Obligations and Contracts Notes

OBLIGATIONS AND CONTRACTS 1. Unilateral- only one of the parties is bound to perform an obligation. (i.e.
delivery of a horse by
a party without asking anything in return or pwede ring unrequited love)
TITLE I 2. Bilateral- both parties are bound to perform a part in the obligation. Usually called Reciprocal
Obligations Obligation. Take note that in this kind of obligation, it must arise from same cause wherein each
CHAPTER 1 party is a creditor and a debtor of the other. Performance of one is dependent on the simultaneous
General Provisions performance of the other. (Seller deliver an object, the buyer pays for it or eto rin yung dream mong
meron kayo ni crush. Nilandi mo tapos minahal ka.)
ARTICLE 1156. An obligation is a juridical necessity to give, to do or not to do. (n)
d. As to the capability of fulfillment
Obligation- a juridical tie between two persons, by virtue of which one of them, the creditor, has 1. Possible - capable of accomplishment
the right to demand of the other, the debtor, a definite protestation. 2. Impossible - is not capable of accomplishment or fulfillment in nature or in law.
Juridical Necessity- in case of noncompliance, there will be legal sanction e. As to susceptibility of partial fulfillment
1. Divisible- susceptible to partial performance
Obligations under this provision does not include natural obligation. It only refers to civil 2. Indivisible – not susceptible to partial obligation
obligations which are enforceable in court when breached.
f. As to their dependence upon one another
Elements of Obligation 1. Principal- main obligation by the parties
2. Accessory- secondary obligation created to guarantee the performance of the principal.
1. Active Subject- one who demands the obligation (creditor or obligee)
g. As to the existence of a burden or condition
2. Passive subject- one who is bound to perform the obligation (debtor or obligor) 1. Pure- not burdened with any condition or term. It is immediately demandable.
2. Conditional- demandability is subject to a condition. see Art 1181.
3. Prestation or object- the subject matter of the obligation. This is not actually a thing but the 3. With a term- subject to the happening of an event which date is indeterminate, but it’s
particular conduct of the debtor. It can be giving, doing or not doing something. happening is certain. See Art 1193.
4. Efficient cause- juridical tie or vinculum between the parties. This is essential before obligation h. As to the nature of performance
and rights may arise. 1. Positive- debtor is obliged to do or give
2. Negative- debtor is oblgied NOT to do or give
Obligation and Rights
When there’s a right, there’s an obligation. Obligation- passive aspect; Rights- active aspect i. As to the nature of creation of the obligation
1. Legal- imposed by law
1. Obligation to give- delivery of a movable or immovable thing 2. Conventional- established by the parties
2. Obligation to do- covers all kinds of works or services whether physical or mental. j. As to the character of responsibility of liability
1. Joint- each debtor is liable only for a part of the whole liability .
3. Obligation not to do- refraining from doing some acts. An obligation not to deliver is included. 2. Solidary-debtor is answerable for the whole of the obligation subject to reimbursement.
Kinds of Obligation k. As to the grant of right to choose one prestation out of several, or to substitute the first one
a. As to judicial enforceability 1. Alternative- obligor may choose to completely perform one of the several protestations.
1. Civil Obligation- obligations if not fulfill when they become due and demandable may be 2. Facultative-only one prestation was agreed upon but debtor can substitute it.
enforced in courts.
2. Natural Obligation- can’t be enforced in court. This is the voluntary payment of the debtor l. As to the imposition of penalty
even if the debt has prescribed. 1. Simple- no penalty is imposed for violation of the terms
3. Moral Obligation- comes not from positive law but from moral law developed by the church. 2. With penalty- penalty is imposed for violation of the terms
Not enforceable in courts (i.e. fasting every Good Friday).
ARTICLE 1157. Obligations arise from:
b. As to the subject matter (1) Law;
1. Real Obligation- obligation to give (2) Contracts;
2. Personal Obligation- obligation to do or not to do (3) Quasi-contracts;
(4) Acts or omissions punished by law; and
c. As to the number of persons bound to perform (5) Quasi-delicts. (1089a)
YVES PETER CARLO D. MEDINA | D2021

Interpretation of Contract. Since contract has the force of law, its interpretation is a question of
-These sources of obligations are exclusive. law cognizable by courts.
1) Law- spousal support, payment of taxes ARTICLE 1160. Obligations derived from quasi-contracts shall be subject to the
2) Contracts- duty of contracting parties stipulated in the contract provisions of Chapter 1, Title XVII, of this Book. (n)
3) Quasi-Contracts- duty of the receipient to return what was delivered to him by mistake
(solution indebiti) Quisi-Contract- arises from lawful, voluntary and unilateral act or acts executed by somebody
4) Acts or omissions punished by law (from crime)- duty of the culprit to pay for damages enriching him or the other by mistake. In essence, this is the doctrine of unjust enrichment. The
5) Quasi-delicts or tort- duty of the tortfeasor to pay damages for injuries or damages due to his missing consent of the other party is filled by law.
fault omission or negligence
Presumptive Consent. In quasi-contract, there is a unilateral contract as such there is no express
consent given by the other.
ARTICLE 1158. Obligations derived from law are not presumed. Only those
expressly determined in this Code or in special laws are demandable, and shall be
regulated by the precepts of the law which establishes them; and as to what has not Characteristics
been foreseen, by the provisions of this Book. (1090) 1. Act or acts must be lawful (v. delict)
2. Act or acts executed must be voluntary (v. quasi-delict)
-Ignorance of the law excuses no one from compliance; hence, there is a need for publication. 3. Act or acts must be unilateral (v. ordinary contract)
-unless expressly stated, obligation arising from laws are not presumed and are not demandable.
-to determine whether it arising from law, the test if it creates obligation, if not then they merely Principal Kinds of Quasi- Contract
regulate obligations arising from the other sources. 1. Negotiorum Gestio- a kind of juridical relation where one assumes the administration of the
Examples: business of another without any power from the latter. The latter shall reimburse the former.
1. Central Bank is not under obligation to pay the deposit of the depositor made in an insolvent 2. Solutio Indebiti- a kind of juridical relation where one receives something by mistake. The
bank because there’s no law authorizing it. (Serrano v. Central Bank) recipient must return it.
2. The obligation of f the winner in an illegal game of chance to refund the amount with legal
interest to the one who lost money is mandated by law. (Leung Ben v. O’Brien) Other cases are provided in the Civil Code.
ARTICLE 1159. Obligations arising from contracts have the force of law between the ARTICLE 1161. Civil obligations arising from criminal offenses shall be governed by
contracting parties and should be complied with in good faith. (1091a) the penal laws, subject to the provisions of article 2177, and of the pertinent
provisions of Chapter 2, Preliminary Title, on Human Relations, and of Title XVIII of
Contract- meeting of the minds between two persons whereby one binds himself, with respect to this Book, regulating damages. (1092a)
the other, to give something or to render some service.
“Every person criminally liable is also civilly liable.”
Contracting parties can stipulate anything on the contract so long as it is not contrary to law,
morals, good customs, public order or public policy. It also has the force of law between the parties. Exception: crimes such as treason, rebellion, illegal possession of firearm, gambling, etc.
Obligations in a contract are determined by stipulations, clauses, terms and conditions of their Criminal responsibility carries with it the civil liability except 1) when the offended party has filed
agreements. So long as they are not contrary to those mentioned earlier then they are enforceable the civil action ahead of the criminal case; or 2) when an independent civil action is allowed by law
and must be complied with in good faith. Exception: Contracts are valid since they are not contrary and the offended party made a reservation to pursue it separately; or 3) when the offended party
to those listed, yet may not be enforced totally if their prestations are unconscionable or waived the civil liability.
unreasonable.
Other civil liability arising from crimes are provided for by the RPC. Damages are also provided
Contracts are ratified by mere consent. From the giving of the consent, parties are bound to perform for by the Civil Code.
the obligation including all the consequences which, according to their nature, may be in keeping
with good faith, usage and law. Effect of Acquittal. Pursuant to the new Civil Code, the rule now is the acquittal of the accused
does not automatically extinguish civil liability. In situations where independent civil actions are
Example: Students stand when they recite. It is not expressly stipulated in the contract (Student allowed, the acquittal of the accuse does not bar the subsequent civil action for the quantum of
handbook). But it is a necessary consequence of the obligation of respecting the professor. proof is only preponderance of evidence. Exception: When the acquittal is based on the reason that
the accused did nt commit the crime charged, or in the decision, there’s a declaration that the
Falsification and effect. If a certain stipulation was inserted in a contract without the knowledge of accused was not negligence and that the fact from which the civil action might arise did not exist.
one party, that particular stipulation can be voided but not the entire contract.

ARTICLE 1162. Obligations derived from quasi-delicts shall be governed by the
provisions of Chapter 2, Title XVII of this Book, and by special laws. (1093a) When negligence is attributed to the plaintiff. He/she may not recover for damages. But if
negligence was only contributory, the person may recover damages but the courts shall mitigate the
Quasi-delicts- also known as culpa aquillana; also treated as tort. It is founded on the principle of award.
equity. Quantum of proof required is only preponderance of evidence.
Indirect Liability for Quasi-delict
This happens when an act or omission of one, there being fault or negligence, results to injury of -this is known as vicarious liability.
another. The person is obliged to pay for damages. -In certain cases, such as when the tortfeasor is subject to parental authority, the damages may be
demanded from people exercising responsibility over the tortfeasor. Other examples of this is
Elements: provided for in Art. 2180 of CC: employers, teachers, etc.
1. There is fault or negligence resulting in a wrongful act or omission, whether voluntary or
not, and whether criminal or not;
2. There is damage and injury suffered by another person; CHAPTER 2
3. There is direct causal relation between the fault or negligence and the resulting damage and Nature and Effect of Obligations
injury. (a.k.a. proximate cause)
ARTICLE 1163. Every person obliged to give something is also obliged to take care
In this kind of source of obligation, the essential element is the determination of proximate cause. of it with the proper diligence of a good father of a family, unless the law or the
stipulation of the parties requires another standard of care. (1094a)
Quasi-delict are governed by: a) Chapter 2, Title XVII of the Code; b) Special laws such as Family
Code; and c) Chapters on Human Relations of CC. -This article speaks of determinate things.
-Again the degree of diligence required is that of a good father exception: when the law or parties
stipulated that extraordinary diligence is required.
Negligence, defined. -If the thing got lost while in the custody of the obligor but without negligence or fault on his part,
then he is not liable.
From CC: “x x x consists in the omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the person, of the time and of the place.” ARTICLE 1164. The creditor has a right to the fruits of the thing from the time the
obligation to deliver it arises. However, he shall acquire no real right over it until the
From Case Law: Negligence is the failure to observe for the protection of the interests of another same has been delivered to him. (1095)
person, that degree of care, precaution and vigilance which the circumstances justly demand, The right of the creditor to the fruits of the thing to be deliver only arises from the obligation to
whereby such other person suffers injury.” (US v. Barrias) deliver arises. Before this day comes, the creditor only has personal right over the property
From Pineda: the want of care as required by the attending circumstances. Therefore, it is important to know the source of obligation. If:
1. Law- from demand; quasi-delict- from the commission of the act; quasi-conract- Article 2142
From Medina: Kapag wala kang ginawa at hinayaan mo lang mangyari ang nangyari. Wag ka iiyak. and 2175 will be apply; crimes- RPC.
Ganda ka? 2. Suspensive Condition- from the happening of the condition
3. Suspensive Term- upon the lapse of the period
It’s important to note that negligence is relative. Surrounding circumstances determine whether 4. When there’s no condition or term, it arises from the constitution, creation or perfection of
there is negligence. As a rule, diligence of a good father is the usual required degree of diligence. the obligation.
Ownership is vested upon delivery not by mere perfection of contract. This delivery could be
Negligence Test actual or constructive (Sampaguita Pictures v. Jalwindor). Hence, when the seller fails to deliver the
“Would a prudent man, in the position of the person to whom negligence is attributed, foresee remedy of the buyer is to file for Specific Performance and Delivery since the buyer still does not
harm to the person injured as a reasonable consequence of the course about to be pursued? own the proprty.
Proximate Cause. In determining liability, only the proximate cause is relevant. Remote cause is Real Right
not considered. Meaning, events existed before the happening of the proximate cause would not be -binding against the whole word
look into. The chain of events relevant for quasi-delict are the natural sequence of the event leading
to the injury. Personal Right
-power demandable only by one person against another person.
Definition: adequate and efficient cause as, in the natural order of events, and under the particular
circumstances surrounding the case, would necessarily produce the event. The result must be the
natural and probably consequence of such act.

In a contract to sell, the buyer has no real right over the property until the suspensive condition has Accessories- things that are united or attached as ornaments to the principal thing or for the latter’s
been fulfilled. It is only upon the happening of the condition that the seller is bound to deliver the use or perfection.
right over the property. It is only the fruits obtained from this delivery right arises that the buyer Example: antennas of television, charger of a mobile phone
will be entitled of. (This is consistent with Article 1187)
Note that parties can stipulate if they wish to exclude certain accessions or accessories from the
delivery.
ARTICLE 1165. When what is to be delivered is a determinate thing, the creditor, in
addition to the right granted him by article 1170, may compel the debtor to make the ARTICLE 1167. If a person obliged to do something fails to do it, the same shall be
delivery. executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the
If the thing is indeterminate or generic, he may ask that the obligation be complied obligation. Furthermore, it may be decreed that what has been poorly done be
with at the expense of the debtor. undone. (1098)
If the obligor delays, or has promised to deliver the same thing to two or more Three situations under this article are:
persons who do not have the same interest, he shall be responsible for any 1. Obligor failed to fulfill a positive personal obligation
fortuitous event until he has effected the delivery. (1096)
Remedy: the creditor may do it or ask another to do it at the expense of the obligor.
Specific thing
-delivery plus damages 2. He fulfilled but in contravention of the agreement
-if there is fortuitous event and there’s no delay or fault, obligation is extinguished.
-the remedies are: a) Complaint for specific performance; b) Complaint for rescission of the Remedy: Same with the remedy mentioned above
obligation; c) Complaint for resolution; d) Complaint for damages (damages may still be demanded
as additional to any of the remedies mentioned above) 3. He fulfilled but the same is poor or inadequate
Generic thing Remedy: creditor may undo it at the expense of the debtor
-can demand for specific performance
-it is not extinguished due to fortuitous event. No specific performance can be availed of as remedy under this article because to do so is a
-performance not excused by mere fact that the contract turns out to be hard and improvident and violation of involuntary servitude.
unprofitable or impracticable.
Moreover, the article presupposes that the obligation to do could be performed by another. Hence,
Kinds of Delay in instance where a specific person is the only one could do the performance such as a band in a
concert, then the creditor’s remedy is indemnification for damages.
Ordinary- mere failure to perform an obligation at the appointed time.
All services can be real or personal obligation unless when such service could only be done by a
Legal or extraordinary- delay tantamount to non-fulfillment of the obligation and arises after an specific person, it becomes obligation to do.
extra-judicial or judicial demand had been made. The debtor is in default.
ARTICLE 1168. When the obligation consists in not doing, and the obligor does
Example: what has been forbidden him, it shall also be undone at his expense. (1099a)
A is bound to deliver a vessel to B on December 1, 2010. In December 5, A delivers the vessel but
due to a tsunami, the vessel sunk. Since there is no demand, A was not in default and the liability is This involves a negative personal obligation. Example: the lessee obliged himself not to make
extinguished. However, if B sent a demand letter in December 3, A will be liable since he is in alteration in the condo unit but after a year he painted. At his expense, he must bring back the color
delay despite of a fortuitous event. of the wall. If what he did can’t be undone, then he is liable for indemnification.
ARTICLE 1166. The obligation to give a determinate thing includes that of delivering ARTICLE 1169. Those obliged to deliver or to do something incur in delay from the
all its accessions and accessories, even though they may not have been mentioned. time the obligee judicially or extrajudicially demands from them the fulfillment of
(1097a) their obligation.
Accessions- everything which is produced by a thing, and all those incorporated or attached thereto, However, the demand by the creditor shall not be necessary in order that delay may
either naturally or artificially. exist:
Example: alluvial deposits; those built, planted or sowed on the land,
(1) When the obligation or the law expressly so declare; or

Neither party incurs delay if the other does not comply or is not ready to comply with his
(2) When from the nature and the circumstances of the obligation it appears that the obligation. If a party performs his obligation, delay on the other party begins. However, if a
designation of the time when the thing is to be delivered or the service is to be party fails to perform his task, he releases the other from his obligation.
rendered was a controlling motive for the establishment of the contract; or
Example: A tenant promised to buy the house from the landlord provided that the landlord
(3) When demand would be useless, as when the obligor has rendered it beyond his would install CCTV. The latter fails to install CCTV prompting the tenant to file for specific
power to perform. performance. The landlord, however, files for ejectment case. The action of the landlord will
In reciprocal obligations, neither party incurs in delay if the other does not comply not prosper since the tenant is not in default since the landlord has yet to fulfill his obligation.
or is not ready to comply in a proper manner with what is incumbent upon him.
From the moment one of the parties fulfills his obligation, delay by the other begins. ARTICLE 1170. Those who in the performance of their obligations are guilty of
(1100a) fraud, negligence, or delay, and those who in any manner contravene the tenor
thereof, are liable for damages. (1101)
This article highlights the importance of demand. Without it, the debtor can’t be held in default
even the latter is in normal delay. However, there are instances when demand is not necessary. Fraud- it is the intentional evasion of the faithful performance; bad faith or with malice. The fraud
These are: contemplated here is with regard to the performance of the obligation not the fraud of convincing
1. When the obligation or the law says so. Example: the contract says that it has to deliver the one to sign a contract.
pizza on February 4, 2018 and demand is not necessary.
2. Time is of the essence- here when the parties’ controlling motive is to do the obligation at a Negligence or fault- omission of required diligence
particular time then demand is unnecessary. Look at the nature of the obligation. In the
example of Atty Mison wherein he’ll come to class 5 minutes late, he is not in default but Delay: default or tardiness in the performance of the obligation after it has become due and
only ordinary delay. Time is not the controlling motive of the contract but teaching is. demandable. Also called legal delay. Failure to deliver because of dolo or culpa.
Example: Construction of a stadium for the debut concert of Yves Medina. Haha
3. Demand would be useless. Example: When a debtor destroyed the very thing to be delivered Violation of the terms of the contract- contravenes the tenor or conditions of the contract. Example:
or sold it to someone else. failure of a common carrier to take its passengers to their destination.
4. Debtor admits he is in default: admission is sufficient. Note, asking for extension is not an
admission of default. Kinds of damages
1. Actual or compensatory- adequate compensation for the injury
When the period is not fixed, it is implied that time is not of the essence and the fulfillment of the 2. Moral- when the injury causes mental anguish, serious anxiety, etc.
obligation must be done within a reasonable time to be fixed by the court. 3. Nominal- to stress the vindication of the injured party’s rights
4. Temperate or moderate- plaintiff suffered pecuniary loss but its amount is can’t be proved
If there’s doubt whether debtor is in delay, it must be rule in his favor. with certainty.
5. Liquidated- damages agreed by the contracting parties in case of breach
Classes of Default 6. Exemplary- corrective damages because what has done is contract to public policy
1. Mora solvendi- default on the part of the debtor
If the failure to perform is due to fortuitous event, the debtor is exempt from liability except: a)
Requites: a) obligation; b) it is liquidated, due and demandble; c) it has not been performed on when the law provides liability; b) when there is a stipulation between parties; and c) when there is
the maturity date; d) there’s demand from the creditor assumption of risk
Effects: a) damages or interest; and b) bear the risk of loss of the things even if it is due to
fortuitous event
ARTICLE 1171. Responsibility arising from fraud is demandable in all obligations.
2. Mora accipiendi- default on the part of the creditor. There must be unjust refusal otherwise Any waiver of an action for future fraud is void. (1102a)
there’s no default.
Refer to fraud’s definition above. The law prohibits waiver of action for future fraud. However,
Consequences: a) if obligation is from a crime, culprit is not liable when the thing to be condonation of what has already committed is allowed.
delivered is loss due to a fortuitous event; and b) shoulder the subsequent loss of the thing
after being offered by the debtor even if the latter fails to cosign it. ARTICLE 1172. Responsibility arising from negligence in the performance of every
kind of obligation is also demandable, but such liability may be regulated by the
3. Compensatio morae- default on both parities which arises in reciprocal obligation. The courts, according to the circumstances. (1103)
default of one party neutralizes the default of the other. Here there is simultaneous
performance of obligation between the creditor and the debtor. Hence, when both parties are
guilty of default, the default of one compensates the default of another. The court has the discretion to moderate the liability of the debtor. When both parties are negligent,
the fault of one cancels the other.

Two kinds of origin
Good faith debtor: responsible for the natural and probable consequences of the breach and which Fortuitous event (force majeure)- act of God
parties have foreseen at the time of the constitution of the contract. Fuerza mayor- there is human intervention
Bad faith debtor: liable for all the consequences of the breach. Two kinds of foreseeability
Mitigating factors in awarding damages: Ordinary- reasonably foreseen but are inevitable (flood during typhoons)
1) plaintiff has also contravened the terms of the contract; Extraordinary- does not usually happen and could not be reasonably foreseen (earthquake)
2) plaintiff has derived some benefit as a result of the contract
3) in cases where exemplary damages are to be awarded, that the defendant acted upon the Requisites to exempt the debtor due to fortuitous event:
advice of counsel 1) cause of breach must be independent of the debtor’s will
4) the loss would have resulted in any event 2) event must either be unforeseeable or unavoidable, if foreseen it is inevitable
5) since the filing of the action, the defendant has done his best to lessen the plaintiff’s loss or 3) event must be such as to render it impossible for the debtor to perform the obligation in a
injury. normal manner
Contributory negligence- if the creditor’s own negligence has contributed to the loss or injury. If 4) debtor must be free from any participation in, or aggravation of, the injury to the creditor
such contributory negligence has merely contributed and did not amount to the proximate cause of
injury, the court will consider it as mitigating factor. Otherwise, the defendant’s labiality is Debtor still liable even if there is fortuitous event:
extinguished. 1) when law says so
2) when the nature of obligation requires the assumption of risk
ARTICLE 1173. The fault or negligence of the obligor consists in the omission of 3) when he is in delay
that diligence which is required by the nature of the obligation and corresponds 4) when the he promised the same thing to two or more persons who do not have the same
with the circumstances of the persons, of the time and of the place. When interest
negligence shows bad faith, the provisions of articles 1171 and 2201, paragraph 2, 5) when the possessor is in bad faith an the thing is lost or deteriorated due to fortuitous event
shall apply. 6) when he contributed to the loss of the thing
7) when the obligor is guilty of fraud, negligence or delay or if he contravened the tenor of the
If the law or contract does not state the diligence which is to be observed in the obligation.
performance, that which is expected of a good father of a family shall be required. 8) He failed to take steps to forestall the possible adverse consequences of such a loss
(1104a)
Due diligence- measure of prudence, activity, or assiduity, as is property expected from and ARTICLE 1175. Usurious transactions shall be governed by special laws. (n)
ordinary exercised by a reasonable and prudent man under the particular circumstances. No
absolute standard, depends on facts. This is non-existent already. But the court can still temper the interest rates when they are found to
be unconscionable and iniquitous.
Necessary diligence- degree of diligence which a person placed in a particular situation must
exercise in order to entitle him to the protection of the law. ARTICLE 1176. The receipt of the principal by the creditor, without reservation with
respect to the interest, shall give rise to the presumption that said interest has been
Kinds of diligence: a) stipulated by the parties; b) if not stipulation, diligence required by the paid.
governing law of the obligation; and c) absence of the foregoing, diligence of a goof father of a
family The receipt of a later installment of a debt without reservation as to prior
installments, shall likewise raise the presumption that such installments have been
paid. (1110a)
ARTICLE 1174. Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation requires the If the creditor issues a receipt and did not declare thereon that interest is still not paid, then it is
assumption of risk, no person shall be responsible for those events which could presumed that it is paid. This is congruent with Art. 1253. Same rule applies to debts payable in
not be foreseen, or which, though foreseen, were inevitable. (1105a) installments.
Single act can rise to multiple suits, it is important to see the source of obligation. ARTICLE 1177. The creditors, after having pursued the property in possession of
the debtor to satisfy their claims, may exercise all the rights and bring all the
Fortuitous event- occurrence or happening, which could not be foreseen, or even if foreseen, is actions of the latter for the same purpose, save those which are inherent in his
inevitable person; they may also impugn the acts which the debtor may have done to defraud
them. (1111)

