcity and existence o f that prejudice because it is the raison d‘ etre as
high prices of raw materials; but 5 days later, the President well as the measure of the right to rescind. Hence, when the
and General Manager of UFC Tirso T. Reyes, ordered the defendant makes good the damage caused, the action cannot
page 49
REVIEWER
be maintained or continued, as expressly provided in Art. contracting parties and even third persons from all injury and
1383 and 1384. But the operation of these 2 articles is limited damage the contract may cause, or to protect some
to the cases of rescission for lesion enumerated in Article incompatible and preferent right created by the contract.
1381 of the CC, and does not apply to cases under Art. 1191. Rescission implies a contract which, even if initially valid,
Equitorial V Mayfair, ibid. (case #14 sa page 1 syllabus) produces a lesion or pecuniary damage to someone that
Nov. 21, 1996 justifies its invalidation for reasons of equity
In 1967, Carmelo entered a contract of lease with Mayfair Voidable Contracts
Theater for a portion of Carmelo‘s property with a stipulation Voidable Contracts
(par. 8) of an exclusive option by Mayfair to purchase the  Contracts that are voidable or annullable:
property in case Carmelo decides to sell it.  When either party is incapable of giving
In 1974, Mr. Pascal of Carmelo called Mr. Yang of Mayfair consent to a contract
because another party was willing to buy the property.  When consent is vitiated by mistake,
Despite Mayfair giving notice of interest to buy; Carmelo sold violence, intimidation, undue influence, fraud
the property to Equatorial on 1978.  Binding, unless annulled by a proper court
Mayfair then brought suit for the annulment of the sale of the action
leased premises to Equatorial.  Ratifiable (Art. 1390)
RTC dismissed the petition and found par. 8 to be an option  Prescription for action of annulment: 4 years to
clause that cannot bind Carmelo for lack of separate and begin:
distinct consideration.  when vice is due to intimidation, violence or
CA reversed; par. 8 – right of first refusal according to art. undue influence – from the time defect of consent ceases
1479 par. 2.  mistake or fraud – from the time of
Held: Par. 8 is a right of first refusal, so the contract between discovery
Carmelo and Equatorial must be rescinded.  entered into by minors or those incapable of
Ratio: the right was incorporated for Mayfair‘s protection; giving consent – the moment guardianship ceases (Art. 1391)
Mayfair should be given the right to match the P11.3M price.
 Ratification
Equatorial is a buyer in bad faith.
 extinguishes action for annulment (Art.
Doctrine: same with Guzman, Bocaling V Bonnevie
1392)
Guzman, Bocaling V Bonnevie
 may be express or tacit (Art. 1393)
March 2, 1992
Africa Valdez de Reynoso, the administratrix of a parcel of  tacit ratification – the execution of
land leased it to the Bonnevies for P4,000 per month with a an act which necessarily implies an intention to waive his
stipulation that the Bonnevies will be given first priority to right by the party, who, knowing of the reason which renders
purchase the land should Reynoso decide to sell it. the contract voidable, has a right to invoke annulment.
According to Reynoso, she notified the Bonnevies via  may be effected by the guardian of the
registered mail on Nov 3, 1976 her intention to sell the incapacitated person (Art. 1394)
property for P600K, giving them 30 days to exercise their  does not require the conformity of the
right, which she failed to prove. The Bonnevies allege that person who does not have a right to bring an action for
they didn‘t receive any letter. annulment (Art. 1395)
Reynoso sold the land to Guzman, Bocaling and Co. for  cleanses the contract from all its defects
P400K. from the moment it was constituted (Art. 1396)
The Bonnevies filed an action for annulment of the sale, and  Annulment
that Reynoso be required to sell the property to them which  Who may institute (Art. 1397)
CFI granted and CA affirmed.  By all who are obliged principally or
Held: The CA correctly held that the Contract of Sale was not subsidiarily
voidable but Rescissible.  Exceptions:
Doctrine:
 Persons capable cannot
Under Art. 1380 to 1381 (3) of the Civil Code, a contract
allege the incapacity of those with whom they contracted
otherwise valid may nonetheless be subsequently rescinded
by reason of injury to third persons like creditors. The status  Persons who exerted
of creditors could be validly accorded the Bonnevies for they violence, undue influence, who employed fraud or caused
had substantial interests that were prejudiced by the sale of mistake – action for annulment cannot be based on these
the subject property to the petitioner without recognizing flaws
their right of first priority under the Contract of Lease.  Gives rise to the responsibility of restoring
According to Tolentino, rescission is a remedy granted by law to each other things subject matter of the contract, with
to the contracting parties and even to third persons, to secure fruits, price with its interest, except in cases provided by law
reparation for damages caused to them by a contract, even if (Art. 1398)
this should be valid, by means of the restoration of things to  Service – value thereof will serve
their condition at the moment prior to the celebration of said as the basis for damages
contract.
It is a relief allowed for the protection of one of the
page 50
REVIEWER
 Incapacitated persons not obliged and after he had full knowledge of facts upon which he is
to make restitutions except insofar as he has been benefited trying to disclaim
by the thing or price received by him (Art. 1399) g) If he were seeking to annul the contract, he would
 If objects cannot be returned also have asked that payments to him by the defendants be
because these were lost through his fault, he shall return the stopped. Instead, he proceeded to secure, spend and dispose
fruits received and the value of the thing at the time of the of every cent of the proceeds)
loss, with interests from the same date (Art. 1400) h) Art. 1393 – express or tacit ratification
i) Art. 1398 – responsibility of restoring to each other
 As long as one of the contracting things subject matter of the contract
parties does not restore what in virtue of the annulment j) Art. 1401 – extinguishment of action for annulment:
decree he is bound to return, the other cannot be compelled if object is lost through the fault or fraud of person who has
to comply with what is incumbent upon him. (Art. 1402) the right to institute the proceedings
 Extinguishment of action (Art. 1401) Sps. Theis v. CA
 if object is lost through the fault or Facts:
fraud of person who has the right to institute the proceedings  Carlsons Dev‘t. Corp. owned three adjacent lots
 if action based on incapacity of any 1. Lot covered by TCT 15515
one of contracting parties, loss of thing shall not be an 2. Lot covered by TCT 15516
obstacle to the success of action, unless loss or fraud took 3. Lot covered by TCT 15684
place through the plaintiff‘s fault  A fourth lot was adjacent to Lot 15684, which was
CASES not owned by Carlsons Dev‘t.
Uy Soo Lim v. Tan Unchuan  1985: Carlsons constructed a two-storey house on
Facts: the third lot (erroneously indicated to be covered by TCT
 An action for annulment of a contract whereby Uy 15515)
Soo Lim sold to Pastrano all his interest in the estate of the  Lots 15515 and 15516 mistakenly surveyed to be
late Santiago Pastrano located on lot number 4
 Santiago migrated to the Philippines when he was  The fourth lot was sold to Sps. Theis by Carlsons
13. Married Candida Vivares, had two children with her – Dev‘t., covered by said TCTs. The Theis did not immediately
Francisca (defendant in the suit and wife of co-defendant) and occupy the lot; went to Germany instead. Upon return, they
Concepcion. discovered that the lot was owned by another
 Santiago returned to China and had illicit relations  Theis insisted on buying lot number 4, which was not
with Chan Quieg. Came back to the Philippines and never saw possible as it was not owned by Carlsons; instead, Carlsons
her again. Received a letter from her saying that she borne Dev‘t. offered lots 1 and 2, which was refused.
him a son named Uy Soo Lim.  This time, Theis insisted on lot number 3; counter-
 Believing that Uy Soo Lim being his only son, he offer by Carlson to return purchase price x 2, refused.
dictated his will leaving to him 7/9 of his properties to the  Carlsons filed an action for annulment on the ground
son. of mistake
 Claimants to the estate: Issue: WON Carlsons can seek for annulment on the ground
 Candida – ½ as widow of mistake
 Francisca and Concepcion – that Uy Soo Lim Held: Yes
was not entitled for not being a son, legitimate or illegitimate Ratio:
 Chan Quieg – ½ as widow (their marriage  Carlsons‘ mistake was made in good faith
was valid under the laws of China)  When mistake was discovered, offers were
 Uy Soo Lim appointed Choa Tek Hee as adviser and made to offset the damage caused by the mistake
agent and executed a power of attorney in favor of him to  The nature of mistake as to vitiate consent must be
represent him in the negotiations that which speaks of the substance of the contract
 Compromise was reached – Uy Soo Lim to divest his  Consent being an essential element of
interest in the estate for P82,000.00, Francisca declared the contracts, when it is given by mistake, the validity of
sole owner of all the properties. contractual relations becomes legally impaired
 Uy Soo Lim filed a case to annul the contract alleging Rural Bank of Caloocan v. CA
that undue influence was exerted on him, and that his youth Facts:
was taken advantage of. 5. Maxima Castro, accompanied by Valencia, applied to
Issue: WON Uy Soo Lim can file for annulment RBC for an industrial loan of 3 thousand
Held: No. 6. The Valencia spouses applied for a 3 thousand peso
Ratio: loan as well, which was also granted
e) Although he was a minor at the time of the execution 7. Both loans being granted, Castro was made to sign a
of the contract, he failed to repudiate it immediately upon promissory note, as a principal in the first, and as a co-maker
reaching the age of majority in the Valencia note. They were secured by a real-estate
f) He also tacitly ratified the contract when he disposed mortgage on Castro‘s house and lot.
of the greater part of the proceeds when he became of age
page 51
REVIEWER
8. Castro received a Notice of Sheriff‘s Sale in UNENFORCEABLE CONTRACTS2

satisfaction of the obligation covering the two promissory UNENFORCEABLE CONTRACTS
notes Art. 1403. The following contracts are unenforceable,
9. Only then did she realize that the mortgage unless they are ratified:
was encumbrance not just for her 3k loan, but also for the 3k (1) Those entered into in the name of another person
loan of the Valencias; she was made to sign without by one who has been given no authority or legal
knowledge of this fact representation, or who has acted beyond his powers;
10. She filed a suit for annulment from the (2) Those that do not comply with the Statute of Frauds
second promissory note and the mortgage covering this, and as set forth in this number. In the following cases an
the annulment of the foreclosure sale. agreement hereafter made shall be unenforceable by
Issue: WON fraud can be alleged to free Castro from action, unless the same, or some note or memorandum,
responsibility with respect to the 2nd promissory note thereof, be in writing, and subscribed by the party
Held: Yes charged, or by his agent; evidence, therefore, of the
Ratio: agreement cannot be received without the writing, or a
 The mistake committed by both Castro and the bank secondary evidence of its contents:
which led to the vitiation of consent is due to the Valencias (a) An agreement that by its terms is not to be
fraud and misrepresentation performed within a year from the making thereof;
 A contract may be annulled on the ground of vitiated (b) A special promise to answer for the debt, default, or
miscarriage of another;
consent due to fraud by a third person even without the
(c) An agreement made in consideration of marriage,
connivance with one of the contracting parties
other than a mutual promise to marry;
 The bank committed a mistake in not ensuring the (d) An agreement for the sale of goods, chattels or
extent of the coverage of the mortgage. things in action, at a price not less than five hundred
MWSS v. CA pesos, unless the buyer accept and receive part of such
Facts: goods and chattels, or the evidences, or some of them,
g. 1965: MWSS leased around 128 hectares of land to of such things in action or pay at the time some part of
CHGCCI for 25 years renewable for another 15 years with a the purchase money; but when a sale is made by
stipulation allowing for the exercise of a right of first refusal auction and entry is made by the auctioneer in his sales
should it be put up for sale book, at the time of the sale, of the amount and kind of
h. President Marcos issued an LOI directing MWSS to property sold, terms of sale, price, names of the
cancel the lease and to dispose the property. MWSS and purchasers and person on whose account the sale is
CHGCCI agreed on the sale made, it is a sufficient memorandum;
i. MWSS approved the sale in favor of Silhouette, (e) An agreement of the leasing for a longer period
CHGCCI‘s assignee for 25M. than one year, or for the sale of real property or of an
j. Silhouette entered a deed of sale with Ayala (1984) interest therein;
k. 1993: MWSS filed an action seeking the declaration (f) A representation as to the credit of a third person.
of nullity of the MWSS-Silhouette sale due to Silhouette‘s (3) Those where both parties are incapable of giving
fraudulent acts and Marcos‘s undue influence over MWSS consent to a contract.
Issue: WON the sale can be declared null and void 4. Unenforceable contracts cannot be enforced unless it
Held: No. is first ratified in the manner provided by law. An
Ratio: unenforceable contract does not produce any effect unless it
 All the essential requisites being present, the is ratified. Unenforceable contracts cannot be sued upon
contract can only be voidable, and not void, as all the unless ratified (Paras, 2003).
essential requisites of the contract are present. 5. As to defectiveness, an unenforceable contract is
 Being voidable at the most, prescriptive period of nearer to absolute nullity than voidable or rescissible
four years from the time of the discovery of the mistake and contracts.
from the time the undue influence ceases should be observed. 6. There are 3 kinds of unenforceable contracts:
 If the vice of consent is based on Marcos‘s undue a) unauthorized contracts;
influence, the four years should be counted from the moment b) those that fail to comply with the Statute of Frauds;
the undue influence ceased, which is in 1986 c) those where both parties are incapable of giving consent to
a contract.
 If mistake is alleged, prescriptive period of four
UNAUTHORIZED CONTRACTS
years to begin from the discovery of the same, it should‘ve
e) When a person enters into a contract for and in the
begun from the date of the execution of the sale of
name of the another, without authority to do so, the contract
documents, deemed to have taken place on the date of
does not bind the latter, unless he ratifies the same. The
registration of the deeds with the Register of Deeds as
agent, who has entered into the contract in the name of the
registration is constructive notice to the world
purported principal, but without authority from him, is liable
 Furthermore, there was ratification on the part of to third persons upon the contract; it must have been the
MWSS, both impliedly (making demands for payment) and intention of the parties to bind someone, and, as the principal
expressly (signing of the contract of sale itself) made. was not bound, the agent should be. Ex: Without my
page 52
REVIEWER
authority, my brother sold my car, in my name to X. The  The Statute does not apply if it is claimed that the
contract is unauthorized and cannot affect me unless I ratify contract does not express the true agreement of the parties.
the same expressly or implicitly, as by accepting the proceeds As long as true or real agreement is not covered by the
of the sale. (Paras) Statute, it is provable by oral evidence.
 Mere lapse of time, no matter how long, is not the THE SPECIFIC AGREEMENTS UNDER THE STATUTE OF
ratification required by law of an unenforceable contract FRAUDS
(Tipton v. Velasco, 6 Phil 67, as cited in Paras). 1. Performance within a year. The 'making' of an
STATUTE OF FRAUDS agreement, for the purpose of determining WON the period
4. Meaning: descriptive of statutes which require for performance brings the agreement within the Statute,
certain classes of contracts to be in writing. means the day on which the agreement is made, and the time
5. Purpose: to prevent fraud and perjury in the begins to run from the day the contract is entered into, and
enforcement of obligations depending for their evidence upon not from the time that performance of it is entered upon.
the unassisted memory of witnesses by requiring certain There must be intention that the performance should not be
enumerated contracts and transactions to be evidenced by a performed within a year.
writing signed by the party to be charged. 2. Guaranty of Another's Debt. Test as to whether a
6. Application: This statute does not deprive the parties promise is within the Statute: lies in the answer to the
the right to contract with respect to matters therein involved, question whether the promise is an original or a collateral
but merely regulates the formalities of the contract necessary one. If the promise is original or independent, as to when the
to render it unenforceable. The statute of frauds, however, promisor is primarily liable, it is outside the Statute. If the
simply provides for the manner in which contracts under it promise is collateral, the promise must be in writing.
shall be proved. It does not attempt to make such contracts 3. Consideration of marriage. Applies to promises by a
invalid if not executed in writing but only makes ineffective 3rd person to one of the parties contemplating the marriage.
the action for specific performance. The statute of frauds is Thus, a promise made by the father of a prospective bride to
not applicable to contracts which are either totally or partially give a gift to the prospective husband is covered by the
performed, on the theory that there is a wide field for the statute.
commission of frauds in executory contracts which can only 4. Sale of personalty. Price of the property must be at
be prevented by requiring them to be in writing, a fact which least P500 and covers both tangible and intangible property.
is reduced to a minimum in executed contracts because the The Statute will not apply where there has been part payment
intention of the parties becomes apparent by their execution, of the purchase price. If there is more than one item, which
and execution concludes, in most cases, the rights of the exceeds P500, the operation of the statute depends upon
parties. WON there is a single inseparable contract or several one. If
7. A note or memorandum is evidence of the inseparable, Statute applies. If the contract is separable, then
agreement, and is used to show the intention of the parties. each article is taken separately, and the application of the
No particular form of language or instrument is necessary to statute to it depends upon its price. Meaning of ―things in
constitute a memorandum or note as a writing under the action‖: incorporated or intangible personal property (Paras)
Statute of Frauds. 5. Lease or sale of realty. Evidence to prove an oral
General Rules of Application (mainly Paras): contract of sale of real estate must be disregarded if timely
 Applies only to executory contracts. But it is not objections are made to its introduction. But the statute does
enough for a party to allege partial performance in order to not forbid oral evidence to prove a consummated sale of real
render the Statute inapplicable; such partial performance property.
must be duly proved, by either documentary or oral evidence; 6. Representation as to Credit. Limited to those which
 Cannot apply if the action is neither for damages operate to induce the person to whom they are made to enter
because of the violation of an agreement nor for the specific into contractual relations with the 3rd person, but not those
performance of said agreeement; representations tending to induce action for the benefit of the
person making them. The statute does not cover
 Exclusive, i.e. it applies only to the agreements or representations deceitfully made.
contracts enumerated herein; INCAPACITATED PARTIES