ARTICLE 1181. In conditional obligations, the acquisition of rights, as well as the
There is no change of creditor in this article. The same creditor can take the shoes of the debtor and extinguishment or loss of those already acquired, shall depend upon the happening
pursue the following actions: of the event which constitutes the condition. (1114)
1. Exhaustion of the debtor’s properties still in the latter’s possession.
2. Accion subgrogatoria, creditor can run after the debtor of defendant-debtor. Exception: Acquisition or lost of rights are dependent on the condition, if the condition does not happen
personal rights such as donation, parental authority etc. acquisition or lost of rights doesn’t either.
3. Accion pauliana, the creditor files an action in court for the rescission of acts or contracts
entered into by the debtor designed to defraud the former. ARTICLE 1182. When the fulfillment of the condition depends upon the sole will of
the debtor, the conditional obligation shall be void. If it depends upon chance or
upon the will of a third person, the obligation shall take effect in conformity with the
ARTICLE 1178. Subject to the laws, all rights acquired in virtue of an obligation are provisions of this Code. (1115)
transmissible, if there has been no stipulation to the contrary. (1112)
This article applies to suspensive condition.
Exception to rights that can be transmit: a) personal rights; b) not transmissible by provision of law;
and c) those not transmissible by stipulation of the parties. Not falling under these three are Conditions covered:
transmissible.
1. Potestative- exclusive will of either party
CHAPTER 3 If it is dependent on the sole will of the debtor it is void.
Different Kinds of Obligations 2. Casual- dependent on chance or will of a third person
SECTION 1 3. Mixed- combination of potestative and casual
Pure and Conditional Obligations
ARTICLE 1183. Impossible conditions, those contrary to good customs or public
ARTICLE 1179. Every obligation whose performance does not depend upon a future policy and those prohibited by law shall annul the obligation which depends upon
or uncertain event, or upon a past event unknown to the parties, is demandable at them. If the obligation is divisible, that part thereof which is not affected by the
once. impossible or unlawful condition shall be valid.
Every obligation which contains a resolutory condition shall also be demandable, The condition not to do an impossible thing shall be considered as not having been
without prejudice to the effects of the happening of the event. (1113) agreed upon. (1116a)
Condition- the happening of the event is uncertain. It can refer to past and future. If past, the -applies only to cases where the impossibility of the condition is existing at the time of constitution
certainty that it has actually happened is the measure. of agreement. Supervening events that will cure the impossibility cannot make the obligation valid
unless agreed by the parties. There can be physical and judicial impossibility.
Suspensive- - until the happening of the condition, the obligation is not demandable.
Condition not to do an impossible thing must be positive. If it is negative such as not to do an
Resolutory- obligation is demandable until the happening of the condition. unlawful act, this condition is deemed not to be written in contracts. Consequently, the obligation
then becomes pure and simple and immediately demandable.
Pure obligation- not subject to any condition, it is demandable all at once. Although the creditor can
immediately demand the obligation, its immediate factor is not prejudiced for courts to fix period. ARTICLE 1184. The condition that some event happen at a determinate time shall
extinguish the obligation as soon as the time expires or if it has become indubitable
ARTICLE 1180. When the debtor binds himself to pay when his means permit him to that the event will not take place. (1117)
do so, the obligation shall be deemed to be one with a period, subject to the
provisions of article 1197. (n) -refers to positive conditions
This article is considered to be one with a period/term. Hence, the Court can fix the period. The Fix period: The happening of which is still uncertain but it has a deadline. Example:
Creditor cannot immediately file an action for recovery. A will give B a car if A passes the bar in 2022. 2022 comes, B is still a law student. A’s liability is
extinguished.
Terms considered under this article are: little by little; as soon as possible; as soon as I have
money; in partial payments Indomitability that the event will not happen: Same facts above but this time B dropped from law
school and worked abroad. A’s liability is extinguished.
There’s an acknowledgement of obligation to pay, hence even if the term is solely dependent upon
him, the obligation is valid. This is contrary to article 1182.

ARTICLE 1185. The condition that some event will not happen at a determinate time
shall render the obligation effective from the moment the time indicated has Example: Jebel’s coffee to be delivered at 11pm. Prior to 11 pm all the fruits acquired of the coffee
elapsed, or if it has become evident that the event cannot occur. will be Jebel’s alone. When 11 pm comes, she is obliged to deliver it to Atty. Mison, all the fruits
If no time has been fixed, the condition shall be deemed fulfilled at such time as accruing from 11pm will be Atty Mison’s.
may have probably been contemplated, bearing in mind the nature of the obligation.
(1118) During the pendency of the happening:
-speaks of negative conditions. Debtor cannot alienate the specific thing to be delivered. If he sells it to a third party, he will be
-if the conditions happens, the obligation will be effective only when a) the specified time had liable for damages. A good faith third party need not to deliver the specific thing. In contract, a bad
already elapsed without the event having occurred, faith third party can be compelled to deliver the thing or its value to the obligee plus damages upon
Example: A will give B a car if B does not run for Mayor in the next election. The next election the happening of the suspensive condition.
comes, B did not run, A’s liability is enforceable
On the other hand, the creditor himself cannot alienate his expected rights. The alienation shall be
b) if it has become definite that the event will not occur. deemed convalidated by the fulfillment of the condition.
Example: same as above, but this time prior to the next election, a law was passed dissolving the ARTICLE 1188. The creditor may, before the fulfillment of the condition, bring the
municipality where B is a resident, A’s liability is enforceable. appropriate actions for the preservation of his right.
ARTICLE 1186. The condition shall be deemed fulfilled when the obligor voluntarily The debtor may recover what during the same time he has paid by mistake in case
prevents its fulfillment. (1119) of a suspensive condition. (1121a)
Refers to constructive fulfillment not the actual fulfillment. However, mere intention to prevent the To protect the expected rights of the creditor, he has the following remedies:
happening of the condition will not be enough without actual acts that aim to prevent the a) action for prohibition restraining the alienation of the thing pending the
happening. happening of the suspensive condition;
b) petition for the annotation of the creditor’s right;
When the act of the debtor, without intention to prevent, affected the frustration of the condition, c) action to demand security if the debtor has become insolvent;
there’s no constructive fulfillment. d) action to set aside alienations made by the debtor in fraud of creditors; or
e) action against adverse possessors to interrupt the running the prescriptive
ARTICLE 1187. The effects of a conditional obligation to give, once the condition period.
has been fulfilled, shall retroact to the day of the constitution of the obligation.
Nevertheless, when the obligation imposes reciprocal prestations upon the parties, ARTICLE 1189. When the conditions have been imposed with the intention of
the fruits and interests during the pendency of the condition shall be deemed to suspending the efficacy of an obligation to give, the following rules shall be
have been mutually compensated. If the obligation is unilateral, the debtor shall observed in case of the improvement, loss or deterioration of the thing during the
appropriate the fruits and interests received, unless from the nature and pendency of the condition:
circumstances of the obligation it should be inferred that the intention of the person (1) If the thing is lost without the fault of the debtor, the obligation shall be
constituting the same was different. extinguished;
In obligations to do and not to do, the courts shall determine, in each case, the (2) If the thing is lost through the fault of the debtor, he shall be obliged to pay
retroactive effect of the condition that has been complied with. (1120) damages; it is understood that the thing is lost when it perishes, or goes out of
commerce, or disappears in such a way that its existence is unknown or it cannot
It applies to suspensive condition where the condition has fulfilled, if not, then this article will not be recovered;
apply. (3) When the thing deteriorates without the fault of the debtor, the impairment is to
be borne by the creditor;
When the condition is fulfilled, the obligation to give will retroact from the constitution of the
obligation. However, the creditor is not entitled to the delivery of fruits or payment of interest (4) If it deteriorates through the fault of the debtor, the creditor may choose between
accruing before the fulfillment of the suspensive condition. the rescission of the obligation and its fulfillment, with indemnity for damages in
either case;
If it is reciprocal prestations, the fruits and interests accrued during the pendency of the condition
shall be deemed to have been mutually compensated. The compensation shall be up to the
(5) If the thing is improved by its nature, or by time, the improvement shall inure to
concurrent amount.
the benefit of the creditor;
If it is a unilateral, the debtor has the sole right over the fruits and interests.

This article applies to the fulfillment of a resolutory condition. Its happening will make the
(6) If it is improved at the expense of the debtor, he shall have no other right than obligation as if it did not exist. Therefore, restitution must be made between parties. They are
that granted to the usufructuary. (1122) bound to return what they have received. On the contrary, if it does not happen, acquired rights
shall become absolute.
This only applies to specific things and when there is a suspensive condition that has been fulfilled.
Effects of happening
Loss Deteriorates Improved
w/ fault w/o w/ fault w/o fault of by its at the expense Restitution including the fruits and interests they acquired from the things they received prior to the
fault of the the debtor nature or by of the debtor happening of the condition. Expenses incurred shall be deducted from the value of the fruits and
debtor time interests to be accounted for.
Debtor Obliged Obligat the only right he
to pay for ion is has is to that of Reciprocal restitution is implied in this article. Hence, the rule in the preceeding article applies.
damages extingu usufructuary
ished Examples: A donates a land on the condition that no fences shall be erected. Fences were erected,
Creditor Can The Will inure the land must be given back to A.
choose impairment to his
between shall be borne benefit Note: the terms if, on the condition, provided are not determinative whether it is a resolury or
rescission by him; he suspensive condition. You have to look at the nature of the condition.
and must accept
fulfillme the thing Loss, Deterioration And Improvement
nt, in -the rule on Article 1189 shall apply. Parties bound to return something is considered as the debtor.
either
case he is Obligations to Do or Not to Do- the courts shall determine the retroactivity of the fulfillment of the
still condition subject to the intention of the parties if it could be determined.
entitled
for ARTICLE 1191. The power to rescind obligations is implied in reciprocal ones, in
indemnit case one of the obligors should not comply with what is incumbent upon him.
y for The injured party may choose between the fulfillment and the rescission of the
damages obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
Loss- when it perishes, or goes out of commerce, or disappears in such a way that is existence is
unknown or it cannot be recovered. The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
Usufructuary right- for example a lessee hired a interior designer to renovate the condo unit. He is
not liable for indemnification for such improvements. However, he may remove the improvements This is understood to be without prejudice to the rights of third persons who have
if possible. If not, then he delivers the property to the owner as it is. He does not have any right to acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage
ask for the expenses he incurred for the improvement, unless agreed by the parties. If there are Law. (1124)
deterioration, such shall be offset with the improvements.
Breach of contract- failure without legal reason to comply with the terms of a contract.
-no breach if there’s a non-existent obligation (Delivery of property in a contract to sell)
ARTICLE 1190. When the conditions have for their purpose the extinguishment of -not the failure to make the condition happens
an obligation to give, the parties, upon the fulfillment of said conditions, shall return
to each other what they have received. Example: A promises to deliver a car if B pays 50,000. B pays 50,000, A does not want to deliver
In case of the loss, deterioration or improvement of the thing, the provisions which, despite payment, then there’s breach. B can rescind the contract.
with respect to the debtor, are laid down in the preceding article shall be applied to
the party who is bound to return. Rescission- refers to resolution.
-This is a remedy where there is a breach of faith in the performance of the contract
As for obligations to do and not to do, the provisions of the second paragraph of which is violative of the reciprocity between the parties.
article 1187 shall be observed as regards the effect of the extinguishment of the -it does not apply to contract to sell.
obligation. (1123) -it has the effect of annulling the contract not merely releasing the parties from
obligation

Note that the Court has no power to absolve parties from obligation if the contract has turned to be
Automatic Rescission an unwise investment.
- parties can expressly stipulate that there’s no need for judicial action to rescind the contract in Specific performance- there is always a need for judicial action if the other party refuses to deliver.
case of breach. But this is only provisional because the injured party can come to court to
determine whether the breach is significant to warrant the rescission.
- It shall only take effect after the creditor has notified the debtor of his choice of rescission. ARTICLE 1192. In case both parties have committed a breach of the obligation, the
Such notice must be notarized, otherwise it is not valid. liability of the first infractor shall be equitably tempered by the courts. If it cannot be
- If done validly, the parties may execute restitution even without court intervention, however if determined which of the parties first violated the contract, the same shall be
it is objected in court, then judicial determination is necessary. deemed extinguished, and each shall bear his own damages. (n)
- It is not allowed if arbitration is provided for as remedy in the conract
Example: A loaned 1m to a bank secured by a mortgage. The bank gave initial 500k and then failed
Power to rescind to deliver the remaining balance. A defaulted in paying the 500k loan. A consequently filed for
-inherent to reciprocal obligations. Hence, this article is not applicable to non-reciprocal rescission. It was denied since he is in default. However, with Art. 1192 since both parties were in
obligations. default, the liability of the first infractor should be tempered. Hence, the foreclosed mortgage
-it is also important that both parties are indebted to each other to the same cause. property shall be liable to the extent of default of the bank.
Example: A owes B 50k, B rents a house to A. If B defaulted in the payment of rent, A cannot However, if both parties claim they are not the first infractor and it cannot be determined from the
rescind his obligation to pay B his loan of 50k. The obligation is not reciprocal it does not come circumstances, they are deemed relieved of the obligation and bear their own damages.
from the same cause.
The party who has the right to rescind is the one who is ready to fulfill his obligation. SECTION 2
Obligations with a Period
Compromise Agreement
-if a party fails to abide, the injured party may enforce the compromise; or rescind it and enforce ARTICLE 1193. Obligations for whose fulfillment a day certain has been fixed, shall
the original obligation.
be demandable only when that day comes.
Remedies of the injured party:
Obligations with a resolutory period take effect at once, but terminate upon arrival
1. Specific performance with damages; or
2. Rescission with damages of the day certain.
The option is alternative and not conjunctive. Meaning one’s the injured party demanded for A day certain is understood to be that which must necessarily come, although it
performance, he can no longer rescind the contract, unless the guilty party still fails to deliver and may not be known when.
when the court grants the extension of the performance because of substantial compliance or the If the uncertainty consists in whether the day will come or not, the obligation is
breach is just slight. The determination of slight breach is dependent on the nature of the conditional, and it shall be regulated by the rules of the preceding Section. (1125a)
obligation and not on the amount complied with. Hence, proof of violation of the agreement is
always necessary. Term- refers to future; the happening is certain although the exact date is not; it must be possible
both physically and legally
Consequently, if the creditor demands for rescission, he can no longer demand for the performance.
Example: A rental contract of 10 years, the debtor defaulted in its 3rd year, creditor demands for Classifications:
rescission and was successful. He can no longer ask for the payment of rents from 4th-10th year. 1. Ex Die: term with suspensive effect
What he can only ask is damages for breach not future rent, however. 2. In Diem: term with resolutory effect
Should he choose specific performance and debtor pays, creditor can no longer rescind the contract. “On or about period”-it means only a few days after he stated date, but not a remote date or one
fixed by the obligor.
Limitations on Right to Rescind
1. Due process must be observed “On or before”- the period is set
2. It is subordinated to the rights of third persons who acquired the thing in good faith
3. Respect the power of the Court to fix period in lieu of decreeing rescission When obligation is set by a period, obligation not yet due and demandable cannot be recovered.
4. Slight breaches of the contract will not justify rescission Example: A owes B P1m payable in three installment. The contract did not stipulate that when A
5. A judicial or notarial act is necessary before a valid rescission can take place (applies even for will be in delay, the entire obligation will be due and demandable. Hence, when A defaulted in the
automatic rescission) first installment. B can only demand for the first installment and not the rest of the installment that
are not yet due.

ARTICLE 1194. In case of loss, deterioration or improvement of the thing before the 1. Payment of interest
arrival of the day certain, the rules in article 1189 shall be observed. (n) 2. Desire of the creditor to have his money invested safely instead of having it in his hands
3. Usury law
Loss without fault= not liable
With fault= liable for damages ARTICLE 1197. If the obligation does not fix a period, but from its nature and the
Deteriorates w/o fault= impairment borne by creditor circumstances it can be inferred that a period was intended, the courts may fix the
With fault= creditor has the option of rescission or specific performance; both carry with them duration thereof.
damages
Improvement by nature or time= inure to the benefit of the creditor The courts shall also fix the duration of the period when it depends upon the will of
At the expense of the debtor= his right is only to that of usufructuary. the debtor.
ARTICLE 1195. Anything paid or delivered before the arrival of the period, the In every case, the courts shall determine such period as may under the
obligor being unaware of the period or believing that the obligation has become due circumstances have been probably contemplated by the parties. Once fixed by the
and demandable, may be recovered, with the fruits and interests. (1126a) courts, the period cannot be changed by them. (1128a)
Only applies to obligations to give. -The status of the obligation is suspended until the period is fixed.
Consequences of premature payment on the part of the debtor

1. Good faith- unaware of the period, he may recover everything he has paid including fruits and When the court can fix the period:
interest 1. when no period is mentioned but it can be inferred from the nature of the obligation that a
2. Bad faith- aware of the period, he cannot recover the payment. He is deemed to have waived period was intended by the parties
the benefit of the term and the obligation is considered matured. 2. when the period is dependent upon the will of the debtor (this is valid because obligation is
already established) but the period to when the debtor is obliged to fulfill is solely dependent
In solution indebiti (unjust enrichment) on his will
1. Good faith- no fruits or interest, only the thing he received
2. Bad faith- if money is involved only legal interest; or will be liable for the fruits received or Once the court fixed a period, it can’t be extended.
fruits which he might have received.
For a court to fix a period, it is essential that the allegation must contain that the parties intended to
The difference between the two, in the latter there is no debt involved. have a period.
When there can be no recovery even if conditions in this article are present Specific performance can’t be availed when a petition fixing a period is filed.
1. when the obligation is reciprocal, and there has been premature performance on both sides;
2. when the obligation is a loan on which the debtor is bound to pay interest; and When the court cannot fix the period:
3. when the period is exclusively for the benefit of the creditor because the debtor paying in 1. when the duration of the lease is left to the will of the lessor (creditor)
advance loses nothing 2. when the contract has not been renewed
3. when the obligation is payable on demand
ARTICLE 1196. Whenever in an obligation a period is designated, it is presumed to 4. when the obligation is pure, simple and unconditional
have been established for the benefit of both the creditor and the debtor, unless 5. duration of contracts of employment or service is implicitly fixed by the period for the
from the tenor of the same or other circumstances it should appear that the period payment of the salary of he employee
has been established in favor of one or of the other. (1127)
ARTICLE 1198. The debtor shall lose every right to make use of the period:
This only applies when parties designated for the period. It does not apply when Court fixed the
period. (1) When after the obligation has been contracted, he becomes insolvent, unless he
gives a guaranty or security for the debt;
With this article, the creditor can’t demand for payment before the period and consequently, the
debtor can’t compel to receive such payment before the period. But if the party proposing such (2) When he does not furnish to the creditor the guaranties or securities which he
change, consent of the other makes it valid. has promised;
This presumption is rebuttable. Hence, one who’s granted the benefit of period can compel to (3) When by his own acts he has impaired said guaranties or securities after their
receive the payment or to demand the payment even before the period comes. establishment, and when through a fortuitous event they disappear, unless he
immediately gives new ones equally satisfactory;
Reasons why creditors can’t be compelled to accept payment before maturity

(4) When the debtor violates any undertaking, in consideration of which the creditor 2. Choice is irrevocable
agreed to the period;
If there is delay in notice of choice, such right is not deemed forfeited. The court can decide then.
(5) When the debtor attempts to abscond. (1129a)
Plurality of debtors or creditors
When either of these situations happens, the obligation is demanded all at once.
Joint- all must give/be given consent/notice
Insolvency- need not be a judicial declaration, so long as the debtor can’t pay the debt due to lack Solidary- act of one binds all
of money or funds
Abscond- mere attempt to abscond is enough to render the obligation pure and immediately ARTICLE 1202. The debtor shall lose the right of choice when among the
demandable. prestations whereby he is alternatively bound, only one is practicable. (1134)
Obligation is transformed to a simple obligation when among the prestations only one remains
SECTION 3 practicable.
Alternative Obligations
ARTICLE 1199. A person alternatively bound by different prestations shall Only applies when debtor is given the choice.
completely perform one of them.
The creditor cannot be compelled to receive part of one and part of the other ARTICLE 1203. If through the creditor’s acts the debtor cannot make a choice
undertaking. (1131) according to the terms of the obligation, the latter may rescind the contract with
damages. (n)
Classification of Obligations with Plurality of Prestations
This article does not apply when the debtor is prohibited to choose a particular prestation and he
1. Conjunctive- debtor is bound to perform all still has two or more options to choose from.
2. Alternative- debtor is alternatively bound to perform different prestation but the complete
performance of one extinguishes the obligation This operates through debtors’ initiative and not by operation of law.
3. Facultative- debtor is bound to perform one prestation with a reserved right to choose another
prestation or thing as substitute for the principal ARTICLE 1204. The creditor shall have a right to indemnity for damages when,
through the fault of the debtor, all the things which are alternatively the object of
General rule: creditor can’t be compelled to receive parts of different prestations. However, if he the obligation have been lost, or the compliance of the obligation has become
accepts, it is valid. There is then novation in the prestation. impossible.
ARTICLE 1200. The right of choice belongs to the debtor, unless it has been The indemnity shall be fixed taking as a basis the value of the last thing which
expressly granted to the creditor. disappeared, or that of the service which last became impossible.
The debtor shall have no right to choose those prestations which are impossible, Damages other than the value of the last thing or service may also be awarded.
unlawful or which could not have been the object of the obligation. (1132) (1135a)
General rule: right belongs to debtor, however if expressly provided that it belong the creditor then Only applies when the choice is given to the debtor.
it is valid. Such should be express and not implied.
Creditor can’t demand for indemnity if only one prestation has become impossible because debtor
ARTICLE 1201. The choice shall produce no effect except from the time it has been can still select among the remaining prestation.
communicated. (1133)
If all were lost with fault, he is liable. However, if all were lost through fortuitous event, he is not
The selection has no legal effect until communicated. Such notice has no prescribed form. If the liable. If all were lost due to debtor’s fault, then the damage to be paid is based on the last object
debtor performs without notice of choice, liability is still not extinguished. vanished.
Effects of choice: ARTICLE 1205. When the choice has been expressly given to the creditor, the
obligation shall cease to be alternative from the day when the selection has been
1. Obligation is now limited only to the prestation chosen or selected wit hall the natural communicated to the debtor.
consequences

Until then the responsibility of the debtor shall be governed by the following rules:
(1) If one of the things is lost through a fortuitous event, he shall perform the ARTICLE 1208. If from the law, or the nature or the wording of the obligations to
obligation by delivering that which the creditor should choose from among the which the preceding article refers the contrary does not appear, the credit or debt
remainder, or that which remains if only one subsists; shall be presumed to be divided into as many shares as there are creditors or
debtors, the credits or debts being considered distinct from one another, subject to
(2) If the loss of one of the things occurs through the fault of the debtor, the creditor the Rules of Court governing the multiplicity of suits. (1138a)
may claim any of those subsisting, or the price of that which, through the fault of
the former, has disappeared, with a right to damages; Joint obligation- when each debtor is liable only to proportionate share in the obligation.
(3) If all the things are lost through the fault of the debtor, the choice by the creditor
shall fall upon the price of any one of them, also with indemnity for damages.
The presumption is always joint unless:
The same rules shall be applied to obligations to do or not to do in case one, some
or all of the prestations should become impossible. (1136a) 1 law imposes solidary
2 stipulation of the parties
3 nature of obligation- when two or more are guilty of articles 19,20,21 of CC. Morals can’t be
If all were lost due to the fault of the debtor, the creditor can choose the amount of any of the divided. Hence, their labiality is solidary.
prestations for the damages.
Other technical terms for joint obligation
If there’s a period to which the debtor must deliver and the creditor fails to notify him on his 1. proportionate or pro rata;
choice, then the creditor is deemed to have waived his right. 2. mancomunada simple;
3. mancomunada
ARTICLE 1206. When only one prestation has been agreed upon, but the obligor Note that final judgment declaring liability joint despite the contract imposing solidary, the
may render another in substitution, the obligation is called facultative. judgment must be upheld.
The creditor must sue all joint debtors to avoid multiplicity of suits.
The loss or deterioration of the thing intended as a substitute, through the
negligence of the obligor, does not render him liable. But once the substitution has Remember that in joint the liability of the debtor is with regard to his share alone. Hence, in all
been made, the obligor is liable for the loss of the substitute on account of his cases whether in favor or against one of the co-debtor it will not run against to all.
delay, negligence or fraud. (n)
Deterioration of the substitute must also be deemed included. Consent is not needed only notice. ARTICLE 1209. If the division is impossible, the right of the creditors may be
prejudiced only by their collective acts, and the debt can be enforced only by
SECTION 4 proceeding against all the debtors. If one of the latter should be insolvent, the
Joint and Solidary Obligations others shall not be liable for his share. (1139)
ARTICLE 1207. The concurrence of two or more creditors or of two or more debtors This is joint indivisible obligation
in one and the same obligation does not imply that each one of the former has a
right to demand, or that each one of the latter is bound to render, entire compliance On the part of the debtors, the fulfillment of obligation must be concurred by everyone although,
with the prestation. There is a solidary liability only when the obligation expressly each for his part.
so states, or when the law or the nature of the obligation requires solidarity. (1137a)
On the part of the creditors. There must be collective action for acts which are prejudicial to the
Solidary Obligation- each debtor is liable to the entire obligation rights of the creditors
a. Passive- solidarity on the part of the debtors
b. Active- solidarity on the part of the creditors Effect of breach
Words that indicate solidary: If one of the co-debtor fails to perform, the entire obligation could no longer be fulfilled and it is
1) joint and severally converted to indemnity for damages. In paying for indemnity, co-debtors will be liable for the
2) “I promise” principal amount. Interest and damages shall be shouldered by the erring debtor. Innocent co-
3) each to pay the whole value debtors can recover damages from the erring.