 Defense of the Statute may be waived;  Ratification by one party converts the contract into a
 Personal defense, i.e. a contract infringing it cannot voidable contract- voidable at the option of the party who has
be assailed by third persons; not ratified.
 contracts infringing the Statute are not void; they Art. 1404. Unauthorized contracts are governed by
are merely unenforceable; Article 1317 and the principles of agency in Title X of
this Book.
 The Statute of Frauds is a rule of exclusion, i.e. oral
1. Art. 1317. No one may contract in the name
evidence might be relevant to the agreements enumerated
of another without being authorized by the latter, or unless he
therein and might therefore be admissible were it not for the
has by law a right to represent him.
fact that the law or the statute excludes oral evidence;
 The Statute does not determine the credibility or
 A contract entered into in the name of another by
one who has no authority or legal representation, or who has
weight of evidence. It merely concerns itself with the
acted beyond his powers, shall be unenforceable, unless it is
admissibility thereof;
page 53
REVIEWER
ratified, expressly or impliedly, by the person on whose behalf Yuvienco v. Dacuycuy, 1981
it has been executed, before it is revoked by the other See facts in previous discussion. Under this heading, the
contracting party. (1259a) question is WON the claim for specific performance of the
(8) Requisites for a Person to contract in the name of private respondents is enforceable under the Statute of
another: a) he must be duly authorized (expressly or Frauds.
impliedly) or b) he must have by law a right to represent him Held: No, since the agreement does not appear in any note or
(like the guardian, or the administrator) or c) the contract writing or memorandum signed by either of the petitioners or
must be subsequently ratified (expressly or impliedly, by any of the respondents. Thus, such oral contract involving the
word or by deed). (Paras). ―sale of real property‖ comes squarely under the Statute of
Art. 1405. Contracts infringing the Statute of Frauds, Frauds.
referred to in No. 2 of Article 1403, are ratified by the Doctrine:
failure to object to the presentation of oral evidence to In any sale of real property on installments, the Statute
prove the same, or by the acceptance of benefit under of Frauds read together with the perfection
them. requirements of Article 1475 of the Civil Code must be
 Two ways of ratification of contracts infringing the understood and applied in the sense that the idea of
Statute are: a) failure to object to the presentation of oral payment on installments must be in the requisite of a
evidence; b) acceptance of benefits under them, since the note or memorandum therein contemplated. Under the
Statute does not apply to contracts which are partially Statute of Frauds, the contents of the note or
executed. Cross examination of the witnesses testifying orally memorandum, whether in one writing or in separate
on the contract amounts to a waiver or to a failure to object. ones merely indicative for an adequate understanding
(Abrenica v. Gonda,as cited by Paras; Maam Rowie also made of all the essential elements of the entire agreement,
reference to this in one of her short kwentos). may be said to the contract itself, except as to the
Art. 1406. When a contract is enforceable under the form.
Statute of Frauds, and a public document is necessary Coronel v. Constantino, 2003
for its registration in the Registry of Deeds, the parties Honoria Aguinaldo owned real property. When she died, ½ of
may avail themselves of the right under Article 1357. the property was inherited by Emilia Meking vda. De Coronel
 Art. 1357. If the law requires a document or and sons-Benjamin, Catalino and Ceferino; the other half by
other special form, as in the acts and contracts enumerated in Florentino Constantino and Aurea Buensuceso. Emilia Meking
the following article, the contracting parties may compel each sold the property to Jess Santos and Priscilla Bernardo, who
other to observe that form, once the contract has been later sold it to Constantino. In 1991, Constantino filed a
perfected. This right may be exercised simultaneously with complaint for declaration of ownership, quieting of title and
the action upon the contract. (1279a) damages. CA ruled for Constantino.
 The right of one party to have the other execute the Issues/Held:
public document needed for convenience in registration, is 1) WON the contract of sale executed by Emilia, in her own
given only when the contract is both valid and enforceable. behalf is unenforceable with respect to the shares of her co-
(Paras) heirs-children
Art. 1407. In a contract where both parties are Yes. It has been shown that the contract was not signed by
incapable of giving consent, express or implied petitioner Benjamin and the shares of Catalino and Cferino in
ratification by the parent, or guardian, as the case may the subject property were not sold by them. Since it cannot
be, of one of the contracting parties shall give the be disputed that Benjamin did not sign the document, the
contract the same effect as if only one of them were contract is unenforceable against him.
incapacitated. 2) WON the minor children can ratify unauthorized actions of
If ratification is made by the parents or guardians, as their parents.
the case may be, of both contracting parties, the Yes. But in this case, no evidence was presented to show that
contract shall be validated from the inception. the 3 brothers were aware of the sale made by their mother.
f) Self-explanatory, hehe. Both Paras and Tolentino, Unaware of such sale, the 3 could not be considered to have
walang comments. However, we should take note of the remained silent and knowingly chose not to file an action for
retroactive effect of a ratified contract. annulment of the sale. Their alleged silence and inaction may
Art. 1408. Unenforceable contracts cannot be assailed not be interpreted as an act of ratification on their part. And
by third persons. there is also no evidence that the 3 brothers benefited from
the sale.
 The defense of the Statute is personal to the party to
Doctrine:
the agreement. Thus, it cannot be set up by strangers to the
Ratification means that one under disability voluntarily
agreement.
adopts and gives sanction to some unauthorized act or
 Just as strangers cannot attack the validity of defective proceeding, which without his sanction would
voidable contracts, so also can they not attack a contract not be binding on him. It is this voluntary choice,
because of its unenforceability. Indeed the Statute of Frauds knowingly made, which amounts to a ratification of
cannot be set up as a defense by strangers to the transaction. what was theretofore unauthorized, and becomes the
(Ayson v. CA, 97 Phil. 965). authorized act of the party so making the ratification.
CASES: Regal Films,Inc. v. Concepcion, 2001
page 54
REVIEWER
Gabby Concepcion, thru his manager Lolit Solis, entered into stipulation for liquidated damages is not being enforced
a contract with Regal for services to be rendered by against its principal but against the agent and its surety.
respondent in petitioner's movies. Petitioner undertook to Article 18974 implies that the agent who acts in excess of his
give 2 parcels of land of land to respondent, on top of talent authority is personally liable to the party with whom he
fee. In 1994, actor, and manager, filed an action against the contracted. Since Namerco exceeded the limits of its
movie outfit, alleging that he was entitled to rescind the authority, it virtually acted in its own name and it is
contract, owing to Regal's failure to honor the contract. therefore, bound by the contract of sale, which, however is
Petitioner alleged that there was an agreement, and an not enforceable against its principal.
addendum to the original contract. In September 1994, Solis Jovan Land v. CA, 1997
moved for the dismissal of the complaint averring that there Eugenio Quesada owns Q Building in Manila and wanted to
already was an amicable settlement. Concepcion opposed sell it. Thru co-petitioner Mendoza, Jovan Land Pres. Joseph
saying that he had no consent and the contract was grossly Sy learned of this development and sent offers to Quesada.
disadvantageous to him. By 1995, and after the confluence of The owner rejected the offers. In his third written offer, Sy
events (read: Manila Filmfest scam), Regal intimated that it enclosed a check worth P12M with a similar check for P1M as
was willing to release Concepcion from the contracts rather earnest money. Annotated on this 3rd letter-offer was the
than pursue the addendum. Concepcion then filed a motion phrase 'received original, '9-4-89' beside which appears the
indicating that he was willing to honor the addendum. The signature of Quesada. Petitioner then filed action for specific
Court held that Concepcion's attempt to ratify the addendum performance.
came too much late as Regal already revoked it. Issue: WON the 'contract of sale' as alleged by Sy was
Issue3: unenforceable
1) WON a contract entered into in the name of another is Held: No. The document was merely a memorandum of the
unenforceable if consent was not given by the party in whose receipt by the former of the latter's offer. The requisites of a
behalf it was executed valid contract of sale are lacking in said receipt and therefore
Yes. A contract entered into in the name of another by one the 'sale' is neither valid nor enforceable. No written
who ostensibly might have but who in reality, had no real agreement was reached. Under the Statute of Frauds, an
authority or legal representation, or who having such agreement for the sale of real property or of an interest
authority, acted beyond his powers, would be unenforceable. therein, to be enforceable, must be in writing and subscribed
2) Assuming that the addendum was unenforceable, WON it is by the party charged or by an agent therof.
susceptible to ratification by the person in whose behalf it was Cenido v. Apacionado, 1999
executed Bonifacio Aparato owns a parcel of unregistered land. He sold
Yes. But ratification should be made before its revocation by it to spouses Apacionado, who took care of him for 20 years
the other contracting party. prior to his death. In the contract (Pagpapatunay) purporting