demand, liability is still extinguished. It is the creditors who will run after the other creditor to
Joint creditors and one debtor. Debtor is obliged to deliver to all creditors jointly. Not authorize to whom payment has been made.
deliver to only one unless that person is authorized by the other creditors. If not all are demanding, ARTICLE 1215. Novation, compensation, confusion or remission of the debt, made
debtor can consign it in court. by any of the solidary creditors or with any of the solidary debtors, shall extinguish
the obligation, without prejudice to the provisions of article 1219.
The act of one joint creditor if beneficial is valid if not, it requires the collective agreement of all.
The creditor who may have executed any of these acts, as well as he who collects
ARTICLE 1210. The indivisibility of an obligation does not necessarily give rise to the debt, shall be liable to the others for the share in the obligation corresponding
solidarity. Nor does solidarity of itself imply indivisibility. (n) to them. (1143)
Indivisibility refers to the character of the prestation. It is not susceptible to partial performance or Remission on the part of one solidary debtor releases his liability from the obligation but not from
does not permit its division. It can be: his obligation among his co-debtors. If remission of his share is done prior to payment of the other
a. legal- delivery of a car debtor then it shall be deducted (Still he is liable to his co-debtor for instance when one becomes
b. conventional – accomplishment of work susceptible to partial performance but agreed by insolvent, all the co-debtor will shoulder the share of the insolvent debtor including the debtor
parties not to deliver partially whose share has been condoned)
c. solidary obligation- each debtor is liable for the entire obligation.it refers to the vinculum or
tie or relationship existing between parties.
ARTICLE 1216. The creditor may proceed against any one of the solidary debtors or
ARTICLE 1211. Solidarity may exist although the creditors and the debtors may not some or all of them simultaneously. The demand made against one of them shall
be bound in the same manner and by the same periods and conditions. (1140) not be an obstacle to those which may subsequently be directed against the others,
so long as the debt has not been fully collected. (1144a)
Enforcement of terms and conditions may be made at different times. Enforcement can be held
from any of the solidary debtor but only to the amount that is demandable already. The creditor can run after:
1) any of the solidary debtors;
2) some of the solidary debtors; or
3) all of the solidary debtors
Forms of solidarity
He is not prejudiced from running one after another. If demand is a judicial one, these are the
1. Uniform- debtors are bound by the same terms and conditions effects:
2. Varied- debtors are bound under the same obligation but with different terms and conditions 1. if favorable to the solidary creditor, the judgment will benefit them all.
2. If the solidary co-debtor becomes insolvent and the case was filed only against him, the
ARTICLE 1212. Each one of the solidary creditors may do whatever may be useful judgment cant be executed against the other-debtors who were not made parties. New action
to the others, but not anything which may be prejudicial to the latter. (1141a) is necessary
3. If the case is dismissed, it is a res judicata against the debtors.
If a solidary creditor does an act which prejudiced co-creditor such act is valid, but the guilty
creditor shall be liable to his co-creditors ARTICLE 1217. Payment made by one of the solidary debtors extinguishes the
obligation. If two or more solidary debtors offer to pay, the creditor may choose
which offer to accept.
ARTICLE 1213. A solidary creditor cannot assign his rights without the consent of
the others. (n) He who made the payment may claim from his co-debtors only the share which
corresponds to each, with the interest for the payment already made. If the payment
A solidary creditor can’t assign his rights to a third party. Hence, payment made to a third party is made before the debt is due, no interest for the intervening period may be
under this provision does not extinguish the liability of the debtor. Whatever acts he does will not demanded.
bind the others.
When one of the solidary debtors cannot, because of his insolvency, reimburse his
ARTICLE 1214. The debtor may pay any one of the solidary creditors; but if any share to the debtor paying the obligation, such share shall be borne by all his co-
demand, judicial or extrajudicial, has been made by one of them, payment should debtors, in proportion to the debt of each. (1145a)
be made to him. (1142a)
In seeking reimbursement, the liability is a joint one.
As a rule, payment shall be made to the demanding creditor. However, if one has judicial demand,
then payment must be made to him. If debtor pays to other creditor not the one with judicial Payor may be substituted as party plaintiff. This is not subrogation because the right of the payor is
only limited to reimbursement of the shares of his co-debtors and not the entire obligation.

personally belong to the others, he may avail himself thereof only as regards that
part of the debt for which the latter are responsible. (1148a)
ARTICLE 1218. Payment by a solidary debtor shall not entitle him to reimbursement
from his co-debtors if such payment is made after the obligation has prescribed or The defenses of a solidary debtor are:
become illegal. (n) 1) nature of obligation (prescription etc)
2) personal to him (minority, insanity)
3) defenses personal to other co-debtor to the extent that co-debtor is responsible (for example a
ARTICLE 1219. The remission made by the creditor of the share which affects one co-debtor was granted an extension of time within which the obligation will be due, the
of the solidary debtors does not release the latter from his responsibility towards person being demanded payment from is not liable to pay that amount that is not yet due even
the co-debtors, in case the debt had been totally paid by anyone of them before the if such extension is not granted to him)
remission was effected. (1146a)
ARTICLE 1220. The remission of the whole obligation, obtained by one of the SECTION 5
solidary debtors, does not entitle him to reimbursement from his co-debtors. (n) Divisible and Indivisible Obligations
This refers to the remission of the entire obligation. No one is entitled for reimbursement because ARTICLE 1223. The divisibility or indivisibility of the things that are the object of
no one paid. obligations in which there is only one debtor and only one creditor does not alter or
modify the provisions of Chapter 2 of this Title. (1149)
In an instance where the creditor remits the share of one of the solidary-debtor but the obligation
has been paid by any one of the solidary-debtors before such remission, the one who’s share has The test of indivisibility is if it is susceptible to partial performance and does not destroy the
been remitted is still liable to reimburse the person who paid because there was actually no essence of the object.
remission that happened because the obligation has already been paid. However, if it has been
remitted, then the obligation of the other solidary-debtors is to pay the remaning obligation minus In indivisibility, the debt of one dos not extinguish the prestation because the heirs are bound to
the remitted share. The liability of the solidary debtor to whom remission has been granted will fulfill it. On the other hand, in solidarity, the death of a debtor extinguishes the solidarity because
only arise when one of the solidary-debtors is found to be insolvent. In such a case, the share of the the same is not transferred to the heirs.
insolvent debtor shall be borne by all the debtors.
If there is only a partial remission, the payor of the unremitted part shall be reimbursed with respect ARTICLE 1224. A joint indivisible obligation gives rise to indemnity for damages
to the amount he actually paid. from the time anyone of the debtors does not comply with his undertaking. The
debtors who may have been ready to fulfill their promises shall not contribute to the
ARTICLE 1221. If the thing has been lost or if the prestation has become impossible indemnity beyond the corresponding portion of the price of the thing or of the value
without the fault of the solidary debtors, the obligation shall be extinguished. of the service in which the obligation consists. (1150)
If there was fault on the part of any one of them, all shall be responsible to the This provision covers joint indivisible obligation.
creditor, for the price and the payment of damages and interest, without prejudice
to their action against the guilty or negligent debtor. Example: A and B obliged to deliver a painting amounting to 100k to C. Should A failed to deliver
50k which resulted to them failing to deliver the painting, their obligation is converted to indemnity
If through a fortuitous event, the thing is lost or the performance has become and the enforceability is with regard to their proportionate share. A is liable only to P50k and is not
impossible after one of the solidary debtors has incurred in delay through the liable for the entire obligation.
judicial or extrajudicial demand upon him by the creditor, the provisions of the
preceding paragraph shall apply. (1147a) ARTICLE 1225. For the purposes of the preceding articles, obligations to give
definite things and those which are not susceptible of partial performance shall be
If the guilty debtor, the one who caused the loss, is sued, other co-debtor shall not reimburse him of deemed to be indivisible.
the cost of suits and damages. But if there is only delay, fraud or negligence on his part, then all
including the innocent will share in the payment of the principal prestation. However, the erring When the obligation has for its object the execution of a certain number of days of
debtor will shoulder the damages and interest imposed, if there are any. work, the accomplishment of work by metrical units, or analogous things which by
their nature are susceptible of partial performance, it shall be divisible.
ARTICLE 1222. A solidary debtor may, in actions filed by the creditor, avail himself However, even though the object or service may be physically divisible, an
of all defenses which are derived from the nature of the obligation and of those obligation is indivisible if so provided by law or intended by the parties.
which are personal to him, or pertain to his own share. With respect to those which

In obligations not to do, divisibility or indivisibility shall be determined by the
character of the prestation in each particular case. (1151a) Exception, when the debtor refused to pay penalty which forced the creditor to file judicial action,
additional damages may be claimed by the creditor.
Indivisible things:
a) Specific things Mere nonfulfillment of the principal obligation entitles the creditor to the penalty stipulated. This is
b) Not susceptible to partial performance the essence of penalty clauses, to abide with the obligation faithfully. Example: a bond of 10,000
c) Even if susceptible to physical division if the law or intended by the parties may be forfeited as penalty can be enforced even if the amount involved in its violation is much
SECTION 6 lesser in amount.
Obligations with a Penal Clause
The injured party only needs to prove breach of contract, actual loss or damage is not necessary to
ARTICLE 1226. In obligations with a penal clause, the penalty shall substitute the enforce penalty, subject to the discretion of the Court which will be guided by other provisions of
indemnity for damages and the payment of interests in case of noncompliance, if this Code.
there is no stipulation to the contrary. Nevertheless, damages shall be paid if the
obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the ARTICLE 1229. The judge shall equitably reduce the penalty when the principal
obligation. obligation has been partly or irregularly complied with by the debtor. Even if there
has been no performance, the penalty may also be reduced by the courts if it is
The penalty may be enforced only when it is demandable in accordance with the iniquitous or unconscionable. (1154a)
provisions of this Code. (1152a)
- this an accessory obligation; hence, the debtor can’t opt to perform this instead of the
principal Reduction of penalty is warranted if there is
- it substitutes damages, and payment of interests in case of breach unless there is a contrary 1) Partial compliance
stipulation, in which case additional damages may further be recovered. 2) Principal obligation had been complied but not in accordance with the tenor of the agreement
- As a general rule, damage need not be proven once there’s a breach. However, if there thus there is irregularity in the performance
additional damages is being asked due to fraud, then evidence of fraud must be proven. 3) There is no performance but the penalty is deemed to be iniquitous or unconscionable
Moreover, damages may also be asked if the debtor refused to pay the penalty.
- Liquidated damages is different from penalty tho has the same legal effect. Former refers to Iniquitous when it is revolting to the conscience or common sense, or when it is grossly
the stipulated damages in case of breach. The latter is the agreed penalty in case of breach. disproportionate to the damage sense, or when it is grossly disproportionate to the damage suffered.
If proven to be iniquitous then it must be reduced.
Penalties are not demandable
1. the penalty may be enforced only when it is demandable in accordance with the provisions of Penalty is not enforceable when:
this Code 1) Principal obligation has become impossible of performance due to fortuitous events;
2. penalty that is unlawful, immoral or against public order is not enforceable 2) When the creditor prevented the debtor from the performance of the obligation
3) When the penalty agreed upon is contrary to morals or good customs.
ARTICLE 1227. The debtor cannot exempt himself from the performance of the 4) When both parties are guilty of breach of contract
obligation by paying the penalty, save in the case where this right has been 5) When none of the contracting parties committed willful or culpable violation of the agreement
expressly reserved for him. Neither can the creditor demand the fulfillment of the 6) When the breach of the contact is committed by the creditor
obligation and the satisfaction of the penalty at the same time, unless this right has
been clearly granted him. However, if after the creditor has decided to require the
fulfillment of the obligation, the performance thereof should become impossible Interest on the penalty may be stipulated separately from the penalty. Meaning if the penalty
without his fault, the penalty may be enforced. (1153a) imposed in the contract is capable of having interest, and the Civil Code also provides that interest
may be charged in cases of breach, then both can be demanded separately from the debtor.
General rule for debtor: He can’t choose to fulfill the penalty instead of the principal. Exception
is when the option to pay the penalty instead of principal is granted to him. ARTICLE 1230. The nullity of the penal clause does not carry with it that of the
principal obligation.
General rule for creditor: can’t demand for penalty and fulfillment of the obligation. Exceptions:
a) when the creditor is given such right; b) when the creditor has demanded fulfillment but the same The nullity of the principal obligation carries with it that of the penal clause. (1155)
could no longer be fulfilled due to the debtor’s fault, he may demand the penalty agreed upon. But
if it is due to creditor’s fault or fortuitous event, both the principal and penalty are extinguished. Nullity of the principal nullifies the accessory, but this does not work the other way around.
ARTICLE 1228. Proof of actual damages suffered by the creditor is not necessary in CHAPTER 4
order that the penalty may be demanded. (n) Extinguishment of Obligations

General Provisions In a reciprocal obligation, the creditor cannot demand for the unperformed obligation—supposed
there is substantial compliance on the part of the debtor—before he perform his part in the contract.
ARTICLE 1231. Obligations are extinguished:

(1) By payment or performance; ARTICLE 1235. When the obligee accepts the performance, knowing its
(2) By the loss of the thing due; incompleteness or irregularity, and without expressing any protest or objection, the
(3) By the condonation or remission of the debt; obligation is deemed fully complied with. (n)
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation; Accept as contemplated here means to take as satisfactory or sufficient or to give assent or to agree
(6) By novation. to an incomplete performance. Law does not prescribe for a particular manner of objection. The
acts after the payment has been made will determine whether the creditor has actually accepted the
Other causes of extinguishment of obligations, such as annulment, rescission, partial payment.
fulfillment of a resolutory condition, and prescription, are governed elsewhere in
this Code. (1156a) Moreover, when the creditor himself is at fault, he can’t demand for full compliance.
This provision is not exclusive. ARTICLE 1236. The creditor is not bound to accept payment or performance by a
third person who has no interest in the fulfillment of the obligation, unless there is a
stipulation to the contrary.
SECTION 1 Whoever pays for another may demand from the debtor what he has paid, except
Payment or Performance that if he paid without the knowledge or against the will of the debtor, he can
ARTICLE 1232. Payment means not only the delivery of money but also the recover only insofar as the payment has been beneficial to the debtor. (1158a)
performance, in any other manner, of an obligation. (n)
There are two exceptions in this rule:
For it to extinguish liability it must be full, unless contrary is agreed upon. 1) when in the contract, creditor shall accept payment made by a third person
2) if the third person has an interest in the fulfillment of an obligation (surety, gurantor)
It may be voluntary or involuntary such as via court’s order.
If payment is made by a third party with the consent of the debtor, then he can take the place of the
Requisites of a valid payment: creditor and exercise all his rights over the debtor.
1) capacity of the person paying;
2) capacity of the person receiving the payment; Without consent- he can only reimburse to the extent the debtor has benefited. Meaning if the debt
3) delivery of the full amount of the full performance; has prescribed, there’s no benefit to the debtor, hence he can’t reimburse any amount.
4) propriety of the time, place and manner of payment; and
5) acceptance of the payment by the creditor ARTICLE 1237. Whoever pays on behalf of the debtor without the knowledge or
against the will of the latter, cannot compel the creditor to subrogate him in his
rights, such as those arising from a mortgage, guaranty, or penalty. (1159a)
ARTICLE 1233. A debt shall not be understood to have been paid unless the thing
or service in which the obligation consists has been completely delivered or
rendered, as the case may be. (1157) ARTICLE 1238. Payment made by a third person who does not intend to be
reimbursed by the debtor is deemed to be a donation, which requires the debtor’s
consent. But the payment is in any case valid as to the creditor who has accepted it.
Receipt is a good proof of payment. (n)
ARTICLE 1234. If the obligation has been substantially performed in good faith, the
obligor may recover as though there had been a strict and complete fulfillment, less ARTICLE 1239. In obligations to give, payment made by one who does not have the
damages suffered by the obligee. (n) free disposal of the thing due and capacity to alienate it shall not be valid, without
prejudice to the provisions of article 1427 under the Title on “Natural Obligations.”
Substantial compliance is present when the debtor, in good faith, tried to perform the contract, but (1160a)
through oversight, or any excusable neglect, he failed to make a full and complete performance. It
must be slight and unimportant.

ARTICLE 1240. Payment shall be made to the person in whose favor the obligation For convenience debtor of the respondent-debtor can consign his payment.
has been constituted, or his successor in interest, or any person authorized to
receive it. (1162a) ARTICLE 1244. The debtor of a thing cannot compel the creditor to receive a
different one, although the latter may be of the same value as, or more valuable
Payment made to incapacitated person or a third person under the conditions set forth in Article than that which is due.
1241 may be deemed valid. Also payment in good faith made to a person who possess the credit
(Art. 1242). In obligations to do or not to do, an act or forbearance cannot be substituted by
another act or forbearance against the obligee’s will. (1166a)
ARTICLE 1241. Payment to a person who is incapacitated to administer his property
shall be valid if he has kept the thing delivered, or insofar as the payment has been What is barred is the compulsion to accept. Hence, if the creditor accepts it is valid. Such payment
beneficial to him. is either dacion en pago or a novation.
Payment made to a third person shall also be valid insofar as it has redounded to Personal obligations are not subject to substitution to another act or forbearance, unless the creditor
the benefit of the creditor. Such benefit to the creditor need not be proved in the consents
following cases:
ARTICLE 1245. Dation in payment, whereby property is alienated to the creditor in
(1) If after the payment, the third person acquires the creditor’s rights; satisfaction of a debt in money, shall be governed by the law of sales. (n)
(2) If the creditor ratifies the payment to the third person; Dation in payment is a novation whereby the object of obligation is changed.
(3) If by the creditor’s conduct, the debtor has been led to believe that the third The object delivered is deemed to be equivalent of the performance of the obligation, unless
person had authority to receive the payment. (1163a) otherwise provided.
This article applies when payment was made either to: a) incapacitated creditor; or b) third person There is transmission of ownership.
who is not a successor in interest nor an authorized representative
Note that if the creditor is evicted from the property (dation) the original obligation which was
Moreover, this article provides for an exception that the payment made to a third person who is not terminated ipso jure is not reinstated. What he can only recover are the benefits provided under Art.
authorized nor a success in interest is valid. It is valid if the creditor was benefited. The validity of 1555 for the breach of warranty.
payment is co-extensive to the benefits of the creditor. Such benefits need not be proven in three
instances provided in this code. Elements
Additionally, the debtor is released from liability when payment has been made to: a) original 1. existence of a money obligation;
debtor; b) there was assignment of rights without notice to him; and c) when he pays in good faith 2. alienation to the creditor of a property by the debtor with the consent of the former
to the legal possessor of the credit. 3. satisfaction of the money obligation of the debtor
ARTICLE 1242. Payment made in good faith to any person in possession of the
credit shall release the debtor. (1164) ARTICLE 1246. When the obligation consists in the delivery of an indeterminate or
generic thing, whose quality and circumstances have not been stated, the creditor
Example: A holds a mobile phone which is owned by B. C in good faith bought it. Such payment is cannot demand a thing of superior quality. Neither can the debtor deliver a thing of
valid. B’s recourse is to run after A. inferior quality. The purpose of the obligation and other circumstances shall be
taken into consideration. (1167a)
Take note the credit mention here is the actual credit not mere document representing a credit.
-this article only applies to quality and not to quantity. If the latter, the obligation is considered
voice because the quantity must be determined in the agreement.
ARTICLE 1243. Payment made to the creditor by the debtor after the latter has been
judicially ordered to retain the debt shall not be valid. (1165) ARTICLE 1247. Unless it is otherwise stipulated, the extrajudicial expenses required
by the payment shall be for the account of the debtor. With regard to judicial costs,
This speaks of a debt wherein the court has issued a writ of garnishment. Meaning the debtor of the the Rules of Court shall govern. (1168a)
defendant-debtor should not pay his debt prior to the decision of the case. Should he pay and
subsequently the case was granted, creditor can still run after him. If the case is dismissed, Extrajudicial expenses is shouldered by the party who assumed the same, if there no agreement,
however, his payment is valid. then the debtor is liable for the expenses.