National Power Corp v. National Merchandising Corp., to the sale, it can be gleaned that because the Apacionados
1982 took care of him, Bonifacio sold it for P10,000 and her signed
In 1956, National Power Corp (NPC) and National it with his full knowledge and consent, and there were 2
Merchandising Corp (Namerco), the latter as representative of witnesses to the signing of the contract. It was not notarized.
the International Commodities Corp of New York, entered into One Renato Cenido claimed ownership over the property and
a contract for the purchase by the NPC of from the New York alleged that he was Aparato's illegitimate son and he was
firm of 4 thousand long tons of crude sulfur. A performance recognized as such by Bonifacio's brother, Gavino, and the
bond was executed by Domestic Insurance Company (DIC) to two partitioned his estate among themselves. Cenido caused
guarantee Namerco's obligation. Under the contract, seller the issuance to his name of a Tax Declaration over the
would deliver the sulfur within 60 days from notice of subject property.
establishment in its favor of a letter of credit. Failure to do Issue:
would make the seller and surety liable for damages. The New 1) WON the document is valid
York firm advised Namerco that it might not secure the Yes. The private conveyance of the house and lot is therefore
availability of a vessel and DIC disclaimed responsibility for valid between Aparato and the spouses. It is a private
the terms of the contract. Namerco did not disclose such document but this fact does not detract from its validity.
instructions from its principal and proceeded with the Generally, contracts are obligatory, in whatever form such
perfection of the contract. When the sulfur was not delivered, contracts may have been entered into, provided all the
NPC sued DIC and Namerco. The court dismissed the action essential requisites for their validity are present. When
against DIC for lack of jurisdiction. however the law requires that a contract be in some form for
Issue: it to be valid or enforceable, that requirement must be
1) WON Namerco exceeded its authority and in effect, acted complied with. Under Article 1358 requires that certain acts
in its own name and contracts must be in a public document. Under Art. 1403,
Yes. The agent took chances, despite the principal's sales of real property must be in writing. Since the
instructions and thus, it acted on its own name. Pagpapatunay is in writing, it is enforceable under the
2) WON the stipulation for liquidated damages is Statute. But since it is not a public document, it does not
unenforceable since the contract was allegedly unenforceable comply with Art. 1358. However, the requirement of Art.
No. Article 1403 refers to unenforceability of the contract 1358 is not for the validity but for its efficacy.
against the principal. In this case, the contract containing the Villanueva v. CA, 1997
page 55
REVIEWER
The Villanuevas are the tenants of the Dela Cruzes. In 1986, Liguez; and (2) because the donation was tainted with illegal
the latter proposed the sale of the property and they agreed causa or consideration, of which the donor and donee were
at the price of P550,000. The Dela Cruzes asked for P10,000 participants.
which would form part of the sale price. Sometime thereafter, SC reversed CA decision.
the Dela Cruzes told the Villanuevas that they are selling the Doctrine: SC held that the CA erred in applying the pari
other half of the property to the Sabios, another tenant of the delicto rule in this case. Both parties to donation here not
Dela Cruzes. The Villanuevas agreed to such an arrangement having equal guilt; there had been no finding that Liguez had
and they, together with the Sabios, decided to pay only full knowledge of the terms of the bargain entered into by and
P265,000 each corresponding to the value of ½ of the between Lopez and her parents. Moreover, the rule that
property. In 1987, the Dela Cruzes sold the portion which the parties to illegal contracts will not be aided by the law should
Villanuevas were supposed to buy to the spouses Pile. The also be understood as barring the parties from pleading
Villanuevas then instituted this action. illegality of the bargain either as a cause of action or as a
Issue: 1) WON there was a perfected contract of sale between defense. Thus, the heirs of Lopez cannot set up this plea, as
the petitioners and the Dela Cruzes Lopez himself, even if he were living, had no right to such
Held: No. Sale is a consensual contract. In this case, what is pleading.
clear from the evidence is that there was no meeting of the The right of the husband to donate community property is
minds as to the price, expressly or impliedly, directly or strictly limited by law. However, donation made in
indirectly. No contract was presented in evidence. contravention of the law is not void in its entirety, but only in
2) WON the Statute of Frauds is applicable though it was a so far as it prejudices the interest of the wife, whether
contract of sale that was partly executed donation is gratuitous or onerous.
No. The Statute applies only to executory contracts, but there Rellosa vs Gaw Chee Hun
is no perfected contract in this case, therefore there is no Petitioner Dionisio Rellosa sold to Gaw Chee Han a parcel of
basis for the application of the Statute. The application of land together with the house erected thereon situated in
such statute presupposes the existence of a perfected Manila. The vendor remained in possession of property under
contract and requires only that a note or memorandum be a contract of lease. Alleging that the sale was executed
executed in order to compel judicial enforcement thereof. subject to the condition that the vendee (Chinese) would
What took place was only prolonged negotiation to buy and obtain the Japanese Military Administration‘s approval, and
sell. that even if said condition was met, the sale would still be
VOID OR INEXISTENT CONTRACTS void under article XIII of the Constitution, the vendor prayed
What contracts are void or inexistent? for annulment of the contracts of sale and lease. Defendant
The following contracts are void or inexistent from the answered the complaint putting up the defense of estoppel
beginning: and that the sale was binding not being contrary to public
 Those whose cause, object or purpose is contrary to policy, law and morals. TC declared the contracts valid and
law, morals, good customs, public order or public policy; binding and dismissed complaint. CA affirmed decision in toto.
 Those which are absolutely simulated or fictitious; The SC sustained that the sale in question was indeed
entered into in violation of the Constitution, what‘s left to be
 Those whose cause or object did not exist at the determined is, can petitioner have the sale declared null and
time of the transaction; void and recover the property considering the effect of the
 Those whose object is outside the commerce of men; law governing rescission in contracts? SC answered in the
 Those which contemplate an impossible service; negative. The sale in question is null and void, but plaintiff is
 Those where the intention of the parties relative to barred from taking the present action under the principle of
the principal object cannot be ascertained; pari delicto.
Doctrine: The contracting parties here were prevented from
 Those expressly prohibited or declared void by law.
seeking relief because they both have voluntarily entered into
(a-g, Art 1409, NCC).
the contract knowing that what they were doing violated the
 Those which are the direct results of previous illegal Constitution (they are presumed to know the law). Well
contracts (Art 1422, NCC). established is the doctrine that where the parties are in pari
Cases delicto, no affirmative relief of any kind will be given to one
Liguez vs Hon. Court of Appeals against the other. It is true that this doctrine is subject to one
Petitioner Conchita Liguez was the recipient of a donation of important limitation, namely, ―whenever public policy is
the parcel of land subject of this petition. Donation was considered as advanced by allowing either party to sue for
allegedly made by and in view of the desire of one Salvador relief against the transaction.‖ The cases in which this
Lopez, a married man of mature years, to have sexual limitation may apply only ―include the class of contracts which
relations with her, Liguez back then a minor, only 16 years of are intrinsically contrary to public policy—contracts in which
age. After the donation, Liguez and Lopez cohabited and lived the illegality itself consists in their opposition to public policy,
as husband and wife until Lopez was killed. It was found that and any other species of illegal contracts (example: usurious
the donation was part of the land belonging to the conjugal contracts, marriage-brokerage contracts). The present case
partnership of Lopez and his legal wife Maria Ngo. CA held does not fall under the exception because it is not intrinsically
that the donation was inoperative and null and void because contrary to public policy as its illegality consists in its being
(1) the husband had no right to donate conjugal property to against the Constitution.
page 56
REVIEWER
Phil Banking Corp vs Lui She force and effect from the beginning. These are of two types:
Justina Santos and her sister Lorenza were the owners of a (1) those where one of the essential requisites as provided for
piece of land in Manila. The sisters lived in one of the houses by Art 1318 is wanting;
while they leased the other house to a Chinese named Wong (2) those declared to be so under Art 1409.
Heng and his family. When Lorenza died with no other heir, By contrast, a voidable or annullable contract is one in which
Justina became the sole owner of the property. As she was the essential requirements for validity under Art 1318 are
then already about 90 years, Wong was her trusted man, present, but vitiated. Such contracts may be rendered
trusting him with receiving rentals for her other properties perfectly valid by ratification, which can be express or
and paying for her other expenses. In grateful implied.
acknowledgement, Justina entered into a number of contracts Art 1327 provides that insane or demented persons cannot