ARTICLE 1248. Unless there is an express stipulation to that effect, the creditor
cannot be compelled partially to receive the prestations in which the obligation -applicable only to contractual obligation not to torts or order from courts
consists. Neither may the debtor be required to make partial payments. -applies only when such extraordinary inflation or deflation has been issued by competent
authorities
However, when the debt is in part liquidated and in part unliquidated, the creditor
may demand and the debtor may effect the payment of the former without waiting
for the liquidation of the latter. (1169a)
Extraordinary inflation or deflation
If there’s no stipulation on the contrary, the creditor can refuse partial payment. Conversely, the -there is a decrease or increase in the purchasing power of the Philippine currency which is unusual
debtor can’t be compelled to pay in partial if he is capable of paying in full. or beyond the common fluctuation in the value of the said currency, and such decrease or increase
could not have been reasonably foreseen or was manifestly beyond the contemplation of the parties
Example: at the time of the establishment of the obligation.
A is obliged to construct a two-story house of B. He cannot compel B to accept the house if he has
only built the ground floor. Moreover, should the parties agree that it is not the value at the time of the establishment of
obligation be the basis of the amount for payment, they may validly do so through stipulation in the
Conversely, B cannot require A to only construct the first floor first. contract.
Rule if there is liquidated and there is non-liquidated

ARTICLE 1251. Payment shall be made in the place designated in the obligation.
Creditor may demand the fulfillment of the liquidated portion, in the same manner that debtor can
give the fulfillment of the liquidated portion notwithstanding there is still the non-liquidated debt. There being no express stipulation and if the undertaking is to deliver a determinate
thing, the payment shall be made wherever the thing might be at the moment the
Example: 1 million debt with interest, if interest is still non-liquidated, the payment of 1 million can obligation was constituted.
already be done.
In any other case the place of payment shall be the domicile of the debtor.
ARTICLE 1249. The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the currency If the debtor changes his domicile in bad faith or after he has incurred in delay, the
which is legal tender in the Philippines. additional expenses shall be borne by him.
The delivery of promissory notes payable to order, or bills of exchange or other These provisions are without prejudice to venue under the Rules of Court. (1171a)
mercantile documents shall produce the effect of payment only when they have
been cashed, or when through the fault of the creditor they have been impaired. Effects of change of domicile
1. Bad faith debtor: additional expenses incurred by the collecting party shall be borne by the
In the meantime, the action derived from the original obligation shall be held in debtor. However, these do not include the regular expenses incurred in going to the original
abeyance. (1170) place of the debtor.
2. Good faith debtor: if he changed domicile for valid reasons such as security, he will not be
Legal tender- those issued by the Central Bank; used in payment in the Philippines. liable for the expenses.
The rule now provides that parties may stipulate different currency at the time of payment. SUBSECTION 1
Application of Payments
With regard to checks- it not considered a legal tender and payment is still not valid unless:
1) the check has been certified to be funded and good as cash. ARTICLE 1252. He who has various debts of the same kind in favor of one and the
2) The creditor has accepted the debtor’s check and the following day returns it, he is estopped same creditor, may declare at the time of making the payment, to which of them the
3) When after the payment of check in court, the creditor motion to withdraws it same must be applied.
4) When the check had lost its value due to the fault of the creditor
5) When the foreign bill of exchange lost its value or the reason that the creditor neglected to Unless the parties so stipulate, or when the application of payment is made by the
make a protest party for whose benefit the term has been constituted, application shall not be
made as to debts which are not yet due.
ARTICLE 1250. In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the time of the If the debtor accepts from the creditor a receipt in which an application of the
establishment of the obligation shall be the basis of payment, unless there is an payment is made, the former cannot complain of the same, unless there is a cause
agreement to the contrary. (n) for invalidating the contract. (1172a)

Requisites for a valid application of payments by the debtor This article only applies when:
1. There is only one debtor and one creditor 1) When application of payment can’t be made in accordance with Articles 1252 or 1253; or
2. Debtor has multiple debts to the creditor which are of the same kind or identical specie 2) The application of payment cannot be inferred from other circumstances
3. All debts are due and demandable except: a) when there is a stipulation to the contrary; b)
when the period’s benefit is given to him SUBSECTION 2
4. Payment made is not sufficient to cover or settle all debts Payment by Cession
Requisites for a valid application of payments by the creditor ARTICLE 1255. The debtor may cede or assign his property to his creditors in
1. Debtor did not make any designation as to which debt the payment shall be charged when he payment of his debts. This cession, unless there is stipulation to the contrary, shall
made the payment only release the debtor from responsibility for the net proceeds of the thing
2. When he issued receipt applying the payment to a particular debt assigned. The agreements which, on the effect of the cession, are made between
3. The debtor assented to the application made by the creditor by accepting the receipt without the debtor and his creditors shall be governed by special laws. (1175a)
any objection. (Note that if the assent is tainted with fraud, intimidation, violence or undue
pressure such application of the creditor is not valid) The consent of the creditors is essential. Here there is no transfer of ownership unlike in dation.
Moreover, what happens here is that properties of the insolvent debtor will be sold and the proceeds
If the debtor does not assent to the application of the creditor, Article 1254 will apply. Meaning it will be used to satisfy the debts.
shall be charged to the debt that is most onerous, if it can’t be determined then it shall be applied to Classification of Cession
all of the debts proportionately. 1. Voluntary or contractual- agreement by the parties
2. Involuntary or legal- Insolvency law
Limitation on the preferential right of the debtor on application of payment
Requisites of Voluntary Cession or Assignment
1. Debts that are not due or liquidated unless a) there is a contrary stipulation; or b) he is the one 1) There is plurality of debts
given the benefit of the period or term; 2) There is complete or partial onsolvency on the part of the debtor;
2. If the creditor is given the benefit of the period or term 3) There are at least two creditors
3. If there is a specific agreement as to which debts shall be paid first, unless the creditor 4) There is acceptance of the cession or assignment by the creditors;
consents to the application of payment 5) Property ceded or assigned is not exempt from execution
4. If there is a principal obligation which bears interests (Art. 1253)
5. A debtor cannot choose to pay a bigger debt partially when the payment can be applied as full
payment to a smaller debt, unless the creditor consents. SUBSECTION 3
Tender of Payment and Consignation
Articles 1252-1254 are not applicable to a person whose obligation as a mere surety is both
contingent and singular. His liability is only confined to that particular obligation. His payment
ARTICLE 1256. If the creditor to whom tender of payment has been made refuses
shall be applied solely to the debt he guaranteed and to no other.
without just cause to accept it, the debtor shall be released from responsibility by
the consignation of the thing or sum due.
Example: A has multiple debts to B, in one of his debt C acted as surety. Should C pay, it shall be
charged only to the debt which he acted as surety.
Consignation alone shall produce the same effect in the following cases:
ARTICLE 1253. If the debt produces interest, payment of the principal shall not be (1) When the creditor is absent or unknown, or does not appear at the place of
deemed to have been made until the interests have been covered. (1173) payment;
(2) When he is incapacitated to receive the payment at the time it is due;
Due to jurisprudence, this provision is not anymore mandatory but discretionary. (3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
ARTICLE 1254. When the payment cannot be applied in accordance with the (5) When the title of the obligation has been lost. (1176a)
preceding rules, or if application can not be inferred from other circumstances, the
debt which is most onerous to the debtor, among those due, shall be deemed to This article only applies to obligations and not to the exercise of rights such as redemption.
have been satisfied.
ARTICLE 1257. In order that the consignation of the thing due may release the
If the debts due are of the same nature and burden, the payment shall be applied to
obligor, it must first be announced to the persons interested in the fulfillment of the
all of them proportionately. (1174a)
obligation.
Onerous debt- debt which attaches additional burden such as with a mortgage.

The consignation shall be ineffectual if it is not made strictly in consonance with -Payment of rentals due made by consigning the same to a bank in the name of the creditor with
the provisions which regulate payment. (1177) due notice to the latter;
-deposit was made to the sheriff of the amount for the redemption of the property
There should be strict compliance to the rules provided otherwise no valid consignation will
happen.
Second Notice
ARTICLE 1258. Consignation shall be made by depositing the things due at the -This is mandatory, w/o it consignation is void
disposal of judicial authority, before whom the tender of payment shall be proved, -This entire article refers to contractual debts; Hence, second notice is not required if the amount
in a proper case, and the announcement of the consignation in other cases. due as a consequence of a final judgment
-Can be in a form of letter properly addressed to the creditor or persons interested in the fulfillment
The consignation having been made, the interested parties shall also be notified of the obligation
thereof. (1178) -Summons with consignation complaint may substitute for second notice
-If the creditor is absent or unknown, publication would suffice the required notice.
Tender of Payment
-Voluntary act of the debtor whereby he offers to the creditor for acceptance the immediate Consequences of deposit
performance of his obligation. 1. The amount or property is placed in “custodial egis”
-The debtor, himself, must be the one to offer. At that time, he should have the actual intent and 2. The property is exempted from attachment or execution
capable of disposing of what he intends to deliver. 3. When the actual property can’t actually be deposited (i.e. car, lot), the debtor becomes the
-This does not produce legal payment, unless it is completed by consignation. agent of the court.
-Aside from the instances listed in Art. 1256, it may be dispensed with when tender of payment 4. Consignation has a retroactive effect and the payment is deemed to have been at the time of
would be useless. the deposit of the thing in court or when it was placed at the disposal of judicial authority
Consignation ARTICLE 1259. The expenses of consignation, when properly made, shall be
-Act of depositing the object of the obligation with the court or competent authority after the charged against the creditor. (1179)
creditor has unjustifiably refused to accept the same or is not in a position to accept it.
-it requires a creditor-debtor relationship, otherwise this can’t be availed of.
-if it is ordered by the Court, tender of payment is not necessary ARTICLE 1260. Once the consignation has been duly made, the debtor may ask the
-no automatic cancellation of obligation, debtor must motion for it. There’s a need for judicial order judge to order the cancellation of the obligation.
before a debtor be cleared from obligation.
Before the creditor has accepted the consignation, or before a judicial declaration
Requisites of a Valid Tender of Payment that the consignation has been properly made, the debtor may withdraw the thing or
1. It must be made before the act of consignation; the sum deposited, allowing the obligation to remain in force. (1180)
2. It must be unconditional; and
3. The full amount including interests due must have been offered in legal tender. -There is a retroactive effect. Meaning the obligation is deemed to be complied with since the
deposit of the property or money.
Requisites of Consignation -Running of interest if stipulated is also deemed suspended at the same time.
1. There is an existing valid debt which is already due;
2. There is a prior valid tender of payment to the creditor save when tender is dispensable; Dismissal of the Consignation case
3. There is a refusal to accept the payment tendered w/o just cause on the part of the creditor; -it will have no favorable effect upon the debtor
4. There is prior notice of consignation given to the persons interested in the fulfillment of the -Right of the parties will be determined without considering the consignation
obligation;
5. That the amount or the thing due is deposited with the court or competent authority; and Withdrawal of the debtor
6. Subsequent notice of consignation is given to the persons interested in the fulfillment of the -It can be made provided that: a) the creditor has not yet accepted the thing or sum deposited; or b)
obligation. that the court had not yet made a judicial declaration that the consignation had been properly made.
-If there’s only partial acceptance from the creditor, withdrawal is still availing.
Deposit in Court
Before deposit, there must be a consignation case filed in court. W/o a suit there can be no Party who bears the risk of loss
consignation. -if during the pendency of the case, the property deposited got or depreciated, these are the
consequences:
Competent Authority
-Law provides that it must be deposited to judicial authorities a. If the consignation is found to be proper-creditor will bear

b. If the consignation is found to be improperly made- debtor will bear -This article speaks of partial loss.
-I assume that this only applies to determinate thing because if generic then the debtor must provide
a new one pursuant to Art. 1165.
ARTICLE 1261. If, the consignation having been made, the creditor should authorize
the debtor to withdraw the same, he shall lose every preference which he may have Example: A buyer bought a house because of the wide lawn. Due to the expropriation which was
over the thing. The co-debtors, guarantors and sureties shall be released. (1181a) done prior to payment of A, the lawn has been reduced to a considerable amount. The obligation to
pay for the house is extinguished.
-This is a matter of mere tolerance or privilege and not a right
-Creditor must consent, otherwise withdrawal is not allowed. ARTICLE 1265. Whenever the thing is lost in the possession of the debtor, it shall
-If creditor allows withdrawal, he shall lose any preference or priority right over the thing be presumed that the loss was due to his fault, unless there is proof to the contrary,
consigned. and without prejudice to the provisions of article 1165. This presumption does not
-Solidary co-debtors, guarantors and sureties are released from obligation because of the apply in case of earthquake, flood, storm or other natural calamity. (1183a)
consignation.
-Solidary co-debtors’ release is only between them and the creditor. Liability among their co-debtor -This is a rebuttable presumption.
is not extinguished. -He’ll still be liable even due to fortuitous event if: a) he has incurred delay or b) he had promised
-The withdrawal has the effect of reviving the obligation of the debtor. to deliver the thing to two or more persons w/ different interests
SECTION 2 ARTICLE 1266. The debtor in obligations to do shall also be released when the
Loss of the Thing Due prestation becomes legally or physically impossible without the fault of the obligor.
(1184a)
ARTICLE 1262. An obligation which consists in the delivery of a determinate thing
shall be extinguished if it should be lost or destroyed without the fault of the debtor, -To be released from obligation, the impossibility of performance must happen after the
and before he has incurred in delay. constitution of the contract. If it happened prior, then such contract is void.
When by law or stipulation, the obligor is liable even for fortuitous events, the loss
of the thing does not extinguish the obligation, and he shall be responsible for ARTICLE 1267. When the service has become so difficult as to be manifestly
damages. The same rule applies when the nature of the obligation requires the beyond the contemplation of the parties, the obligor may also be released
assumption of risk. (1182a) therefrom, in whole or in part. (n)
-Speaks of determinate things -This article speaks of personal obligations and not to give.
-The loss in this article included the impossibility of performance of obligation. Hence, it is not -It is not the impossibility of execution but the difficulty of it
exclusive to “to give.” It extends to personal obligations -Such performance must be greatly beyond the intention of the parties.
-Court can’t amend or modify contracts.
Debtor at fault -Depending on the circumstances, Court may release wholly or partially from complying with the
-liable for indemnity for damages obligation.
-This is NOT availing if there’s only minor or insignificant loss.
Debtor w/o fault but in delay
-liable for damages Rebus sic stantibus
-principle in International Law which states treaties remain to be binding if the circumstances
ARTICLE 1263. In an obligation to deliver a generic thing, the loss or destruction of existing at the time of constitution still appear at present, otherwise the treaties cease.
anything of the same kind does not extinguish the obligation. (n) -We don’t strictly apply this principle because to do so will make contracts nugatory.
Generic never perishes ARTICLE 1268. When the debt of a thing certain and determinate proceeds from a
-obligation is not extinguished if what has been lost is a generic thing. criminal offense, the debtor shall not be exempted from the payment of its price,
Exception: When a generic thing has been delimited, the loss of it will extinguish liability whatever may be the cause for the loss, unless the thing having been offered by
Example: B is obliged to deliver Ube Jam fresh from Good Shepherd Baguio, the store was caught him to the person who should receive it, the latter refused without justification to
in fire. B’s liability is extinguished. accept it. (1185)
ARTICLE 1264. The courts shall determine whether, under the circumstances, the -Only applies to determinate things and arouse out of the commission of the crime.
partial loss of the object of the obligation is so important as to extinguish the -w/ or w/o fault, the debtor is liable for the loss of the thing.
obligation. (n) Exception: When the debtor offered it to creditor but the latter unjustly refused and the thing got
lost, the former is not liable anymore because the latter is in mora accipiendi.

-Must be in writing and it must follow the formalities required of ordinary donations provided in
Remedies of Debtor, if Creditor unjustly refuses this code.
1. Consignation -If it did not comply with the formalities such remission is void and will not be converted into an
2. Keep it with due diligence, however, if there’s fortuitous event, he shall be exempt from oral one.
liability.
Implied
ARTICLE 1269. The obligation having been extinguished by the loss of the thing, -If remission is oral and involves movable object, it need not to follow formalities.
the creditor shall have all the rights of action which the debtor may have against -There’s no need for delivery
third persons by reason of the loss. (1186)
-Subrogation takes place by operation of law starting from the extinguishment of the obligation. Remission or Waiver
-It is not presumed since they are abandonment of rights.
Examples: -Their existence if denied must be proved with clear, strong and convincing evidence.
1. The thing loss is insured by the debtor. It got lost due to reasons allowable by the policy.
Creditor can collect the insurance indemnity from the insurer. ARTICLE 1271. The delivery of a private document evidencing a credit, made
2. The thing is expropriated, the creditor can collect for the just compensation. voluntarily by the creditor to the debtor, implies the renunciation of the action
which the former had against the latter.
SECTION 3
Condonation or Remission of the Debt If in order to nullify this waiver it should be claimed to be inofficious, the debtor and
his heirs may uphold it by proving that the delivery of the document was made in
ARTICLE 1270. Condonation or remission is essentially gratuitous, and requires the virtue of payment of the debt. (1188)
acceptance by the obligor. It may be made expressly or impliedly.
-It only applies to private documents
One and the other kinds shall be subject to the rules which govern inofficious -The law does not speak of credit but action of the creditor against the debtor
donations. Express condonation shall, furthermore, comply with the forms of -If the debt has been renounced, subsequent payment is void
donation. (1187) -If the right action is the one renounced and the debtor paid even after the prescription of the action,
the payment could not be recovered because it was converted into a natural obligation.
-It must be bilateral, and it is not presumed.
-It is a gratuitous abandonment by the creditor of his right. According to Pineda
-It must be gratuitous, meaning there must be no condition. This provision is contradicting itself. The first paragraph refers to remission of debt; while, the
-If there’s no acceptance from the debtor, there is no remission second speaks of payment.
Condonation- act of liberality by which the creditor renounces the enforcement of the obligation The heirs of the creditor may run after the debtor and prove that no payment has been made despite
contracted in his favor. the fact they hold private document evidencing payment. However, in this article, the position of
the heirs is to prove that such remission is inofficious and not that the not that the payment was
Remission- when accepted, it is subject to the rules on donation. made.
Limitation So if conflict arises and the debtor actually paid, it is better to prove that he paid rather than rely on
-Such remission must not be inofficious. Meaning the creditor must retain sufficient property to the presumption of remission. If the debtor has no receipts to prove payment, there will be two
support his family or any dependent. presumptions: a) presumption of payment under the Rules; and b) presumption of remission under
-If it is inofficious it may be totally revoked or reduced depending on whether or not it is totally or this Code. It must be rebutted by clear, strong, and convincing evidence, otherwise presumptions
only partially inofficious. must be held.
Requisites of Condonation or Remission

1. Existence of a demandable debt ARTICLE 1272. Whenever the private document in which the debt appears is found
2. Renunciation of the debt is purely gratuitous in the possession of the debtor, it shall be presumed that the creditor delivered it
3. Acceptance of the condonation by the debtor voluntarily, unless the contrary is proved. (1189)
4. Formalities required by law on donation must be complied with
5. What has been condoned or remitted must not be inofficious -Only applies to private documents.
-This is a rebuttable presumption (clear, strong, and convincing evidence will overthrow such
presumption)
Express -Creditor can prove that the reason of debtor’s possession is for him to collect debts and that it is
not for renunciation.

Joint Debtor ARTICLE 1276. Merger which takes place in the person of the principal debtor or
-The one who holds the private document is the only one whose share has been renounced. creditor benefits the guarantors. Confusion which takes place in the person of any
of the latter does not extinguish the obligation. (1193)
Solidary Debtor
-If any of the solidary debtor is in possession of the document, it is presumed that the entire -This article refers to two kinds of mergers: a) merger in the person of the principal debtor or
obligation has been renounced. principal creditor; and b) merger in the person of the guarantor
First merger
ARTICLE 1273. The renunciation of the principal debt shall extinguish the -if this happens, it will result to the extinguishment of the guaranty. Consistent with the principle of
accessory obligations; but the waiver of the latter shall leave the former in force. accessory follows principle. Thus, confusion benefits the guarantors.
(1190)
Example: A owes B, C is the guarantor. B assigned this credit to D. Later, D assigned the credit to
-Accessory follows the principal, but not the other way around. A. There being a confusion to A, C’s liability is extinguished.
ARTICLE 1274. It is presumed that the accessory obligation of pledge has been Second merger
remitted when the thing pledged, after its delivery to the creditor, is found in the -if this happens, the principal will not be extinguished because it is not dependent upon the
possession of the debtor, or of a third person who owns the thing. (1191a) secondary obligation.
-This article refers to pledge Example: Same facts as above, however, this time, D assigned the credit to C and not to A. A is
-Pledge is a real contract; it is an accessory still liable. C, on the other hand is relieved.
-For pledge to be valid it must be transferred and placed in the possession of the creditor or of a
third person by common agreement. ARTICLE 1277. Confusion does not extinguish a joint obligation except as regards
-The presumption of remission does not include the principal obligation the share corresponding to the creditor or debtor in whom the two characters
-Again, this is a rebuttable presumption concur. (1194)
-This article refers to joint obligation. Hence, when one of the co-debtor’s rights has been merged
Possible defenses: a) it was stolen; b) he delivered it only for repair purposes to that of a creditor, his proportionate share in the obligation will be extinguished but not the whole
obligation.
SECTION 4 Example: C and D are jointly obtained a loan of 1m from A. Should later on A assigned the whole
Confusion or Merger of Rights credit to C. C’s share shall be extinguished. D, however, is still liable to pay 500k, this time to C
since C owns the credit.
ARTICLE 1275. The obligation is extinguished from the time the characters of SECTION 5
creditor and debtor are merged in the same person. (1192a) Compensation
Confusion
- known as merger of rights. ARTICLE 1278. Compensation shall take place when two persons, in their own right,
-merging or convergence of the rights of a creditor and a debtor in one and in the same person with are creditors and debtors of each other. (1195)
regard to the same obligation.
Compensation
Requisites for Confusion or Merger of Rights -mode of extinguishment of obligation to the concurrent amount.
1. Merger in the same person of the characters of a creditor and a debtor -off-setting of respective obligations of two persons who stand as principal creditors and debtors of
2. The merger must be in the characters of a principal creditor and principal debtor each other
(subsidiary debtors are included) -it’s possible that there will be no delivery
3. There merger is definite and complete. (Partial merger is allowed. It is definite and complete -there are at least two persons who stand as principal creditors and debtors of each other and there
up to the extent of the concurrent amount or value. are two obligations involved contrary to merger where there is only one person and obligation
involved.
-both in legal or conventional, their right as such creditors or debtors need not spring from one and
the same contract or transaction
Guarantor -not proper when civil liability is arising from a criminal offense
The meeting of the rights of the creditor and with the guarantor does not result in confusion but
only in a substitution of the creditor or debtor Origin

1. Conventional or Voluntary- agreement of the parties Example: A owes B then Indian mangoes. B owes A 5 Carabao mangoes. There can be no
2. Legal- by operation of law from the time all the requisites concur compensation because quality is stated and they’re not of the same kind.
3. Judicial- by judgment of the court when there is a counterclaim duly pleaded and the
compensation decreed
4. Facultative- when it is claimed by one of the parties who has the right to object to it, but That the two debts be due
waives his objection thereto (such as when the obligation of such party is with a period for his -both debts must be due
benefit alone, and he renounces the period to make the obligation become due) -hence, when a debt is payable on demand and no demand was made, it is not yet due and
demandable.
Extent -however, for voluntary compensation parties may agree upon the compensation even to the debts
1. Total- both obligations are extinguished (same amount, or by agreement of the parties) that are not yet due.
2. Partial- when after the compensation, a balance remains.
That they be liquidated and demandable
ARTICLE 1279. In order that compensation may be proper, it is necessary:
Liquidated- the value is determined or amount is fixed.
(1) That each one of the obligors be bound principally, and that he be at the same Demandable- if it is not yet barred by prescription and it is not illegal or invalid.
time a principal creditor of the other;
That over neither of them there be any retention or controversy, commenced by third persons and
(2) That both debts consist in a sum of money, or if the things due are consumable, communicated in due time to the debtor.
they be of the same kind, and also of the same quality if the latter has been stated;
-Debt can’t be compensated when the very thing to be compensated is a subject of writ execution or
(3) That the two debts be due; attachment. Once the object has been released from attachment or execution, that’s the only time
that it shall be open and free to compensation.
(4) That they be liquidated and demandable;
ARTICLE 1280. Notwithstanding the provisions of the preceding article, the
guarantor may set up compensation as regards what the creditor may owe the
(5) That over neither of them there be any retention or controversy, commenced by
principal debtor. (1197)
third persons and communicated in due time to the debtor. (1196)
-This is the time when compensation shall take place even if the party involved one is only a
guarantor.
-This speaks of legal compensation which is effective by operations of law.
-Compensation may only take place when the principal creditor decided to run after the guarantor,
-When all these concur regardless whether the parties are aware of it or not, compensation takes
as such the guarantor can claim compensation for: a) what the creditor owes the principal debtor
place.
whom the guarantor is guaranteeing; and/or b) for what the creditor owes the guarantor himself.
That each one of the obligors be bound principally, and that he be at the same time a principal
Situation 1
creditor of the other
A owes B 10k, C is the guarantor. B owes A 5k. B demands C the fulfillment of obligation of A. C
-the requirement is that they are principal creditor and principal debtor of each other.
may compensate the 5 k which B owes A, the principal debtor.
-Personal obligation of the creditor to a guarantor cannot be compensated for the debt of the
principal debtor
Situation 2
-Guaranty is not a principal debt
A owes B 10k, C is the guarantor. B owes C 5k. B demands C the fulfillment of obligation of A. C
-Also in a case where the debtor of two partners cannot compensate the debt of the partnership to
may compensate the 5 k which B owes him
the former, because the debtor and the partnership are not mutual creditor and debtor of each other
nor principally bound to one another.
ARTICLE 1281. Compensation may be total or partial. When the two debts are of the
That both debts consist in a sum of money, or if the things due are consumable, they be of the same same amount, there is a total compensation. (n)
kind, and also of the same quality if the latter has been stated
ARTICLE 1282. The parties may agree upon the compensation of debts which are
-If it is in the sum of money it is easy, just do math not yet due. (n)
-If consumable, they be of the same kind -This speaks of conventional compensation where parties may agree upon the compensation.
Example: A owes B ten mangoes. B owes A 5 mangoes. The liability of A will only be 5 -It is important to note that parties must have the capacity to dispose of their credits which they
mangoes there being compensation. compensate. Otherwise, there can be no compensation.
-If the quality is determined, they must be of the same kind.