with Wong (a lease covering more than the current portion enter into contracts, But, if ever they do, the legal effect is
occupied by Wong, a contract of option to buy leased that the contract is voidable or annullable as provided for in
premises payable in ten years, another contract extending the Art 1390. Hence, the contract in above case is merely
lease term to 99 years, and another fixing the term of the voidable. Ratification in this case is implied and consisted in
option to 50 years). Eligio‘s children receiving payments on behalf of their father
This petition was filed alleging that the contracts were and their non-immediate filing of an action for reconveyance
obtained by Wong ―through fraud, misrepresentation, as in fact they only filed it after Francisco did not agree to
inequitable conduct, undue influence and abuse of them increasing the purchase price.
confidence…‖ and the Court was asked to cancel the Agan, Jr. vs Philippine International Air Terminals Co.,
registration of the contracts. Inc.
TC rendered decision declaring all of the contracts null and Petitioner seek to prohibit the Manila International Airport
void except for the first contract of lease. Both parties Authority (MIAA) and the Dept of Transportation and
appealed. Communications (DOTC) from implementing contracts and
SC modified TC‘s decision in that it also declared the first agreements executed by the Philippine Givernment through
contract of lease as null and void along with the rest. the DOTC and the MIAA and the Phil Intl Air Terminals Co.,
Doctrine: SC cancelled the contract of lease in this case not Inc (PIATCO).
on the basis of it allegedly being contrary to the expressed DOTC engaged the services of Aeroport de Paris (ADP) to
will of one of the contracting parties (Santos‘), rather it was conduct a comprehensive study of the Ninoy Aquino Intl
voided because of its illegal causa. Based on the testimonies Airport (NAIA) and determine whether the present airport can
gathered, the contracts were entered into in an effort to cope with the traffic development up to 2010. A group of
circumvent the Constitutional prohibition against the transfer business leaders formed Asia‘s Emerging Dragor Corp (AEDC)
of lands to aliens. It became clear that the arrangement was to explore the possibility of investing in the construction and
a virtual transfer of ownership whereby the owner divests operation of a new airport terminal. AEDC submitted an
himself in stages not only of the right to enjoy the land, but unsolicited proposal to the Government through DOTC/MIAA
also of the right to dispose of it—rights the sum total of which for the development of NAIA International Passenger Terminal
is ownership. Thus, this illicit purpose became the illegal III (NAIA IPT III). A committee called the Prequalification Bids
causa rendering the contracts void. and Awards Committee (PBAC) was constituted by the DOTC
Francisco vs. Herrera for the implementation of the NAIA IPT III project. A
Eligio Herrera Sr., father of respondent is the owner of two consortium headed by People‘s Air Cargo and Warehousing
parcels of land. Petitioner Julian Francisco brought from said Co., Inc. (Paircargo), among others, submitted their proposal
land owner the first parcel, and later on, also the second. to PBAC. PBAC found Paircargo as the most qualified to
Contending that the contract price was inadequate, the undertake the project. Sometime after this determination,
children of Herrera tried to negotiate to increase the purchase Paircargo incorporated with PIATCO. AEDC, along with a slew
price. When Francisco refused, the Herreras filed a complaint of other petitioners, filed with the RTC Pasig a petition to
for annulment of sale alleging that the sale was null and void declare the 1997 Concession Agreement between the
on the ground that at the time of sale, Eligio Sr was Government and PIATCO null and void for being contrary to
incapacitated to give consent to the contract because he was the Constitution, the BOT (Build-Operate-Transfer) Law and
afflicted with senile dementia, characterized by deteriorating its Implementing Rules and Regulations.
mental and physical condition. SC declared the assailed agreement as void for being contrary
TC, later on affirmed by CA, declared the contract to be null to public policy. A close comparison of the draft Concession
and void, ordered Francisco to return the lots in question and Agreement attached to the Bid Documents and the 1997
the Herreras to return to the former the purchase price paid. Concession Agreement reveals that the documents differ in at
Francisco appealed, contesting that the CA erred in least two very important respects. While the Court concedes
completely ignoring the basic difference between a void and that a winning bidder is not precluded from modifying certain
merely voidable contract. Issue before the SC thereby is: provisions of the contract bidded upon, such changes must
whether the assailed contracts of sale are void or merely not constitute substantial or material amendments that would
voidable and hence capable of being ratified. alter the basic parameters of the contract and would
SC reversed the CA decision, the assailed contracts are only constitute a denial to the other bidders of the opportunity to
voidable and were in fact ratified, therefore valid and binding. bid on the same terms
Doctrine: A void or inexistent contract is one which has no Doctrine: It is inherent in public biddings that there shall be
page 57
REVIEWER
fair competition among the bidders. Any contract that  A trust may exist because of a legal provision or
circumvents this concept shall be declared null as being because of an agreement; a stipulation pour autrui can arise
contrary to public policy. only in the case of contracts.
III. NATURAL OBLIGATIONS  A trust refers to specific property; a stipulation pour
1. Definition autrui refers to a specific property or to other things.
Natural obligations are those based on equity and natural law, Co-Ownership as Trust
which are not enforceable by means of court action, but  A Co-Ownership is a form of trust, with each co-
which, after voluntary fulfillment by the obligor, authorize the
owner being a trustee for each of the others.
retention by the oblige of what has been delivered or
CHAPTER 1
rendered by reason thereof. In other words, they refer to
GENERAL PROVISIONS
those obligations without sanction, susceptible of voluntary
Parties to a Trust
performance, but not through compulsion by legal means.
7. trustor or settler –he establishes the trust (may at
2. vs Civil Obligations
the same time be the beneficiary)
Natural Obligations Civil Obligations
8. trustee –hold the property in trust for the benefit of
Basis Equity and natural law Positive law another
Enforceability Not enforceable by court Enforceable9. by court
beneficiary or cestui que trust –the person for whose
action action benefit the trust has been created.
3. vs Moral Obligations Elements of a Trust:
Natural Obligations 1.
Moral Obligations parties to the trust
Existence of juridical tie There exists a juridical tie No 2.
juridical the
tie trust property or the trust estate or the subject
between the parties not whatsoever. matter of the trust.
enforceable by court Note: cf this with the ratio of the Mindanao Development
action. Authority v. CA & Ang Bansing case below
Effect of fulfillment Voluntary 
fulfillment Voluntary fulfillment does Express Trusts—created by the parties, or by
produces legal effects not produce legal intention of the trustor
effects
which the 
courts which the courts Implied Trusts—created by operation of the law; two
recognize
recognize and protect. and protect. kinds
4. Example  Resulting trust (also bare or passive
One example would be the one that is regulated in Art 1424 trusts)—there is intent to create a trust but it is not effective
of the NCC. According to this article, when a right to sue upon as an express trust (cf Art. 1451).
an obligation has lapsed by extinctive prescription, the obligor  Constructive Trust—no intention to create a
who voluntarily performs the contract cannot recover what he trust is present, but a trust is nevertheless created by law to
has delivered or the value of the service he has rendered. prevent unjust enrichment or oppression (cf 1456)
IV. TRUSTS  The law of trusts has been much more frequently
What is a trust? applied in England and in the US than in Spain, so we may
1. Trust is a legal relationship between one person draw freely from American precedents in determining the
having an equitable ownership in property and another person effects of trusts.
owning the legal title to such property, the equitable CHAPTER 2
ownership of the former entitling him to the performance of EXPRESS TRUSTS
certain duties and the exercise of certain powers by the latter Formalities Re Express Trusts:
(Tolentino)
1. It is the right to beneficial enjoyment of property,  Express trusts are to be written for enforceability and
the legal title of which is vested in another. It is a fiduciary not for validity as to between the parties; hence, by analogy,
relationship concerning property which obliges the person can be included under the Statute of Frauds.
holding it to deal with the property for the benefit of another  By implication, since the article applies to immovable
(Paras). property only, trust over personal property on oral agreement
Characteristics of a Trust (Paras) is valid and enforceable between the parties.
1. It is a fiduciary relationship.  3rd Persons—trust must be made in a public
2. Created by law or agreement. instrument and REGISTERED in the Registry of Property, if it
3. Where the legal title is held by one, the equitable concerns Real Property.
title or beneficial title is held by another. How an Express Trust is Created:
Trust distinguished from Guardianship or Executorship: 1. By conveyance to the trustee by an act inter vivos or
 In a trust, the trustee or holder has LEGAL title to mortis causa (as in a will).
the property. 2. By admission of the trustee that he holds the
 A guardian, administrator or executor does not have. property, only as a trustee.
Trust distinguished from a Stipulation Pour Autrui 3. Clear Intent—there must be a clear intention to
create a trust.
page 58
REVIEWER