ARTICLE 1283. If one of the parties to a suit over an obligation has a claim for Solidary creditor cannot assign his rights without the consent of the others.
damages against the other, the former may set it off by proving his right to said
damages and the amount thereof. (n) ARTICLE 1286. Compensation takes place by operation of law, even though the
debts may be payable at different places, but there shall be an indemnity for
If one party sues another for recovery of money and that party being sued claims for damages expenses of exchange or transportation to the place of payment. (1199a)
against the plaintiff, he may adduce evidence and when properly made, it shall be converted into
liquidated damages between the parties. After the judgment has become final and executory, then -the person claiming for compensation shoulder the expenses.
there will be compensation and it shall retroact from the date of the filing of the pleading where -compensation takes place by operation of law even if the parties are not aware of it what is
compensation was alleged and claimed. essential is the presence of all of the requisites in Art. 1279.
ARTICLE 1284. When one or both debts are rescissible or voidable, they may be ARTICLE 1287. Compensation shall not be proper when one of the debts arises
compensated against each other before they are judicially rescinded or avoided. (n) from a depositum or from the obligations of a depositary or of a bailee in
commodatum.
If for instance, the prescriptive period for the annulment or rescission has lapsed, the compensation
shall take place automatically. Neither can compensation be set up against a creditor who has a claim for support
due by gratuitous title, without prejudice to the provisions of paragraph 2 of article
In other cases, if the debt is rescinded or annulled, the compensation is also automatically cancelled 301. (1200a)
and there shall be restitution of what each part had received before the rescission or annulment.
Debts or obligations not subject to compensation
ARTICLE 1285. The debtor who has consented to the assignment of rights made by 1. Debts or obligations arising from contracts of depositum;
a creditor in favor of a third person, cannot set up against the assignee the 2. Debts arising from obligations of a depositary;
compensation which would pertain to him against the assignor, unless the assignor 3. Debts arising from obligations of a bailee in commodatum;
was notified by the debtor at the time he gave his consent, that he reserved his right 4. Debts or claims for support due by gratuitous title
to the compensation. 5. Debts or obligations consisting in civil liability from a penal offense (Art. 1288)
6. Debts or obligations due to the government, like taxes fees, duties and similar others
If the creditor communicated the cession to him but the debtor did not consent
thereto, the latter may set up the compensation of debts previous to the cession, The depositor and the bailor (lender) are allowed to claim compensation against the depositary and
but not of subsequent ones. bailee (borrower)
If the assignment is made without the knowledge of the debtor, he may set up the Example: B asked A for safekeeping of B’s 100 pieces of 1k newly printed. Supposed B then
compensation of all credits prior to the same and also later ones until he had borrowed 50k to A. And when B asked for the 100 pieces of 1k, A only return 50 pieces claiming
knowledge of the assignment. (1198a) compensation. This is invalid. The amount compensated is a deposit which is not a subject to
compensation.
-This happens when the one assigning rights is the creditor in favor of a third person who need not
be a creditor. It is different from cession where the party to whom assignment is being assigned But if B also owes A 50k, he may agree to compensate it with the money he gave A for
must be a creditor as well safekeeping.
-When compensation happened it extinguishes to concurrent amount. Hence, should the creditor ARTICLE 1288. Neither shall there be compensation if one of the debts consists in
assign the property to a third party after the compensation, the amount not compensated is the only civil liability arising from a penal offense. (n)
amount transferred to the third party.
However, this amount is subject to following conditions: ARTICLE 1289. If a person should have against him several debts which are
susceptible of compensation, the rules on the application of payments shall apply
1) If the debtor consents he acknowledges the right of the third party unless during the to the order of the compensation. (1201)
assignment he reserves his right on the assignment and thus he can raise the defense of
compensation. -This article envisions a scenario where a debtor may have several debts to a creditor and vice
2) If the debtor was informed but did not give consent, debts falling due after the assignment are versa. If this happens Art. 1252-1254 shall apply.
demandable.
3) If the debtor was not informed, then all debts falling due prior and subsequent ones until the ARTICLE 1290. When all the requisites mentioned in article 1279 are present,
debtor leans of the assignment can be used as against the third party. compensation takes effect by operation of law, and extinguishes both debts to the
Limitations To Assignment of Rights

concurrent amount, even though the creditors and debtors are not aware of the
compensation. (1202a) 1. Express- declared in unequivocal terms.
2. Implied- no express declaration but the old and new obligations are incompatible on every
Legal compensation: takes place as soon as all the requisites in Art. 1279 are present. material point such as they cannot co-exist.
Test of incompatibility- whether the two obligations can stand together.
Voluntary compensation: takes effect from the time or day agreed upon by the parties.
Essence
Judicial compensation: takes effect from the moment the judgment becomes final and executor. 1. Objective or real
Change in the object or principal conditions
SECTION 6
Novation 2. Subjective or personal
-Either a) substituting the person of the debtor or b) subrogating a third person to the rights of
ARTICLE 1291. Obligations may be modified by: the creditor
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor; 3. Mixed
(3) Subrogating a third person in the rights of the creditor. (1203) -combination of both objective and subjective.
As to their origin
Novation
1. Legal- by operations of law under Arts 1300 and 1302
-Extinguishment of obligation by substitution or change of the obligation by a subsequent one
2. Conventional- by agreement of the parties.
which terminates the first, either by changing the object or principal conditions, substituting the
persons of the debtor or subrogating a third person with the rights of the creditor.
Novation of criminal liability
-It is not presumed.
-may be means to avoid criminal liability as long as novation occurs prior to the filing of the
-can be pure or conditional. Hence, if it is with a condition and the condition is not fulfilled then
criminal action.
there is no novation. The original subsists.
Void Obligations ARTICLE 1292. In order that an obligation may be extinguished by another which
-A void obligation cannot be novated. substitute the same, it is imperative that it be so declared in unequivocal terms, or
-A voidable can be novated before annulled. that the old and the new obligations be on every point incompatible with each other.
-If new obligation is void, there’s no novation. The original will subsist unless the contrary is (1204)
agreed.
-The article did not prescribe a particular format.
Requisites of a valid novation -In express, it must be in writing and that it declares that the old obligation is extinguished.
1. There must be a previous novation -For implied, absolute incompatibility between the old and the new obligation must exist in order to
2. There must be an agreement by the parties to extinguish or modify the old obligation and show and establish novation.
creates a new obligation
3. The validity of the new obligation Principal Condition
-Includes the change in the period (partial novation, but strictly speaking there’s no novation
Two fold function because it did not absolutely affected the obligation, only its performance)
1. It extinguishes an obligation; and -If the term is reduced, then there is novation.
2. It creates a new obligation
If there is novation, parties will be governed by their subsequent agreement.
Two kinds
1. Extinctive- original obligation is complete extinguished. ARTICLE 1293. Novation which consists in substituting a new debtor in the place of
the original one, may be made even without the knowledge or against the will of the
Its requisites: a) existence of a previous valid obligation; b) the agreement of all the parties to latter, but not without the consent of the creditor. Payment by the new debtor gives
the new contract; c) the extinguishment of the old obligation or contract; and d) the validity of him the rights mentioned in articles 1236 and 1237. (1205a)
new one. The new contract must be among the same parties as to the old
-consent of the creditor is necessary
2. Partial- when the original obligation is not totally extinguished but merely modified.
Two forms of passive subjective novation

Forms of Novation

1. Delegacion- substitution initiated by the old debtor by convincing another to take his place The accessory obligation which subsists may be demanded separately from the principal obligation
Its requisites: by the beneficiary who did not give consent to the novation.
a. The substitution is upon the initiative or proposal of the old debtor by proposing to the
creditor the entry of another person as the new debtor will replace him in the payment This article does not apply when the third party subrogates the right of the creditor, Arts 1303 and
b. The creditor accepts, and the new debtor agrees to the proposal of the old debtor 1304 will then be applicable.
c. The old debtor is relased from the obligation w/ the consent of the creditor (if not then,
they’ll be just co-debtor or the third party will be surety) ARTICLE 1297. If the new obligation is void, the original one shall subsist, unless
2. Expromision- when the substitution of the old debtor by a new debtor is upon the initiative or the parties intended that the former relation should be extinguished in any event.
proposal of a third person. There must be an express agreement that the entry of new debtor (n)
releases the old debtor. However, the consent of the old debtor here is immaterial subject to
legal effects. -If the new obligation is voidable, the old obligation is novated unless the new is annulled. The old
Its requisites: will be subsisting, unless the contrary is agreed by the parties.
a. The substitution is upon the initiative or proposal of a third person who will step into the
shoes of the old debtor; ARTICLE 1298. The novation is void if the original obligation was void, except when
b. The creditor gave his consent to the proposal of the third person; annulment may be claimed only by the debtor, or when ratification validates acts
c. The old debtor must be released form the obligation with the consent of the creditor. which are voidable. (1208a)
Insolvency of the New Debtor -A void original obligation makes the novation void. There’s nothing to novate.
-creditor cannot anymore run after the old debtor unless: a) at the time of substitution the new -However, if the old obligation is voidable such as annulment may be claimed only be the debtor,
creditor’s insolvency is existing or is of public knowledge; or b) if the old debtor knew that the new or when the ratification validates acts which are voidable, then the novation is voidable (valid until
debtor is insolvent when he delegated his debt. annulled).
Rights of the New Debtor Prescribed debts
-his right is the same with donation regarding consent of the old debtor. -Prescription must always be claimed as a defense, otherwise it will be a valid novation pursuant to
-with consent: he can subrogate the right of the creditor against the old debtor natural obligation under Art. 1424.
-w/o consent- only to the extent the old debtor was benefited.
ARTICLE 1299. If the original obligation was subject to a suspensive or resolutory
ARTICLE 1294. If the substitution is without the knowledge or against the will of the condition, the new obligation shall be under the same condition, unless it is
debtor, the new debtor’s insolvency or non-fulfillment of the obligation shall not otherwise stipulated. (n)
give rise to any liability on the part of the original debtor. (n)
ARTICLE 1300. Subrogation of a third person in the rights of the creditor is either
-This applies only to expromision legal or conventional. The former is not presumed, except in cases expressly
mentioned in this Code; the latter must be clearly established in order that it may
ARTICLE 1295. The insolvency of the new debtor, who has been proposed by the take effect. (1209a)
original debtor and accepted by the creditor, shall not revive the action of the latter
against the original obligor, except when said insolvency was already existing and Subrogation
of public knowledge, or known to the debtor, when he delegated his debt. (1206a) -active subjective novation is the transfer to a third person of all the rights appertaining to the
creditor in the transaction concerned including the right to proceed against the guarantors or
-This applies to delegacion; the exceptions were mentioned above. possessors of mortgages etc.
-its limitation is that the subrogee cannot do anything which the original creditor did not possess.
Circumstances which do not give rise to novation by delegacion
1. When the third person acted merely as surety or guarantor for the original debtor Creation
2. When the third person is merely an agent of the debtor; 1. Legal – by virtue of law; it is not presumed except in cases mentioned in Art 1302.
3. When the new debtor merely agreed to assume a joint responsibility for the obligation. 2. Conventional- as agreed by the parties
ARTICLE 1296. When the principal obligation is extinguished in consequence of a As to the extent
novation, accessory obligations may subsist only insofar as they may benefit third 1. Total subrogation- the credits or rights of the creditor in the transaction are totally transferred
persons who did not give their consent. (1207) to a third person.
2. Partial subrogation- only a part or rights of the creditor in the transaction are transferred.
General rule, accessory is extinguished when principal is extinguished. This article is an exception
but only to the extent that the third person who did not give consent may benefit. ARTICLE 1301. Conventional subrogation of a third person requires the consent of
the original parties and of the third person. (n)

-Once the full payment has been by a solidary debtor, the entire obligation is extinguished. He may
-Unlike in the change of debtor, here consent of all the parties must be given. Otherwise, there seek reimbursement from his co-debtor. This reimbursement obligation is joint to the extent of each
could be no novation. one’s proportionate share in the obligation.
-it must be established clearly with sufficient evidence. Otherwise, there will be no subrogation.
ARTICLE 1303. Subrogation transfers to the person subrogated the credit with all
Assignment of Rights the rights thereto appertaining, either against the debtor or against third persons,
- the creditor may assign his rights or credits even without the consent of the debtor, what is be they guarantors or possessors of mortgages, subject to stipulation in a
essential is that he notifies the debtor. Assignment of right is not subrogation. It shall take conventional subrogation. (1212a)
effect only from the time the debtor has knowledge of such assignment.
-In legal subrogation, all the rights are transferred.
ARTICLE 1302. It is presumed that there is legal subrogation: -In conventional subrogation, the parties may stipulate on the extinguishment o the accessory
(1) When a creditor pays another creditor who is preferred, even without the obligations like guarantee.
debtor’s knowledge; -If the credit transferred is subject to a suspensive condition, the credit cannot be collected until the
happening the said condition.
(2) When a third person, not interested in the obligation, pays with the express or
tacit approval of the debtor; ARTICLE 1304. A creditor, to whom partial payment has been made, may exercise
his right for the remainder, and he shall be preferred to the person who has been
(3) When, even without the knowledge of the debtor, a person interested in the subrogated in his place in virtue of the partial payment of the same credit. (1213)
fulfillment of the obligation pays, without prejudice to the effects of confusion as to
the latter’s share. (1210a) -This happens when the obligation has been fulfilled partially, the old creditor is preferred when the
debtor satisfies the obligation.
-Legal subrogation is not presumed unless there is a law providing for it. Under this article, these Example:
are three instances where it is presumed: A borrowed 10million from B. X a stranger paid B the sum of 500k. Leaving a balance of 500k.
The payment of X is with consent of A and B. When the obligation has matured, A has only 700k.
a. When a creditor pays another creditor who is preferred, even without the debtor’s knowledge As a rule, B will be paid in full of 500k and then X will be paid only P200k. B is the first creditor.
Hence, he is preferred.
-payment is made from creditor to another creditor who is preferred (one who enjoys priority of
payment under the rules on preference of credits) Title II. - CONTRACTS
-note that rules on payment of third persons do not apply here because the one paying is another
creditor. CHAPTER 1
GENERAL PROVISIONS
Example. A owes B 50k, and C 100k secured by a mortgage. B pays for the 100k loan of a to C.
Hence, there could be now legal subrogation that B can collect the credit for the loan secured by a Art. 1305. A contract is a meeting of minds between two persons whereby one binds
mortgage and even foreclose it should A defaulted. himself, with respect to the other, to give something or to render some service.
(1254a)
b. When a third person, not interested in the obligation, pays with the express or tacit approval of
the debtor According to Pineda, this definition of contract is inaccurate. The better definition of contract
would be “it is a meeting of the meetings of the minds between two or more parties, whereby one
-the person must not be a guarantor or surety because if he is then he is interested in the obligation. party binds himself with respect to the other, or where both parties bind themselves reciprocally, in
-the rule on paying in behalf of the debtor w/ and w/o consent applies here. favor of one another, to fulfill a prestation to give, to do or not to do.”
c. When, even without the knowledge of the debtor, a person interested in the fulfillment of the Principles of Contract
obligation pays, without prejudice to the effects of confusion as to the latter’s share. Consensual- meeting of the minds;
Obligatory- have the force of law
-A guarantor or surety may pay in behalf of the debtor even without the latter’s knowledge. Relativity- binding among the parties only save for some exceptions as provided by law.
-This is to relieve third party from his liability Freedom- free to stipulate anything not contrary to law, morals, customs, public policy and order
-If there is legal subrogation, he may use all the rights that the old creditor has against the debtor. Mutuality- must benefit all parties
If Solidary Debtor Pays
Stages of Contract

1. Conception -No party can be vested the power to determine the validity and performance of the obligation of
2. Perfection or birth another. However, a third person may be assigned to determine its performance only and not its
3. Consummation or Fulfillment validity.
Art. 1306. The contracting parties may establish such stipulations, clauses, terms Ex: A contract allowing the lessees to stay at the property so long as they are paying rentals is void
and conditions as they may deem convenient, provided they are not contrary to law, because it left the sole power to the lessees whether to continue the contract or not. However, a
morals, good customs, public order, or public policy. (1255a) contract providing for the power to rescind to either party is valid. Essentially, if there is a
stipulation for right to rescind judicial action is not necessary. In cancelling, however, the other
Morals- refer to incontrovertible and accepted universally; not based on law but on principles of party must consent thereto. Mutual cancellation is also allowed.
morality; can be based from natural law.
Ex: married man and a single woman agreed to cohabit for certain period and for which the woman Art. 1309. The determination of the performance may be left to a third person,
will be paid. This is void. whose decision shall not be binding until it has been made known to both
contracting parties. (n)
Good customs- refer to the generally accepted principles of morality which have received some
social an practical recognition in the community for a long period of time. Art. 1310. The determination shall not be obligatory if it is evidently inequitable. In
such case, the courts shall decide what is equitable under the circumstances. (n)
Ex: a contract providing for a penalty if one of the parties would back out from his/her promise to
marry is against good customs. Performance refers to the fulfillment of the obligation. The third person may be appointed to
determine the performance of the contracting parties. However, if the decision of the third party is
Note: there are times that customs and morals overlap. inequitable/ frustrates the intention of the parties it will not bind the parties. The court then may
step in and determine what is equitable for the parties.
Public order- refers only to public safety of the people which includes the maintenance of peace
and order. A stipulation for going to arbitration in cases of differences in the performance is valid and must be
followed before parties may go to court.
Ex: stipulation in a contract with an event organizer to conduct Japanese lanterns in a crowded
community is void for being against public order. Courts in the Philippines are both courts of justice and equity. Hence, a judge has leeway to
dispense what is equitable when the law is too rigid and such that it becomes inadequate to give
Public policy- public, social and legal interest in private law; express will of the state; sometimes tempered justice.
manifest from acts of the executive
Art. 1311. Contracts take effect only between the parties, their assigns and heirs,
Ex: a stipulation in a contract surrendering for a consideration one’s right to vote and to run for except in case where the rights and obligations arising from the contract are not
public position. transmissible by their nature, or by stipulation or by provision of law. The heir is not
liable beyond the value of the property he received from the decedent.
Art. 1307. Innominate contracts shall be regulated by the stipulations of the parties,
by the provisions of Titles I and II of this Book, by the rules governing the most If a contract should contain some stipulation in favor of a third person, he may
analogous nominate contracts, and by the customs of the place. (n) demand its fulfillment provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or interest of a person is not
These are contracts that were not given names. For examples: sufficient. The contracting parties must have clearly and deliberately conferred a
a) I give that you may give; b) I do that you may give; and c) I do that you may do, etc favor upon a third person. (1257a)
Inchoate contracts are governed by:
1) Stipulations of the parties This is pursuant to the principle of relativity of contracts. Meaning it only binds the contracting
2) Provisions of Title 1 (Obligations) and II (Contracts) of this code parties, their assigns and heirs. However, if there’s stipulation, or law, or by the nature of the
3) Rules governing the most analogous nominate contracts; and obligation it is personal, then it can’t be transferred to other person other than the contracting
4) Customs of the place parties.
The test for intransmissibility is whether a contract terminates upon the death of one of the parties
Art. 1308. The contract must bind both contracting parties; its validity or is whether a it is of such a character that it may be performed by the promisor’s personal
compliance cannot be left to the will of one of them. (1256a) representative. Therefore, if the other may perform the obligation, then the obligation is
-This is pursuant to the principle of mutuality of contract. Since contract has the force of law transmissible.
among the parties, it is important that parties bind them themselves together.
Third persons who did not participate in the contract are not bound therein.

Art. 1314. Any third person who induces another to violate his contract shall be liable for
Note: compromise agreements bind only the parties therein. damages to the other contracting party. (n)
Some exceptions where third parties are held to be bound by the contract in which they did not Elements of tortious inference with contractual relations are:
participate: a) existence of a valid contract;
b) knowledge on the part of the third person of the existence of the contract; and
1) stipulation in favor of a third person who accepted the benefit before the contract ha dbeen c) third party induces the other to violate the contract and it was indeed violated
revoked. This is known as “pour autrui” d) interference of the third person without legal justification or excuse
2) even if the cosignee is not a signatory to the contract of carriage (contract of adhesion)
between the shipper and the carrier, the consignee can still be bound by the contract. See Knowledge on the part of the interferer is essential.
Everett Steamship Corp v. CA
3) When third parties are adversely affected by the contract (accion pauliana) The interfence must be without valid excuse (with malice), and the liability should not be more than
4) When a third person induces a party to violate his contract to the extent of the liability that will be incurred by the party in whose behalf he intermeddled.
5) Where a creditor by provision of law is authorized to assail the contract entered into by his
debtor (accion directa) The malice is a legal malice and therefor it is not necessary that the intermeddler has benefited from
what he did.
Pour autrui- a stipulation in the contract conferring a person a clear and deliberate favor and which
stipulation is merely a part of the contracted entered into by the parties, neither of whom acted as
agent of the third persons, and which favor can be demanded by the third person if duly accepted by Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are
him before it could be revoked. Note that the stipulation cannot be revoked by the obligor alone. bound not only to the fulfillment of what has been expressly stipulated but also to all the
The consent of the other party is needed to effect the revocation. consequences which, according to their nature, may be in keeping with good faith, usage and
law. (1258)
The acceptance of the third party must be absolute, unconditional and identical. This, however, can
be done directly or impliedly. Once the contract has been perfected, parties are bound to perform what are expected of them and
cannot be just disregarded. Consequently, before the perfection of the contract, no party is bound to
Test to determine the nature of the interest of third person perform any obligation.
Did the parties deliberately insert terms in their contract with the avowed purpose of conferring a
benefit or favor upon such third persons? Art. 1316. Real contracts, such as deposit, pledge and Commodatum, are not perfected until
the delivery of the object of the obligation. (n)
Creation of trust may be considered a stipulation pour autrui (Cristobal v. Gomez)
Insurance policies may come as a form of pour autrui This are real contract the delivery of the object of the contract is required before the contract is
considered to be valid and perfected.
Art. 1312. In contracts creating real rights, third persons who come into possession
of the object of the contract are bound thereby, subject to the provisions of the The reason behind this is that the other party cannot fulfill his obligation unless the object of the
Mortgage Law and the Land Registration Laws. (n) contract has been delivered to him by the other person.
Mortgage or rental of real properties are contracts affecting real rights and once they are registered Noe agreement to enter into real contract is different from the real contract itself. The former is
they bind third persons even if not party to the contracts. The situation is otherwise if such contract perfected once there is a meeting of the minds, while the latter is not until the delivery is effected.
is not registered.
Art. 1317. No one may contract in the name of another without being authorized by the latter,
or unless he has by law a right to represent him
Art. 1313. Creditors are protected in cases of contracts intended to defraud them. A contract entered into in the name of another by one who has no authority or legal
(n) representation, or who has acted beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it
This is accion pauliana to be discussed further in Statute of Frauds Art 1403 (3) is revoked by the other contracting party. (1259a)
Moreover, the RPC punishes Fraudulent insolvency which has the following elements: a) offender Requirements before the a third party may enter into a contract in behalf of another:
is a debotrl that is, he has obligations which are due and payable; b) that he absconds with his a) authority to contract in the name of the other person; or
property; and c) that there be prejudice to his creditors b) has a right to represent the latter under the law such as duly appointed guardian with respect
to his ward.

Legal effect when above requirement is absent: the contract is unenforceable. As such, it is subject
to ratification which cleanses all the defect retroactively. This can be done either by receiving In other instances, it can be presumed such as those of quasi-contracts
benefits from the contract or failure to repudiate promptly. This will be discussed further under
unenforceable contracts. The perfection of contract entails an offer that is certain, definite, and complete and the acceptance
must be absolute and not conditional.
Person who contracted without the authority to do so is liable for damages. He may also be
criminally liable for estafa. A conditional acceptance is a counter-offer which means the role is now reversed and the contract
is yet to be perfected until the counter-offer is accepted.
CHAPTER 2
ESSENTIAL REQUISITES OF CONTRACTS If the offer is accepted with qualifications then such offer is modified and it extinguishes the parties
GENERAL PROVISIONS from obligations unless the counter-offer is accepted.
Art. 1318. There is no contract unless the following requisites concur: The offerror may withdraw anytime before the acceptance is communicated. The offeror may be
(1) Consent of the contracting parties; liable for damages if he withdraws the offer unilaterally after the acceptance has been made
(2) Object certain which is the subject matter of the contract; specially if the offeree had incurred expenses in relation thereto.
(3) Cause of the obligation which is established. (1261)
There are instances when there is a duty to speak up, then the person remain silent, his silence
Absent of any of these elements will render the contract void. could be considered as consent.
Consent- meeting of the minds. It presupposes legal capacity. Art. 1320. An acceptance may be express or implied. (n)
Object certain- subject matter of the contact. Must be definite and certain. Otherwise, there’s no Silence- it can put the party in estoppel
meeting of the minds. Presumption- law presumes an acceptance of an inheritance, if within 30 days from the approved
partition, the heir has not repudiated the inheritance
Cause of obligation- compelling reason why a party assumes an obligation. It is different from
motive. Art. 1321. The person making the offer may fix the time, place, and manner of
acceptance, all of which must be complied with. (n)
Mandated formalities- the need to comply with certain formalities required for validity of certain
formal contracts. Offeror has the following rights:
1) fix the time when acceptance shall be made
SECTION 1. - Consent 2) fix the place where acceptance should be effected
3) fix the manner and procedure of acceptance
Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract. The offer must be certain and the If the acceptance was made after the lapsed of time, the acceptance would be deemed only as a
acceptance absolute. A qualified acceptance constitutes a counter-offer. counter-offer subject to acceptance of the original offeror.
Acceptance made by letter or telegram does not bind the offerer except from the time it came Acceptance not made in the manner prescribed by the offeror constitutes a counter-proposal.
to his knowledge. The contract, in such a case, is presumed to have been entered into in the
place where the offer was made. (1262a) Art. 1322. An offer made through an agent is accepted from the time acceptance is
communicated to him. (n)
Consent is giving one’s conformity to the terms of the contract freely and voluntarily. It is the Any intermediary for the offeror who is not an authorized agent cannot bind the former.
concurrence of the minds in the entire contract.
Both the offeror and offeree can authorize a third person to act on their behalf. The acceptance
Elements: made or sent to or by the authorized agent constitutes the meeting of the minds.
a) Legal Capacity- from the conception to the perfection of contract, the parties must have full
legal capacity. Art. 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or
b) Manifestation of the conformity of the contracting parties- over acts (can be implied) of the
insolvency of either party before acceptance is conveyed. (n)
offerrer and the acceptance with respect to the object and cause of the contract.
From the conception to the birth of contract, there must be no presence of any of those mentioned
Consent must be intelligent, spontaneous and free from all vices of consent. It must be real and not
above. Presence of one makes the contract ineffective.
simulated.

This is only applicable to counter-offer. For deaf-mutes be incapacitated, it must be established that they cannot know how to write.
For minors:
Art. 1324. When the offerer has allowed the offeree a certain period to accept, the
offer may be withdrawn at any time before acceptance by communicating such Active misrepresentation= estopped from questioning the contract
withdrawal, except when the option is founded upon a consideration, as something Passive= liable only to the extent he was benefited.
paid or promised. (n) When the other party is aware of minority= annullable.
1) if a period is fixed- after the lapse of the period and no acceptance was made, there is no Laws also provide some exceptions when contracts entered into by minors are valid.
more offer to accept. It shall be a counter-offer subject to the acceptance of the original Ex: savings account; insurance
offeror.
2) If no period is fixed- it must be accepted immediately. However, if the offer is made if the Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed
offer is made to a person who is not present, acceptance should be made within such time, to in a state of drunkenness or during a hypnotic spell are voidable. (n)
which under normal circumstances, the acceptance could be received from the offeree. Thus,
in an instance that the offer was course through a telegram, the acceptance is expected to be For state of drunkenness affect the consent, it must be proved that the person drunk is of the point
coursed through the same means and a leeway of time is expected depending on the regular that the person has completely lost the use of his faculties and level of consciousness.
course of receiving a telegram.
Art. 1329. The incapacity declared in Article 1327 is subject to the modifications
Option Contract- ???? determined by law, and is understood to be without prejudice to special
disqualifications established in the laws. (1264)
Option money vs. Earnest Money
Under the rules of court, the following persons’ rights to contract are fully restricted:
The former is the consideration given in exchange of the option to sell. The latter is like a Prodigals, suffering the penalty of civil interdiction, hospitalized lepers, etc.
reservation fee which shall be credited to the principal once the sale has been consummated.
Art. 1330. A contract where consent is given through mistake, violence,
intimidation, undue influence, or fraud is voidable. (1265a)
Art. 1325. Unless it appears otherwise, business advertisements of things for sale
are not definite offers, but mere invitations to make an offer. (n) Before in the old cc, they are void. Now, they are only voidable. This happens because presence of
any makes the consent not free, intelligent and spontaneous.
Crucial in this offer is the meeting of the minds of the advertiser the person who accepts such offer.
Hence, unless clearly stated, the acceptance of anyone to the advertisement is a mere offer and the Art. 1331. In order that mistake may invalidate consent, it should refer to the
advertiser is not bound to accept such offer. substance of the thing which is the object of the contract, or to those conditions
which have principally moved one or both parties to enter into the contract.
Art. 1326. Advertisements for bidders are simply invitations to make proposals, and
the advertiser is not bound to accept the highest or lowest bidder, unless the Mistake as to the identity or qualifications of one of the parties will vitiate consent
contrary appears. (n) only when such identity or qualifications have been the principal cause of the
contract.
The bidder who offers a bid is bound by the terms and conditions announced in the notice (ibid) the
terms and conditions are binding upon the bidder whether he is aware of them or not as long as he A simple mistake of account shall give rise to its correction. (1266a)
made a bid.
Mistake of facts- nature of the contract; object substance of the thing; quality of conditions of the
Art. 1327. The following cannot give consent to a contract: thing; identity or qualification of the person; quantity of the thing where quantity is the main reason
for the contract.
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to write. Mistake of qualification of the persons requirements: a) mistake must be with respect to the
(1263a) identity of one of the contracting parties or his qualification; b) the identity or qualification is the
principal reason why the injured party entered into contract
Under this provision, there are three kinds of persons who are incapable of giving consent. Ex: Guarantor is not the guarantor the creditor was expecting to be. Then, the consent is
vitiated.
When both parties are incapacitated, the contract is unenforceable. When only one, it is voidable.

For the quantity- if the sale is for lump sum and later on it was discovered that it is less or more To determine the degree of intimidation, the age, sex and condition of the person
than the “lump sum” estimate, it does not constitute mistake. Thus, it is not voidable. shall be borne in mind.
Mistake of law- generally it does not vitiate consent. The exception is when there is mutual error on A threat to enforce one's claim through competent authority, if the claim is just or
the part of both parties on the legal effects of an agreement and that it frustrates the intention of the legal, does not vitiate consent. (1267a)
parties, such error or mistake may vitiate consent.
Violence- external and physical force or compulsion exerted upon a person to prevent him from
The party source of mistake is only liable for damages if he has been negligent in ascertaining the doing something.
facts. But if both are guilty of negligence, then the law must leave them where they are.
Elements of violence
Motive does not vitiate consent in the sense that there is mistake on one of the contracting party. a) physical force employed which must be serious or irresistible such that the victim is left w/o
any choice but to submit.
Art. 1332. When one of the parties is unable to read, or if the contract is in a b) Physical force employed is the determining cuse in the giving of the consent
language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained Intimidation- internal moral force operating in the will and inducing the performance of an act.
to the former. (n)
Elements of intimidation
The law presumes that one has intended all his affirmative acts. However, such presumption does a) threat be real, serious and imminent endangering the person and property of the victim or
not lie to the following: those of his spouse, descendants or ascendants, if he does not give his consent
a) when one of the contracting parties is unable to read; b) threat act be unjust or unlawful
b) when the contract is written in a language not understood by the said party c) threat act is aimed to secure the consent of the victim
Moreover, before this provision to apply, the party invoking this must be convincingly proved that Art. 1336. Violence or intimidation shall annul the obligation, although it may have
he is unable to read or the language of the contract is not understood by him. Burden then to prove been employed by a third person who did not take part in the contract. (1268)
that there is no fraud is on the other party. He must prove that the content is well explained to the
other party. This is only applicable if there is violence or intimidation, not applicable to fraud.
Art. 1333. There is no mistake if the party alleging it knew the doubt, contingency or Art. 1337. There is undue influence when a person takes improper advantage of his
risk affecting the object of the contract. (n) power over the will of another, depriving the latter of a reasonable freedom of
choice. The following circumstances shall be considered: the confidential, family,
This covers excusable mistake that will not vitiate mistake. spiritual and other relations between the parties, or the fact that the person alleged
to have been unduly influenced was suffering from mental weakness, or was
ignorant or in financial distress. (n)
Art. 1334. Mutual error as to the legal effect of an agreement when the real purpose
of the parties is frustrated, may vitiate consent. (n) Undue influence- any means employed upon a party which under the circumstances, he could not
well resist and which has the effect of controlling his volition and inducing him to give his consent
Mistake must be mutual and refers only to something and not the objects mentioned in earlier to the contract, which otherwise, he would not have entered into.
provision pertaining to mistake vitiating consent; such error must refer to the legal effects such as
rights Factors to consider are the circumstances surrounding the case. If it can be shown that the injured
party was coerced due to the undue influence employed then it can be a ground for annulment.
Where by mutual mistake of the parties the instrument did not embody what they have intended, the
remedy is reformation and not annulment. In a contract of adhesion, it cannot generally be said that consent is vitiated unless it can be proven
that the other party took advantage of his ascendency of the other.
Art. 1335. There is violence when in order to wrest consent, serious or irresistible
force is employed. The difference of undue influence to intimidation is that the latter needs to be unjust or unlawful.
The former does not.
There is intimidation when one of the contracting parties is compelled by a
reasonable and well-grounded fear of an imminent and grave evil upon his person Due influence is allowed. Meaning there is solicitation, persuasion or argument employed. This
or property, or upon the person or property of his spouse, descendants or does not vitiate consent.
ascendants, to give his consent.

Moreover, case law provides that reluctant consent is not vitiated consent. As for reverential
fear—which is the fear of displeasing persons to whom respect and obedience are due—it is not the
type of fear that vitiate consent. Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the
parties are bound by confidential relations, constitutes fraud. (n)
Art. 1338. There is fraud when, through insidious words or machinations of one of Innocent non-disclosure of a fact where between the parties there is not duty to reveal it, no fraud
the contracting parties, the other is induced to enter into a contract which, without was committed.
them, he would not have agreed to. (1269)
Art. 1340. The usual exaggerations in trade, when the other party had an
The code did not provide for a specific definition of fraud because as gleaned from the provision, it opportunity to know the facts, are not in themselves fraudulent. (n)
is possible of committing it through different acts tending to mislead the other party.
Generally, they are tolerated. However, if they passed beyond the tolerance it can constitute fraud.
Such misrepresentation produced prejudice and damage to the person misled. This happens when the exaggeration is already deceiving the other party such as faking the quality
of the thing purposely to mislead, and preventing attempts at verification by other party.
Fraud is never presumed. It must be proven with clear and convincing evidence and not mere
preponderance of evidence. Does not give rise to actions for damages.
Insidious machinations- refers to a deceitful scheme or plot with an evil design, or a fraudulent Caveat emptor: there is a warining that whatever not written in contract is dealer’s talk. Hence, the
purpose. Thus, deceit need not always be misrepresentation, but can be acts like omission or party must safe guard of his rights. The buyer has the duty to verify the truthfulness of the offer. If
concealment. was given the chance to do so but failed to exercise it, the party might be held estopped.
Bad faith in deceit presupposes dishonest purpose or some moral obliquity and not mere bad Art. 1341. A mere expression of an opinion does not signify fraud, unless made by
judgment or negligence. There’s a breach of known duty through some motive or interest or ill will. an expert and the other party has relied on the former's special knowledge. (n)
There is fraud if the opinion is not an honest-to-goodness opinion but a false representation given
Requisites for fraud precisely to mislead the victim.
a) it was applied or utilized by one contracting party upon the other. If both contracting parties
committed fraud, the contract is valid As for the case of an expert, his opinion is being relied as statement of facts. Hence, any false facts
b) it must be serious deception or misrepresentation can constitute fraud that can vitiate consent. However, if the person alleging mistake was the person
c) it must have induced the victim to enter into the contract who hired the expert and his reliance on the opinion turned out to be false then the action for
d) it must have resulted in damage or injury to the victim annulment must fail.
Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such
There’s two kinds of fraud under the code: a) in the performance of the obligation; b) on the misrepresentation has created substantial mistake and the same is mutual. (n)
celebration of the contract. The former only calls for damages while the latter entitles the injured
party for annulment. General rule: the only remedy for third person committing fraud is damages. The only exception
that it will constitute fraud to be entitled for annulment is when:
Classes of fraud Requisites:
1) the representation created substantial mistake;
1. Dolo causante- the essential cause of the consent w/o which the party wouldn’t have agreed 2) the mistake is mutual
to enter into the contract. Also called causal fraud.
2. Dolo incedente- kind of fraud which is not the efficient cause for the giving of the consent to Also when one of the contracting parties colluded with the third party then that person is complicit
the contract. It refers only to incidents which even if present, the party would have still in fraud entitling the injured party the remedy of annulment. The liability of the third party and the
entered into the contract. This does not annul the contract. Also called incidental deceit or other guilty party is solidary.
fraud. The remedy when this is present is only damages the same when there is fraud in the
performance of the obligation.
Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute
Tbe difference of fraud to mistake is that fraud speaks of the influence that induced the party; while
error. (n)
mistake refers to those mentioned in the earlier provision.
Misrepresentation in good faith to afford annulment must be one that is substantial error.
Note: The law does not protect the inferior just because he is one. For the law assumes that one is
knowledgeable and accountable for his acts. However, this is tampered by Article 24 where as
Art. 1344. In order that fraud may make a contract voidable, it should be serious and
much as possible courts are mindful in the protection of the disadvantage.
should not have been employed by both contracting parties.

Incidental fraud only obliges the person employing it to pay damages. (1270)
Inheritance cannot be subject of a contract. Because what you have over the inheritance is only an
If both parties are guilty of fraud then they will be in pari-delicto. The law will leave them where inchoate right. Hence, even renunciation of the said right is not allowed. However, there are some
they are. laws that allow the future inheritance as object of the contract such as in case of marriage
settlements, future inheritance may be the object of a donation; partition inter vivos made by the
Art. 1345. Simulation of a contract may be absolute or relative. The former takes deceased himself as long as no legitime is impaired.
place when the parties do not intend to be bound at all; the latter, when the parties
conceal their true agreement. (n)
Art. 1348. Impossible things or services cannot be the object of contracts. (1272)
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 This provision only applies to absolute impossibility of the object.
purpose contrary to law, morals, good customs, public order or public policy binds
the parties to their real agreement. (n) Two types of impossibility- nature or aw
Ostensible Acts- apparent but fictitious document or conduct executed by the parties. This is always There’re absolute impossibility and relative. If the impossibility is absolute or relative and
void. permanent it is void. However, if it relative and temporary then it is not totally nullified.
Hidden Acts- the true or real agreement of the parties. They are disguised under a real contract and It is only when the debtor is in bad faith or negligence that he may be liable for damages.
will be valid so long as not contrary to law… or does not prejudice a third person.
Note the partiality of impossibility will also depend whether the obligation is divisible or not.
Absolute simulation- one where parties do not intend to be bound by the contract. The parties do Partial performance in indivisible obligation is equivalent to non-performance.
not really intend to produce any legal effects.
Relative simulation- one where the parties conceal their real agreement by disguising it under Art. 1349. The object of every contract must be determinate as to its kind. The fact
another contract. that the quantity is not determinate shall not be an obstacle to the existence of the
contract, provided it is possible to determine the same, without the need of a new
Effects: contract between the parties. (1273)
1) absolute simulation- it is void Requisites of Object

2) Relatively simulated- the real intention will remain valid only if it does not prejudice third 1. must be determinate as to its kind although not definite as to its quantity provided the quantity
party or is not contrary to law… an be determined w/o the need of a new contract
2. must be existing or has the potentiality to exist subsequent to the contract or in the future;
May any party recover? Only when the contract does not have an illegal purpose. Otherwise, 3. must be licit that is not contrary to law, morals, good customs, public order or public policy;
there’s no cause of action as it is entirely void. See Articles 1411 and 1412. 4. must be within the commerce of man which means, it is susceptible of appropriation or
capable of bing owned privately and is at the same time transmissible
Third person who has been prejudiced by the fictitious contract may nullify the same. But when the
third person is aware of such fictitious contract, then he has no better right than those guilty. A thing is determinate to its kind when at least its specie is specified.
SECTION 3. - Cause of Contracts
Gross inadequacy of the price is different from simulated contract. The former is a ground for
rescission while the latter is a ground for voiding a contract. Art. 1350. In onerous contracts the cause is understood to be, for each contracting
party, the prestation or promise of a thing or service by the other; in remuneratory
SECTION 2. - Object of Contracts ones, the service or benefit which is remunerated; and in contracts of pure
beneficence, the mere liberality of the benefactor. (1274)
Art. 1347. All things which are not outside the commerce of men, including future
things, may be the object of a contract. All rights which are not intransmissible may This is the reason why a party entered into a contract.
also be the object of contracts.
Cause-essential reason which moves the parties to enter into the contract. It is the direct,
No contract may be entered into upon future inheritance except in cases expressly immediate, and proximate cause.
authorized by law.
Causa- used in civil law (broader in scope); consideration- common law
All services which are not contrary to law, morals, good customs, public order or
public policy may likewise be the object of a contract. (1271a)

The law presumed that there is cause and the same is lawful. If in a transaction the cause is mere CHAPTER 3
estimates, such contract is void. However, when the cause is a promise to pay, it is sufficient FORM OF CONTRACTS
already. Consideration need not be paid at the time of the promise.
Art. 1356. Contracts shall be obligatory, in whatever form they may have been
Cause in accessory contracts, the cause is the same with the principal. Hence, in the accessory entered into, provided all the essential requisites for their validity are present.
there’s no need for direct benefits. However, when the law requires that a contract be in some form in order that it may
be valid or enforceable, or that a contract be proved in a certain way, that
Moral obligation may be or may not be a valid cause for an onerous contract. It is valid if it is made requirement is absolute and indispensable. In such cases, the right of the parties
pursuant to a previous obligation (natural obligation). It is void if it is from ethical cause only. stated in the following article cannot be exercised. (1278a)
Cause= prestation of the contracting parties; object= the very thing itself The exceptions to the general rules are formal contract for its validity and Statute of Frauds for
unenforceable contracts.
Motive= personal and indirect reason
Formal contracts: donation of real property, personal property the value of which is more than
Cause need not be the exact equivalent of the object. Hence, nominal consideration of one peso for five thousand; sale or transfer of large cattle; sale of piece of land or interest therein; chattel
a contract is an effectual consideration so long as it is in good faith. mortgage; contract of partnership
Partition need not be in writing. If written it only serves as evidence and does not affect its validity.
Art. 1351. The particular motives of the parties in entering into a contract are Art. 1357. If the law requires a document or other special form, as in the acts and
different from the cause thereof. (n) contracts enumerated in the following article, the contracting parties may compel
each other to observe that form, once the contract has been perfected. This right
A contract with no motivation or sometimes even illegal motive does not make it void. Except may be exercised simultaneously with the action upon the contract. (1279a)
when motive predetermines the purpose of the contract, motive may be regarded as cause.
This is only applicable when the form is needed for convenience and not when it requires it for its
Art. 1352. Contracts without cause, or with unlawful cause, produce no effect validity or enforceability. For the other party to compel the other to observe the form, the contract
whatever. The cause is unlawful if it is contrary to law, morals, good customs, must be valid and is enforceable.
public order or public policy. (1275a)
The action is prescriptible.
Requisites for a good cause:
1. Must be existing at the time of the perfection of the contract. It must not exist later Art. 1358. The following must appear in a public document:
2. Must be lawful cause (1) Acts and contracts which have for their object the creation, transmission,
3. Must be a true cause modification or extinguishment of real rights over immovable property; sales of real
property or of an interest therein a governed by Articles 1403, No. 2, and 1405;
Art. 1353. The statement of a false cause in contracts shall render them void, if it (2) The cession, repudiation or renunciation of hereditary rights or of those of the
should not be proved that they were founded upon another cause which is true and conjugal partnership of gains;
lawful. (1276) (3) The power to administer property, or any other power which has for its object an
This provision applies even to absolutely simulated contract provided that the party can show that act appearing or which should appear in a public document, or should prejudice a
there is another that is valid or does not prejudice third person. third person;
(4) The cession of actions or rights proceeding from an act appearing in a public
Art. 1354. Although the cause is not stated in the contract, it is presumed that it document.
exists and is lawful, unless the debtor proves the contrary. (1277)
All other contracts where the amount involved exceeds five hundred pesos must
This presumption is rebuttable. It can apply to statute of frauds. appear in writing, even a private one. But sales of goods, chattels or things in
action are governed by Articles, 1403, No. 2 and 1405. (1280a)
Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not
invalidate a contract, unless there has been fraud, mistake or undue influence. (n) While the article is couched in a mandatory terms, this is only for convenience. This also only
affects the third parties, noncompliance does not affect the parties in the contracts. This also only
Contract is not subject to annulment just because of lesion. However, there are instances where for efficacy.
lesion is a ground for rescission.
CHAPTER 4

REFORMATION OF INSTRUMENTS (n) does not express the true intention of the parties, the courts may order that the
instrument be reformed.
Art. 1359. When, there having been a meeting of the minds of the parties to a
contract, their true intention is not expressed in the instrument purporting to Art. 1365. If two parties agree upon the mortgage or pledge of real or personal
embody the agreement, by reason of mistake, fraud, inequitable conduct or property, but the instrument states that the property is sold absolutely or with a
accident, one of the parties may ask for the reformation of the instrument to the end right of repurchase, reformation of the instrument is proper.
that such true intention may be expressed.
In all instances, the intention of the parties may be determined through their simultaneous or
If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the subsequent acts as well as from their stipulations in the contract.
minds of the parties, the proper remedy is not reformation of the instrument but
annulment of the contract. Parol evidence may be admitted in cases for reformation of contracts.
This a remedy for the contracting party to reform their contract and make it reflect their real Art. 1366. There shall be no reformation in the following cases:
intention.
(1) Simple donations inter vivos wherein no condition is imposed;
Requisites: (2) Wills;
1. There is a contract agreed upon where there is a meeting of the minds (3) When the real agreement is void.
2. The real intention of the parties was not expressed in the instrument
3. The reason for the failure of the instrument to express the real intention of the parties is The exception for wills is when there are imperfect or erroneous descriptions of persons or
mistake, fraud, inequitable conduct or accident property, the mistakes and omissions must be corrected, if the error or errors appear from the
4. The said intervening mistake, fraud, inequitable conduct or accident did not prevent the context of the will or from extrinsic evidence but excluding the oral declarations of the testator as to
meeting of the minds. his intention.
Even if the property involved is already mortgaged to a third party, it may still be reformed. Testamentary dispositions themselves cannot be corrected by the court.
The quantum of evidence needed is strong, clear and convincing. Art. 1367. When one of the parties has brought an action to enforce the instrument,
he cannot subsequently ask for its reformation.
Art. 1360. The principles of the general law on the reformation of instruments are
hereby adopted insofar as they are not in conflict with the provisions of this Code. This is because of the principle of estoppel.
Article 17 of CC is the governing law for this. Art. 1368. Reformation may be ordered at the instance of either party or his
successors in interest, if the mistake was mutual; otherwise, upon petition of the
Art. 1361. When a mutual mistake of the parties causes the failure of the instrument injured party, or his heirs and assigns.
to disclose their real agreement, said instrument may be reformed.
In an action for reformation the following must be alleged:
The evidence needed is still strong, clear and convincing evidence. Generally, unilateral mistakes 1. meeting of the minds on the real intention or agreement of the parties
do not call for reformation. However, some exceptions are provided in this chapter. 2. instrument did not express the real intention or agreement of the parties
3. reason for the failure of the instrument to express the real intention or agreement of the
Art. 1362. If one party was mistaken and the other acted fraudulently or inequitably parties.
in such a way that the instrument does not show their true intention, the former may
ask for the reformation of the instrument. Prescription for reformation of contracts is ten years.
This is one of the exceptions for unilateral mistake. Art. 1369. The procedure for the reformation of instrument shall be governed by
rules of court to be promulgated by the Supreme Court.
Art. 1363. When one party was mistaken and the other knew or believed that the
instrument did not state their real agreement, but concealed that fact from the Rule 63 of the Rules of Court provides for the procedure
former, the instrument may be reformed.
CHAPTER 5
In here the other party is guilty of concealment while the other is mistake. INTERPRETATION OF CONTRACTS
Art. 1364. When through the ignorance, lack of skill, negligence or bad faith on the Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention
part of the person drafting the instrument or of the clerk or typist, the instrument of the contracting parties, the literal meaning of its stipulations shall control.