4. Capacity—The trustor must be capacitated to convey is a trustee and the beneficiary is A. When A has the money,
property (hence, a minor cannot create an express or he may redeem the property from C and compel a
conventional trust of any kind). conveyance to A.
5. Administration of the trust. The trustee must: NOTE: This is not the same as mortgage. Mortgage is
a. File a bond when A borrows money from C and A later buys land in
b. Make an inventory of the real and personal his own name. A then executes a mortgage on the land
property in trust in favor of C. This is not an implied trust.
c. Manage and dispose of the estate and Trust Receipts
faithfully discharge his trust in relation thereto, according to  Partakes of a nature of a conditional sale…the
the law or terms of the trust as long as they are legal and importer being the absolute owner of the imported
possible. merchandise as soon as he has paid its price; until the owner
d. Render a true and clear account. or the person who advanced payment has been paid in full, or
e. Not acquire property held in trust by if the merchandise has already been sold, the proceeds
prescription as long as the trust is admitted. turned over to him, the ownership continues to be vested in
Effect if Trustee Declines such person.‖
 The trust ordinarily continues even if the trustee  This is a resulting trust for a trust is intended.
declines. Why? The Court will appoint a new trustee unless
otherwise provided for in the trust instrument (Sec. 3, Rule  Example:
98, Rules of Court). A new trustee has to be appointed;  A inherited a piece of land from his
otherwise the trust will not exist. father, but A caused the legal title to be put in the name of X,
 Beneficiary necessarily has to accept either a brother. Here a trust is impliedly established, with X as
expressly, impliedly or presumably. Acceptance is presumed if trustee and A as beneficiary.
the granting of benefit is purely gratuitous (no onerous  This is a resulting trust in view of the intent to create
condition). a trust.
How Express Trusts are ended:  Example:
1. Mutual agreement by all parties.  A group of Chinese wanted to buy
2. Expiration of the Term a lot with a house on it to be used a clubhouse. The name of
3. Fulfillment of the resolutory condition the property was registered under only one of them. The
4. Rescission or annulment registered owner leased the property, collected rents and
5. Loss of subject matter of the trust when asked for accounting, refused to on account that he was
6. Order of the court the owner. Nope, he is a mere trustee and is therefore
7. Merger obliged render proper accounting. The beneficiaries are all
8. Accomplishment of the purpose of the trust. members of the club.
CHAPTER 3  This is a resulting trust in view of the owner‘s
IMPLIED TRUSTS intention to create a trust.
 Trusts are recognized only if they are not in conflict  Example:
with the Civil Code, Code of Commerce, Rules of Court and ■ A bought from B a parcel of land
Special Laws. and it was conveyed to A on A‘s statement or declaration that
 This is a resulting trust because a trust is intended. he would hold it in behalf of C. Here, A is merely a trustee
 Example: and C is the beneficiary.
5. This is a constructive trust the purpose of the law to
 A buys a piece of land from B. A
prevent unjust enrichment to the prejudice of the true owner.
pays the price so that he (A) may have the beneficial interest
1. Example:
in the land BUT the legal title is given to C. C is the trustee
1. A owe‘s B. To guarantee his debt,
and A is the beneficiary.
A sold her parcel of land to B. Here, a trust is created. If A
 This is again a resulting trust where the donee pays his debt when it becomes due, A may demand the resale
becomes the trustee of the real beneficiary. of property to her.
 Example:  This is a constructive trust and this article applies to
 A donated land to B. But it was any trustee, guardian or persons holding a fiduciary
agreed that B is supposed to have only 1/3 of the products of relationship (eg, an agent).
said land. There is a trust here and B is the trustee.  Example:
 This is a constructive trust, the reason of the law  An agent using his principal‘s
being to prevent unjust enrichment. money purchases land in his own name. He also registers it
 Example: under his name. Here, he will only be considered a trustee
 A wants to buy land from B but A and the principal is the beneficiary. The principal can bring an
has no money. So A asks C to pay for the land. The land is action for conveyance of the property to himself, so long as
then given in C‘s name. This is supposed to be C‘s security the rights of innocent third persons are not adversely
until the debt of A is paid. Here, an implied trust is created. C affected.
page 59
REVIEWER
 This is a constructive trust. years) to procure any documentary evidence to establish their
1. Example: supposed interest or participation in the two
 A was given a car by B although it fishponds. Prescription and laches applies.
should have been given to C. A is considered merely a trustee  There was no resulting trusts because there was
of the car for the benefit of C. never any intention on the part of Juan Salao, Ambrosia and
NOTE: The mistake referred to in this article is one Valentin to create a trust—the registration of the fishpond
made my a third person, not one who is a party to the were registered in the names of Juan and Ambrosia and was
contract. If made by any of the parties, then no trusts not vitiated by fraud or mistake.
is created.  Even if there was an implied trust, laches and
DO TRUSTS PRESCRIBE?
prescription has barred their action—they slept on their rights
5. Express trusts DO NOT. Implied Trusts—resulting
(vigilanti prospiciunt jura or the law protects him who is
trusts do not prescribe but constructive trusts do prescribe
watchful of his rights). There was not mention of a period for
(see Salao v. Salao in the cases below)
laches or prescription to apply.
 This article applies whether it is real or personal
 Plaintiffs failed to measure up to the yardstick that a
property. Even if it is oral evidence, said evidence must be trust must be proven by clear, satisfactory and convincing
trustworthy oral evidence, for oral evidence may be easily evidence. It cannot rest on vague and uncertain evidence or
fabricated. on loose, equivocal or indefinite declarations.
CASES Doctrine:
Salao v. Salao
Facts:  Prescription applies to constructive trusts. Parol
evidence cannot be accepted in an express trust but can be
 Spouses Manuel Salao and Valentina Ignacio has 4
accepted in an implied trust if it is trustworthy.
children—Patricio (who died survived by son Valentin), Fabian v. Fabian
Alejandra, Juan and Ambrosia. Spouses died leaving partition Facts:
of different fishponds to the three surviving children and
nephew Valentin.  Pablo Fabian bought Lot 164 from the Phil. Gov‘t. He
died leaving four children who are the plaintiffs in this
 Main contention in this case is the Calunuran
case. Silbina Fabian and Teodora Fabian, niece of Pablo
fishpond which the plaintiffs assert were co-owned by Juan, Fabian, executed an affidavit saying that they are legal heirs
Ambrosia and Valentin and that Juan and Ambrosia were just and as such a sale certificate was issued to them. In 1929,
holding in trust the part of Valentin. Plaintiffs here are the they took physical possession of the land, enjoyed its fruits
heirs of Valentin against the heirs of Juan and and from 1929 to present (1960), has been paying real estate
Ambrosia. Plaintiffs say that they are enforcing a trust that taxes thereon.
Juan Salao violated.
Issue:  Plaintiffs filed this action for reconveyance averring
that the certificate of sale was gained through
 WON there was a trust between Juan and Ambrosia
fraud. Defendants aver that Pablo did not really own the land
Salao with Valentin Salao? in question at the time of his death and the present action for
Held: reconveyance has already prescribed.
5. No, there was no trust—either express or implied Issue:
(resulting and constructive trust)
 WON defendants have acquired the property by
Ratio:
acquisitive prescription?
 A trust is defined as the right, enforceable solely on Held: Yes
equity, to the beneficial enjoyment of property, the legal title Ratio:
to which is vested in another, but the word ―trust‖ is 5. The Friar Lands Act governs the sale of land to Pablo
frequently employed to indicate duties, relations and Fabian wherein title of the land sold is reserved to the Gov‘t
responsibilities which are not strictly technical trusts. until the purchaser makes full payment of all required
 Not a scintilla of documentary evidence was installments and the interest thereon. The equitable and
presented by the plaintiffs to prove that there was an express beneficial title really went to the purchaser the moment he
trust over the Calunuran fishpond in favor of Valentin paid the first installment and was given a certificate of
Salao. Purely parol evidence was offered by them to prove the sale. Pending the completion of the purchase price, the
alleged trust. Their claim that in the oral partition in 1919 of purchaser is entitled to all the benefits and advantages which
the two fishponds was assigned to Valentin Salao is legally may accrue to the land as well as suffer the loss. He was
untenable—Article 1443—parol evidence cannot be used to therefore the owner of the land and as such the legal rights to
prove an express trust. the land passed onto his four daughters. Therefore, Silbina
 How about an implied trust? It was not proven by and Teodora were just trustees of the land in question upon
any competent evidence. It is quite improbable because the the principle that if property is acquired through fraud, the
alleged estate of Manuel Salao was likewise not satisfactorily person obtaining it is considered a trustee of an implied trust
proven. The Court found it incredible that 47 hectares of for the benefit of the person from whom the property comes.
Calunuran fishpond would be adjudicated merely by word of 6. However, laches may bar an action to enforce a
mouth. The plaintiffs also never bothered (for nearly 40 constructive trust such as the one in the case at
page 60
REVIEWER
bar. Defendants herein have been in possession of the land in express trust is imprescriptible. Under Sec. 40 of the Old