Titles given to contracts may be used as guides in interpreting its scope.
If the words appear to be contrary to the evident intention of the parties, the latter
shall prevail over the former. (1281) The over-all provisions in contracts must be considered in ascertaining the true intentions of the
parties.
What is not found in writing is usually treated as waived or abandoned.
Performance of the obligation also prevails when there is doubt in the true intention and the same is
Intention not the nomenclature shall prevail in conflict the title of the contract.
Circumstances that could prove the existence of an equitable mortgage Art. 1375. Words which may have different significations shall be understood in that
1. Urgent necessity for money of the apparent vendor which is most in keeping with the nature and object of the contract. (1286)
2. Inadequacy of the purchase price
3. Possession of property remaining in the apparent vendor Art. 1376. The usage or custom of the place shall be borne in mind in the
4. Non-declaration of the property in the name of the vendee for purposes of tax declaration interpretation of the ambiguities of a contract, and shall fill the omission of
5. Failure to consolidate ownership of land by the alleged vendee. stipulations which are ordinarily established. (1287)
Mutual intent is necessary in determining the real intention of the parties and not only the intent of Usage= repetition of acts
one of them. However, contemporaneous and subsequent acts must be principally considered. Customs= law or general rule which arises from such repetition
Before parol evidence may be admitted in an action for annulment or reformation of an instrument, General Customs- they prevail throughout a country and become the law of that country and their
the matter must be pleaded or placed in issue in the pleading existence is to be determined by the court. They can also be customs practiced by all persons in the
same business in the same territory.
As for laws, only those that are existing at the birth of the contract is deemed to be applicable to the Local Customs- they prevail only in some particular district or locality, or in some city or country,
said contract. or town.
Particular Customs- they nearly the same, being such as affect only the inhabitants of some
Art. 1371. In order to judge the intention of the contracting parties, their particular district.
contemporaneous and subsequent acts shall be principally considered. (1282)
Customs must be proved as a fact. Exception is when there is judicial notice of a customif there is
The judge may even consider the surrounding circumstances. Again, this is only applicable when already a decision rendered by the same court recognizing the said custom. Judicial notice may also
there is doubt in the words used in contract. be obtained in matters of public knowledge; this is sanctioned by rules of court.
Language used is primordial. Customs in the place where contract is perfected is controlling and not where the court in which the
action was filed is controlling.
Supplemental agreement may be given weight
General customs and usages need not be pleaded. Otherwise, they must be pleaded before the court
may consider them.
Art. 1372. However general the terms of a contract may be, they shall not be
understood to comprehend things that are distinct and cases that are different from Art. 1377. The interpretation of obscure words or stipulations in a contract shall not
those upon which the parties intended to agree. (1283) favor the party who caused the obscurity. (1288)
If there’s ambiguity in contract of adhesion is interpreted against the one who drafted it.
Art. 1373. If some stipulation of any contract should admit of several meanings, it
shall be understood as bearing that import which is most adequate to render it Art. 1378. When it is absolutely impossible to settle doubts by the rules established
effectual. (1284) in the preceding articles, and the doubts refer to incidental circumstances of a
gratuitous contract, the least transmission of rights and interests shall prevail. If the
When there are two interpretations, it is always interpreted in favor of legality. contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of
interests.
Conflicting provisions must first be harmonized.
If the doubts are cast upon the principal object of the contract in such a way that it
Art. 1374. The various stipulations of a contract shall be interpreted together, cannot be known what may have been the intention or will of the parties, the
attributing to the doubtful ones that sense which may result from all of them taken contract shall be null and void. (1289)
jointly. (1285)
This is only the last resort, when none from Arts 1370-1377 can be used to ascertain the intention.

Rescissible- one which contains all the essential elements of a contract which make it valid, but by
If doubt is with regard to principle object of the contract, the contract shall be void. reasons of injury or damage to either o the contracting parties or to third persons, such as creditors,
may be rescinded.
Art. 1379. The principles of interpretation stated in Rule 123 of the Rules of Court
shall likewise be observed in the construction of contracts. (n) Characteristics:
Rule 130, Sections 10-19 of Rules of Court 1. It has all the elements of a valid contract
2. It has a defect consisting in an injury to one of the contracting parties or third person,
Section 10. Interpretation of a writing according to its legal meaning. — The language of a writing generally in the form of economic damage or lesion, fraud, and alienation of property subject
is to be interpreted according to the legal meaning it bears in the place of its execution, unless the of case in court without the consent of the litigants or of the court
parties intended otherwise. (8) 3. It is valid and effective until rescinded
Section 11. Instrument construed so as to give effect to all provisions. — In the construction of an 4. It can be attacked only directly either by one of the contracting parties or by an affected third
instrument, where there are several provisions or particulars, such a construction is, if possible, to person, who is injured o defrauded by the contract;
be adopted as will give effect to all. (9) 5. It is susceptible of convalidation only by prescription. Ratification proper does not apply.
Section 12. Interpretation according to intention; general and particular provisions. — In the
construction of an instrument, the intention of the parties is to be pursued; and when a general and a Voidable contracts may be either rescinded or annulled. Because validity of a contract is not a sine
particular provision are inconsistent, the latter is paramount to the former. So a particular intent will qua non for rescission.
control a general one that is inconsistent with it. (10)
Section 13. Interpretation according to circumstances. — For the proper construction of an Mutual consent is not rescission proper under Art 1381 because it is not based on any grounds
instrument, the circumstances under which it was made, including the situation of the subject provided in the next article.
thereof and of the parties to it, may be shown, so that the judge may be placed in the position of
those who language he is to interpret. (11) Requisites for an action for rescission to prosper:
Section 14. Peculiar signification of terms. — The terms of a writing are presumed to have been
used in their primary and general acceptation, but evidence is admissible to show that they have a 1. contract must be a rescissible one
local, technical, or otherwise peculiar signification, and were so used and understood in the 2. plaintiff must have no other recourse; action is subsidiary
particular instance, in which case the agreement must be construed accordingly. (12) 3. plaintiff must be able to return whatever he is obliged to restore
Section 15. Written words control printed. — When an instrument consists partly of written words 4. object/s of the contract must not have legally passed unto ownership or possession of a third
and partly of a printed form, and the two are inconsistent, the former controls the latter. (13) person who is acting in good faith
Section 16. Experts and interpreters to be used in explaining certain writings. — When the 5. action must be brought within the prescriptive period that is w/in 4 years from the accrual of
characters in which an instrument is written are difficult to be deciphered, or the language is not the cause of action.
understood by the court, the evidence of persons skilled in deciphering the characters, or who
understand the language, is admissible to declare the characters or the meaning of the language. Moreover, direct action is needed for rescission. Indirect action is not allowed. Extrajudicial
(14) rescission is allowed.
Section 17. Of Two constructions, which preferred. — When the terms of an agreement have been
intended in a different sense by the different parties to it, that sense is to prevail against either party Art. 1381. The following contracts are rescissible:
in which he supposed the other understood it, and when different constructions of a provision are
otherwise equally proper, that is to be taken which is the most favorable to the party in whose favor (1) Those which are entered into by guardians whenever the wards whom they
the provision was made. (15) represent suffer lesion by more than one-fourth of the value of the things which are
Section 18. Construction in favor of natural right. — When an instrument is equally susceptible of the object thereof;
two interpretations, one in favor of natural right and the other against it, the former is to be adopted. (2) Those agreed upon in representation of absentees, if the latter suffer the lesion
(16) stated in the preceding number;
Section 19. Interpretation according to usage. — An instrument may be construed according to (3) Those undertaken in fraud of creditors when the latter cannot in any other
usage, in order to determine its true character. (17) manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent
CHAPTER 6 judicial authority;
RESCISSIBLE CONTRACTS (5) All other contracts specially declared by law to be subject to rescission. (1291a)
Art. 1380. Contracts validly agreed upon may be rescinded in the cases established more than ¼ damage
by law. (1290) example the property is 100, the ward sold it for 74, there is a damage that is more than ¼. Such
sale is rescissible. However, if there is court order, it will be valid.

If guardian, on the other hand, alienates a property without court order it is unenforceable. The action for rescission is not a principal one. It is of last resort. It is just a subsidiary action. The
plaintiff must have exhausted all possible means before filing this action. Exception is when the
For fraud of creditors property alienated is the only property of the debtor at the time of transaction.
Not all fraudulent transactions may call for rescission. It must be proven that the contract must be The plaintiff must allege:
entered to defraud the creditor/s and that the latter cannot in any manner collect the claim due 1. he is really a creditor
him/them. 2. he could not collect his credit in any other way
Badges of frauds however attaches the presumption of fraud in transactions. Persons allowed to instate the action:
1. parties who suffered economic lesion
Circumstances attending sales that can show fraud: 2. affected creditor
3. other authorized by law
1. the fact that the consideration of the conveyance is fictitious or is inadequate In case of death or incapacity, heirs may institute the action or may continue the same if already
2. a transfer made by a debtor after suit has been begun and while it is pending against him commenced.
3. a sale upon credit by an insolvent debtor
4. evidence of large indebtedness or complete insolvency Prescription runs from the time the right of action accrues.
5. transfer of all or nearly all of his property by a debtor, especially when he is insolvent or
greatly embarrassed financially Art. 1384. Rescission shall be only to the extent necessary to cover the damages
6. the transfer is made between father and son, when there are present other of the above caused. (n)
circumstances
7. failure of the vendee to take exclusive possession of all the property The primary purpose for rescission is reparation for the damage or injury suffered. Hence, partial
rescission is allowed. The scope of rescission is only to the extent that there is damage caused.
Accion Pauliana requisites Only the creditor or plaintiff shall benefit from the action and only to the extent of the amount of
damage costs to him. Hence, any excess will remain in the hands of the transferee.
1. plaintiff asking for rescission has a credit prior to the alienation
2. debtor has made a subsequent contract conveying a patrimonial benefit to a third person
3. the creditor has no other legal remedy to satisfy his claim Art. 1385. Rescission creates the obligation to return the things which were the
4. act being impugned is fraudulent object of the contract, together with their fruits, and the price with its interest;
5. third person who received the property conveyed if t is by onerous title, has been an consequently, it can be carried out only when he who demands rescission can
accomplice in the fraud; if the third party is in good faith, this remedy must fail. return whatever he may be obliged to restore.
Things under litigation Neither shall rescission take place when the things which are the object of the
Generally, they may not be alienated unless the parties consented or the court allowed it contract are legally in the possession of third persons who did not act in bad faith.
Violation of right of first refusal is a rescissible action. It is not covered by statute of frauds.
In this case, indemnity for damages may be demanded from the person causing the
loss. (1295)
Art. 1382. Payments made in a state of insolvency for obligations to whose
fulfillment the debtor could not be compelled at the time they were effected, are also
This only applies to mutual restitution. It does not cover instances of accion pauliana.
rescissible. (1292)
If the plaintiff is incapable of returning what he has received, then the action must fail.
This article does not refer to contracts but only to payments made.
When a property is legally transferred to a person in good faith, rescission is not allowed. If in bad
Requisites for rescission under this article faith rescission may prosper and also damages may be asked.
1. payment or payments were made by the debtor to a creditor;
2. payment or payments were made while the debtor is in state of insolvency; Good faith but transfer is tru gratuitous title
3. obligations paid were not yet due and demandable Return the property without liabilities on the fruits except when the person has fraudulent
intent/negligence after judicial summons; he will be liable for loss/detoriation of the property.
Art. 1383. The action for rescission is subsidiary; it cannot be instituted except
when the party suffering damage has no other legal means to obtain reparation for Note literal interpretation of the article is shunned. Instances where the court
the same. (1294)

Art. 1386. Rescission referred to in Nos. 1 and 2 of Article 1381 shall not take place alienation, whenever, due to any cause, it should be impossible for him to return
with respect to contracts approved by the courts. (1296a) them.
The Court must be a competent court and has observed due process. The presumption is rebuttable If there are two or more alienations, the first acquirer shall be liable first, and so on
with strong, clear and convincing evidence. successively. (1298a)
This article pertains to the third person who acquires the property in bad faith. Even if the thing loss
Art. 1387. All contracts by virtue of which the debtor alienates property by is due to a fortuitous event, the bad faith third person is still liable.
gratuitous title are presumed to have been entered into in fraud of creditors, when
the donor did not reserve sufficient property to pay all debts contracted before the His liability with the debtor is solidary. Both are guilty of fraud. They may also be held liable for
donation. fraudulent insolvency under the RPC.
Alienations by onerous title are also presumed fraudulent when made by persons Art. 1389. The action to claim rescission must be commenced within four years.
against whom some judgment has been issued. The decision or attachment need For persons under guardianship and for absentees, the period of four years shall
not refer to the property alienated, and need not have been obtained by the party not begin until the termination of the former's incapacity, or until the domicile of the
seeking the rescission. latter is known. (1299)
In addition to these presumptions, the design to defraud creditors may be proved in Reckoning period of four years
any other manner recognized by the law of evidence. (1297a)
1. Third person who has not participation in the contract- from the discovery of the fraudulent
Alienation by gratuitous title- when the debtor alienates his property w/o reserving sufficient contract, or from the registration thereof, if real property is involved.
property to pay all his pre-existing debts, the law presumes that the gratuitous dispositions are made 2. Complaining party is a ward who wishes to rescind a contract entered by his guardian- within
in fraud of creditors. four years from the time of attainment of the age of majority
3. Complaining party is an absentee- from the time his domicile has been known. He informs the
Alienation by onerous title- when a debtor alienates a property by onerous title, that is, even for a court of his presence.
valuable consideration, the contract is presumed fraudulent if at the time of the alienation, a) some 4. Contract specifically declared by law-from the execution of contract
judgment has been rendered against him, whether it is on appeal or has already become final and 5. Allegedly fraudulent contract- it must reckon from the right accrues.
executor; and
b) some writ of attachment has been issued against him in any case. This writ does not need to refer
to the very property subject of the alienation nor it is a requirement that the person who obtained
the writ of attachment is the same person who is asking for rescission. It applies both to civil and CHAPTER 7
criminal cases. VOIDABLE CONTRACTS
But this is rebuttable presumption that can be overturned by strong, clear, and convincing evidence. Art. 1390. The following contracts are voidable or annullable, even though there
However, the mere fact that it is in a public document does not negate the presumption of fraud. may have been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
Requirements to overcome the statutory presumptions (2) Those where the consent is vitiated by mistake, violence, intimidation, undue
1. must be proved affirmatively that the conveyance was done in good faith influence or fraud.
2. must also be established that the conveyance was for a sufficient and valuable cause These contracts are binding, unless they are annulled by a proper action in court.
if these two are shown the presumption is overthrown; if there is no judgment against debtor nor They are susceptible of ratification. (n)
writ of preliminary attachment, the presumption does not attach.
Voidable contracts can only be attacked directly.
These two are conditions precedent, if not present, and there is an actual fraud, it may still be
proven by competent evidence. They are susceptible to ratification and prescription. The prescriptive period for voidable contract is
4 years.
Badges of fraud may also be alleged.
Presence of fraud does not automatically call for rescission, when the third person is good faith and If any of the grounds is present the contract may be annulled even if there’s no damage.
the contract is with a valuable consideration, rescission will not be granted.
Art. 1391. The action for annulment shall be brought within four years.
Art. 1388. Whoever acquires in bad faith the things alienated in fraud of creditors, This period shall begin:
shall indemnify the latter for damages suffered by them on account of the

In cases of intimidation, violence or undue influence, from the time the defect of the Note: this requsities apply to unenforceable contracts the only difference is that the person need not
consent ceases. be the one who had directly participated in the act which is the object of the ratification.
In case of mistake or fraud, from the time of the discovery of the same. Express- there is clear manifestation of the desire of the innocent party to convalidate the contract.
And when the action refers to contracts entered into by minors or other Can be verbal or in writing.
incapacitated persons, from the time the guardianship ceases. (1301a)
Tacit- takes place when the innocent had the knowledge of the defect and the same having ceased
This article only applies to the parties at the contract. Third parties allowed by law to assail the already, he executed act/s or displayed a conduct which necessarily implies his intention to waive
contract is not covered here. his right to annul the contract.
If the prescriptive period for the action has lapsed, the contract can’t anymore be questioned. The Effects of silence- it the innocent party remained silent for a certain period of time is deemed to
lapse of prescriptive period will cure all the defects of the contract. have ratified such a contract.
Reckoning period Effects of ratification
1. Intimidation/violence/undue influence- from the cessation of such vice 1. the contract is cleansed with all its defects. It is retroactive
2. Mistake/fraud- from the discovery 2. Any action for annulment of the contract is extinguished.
3. Incapacity- from the cessation of guardianship
4. Involving lands registered under torrens system- from the registration thereof and not from The right to ratify is transmissible. If not exercise by the party in his lifetime, it may be passed to
discovery his heirs.
Effects of lack of ratification

Art. 1392. Ratification extinguishes the action to annul a voidable contract. (1309a)
For voidable- they remains valid until annulled. Provided that it is within the prescriptive period of
Confirmation- used to refer to the act of curing a voidable contract of its vice or defects. He has time. Otherwise, the annulment is extinguished and the contract is cured.
participated in the contract. For unenforceable-if not ratified remains ineffective.
Ratification- refers to the act by which a contract entered into by someone in behalf of another Art. 1394. Ratification may be effected by the guardian of the incapacitated person.
without authority or in excess of authority is cured of its vice or defect by the subsequent act or (n)
conduct of the latter. No participation
One instance where guardians can ratify is when they do it in open court.
Recognition-used to refer to an act whereby a defect of proof in contract is cured. There’s no vice.
The person is duly authorized. Art. 1395. Ratification does not require the conformity of the contracting party who
has no right to bring the action for annulment. (1312)
Today, there’s no distinction among the three terms. They are referred to as ratification.
Only the innocent party may ratify. In cases of the incapacitated, only them and not the other
Art. 1393. Ratification may be effected expressly or tacitly. It is understood that contracting party.
there is a tacit ratification if, with knowledge of the reason which renders the
contract voidable and such reason having ceased, the person who has a right to Art. 1396. Ratification cleanses the contract from all its defects from the moment it
invoke it should execute an act which necessarily implies an intention to waive his was constituted. (1313)
right. (1311a)
Exception to this rule is when it will prejudice the rights of innocent third persons for that will
Ratification is the curing of the defects of the contract. result in injustice which is not the intention of the law.
Requisites Art. 1397. The action for the annulment of contracts may be instituted by all who are
1. The contract is voidable thereby obliged principally or subsidiarily. However, persons who are capable
2. The confirmation is made by the injured contracting party cannot allege the incapacity of those with whom they contracted; nor can those
3. The confirming party has full knowledge of the vice or effect of the contract who exerted intimidation, violence, or undue influence, or employed fraud, or
4. The cause of voidablity should have already ceased or disappeared at the time of the caused mistake base their action upon these flaws of the contract. (1302a)
ratification.

Persons who can annul are: persons who are bound either principally or subsidiarily; who are As for the capacitated person, the rule is he is oblige to return what he has received from thhe
innocent of the act or acts constituting the reason for the voidability or annullability of the contract. minor, except when e received the thing from the minor in the performance of the latter’s natural
obligation and what had been received had been spent or consumed in good faith.
Subsidiary= for example a guarantor to a contract
Passive misrepresentation of minors allows them to annul the contract. They will, however, be Art. 1400. Whenever the person obliged by the decree of annulment to return the
liable to the extent they have been benefited. thing can not do so because it has been lost through his fault, he shall return the
fruits received and the value of the thing at the time of the loss, with interest from
the same date. (1307a)
Art. 1398. An obligation having been annulled, the contracting parties shall restore
to each other the things which have been the subject matter of the contract, with The article will not apply if the determinate thing loss is without the fault of the debtor. If the thing
their fruits, and the price with its interest, except in cases provided by law. loss is tru fortuitous event, the creditor may not be likewise obliged to return what he has received
In obligations to render service, the value thereof shall be the basis for damages. because the debtor cannot fulfill the same.
(1303a)
The rule when the debtor is at fault: a) return the fruits received; b) return he value of the thing at
This article only applied if the contract had been consummated. Strangers to a contract cannot avail the time of the loss; and c) pay 6% interest per annum on the value of the thing
of mutual restitution. Moreover, innocent third parties cannot be obliged to restore.
Art. 1401. The action for annulment of contracts shall be extinguished when the
This article refers to obligation and not to contract. There are instances where the contract is thing which is the object thereof is lost through the fraud or fault of the person who
divisible hence only those that are not annulled are deemed retained. has a right to institute the proceedings.
When obligation is to do and it has been performed, the remedy is damages if any are suffered. The If the right of action is based upon the incapacity of any one of the contracting
estimation will be that of the value of the services rendered. parties, the loss of the thing shall not be an obstacle to the success of the action,
unless said loss took place through the fraud or fault of the plaintiff. (1314a)
Duties of mutual restitution
Comment of Pineda as to the second paragraph, the action shall be available even to other injured
1. Return of things received together with the fruits or the value thereof party so long as the person instituting the annulment is not guilty of the loss of the thing.
2. The return of the subject matter with interest at the legal rate
As for the at fault incapacitated person, the time when the thing is loss is immaterial. Whether it
Exception to the rule: When there will be unjust enrichment, mutual restitution will not be allowed. was during his incapacity or after, the action may still not prosper because he is at fault.
There can be partial restitution in that case.
Damages may always be demanded from the guilty party. Art. 1402. As long as one of the contracting parties does not restore what in virtue
of the decree of annulment he is bound to return, the other cannot be compelled to
For the fruits, exceptions are provided for by Art. 544 and 549 that state good faith possessor shall comply with what is incumbent upon him. (1308)
be entitled to fruits of the thing until the possession is legally interrupted. For bad faith, they shall
be liable for the fruits that the rightful owner could’ve benefited.
If one cannot return what he has received, he cannot demand the other to do the same. For
convenience, the return of things must be done simultaneously in court.
The rule on compensation is also applicable. Meaning the mutual obligations of both parties may be
compensated to the concurrent amount.
CHAPTER 8
Art. 1399. When the defect of the contract consists in the incapacity of one of the
UNENFORCEABLE CONTRACTS (n)
parties, the incapacitated person is not obliged to make any restitution except
insofar as he has been benefited by the thing or price received by him. (1304)
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given no
This is an exception to the general rule of mutual restitution. The exception to the exception is the
obligation of the incapacitated to return the thing to the extent that he has benefited. authority or legal representation, or who has acted beyond his powers;
If however the incapacitated person is still in possession of the thing that in itself is a benefit that (2) Those that do not comply with the Statute of Frauds as set forth in this number.
obliges him to return the same. If he shall squander it then it will tantamount to ratification which In the following cases an agreement hereafter made shall be unenforceable by
cures the defects of the contract. action, unless the same, or some note or memorandum, thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence, therefore, of the

agreement cannot be received without the writing, or a secondary evidence of its A special promise to answer for the debt, default, or miscarriage of another;
contents: -this must be a collateral promise such as guaranty or a surety bond
(a) An agreement that by its terms is not to be performed within a year from the
making thereof; An agreement made in consideration of marriage, other than a mutual promise to marry
(b) A special promise to answer for the debt, default, or miscarriage of another; -this can be marriage settlement or donations propter nuptias but mutual promise to marry is not
(c) An agreement made in consideration of marriage, other than a mutual promise to contemplated.
marry; -the term should be considered by reason of marriage
(d) An agreement for the sale of goods, chattels or things in action, at a price not
less than five hundred pesos, unless the buyer accept and receive part of such A sale of real property…
goods and chattels, or the evidences, or some of them, of such things in action or Once there has been partial payment, it is taken out of statute of frauds and oral testimony may be
pay at the time some part of the purchase money; but when a sale is made by admitted.
auction and entry is made by the auctioneer in his sales book, at the time of the
Representation of credit…
sale, of the amount and kind of property sold, terms of sale, price, names of the
Must be done in good faith. Otherwise, oral evidence may be admitted.
purchasers and person on whose account the sale is made, it is a sufficient
memorandum; Note: Mortgage covering land must be in writing because it constitutes an interest on a real
(e) An agreement of the leasing for a longer period than one year, or for the sale of property.
real property or of an interest therein;
(f) A representation as to the credit of a third person. Partition among heirs is not covered by statute of frauds because there’s no conveyance of rights to
speak of.
(3) Those where both parties are incapable of giving consent to a contract.
Art. 1404. Unauthorized contracts are governed by Article 1317 and the principles of
Similarities of three kinds of unenforceable contracts agency in Title X of this Book.
1. They cannot be enforced or pursued in court
2. They can be ratified, which means, they can be convalidated and become enforceable in court
3. They cannot be attacked or assailed by third person. Their remedy is to go after the “agent” Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article
who acted without authority.
1403, are ratified by the failure to object to the presentation of oral evidence to
prove the same, or by the acceptance of benefit under them.
This is only applicable to excecutory contracts. This can’t apply to executed or partially executed
contracts.
Modes of ratification:
1. failure to object to the presentation of oral evidence. This is tantamount to a waiver
The list of statute of frauds is exclusive. No specific performance may be demanded from
2. acceptance of benefits udner these contracts. This is tantamount to a waiver or estoppel.
unenforceable contracts.
When to object? The objection must be done during the “offer of the testimony” of the witness, that
Statute of fraud is a personal defense and is also a ground for motion to dismiss. It can be invoked
is, before he testifies. Or a motion to dismiss may be filed before answer to the complaint is filed.
in cases: a) complaints for specific performance; b) complaints for damages
The waiver of statute of fraud is when there is failure to object to the presentation of parol evidence Art. 1406. When a contract is enforceable under the Statute of Frauds, and a public
and when there is benefit already to the injured party. document is necessary for its registration in the Registry of Deeds, the parties may
avail themselves of the right under Article 1357.
However, in proving total or partial performance, oral evidence may be presented.
This article applies only if the contract is both valid and enforcebale. If one party still refuses, the
Requisites of the note, memorandum or writing court may order the issuance of the necessary documents.
1. Name of the parties
2. Terms and conditions of the agreement Art. 1407. In a contract where both parties are incapable of giving consent, express
3. Description of the subject matter for the proper identification thereof or implied ratification by the parent, or guardian, as the case may be, of one of the
4. Place and date of the making of the agreement contracting parties shall give the contract the same effect as if only one of them
5. Signature/s of the parties who are assuming the obligation were incapacitated.
The cause is not required because it is presumed that there is.
If ratification is made by the parents or guardians, as the case may be, of both
The note etc. must be complete in itself. Exchange of writing correspondence may be considered contracting parties, the contract shall be validated from the inception.
sufficient.