question since 1928 up to present publicly and continuously CivPro, action for recovery of property prescribes in 10 years.
under claim of ownership; they have cultivated it, harvested  From what time should the prescriptive period
and appropriated the fruits for themselves. The statute of start? The cadastral proceeding where Reyes and his brothers
limitations is within four years from the discovery of the obtained title thereto cannot be taken as constructive notice
fraud—this may start when they first registered the land (not since it is an action in rem. Case remanded to trail court for
mentioned in the case when). further proceedings to establish when the prescriptive period
7. The court also used sec. 41 of Act 190 saying that 10 started.
years of actual adverse possession by any person claiming to Doctrine/s:
be the owner for that time of any land or interest in land, 5. Constructive implied trusts prescribe 10 years from
uninterruptedly continued for ten years by occupancy, the time defendants are given constructive notice. Express
descents, grants, or otherwise, in whatever way such trusts do not prescribe. Constructive notice can be the actual
occupancy may have commenced or continued shall vest in registration of the land since this is a notice to the whole
every actual occupant or possessor of such land in full and world.
complete title. Tamayo v. Callejo
8. Plaintiffs‘ action has prescribed and defendants have Facts
acquired the land by acquisitive prescription. 2. Mariano and Marcos Tamayo appealed from the
Doctrine/s: decision of the CA granting the petition of Aurelio Callejo that
4. Prescription bars an action for constructive trusts— a certain piece of land belonged to Callejo.
within 4 years, and actual possession and occupancy of land 3. Spouses Vicente and Cirila Tamayo owned a piece of
entitles one to acquire such land. land in Pangasinan. Vicente died leaving to his sons the
5. Property gained through fraud is considered held in property (wife waived her portion). Before he died, he sold
trust (Art. 1456) part of the land to Domantay who in turn subsequently sold it
Bueno v. Reyes to Aurelio Callejo. When Mariano sold a part of his land to
Facts someone and a surveyor went to check it out, the surveyor
 Francisco H. Reyes claimed property in Laoag as was denied access by Callejo, saying that that part of the land
belonging to him and his two brothers—Juan and Mateo is his. Thus, this petition.
(defendants herein). Plaintiffs are the heirs of Jorge Bueno 4. Mariano Tamayo‘s defense is that the land in dispute
whom they say was the original owner. One of his children is is outside the perimeter of the certificate of title and he also
Eugenia who was supposedly the wife of Francisco Reyes. alleged prescription. Tamayo argues that if the land bought
 Francisco Reyes was entrusted to file an answer in a by Domantay was erroneously included in his certificate of
cadastral proceeding in acquiring that certain property in title, then it created an implied trust between him and
Laoag. He was entrusted with obtaining a title thereto for and Domantay but the action for reconveyance has already
in behalf of all the heirs of Jorge Bueno, including the wife prescribed in 10 years (1915—when title was issued to
Eugenia Bueno. him; this case was instituted 1952).
 Plaintiffs say that either in bad faith or by mistake, Issue:
Francisco Reyes filed an answer and obtained title to the 9. WON the action for reconveyance has prescribed.
property in his name and the defendant‘s. Plaintiffs allege Held: No
that they only have discovered these things this year. Ratio:
 CFI and defendants proceeded on the theory that the  While it may have been a constructive, implied trust,
action for reconveyance was predicated on an implied trust its substance was substantially affected when Mariano
and as such, the action prescribes in 10 years (1936— Tamayo and Domantay executed a public instrument whereby
Francisco Reyes acquired title on the land; 1962—time of the Mariano explicitly acknowledged that his parents had sold to
petition of reconveyance, total of 23 years). Domantay the parcel of land and stipulating that Domantay is
Issues: the absolute owner. This action made it an express trust
 WON the trust was express or implied. WON the which is subsisting, not subject to the statute of limitations
action for reconveyance has prescribed. until repudiated, in which event the period of prescription
Held: begins to run only from the time of the repudiation. This took
2. The trust was implied and remanded to lower court place in June 1952 when Mariano rejected Callejo‘s
for further proceedings to determine whether there has been demand. Prescription does not attach since the action for
constructive notice. reconveyance was instituted a few days after the express
Ratio trust was repudiated.
 The trust given to Francisco Reyes was supposed to Doctrine:
be an express trust but it never materialized. This was an  Express trusts do not prescribe unless repudiated in
implied trust arising by operation of the law. This was which event the period of prescription starts from the
specifically a constructive trust since the allegation avers that repudiation.
the property was taken by mistake or fraud (Art. Mindanao Dev’t Authority v. CA & Ang Bansing
1456). Hence, prescription can supervene. Remember that an Facts
page 61
REVIEWER
j. Francisco Ang Bansing owned a 300,000 sq.m. piece Tala, Tala filed complaints for ejectment and/or unlawful
of land in Davao wherein he sold part of it to Juan Cruz who detainer.
subsequently sold it also to the Commonwealth of the 4. The Bank‘s defense story was that it undertook an
Philippines. In the contract between Juan Cruz and Ang expansion program where they will buy a head office but if
Bansing, it is stipulated that Juan Cruz will agree to work for they do so, they would exceed the limit of real estate
the titling of the entire area of land under his own expenses investment set by the General Bankings Act. To avoid the
and the expenses for the titling of the portion sold to him. limit set by law, they reduced their branch site holdings by
k. The President of the Philippines issued Proclamation leasing instead of owning branch sites. Thus they entered into
no. 459 transferring the ownership of certain parcels of lands a ―warehousing agreement‖ with Tala wherein it is stipulated
in Davao to the Mindanao Dev‘t Authority (MDA) subject to that the properties will be reconveyed to the Bank at the
private rights, if any. MDA filed a complaint against Ang Bank‘s demand or pleasure. This was not written in the
Bansing for reconveyance alleging that the stipulation in the contract but the Bank was confident that Tala will honor this
contract between Juan Cruz and Ang Bansing made Ang agreement.
Bansing a trustee thereby obligating Ang Bansing to deliver Issue:
the portion of land sold to Juan Cruz.  WON the conveyance of property was a trust under
l. Ang Bansing alleges that any ownership right over the ―warehousing agreement.‖
the property has prescribes since it has already been 30 Held: No
years. Ratio:
m. CFI found that there was an express trust. CA says  It is clear that the Bank transferred ownership to
there was no express trust.
Tala when the former sold it to the latter. The Bank counters
Issue:
that it was not really a sale because what Tala paid was
 WON there was an express trust created between
actually the advance rentals that the Bank gave to Tala and
Juan Cruz and Ang Bansing.
therefore the contract should be understood as a
Held: Nada
―warehousing agreement‖ whereby Tala holds the property
Ratio:
for the bank (just like a trust). Not meritorious.
 Trusts are either express or implied. A trusts
 While there may have been a contract of sale and
necessarily includes the following: (1) competent trustor and
lease back of the property which created an implied trust
trustee, (2) an ascertainable trust res, and (3) sufficiently
―warehousing agreement‖ for the reconveyance of the
certain beneficiaries.
property, under the law, this implied trust is inexistent and
 The stipulation alluded to is nothing but a condition void for being contrary to law (the ―warehousing agreement‖
that Ang Bansig shall pay the expenses for the registration of was meant to curtail the limitations set by the General
his land and for Juan Cruz to shoulder the expenses for the Bankings Act which prohibits a Bank from owning more than
registration of the land sold to him. The stipulation does not the limit of real estate investment).
categorically create an obligation on the part of Ang Bansing  An implied trust could not have been formed
to hold the property in trust for Juan Cruz.
between the Bank and Tala ―where the purchase is made in
 There is no express trust as there was no violation of an existing statute and in evasion of its express
unequivocal disposition of property making himself a trustee provision, no trust can result in favor of the party who is
for the benefit of another. The intent to create a trust must guilty of the fraud.
be definitive and particular. Using Ramos v. CA, the Court held that ―if the purpose of the
 Even if we consider it as an implied trust, it has payor of the consideration having title placed in the name of
already prescribed because more than 28 years has passed. the another was to evade some rule of common or statute
Acton for reconveyance has prescribed. law, the Courts will not assist the payor in achieving his
Doctrine: improper purpose by enforcing a resultant
 Trusts are created unequivocally and with the clear
intent to create a trust.
Tala Realty v. Banco Filipino Savings and Mortgage
Bank
Facts
2. Tala Realty Services is the absolute owner of several
parcels of land by virtue of a Deed of Sale executed between
Tala and respondent Bank. At issue here is one of those
parcels of land-the Bulacan property. On the same day that
Tala acquired the property, Tala and the Bank executed a
lease contract renewable in 20 years and subsequently
changed to 11 years, renewable for 9 years. After 11 years,
Tala reminded the Bank that the contract will expire soon and
negotiated for a renewable of the lease agreement.
3. There was no final agreement and in the end when
the Bank was not able to comply with the requirements of
page 62

OBLICON Reviewer

Uploaded by

Copyright:

Available Formats

OBLICON Reviewer

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

OBLICON Reviewer

Uploaded by

Copyright:

Available Formats

OBLIGATIONS AND CONTRACTS

TITLE I – OBLIGATIONS (c) NEGATIVE OBLIGATION – the obligation not

1163. Every person obliged to give something is also

accessories, even though they may not have been

fulfillment of an obligation; NATURE OF Direct, Incidental to the

1181. In conditional obligations, the acquisition of 2 KINDS OF IMPOSSIBLE CONDITIONS:

1. Specific performance or fulfillment of Term – length of time sure to come

2. creditor may choose the price or value of considered as joint obligation.

Section 4 – Joint and Solidary Obligations a. Solidary Debtors, Joint Creditors

PENALTY CLAUSE 1228. Proof of actual damages suffered by the creditor

For example: b.) integrity – prestation must be fulfilled completely

TENDER OF PAYMENT AND CONSIGNATION of the obligation

the expenses placed at the disposal of the judicial authority

1264. The courts shall determine whether, under the parties

Common humanity and public policy forbid this impliedly.

TITLE II. 3. Accidental elements – those which are agreed by the

CHAPTER 1 * Stages of a Contract:

 A third person may be called upon to decide whether * Annulment of contracts:

obliged to accept it.

not authorized it is not valid or binding on him unless he

Art. 1343. Misrepresentation made in good faith is not

Art. 1344. In order that fraud may make a contract

Art. 1345. Simulation of a contract may be absolute or

Art. 1346. An absolutely simulated or fictitious contract

SECTION 2. - Object of Contracts  The absolute or objective impossibility nullifies the

8. Castro received a Notice of Sheriff‘s Sale in UNENFORCEABLE CONTRACTS2

You might also like