If only one ratifies, contract is now voidable and the other person who did not ratify may opt to Art. 1410. The action or defense for the declaration of the inexistence of a contract
annul it. does not prescribe.
If ratified by both parties, the contract is now validated from its inception. While void contracts are imprescriptible they are susceptible to laches.
Elements of laches
Art. 1408. Unenforceable contracts cannot be assailed by third persons. 1. conduct on the part of the defendant or one under whom he claims, giving rise to the situation
complained of
Since unenforceable contracts are personal defenses, third party may not avail it. Only contracting 2. delay in asserting complainant’s right after he had knowledge of the defendant’s conduct and
parties may attack the unenforceable contracts. after he has an opportunity to sue
3. lack of knowledge or notice on the part of the defendant that the complainant would assert the
Void- strangers whose interests are directly affected right on which he bases his suit
Voidable- third persons who are prejudiced thereby 4. injury or prejudice to the defendant in the event relief is accorded to the complainant. Unlike
Rescissible- creditors who are being defrauded by their debtors estoppel, laches as an equitable defense usually bars only the equitable enforcement of a right
but not the right itself. It is an affirmative defense and the burden of proving it rests on the
CHAPTER 9 defendant.
VOID AND INEXISTENT CONTRACTS
However, the doctrine of laches is inapplicable when complaint was filed within prescriptive
Art. 1409. The following contracts are inexistent and void from the beginning: period.
(1) Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy; Art. 1411. When the nullity proceeds from the illegality of the cause or object of the
(2) Those which are absolutely simulated or fictitious; contract, and the act constitutes a criminal offense, both parties being in pari
(3) Those whose cause or object did not exist at the time of the transaction; delicto, they shall have no action against each other, and both shall be prosecuted.
(4) Those whose object is outside the commerce of men; Moreover, the provisions of the Penal Code relative to the disposal of effects or
(5) Those which contemplate an impossible service; instruments of a crime shall be applicable to the things or the price of the contract.
(6) Those where the intention of the parties relative to the principal object of the This rule shall be applicable when only one of the parties is guilty; but the innocent
contract cannot be ascertained; one may claim what he has given, and shall not be bound to comply with his
(7) Those expressly prohibited or declared void by law. promise. (1305)
These contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived. For this article to apply, the following must be present:
1. the contract entered into by the contracting parties is null and void and nullity arises from the
Article 1318 also enumerates other void contracts. illegality of the cause or object of the contract. Illegality of motives is different
2. the transaction agreed in the contract constitutes a crime
Generally, void contracts do not produce legal effects. Exception: Article 36 of FC. 3. the contracting parties are in pari delicto.
Characteristics Consequences
1. they produce no civil effects either in favor of or against anyone 1. the parties shall have no action against each other
2. they are not susceptible to ratification 2. bot parties shall be prosecuted criminally for their crime
3. right to set up a defense of their inexistence or absolute nullity cannot be waived 3. the things or price of the contract may be confiscated by the State in accordance with Art 45
4. action or defense for the declaration of the inexistence of the contract does not prescribe of the RPC, which is made applicable
5. the defense of illegality of contracts cannot be invoked by third persons whose interests are
not directly affected Extended applicability- the article may apply even if the parties are not in pari delicto so long as
6. no action is needed to set them aside. However, if there is performance already the one of the parties is guilty of the act which made the contract unlawful in such a case the innocent
intervention of the court is necessary to declare the nullity and decree the restitution of what party may claim what he has given to the party and is not bound to comply with his promise.
has been given by virtue thereof. Art. 1412. If the act in which the unlawful or forbidden cause consists does not
7. Parties to a void agreement cannot expect the aid of the law- the law will leave them where constitute a criminal offense, the following rules shall be observed:
they are (1) When the fault is on the part of both contracting parties, neither may recover
8. They cannot give rise directly to another contract what he has given by virtue of the contract, or demand the performance of the
other's undertaking;
Nothing can cure a void contract. However, parties may enter into a new contract and if it meets the
requirements of the law then the same shall be valid. (2) When only one of the contracting parties is at fault, he cannot recover what he
has given by reason of the contract, or ask for the fulfillment of what has been

promised him. The other, who is not at fault, may demand the return of what he has longer than the maximum thus fixed, he may demand additional compensation for
given without any obligation to comply his promise. (1306) service rendered beyond the time limit.
The exception in pari delicto dule is when one’s act is more excusable than the other then the law
will give relief to that person. Other exceptions are found in the below articles. Art. 1419. When the law sets, or authorizes the setting of a minimum wage for
laborers, and a contract is agreed upon by which a laborer accepts a lower wage, he
Art. 1413. Interest paid in excess of the interest allowed by the usury laws may be shall be entitled to recover the deficiency.
recovered by the debtor, with interest thereon from the date of the payment.
Art. 1420. In case of a divisible contract, if the illegal terms can be separated from
Art. 1414. When money is paid or property delivered for an illegal purpose, the the legal ones, the latter may be enforced.
contract may be repudiated by one of the parties before the purpose has been
accomplished, or before any damage has been caused to a third person. In such This article shall not apply to: a) when the contract by its nature requires indivisibility; b) when the
case, the courts may, if the public interest will thus be subserved, allow the party parties intended the contract to be entire or indivisible.
repudiating the contract to recover the money or property.
In case of doubt, the contract are always presumed to be divisible.
This is because of public interest. The repudiated shall be filed timely otherwise the less guilty
party bares the consequences of his act. Art. 1421. The defense of illegality of contract is not available to third persons
whose interests are not directly affected.
Art. 1415. Where one of the parties to an illegal contract is incapable of giving
consent, the courts may, if the interest of justice so demands allow recovery of This article then implies that if third parties’ interest are directly affected they may avail of the
money or property delivered by the incapacitated person. defense. But the exception to the exception of this article is Article 1177 which lays down the limits
on invoking defenses that are not personal.
This is for the interest of justice. Hence, if the court thinks that the recovery is not for the interest of
justice it may not allow the recovery. There’s no criteria and it shall be decided on a case-to-case Art. 1422. A contract which is the direct result of a previous illegal contract, is also
basis. void and inexistent.
Art. 1416. When the agreement is not illegal per se but is merely prohibited, and the This article contemplates two contracts whereby the later contract is a direct result of the earlier
prohibition by the law is designated for the protection of the plaintiff, he may, if contract. The same then shall be void.
public policy is thereby enhanced, recover what he has paid or delivered.
Title III. - NATURAL OBLIGATIONS
Here the recovery will only be allowed if public policy will be enhanced. Hence, if the court thinks
that the agreement is illegal per se, the plaintiff will not be allowed to recover. Art. 1423. Obligations are civil or natural. Civil obligations give a right of action to
compel their performance. Natural obligations, not being based on positive law but
Illegal per se- when by universally recognized standards, an act or contract is by its very nature bad, on equity and natural law, do not grant a right of action to enforce their
improper, immoral or contrary to conscience; they are prohibited because of public interest. performance, but after voluntary fulfillment by the obligor, they authorize the
retention of what has been delivered or rendered by reason thereof. Some natural
Example: in cases of donation, the donor must reserve enough property to sustain his family, obligations are set forth in the following articles.
otherwise the donation is void. This prohibition is not illegal per se. Hence, he may recover.
Bases: equity and natural law; compliance is discretionary. However, if a person fulfilled then he
Art. 1417. When the price of any article or commodity is determined by statute, or cannot later on recover.
by authority of law, any person paying any amount in excess of the maximum price
allowed may recover such excess. Conditions: There must be a previous juridical relationship. The obligation must come from a licit
This article only applies when there is a law or regulation issued by competent authority fixing the one. Otherwise, they can be recovery. The voluntary fulfillment must be spontaneous. If there’s
maximum price. Moreover, if the law provides for other sanctions not covered by this article, the vitiation of performance, then it can be assailed. Moreover, if there is mistake it is considered as
law shall prevail. solution indebiti.
Natural obligations may be converted into a civil one by acts of novation. The natural obligation
Art. 1418. When the law fixes, or authorizes the fixing of the maximum number of becomes a valid cause for a civil obligation after it has been affirmed or ratified anew by the debtor.
hours of labor, and a contract is entered into whereby a laborer undertakes to work

Partial performance is converted into a civil obligation. However, if the fulfilled portion is not
susceptible of confirmation or ratification, this portion can be the basis of a cause of action for
recovery of what has been delivered because it has not be converted into a legal obligation. Art. 1428. When, after an action to enforce a civil obligation has failed the defendant
voluntarily performs the obligation, he cannot demand the return of what he has
Natural Obligation Moral Obligation delivered or the payment of the value of the service he has rendered.
There’s a previous juridical tie There’s no previous juridical tie
Voluntary fulfillment there’s a legal effect Performance is pure act of liberality which
might spring from blood, affection or Art. 1429. When a testate or intestate heir voluntarily pays a debt of the decedent
benevolence exceeding the value of the property which he received by will or by the law of
Within domain of laws Within domain of morals intestacy from the estate of the deceased, the payment is valid and cannot be
rescinded by the payer.
When fulfilled produce legal effects Does not produce any legal effects
This applies both to testate and intestate heirs. This is out of a moral duty to clear the name or credit
of the decedent to whom he is related wither by blood or by other filial relationship.
Natural Obligation Civil Obligations
Based on equity and natural law From law, contract, quasi-contract, delicts
and quasi-delicts Art. 1430. When a will is declared void because it has not been executed in
Can’t be enforced in court Can be enforced in court accordance with the formalities required by law, but one of the intestate heirs, after
the settlement of the debts of the deceased, pays a legacy in compliance with a
Art. 1424. When a right to sue upon a civil obligation has lapsed by extinctive clause in the defective will, the payment is effective and irrevocable.
prescription, the obligor who voluntarily performs the contract cannot recover what
he has delivered or the value of the service he has rendered. This article covers only legacies but not devises or real property gifts.
Art. 1425. When without the knowledge or against the will of the debtor, a third Title IV. - ESTOPPEL (n)
person pays a debt which the obligor is not legally bound to pay because the action
thereon has prescribed, but the debtor later voluntarily reimburses the third person, Art. 1431. Through estoppel an admission or representation is rendered conclusive
the obligor cannot recover what he has paid. upon the person making it, and cannot be denied or disproved as against the
person relying thereon.
This article presupposes that the payment of the third party is not a donation. If the debtor
reimburses a third person even if he did not obtain any benefit form the latter’s act, he cannot after Only applies to questions of fact and not of law.
paying demand for recovery.
Has its origin in equity and is based on moral rights and natural justice. It can’t be invoked to
Art. 1426. When a minor between eighteen and twenty-one years of age who has perpetrate injustice.
entered into a contract without the consent of the parent or guardian, after the
annulment of the contract voluntarily returns the whole thing or price received, Essential elements of Estoppel
notwithstanding the fact the he has not been benefited thereby, there is no right to 1. Conduct of a party amounting to false representation or concealment of material facts or at
demand the thing or price thus returned. least calculated to convey the impression that the facts are otherwise than, and inconsistent
with, those which the party subsequently attempts to assert.
Benefit here is immaterial. However, the act of the minor must be voluntary. 2. Intent, or at least expectation, that this conduct shall be acted upon by, or at least influence,
the other party;
Art. 1427. When a minor between eighteen and twenty-one years of age, who has 3. Knowledge, actual or constructive, of the real facts
entered into a contract without the consent of the parent or guardian, voluntarily
pays a sum of money or delivers a fungible thing in fulfillment of the obligation, Essential Elements of Promissory Estoppel
there shall be no right to recover the same from the obligee who has spent or 1. a promise reasonably expected to induce action or forbearance
consumed it in good faith. (1160A) 2. such promise did in fact induce such action or forbearance
3. the party suffered detriment as a result
If this contract is annulled, the court may order the restoration of what had been paid or delivered Note: The cause of action for promissory estoppel does not lie where an alleged promise was
by the minor. However, if a minor upon reaching the age of majority, failed to cause the annulment conditional.
of the contract within 4 years, he may not recover anymore what he paid or delivered because of
prescription of action.

The reliance in the doctrine of estoppel is not available to a person who is not misled. However, Art. 1432. The principles of estoppel are hereby adopted insofar as they are not in
prejudice or actual damage to the person who relied in good faith with such misrepresentation is conflict with the provisions of this Code, the Code of Commerce, the Rules of Court
not material. and special laws.
The admission must be plain and clear. Estoppel cannot be sustained on doubtful or ambiguous
inferences. Art. 1433. Estoppel may be in pais or by deed.
Rules of Court provides of conclusive presumptions in estoppel: Estoppel in pais- this is equitable estoppel arising form conduct or misrepresentation and includes
all forms of estoppel not arising from a record, deed or written instruments.
Section 2. Conclusive presumptions. — The following are instances of conclusive presumptions:
(a) Whenever a party has, by his own declaration, act, or omission, intentionally and deliberately Requisite
led to another to believe a particular thing true, and to act upon such belief, he cannot, in any 1. there must be conduct, act, language, or silence amounting to a representation or a
litigation arising out of such declaration, act or omission, be permitted to falsify it: concealment of material facts;
(b) The tenant is not permitted to deny the title of his landlord at the time of commencement of the 2. these facts must be known to the party estopped at the time of his said conduct or at least the
relation of landlord and tenant between them. (3a) circumstances must be such that knowledge of them is necessarily imputed to him
3. the truth concerning these facts must be unknown to the other party claiming the benefit of the
General rule on jursidciton: it is conferred by law. Hence, it can’t be a ground for estoppel. The estoppel at the time when it was acted upon him
exception is the case of Tijam v. Sibonghanoy where the party is estopped in assailing the 4. the conduct must be done with the intention or at least with the expectation that it will be so
jurisdiction upon participation in the trial and afterwards with the receipt of an adverse decision. acted upon
5. the conduct must be relied upon by the other party, and, thus relying, he must be led to act
*Personal note, In that case, there was a conflict on the jurisdiction of the court because of the upon it
passage of a law depriving the court involved jurisdiction of the case. Hence, there was a point in 6. he must in fact act upon it in such a manner as to change his position for worse.
the trial that the court had still jurisdiction. Hence, the general rule that jurisdiction is conferred
by law and not by will of the parties still operates Requisites as related to the party estopped:
1. conduct which amounts to a false representation or concealment of material facts or at least
Estoppel can’t be invoked in cases of void contracts. which is calculated to convey the impression that the facts are otherwise than and inconsistent
with those which the party subsequently attempts to assert
Silence or inaction can put a person estopped. This is where there is some element of turpitude or 2. a least expectation, that such conduct shall be acted upon by the other party
negligence which misled another person to his damage. The silence must be shown to be unjustified 3. knowledge, actual or constructive, of the real facts
and it must also be shown further that there was unfair injury.
Requisites as related to the party claiming estoppel
Estoppel by laches- arises from the negligence or omission to assert a right within a reasonable 1. lack of knowledge and the means of knowledge of the truth of the facts in question
time, warranting a presumption that the party entitled to assert it either has abandoned or declined 2. reliance in good faith upon the conduct or statements of the party to be estopped
to assert it. 3. actions or inaction based thereon of such character as to change the position or status of the
party claiming estoppel, to his injury, detriment or prejudice.
Inapplicability of estoppel
1. Against the government Estoppel by deed
a) if its acting on its sovereign capacity
b) not estopped by reason of the error or mistakes of its agents (but if it acts through a a. Estoppel by deed proper- made in writing signed by a party. It applies only to
“special agent” the rule is different parties in the contract and their privies and cannot be used against strangers.
c) criminal actions cannot be waived or condoned
Exceptions: b. Estoppel by record- technical estoppel where the truth set for in a record,
a) Solicitor general may not be excused from his shortcomings whether judicial or legislative, cannot be denied.
b) Cannot be allowed to deal with its citizens dishonorably or capriciously
c) May be estopped through the affirmative acts of its officers acting within the scope of Estoppel by court record- a) rasing questions involving matters which were directly adjudged
their authority but will not cover their neglect or omissions of public duties because of res judicata; from raising questions involving matters that have not been adjudged but
d) Not designed to perpetrate injustice could have been placed in issue and decided in the previous case because of their relation to the
issues therein.
2. Against a municipality of city
3. Cannot validate unlawful acts Art. 1434. When a person who is not the owner of a thing sells or alienates and
4. Cannot be predicated on ignorance of the law delivers it, and later the seller or grantor acquires title thereto, such title passes by
operation of law to the buyer or grantee.

Art. 1440. A person who establishes a trust is called the trustor; one in whom
Art. 1435. If a person in representation of another sells or alienates a thing, the confidence is reposed as regards property for the benefit of another person is
former cannot subsequently set up his own title as against the buyer or grantee. known as the trustee; and the person for whose benefit the trust has been created
is referred to as the beneficiary.
Prejudice on the part of the buyer is not essential for the operation of the estoppel.
Art. 1436. A lessee or a bailee is estopped from asserting title to the thing leased or Trust- a fiduciary relationship created by agreement or by law where the trustor of the property has
received, as against the lessor or bailor. the equitable title while the legal title is vested in another (trustee)
- it is a beneficial enjoyment of something but the legal title to which is vested in another.
Section 2[a] of Rule 131 of Rules of Court provides for a conclusive presumption on this matter.
Parties: a) trustor- the one who establishes the trust; trustee- the one in whom the confidence is
Art. 1437. When in a contract between third persons concerning immovable reposed as regards the property for the benefit of another person; c) beneficiary (cestui que trust) is
property, one of them is misled by a person with respect to the ownership or real the person for whose benefit the trust has been created.
right over the real estate, the latter is precluded from asserting his legal title or
interest therein, provided all these requisites are present: Art. 1441. Trusts are either express or implied. Express trusts are created by the
(1) There must be fraudulent representation or wrongful concealment of facts intention of the trustor or of the parties. Implied trusts come into being by operation
known to the party estopped; of law.
(2) The party precluded must intend that the other should act upon the facts as
misrepresented; Express Trust- created by the express agreement of the parties, or by the intention of the trustor.
(3) The party misled must have been unaware of the true facts; and They are created by the direct and positive acts of the parties, by some writing, deed, will or by
(4) The party defrauded must have acted in accordance with the misrepresentation. words, either expressly or implied, evincing an intention to created a trust.
Implied Trust- without being expressed are deducible form the nature of the transaction as matters
This article applies only to transactions involving immovable property or an interest therein. of intent, or which are superinduced on the transaction by operation of law as matters of equity
independently of the particular intention of the parties.
Art. 1438. One who has allowed another to assume apparent ownership of personal
property for the purpose of making any transfer of it, cannot, if he received the sum a. Resulting Trust- broadly defined as a trust which is raised or created by the
for which a pledge has been constituted, set up his own title to defeat the pledge of act or construction of law, but in its more restricted sense, it is a trust raised
the property, made by the other to a pledgee who received the same in good faith by implication o flaw and presumed always to have been contemplated by
the parties, the intention as to which is to be found in the nature of their
and for value.
transaction, but not expressed in the deed or instrument of conveyance.
b. Constructive Trust- raised by construction of law, or arising by operation of
This article applies only to personal property. In this article there’s no agency created because the
law; a trust not created by any words, but by the construction of equity in
assumer is not authorized to pledge the property. Pursuant to Articles 19,20,21 of CC, even if
order to satisfy the demands of justice. It does not arise by agreement or
there’s no benefits but the person did not act with protest, then the person is estopped.
intention but by operation of law.
Art. 1439. Estoppel is effective only as between the parties thereto or their
Art. 1442. The principles of the general law of trusts, insofar as they are not in
successors in interest.
conflict with this Code, the Code of Commerce, the Rules of Court and special laws
are hereby adopted.
This is because of the principle of mutuality. However, such principle is not applicable against the
government.
The existence of estoppel, laches, fraud or prescription of actions require presentation of evidence
and determination of facts they can be best resolved after trial on the merits. CHAPTER 2
EXPRESS TRUSTS
Estoppel must be proved with clear, convincing and satisfactorily evidence.
Art. 1443. No express trusts concerning an immovable or any interest therein may
be proved by parol evidence.
Title V. - TRUSTS (n) This has the nature of a contract governed by the Statute of Frads
CHAPTER 1
GENERAL PROVISIONS The word trust need not appear it is sufficient that a trust is clearly intended. Express rust do not
prescribe except the trustee repudiates the trust.

If what involves is a personal property, then by implication it can be proven using parol evidence. d) adverse possession of the trustee, together with other elements of prescription, must at
least be ten years in the concept of an owner. It begins to run from the time the
Art. 1444. No particular words are required for the creation of an express trust, it beneficiary, or trustor gained knowledge of the repudiation by the trustee.
being sufficient that a trust is clearly intended. 2. Implied Trust- the same rule in express trust applies to implied trust when it coms to the
operation of prescription as a mode of acquisition.
It is important that there must be clear intent to establish trust. There must be direct and positive
acts of the parties by some writing deed will or by words evidencing the intention to create it. Prescription of Action for the Recovery of Property
Testamentary trust requisites 1. Express trust- generally, it does not prescribe. Except when trust has been repudiated and no
1. sufficient words to create it action had been filed within 1- years from the time the beneficiary had been informed of the
2. a definite subject repudiation, the action for recovery will prescribe.
3. certain or ascertained object 2. Implied Trust:
a. Resulting Trust- same with express trust
b. Constructive Trust- it prescribed if not action is filed within ten years form the
Art. 1445. No trust shall fail because the trustee appointed declines the designation, registration of the property in the name of the trustee
unless the contrary should appear in the instrument constituting the trust.
Note: Laches in implied trust both resulting and constructive can be barred by laches.
The court in some instances can appoint a new trustee especially in cases where the trustor really Repudiation is not required unless there is concealment of the facts giving rise to the trust.
intended to create trust.
CHAPTER 3
However, if no beneficiary can be found, the trust shall fail. Then the equitable title is merged with IMPLIED TRUSTS
the legal title.
Art. 1447. The enumeration of the following cases of implied trust does not exclude
Art. 1446. Acceptance by the beneficiary is necessary. Nevertheless, if the trust others established by the general law of trust, but the limitation laid down in Article
imposes no onerous condition upon the beneficiary, his acceptance shall be 1442 shall be applicable.
presumed, if there is no proof to the contrary.
It is applied to cases where injustice will prevail if no trust will be appreciated.
If the beneficiary repudiates or does not accept the trust, then the trust is not established. Exception
when there is no condition on the trust, there is a presumption of acceptance. The list is not exclusive. But no trust shall be created when it is contrary to law…
Extinguishment of trust Art. 1448. There is an implied trust when property is sold, and the legal estate is
granted to one party but the price is paid by another for the purpose of having the
1. Accomplishment of the aims of the trust beneficial interest of the property. The former is the trustee, while the latter is the
2. Expiration of the agreed term beneficiary. However, if the person to whom the title is conveyed is a child,
3. Mutual agreement of all the parties legitimate or illegitimate, of the one paying the price of the sale, no trust is implied
4. Happening of the resolutory condition, if one had been imposed by law, it being disputably presumed that there is a gift in favor of the child.
5. Total loss of the object of the trust
6. Annulment or rescission of the trust The following article has these elements: a) an actual payment of money, property, or service or an
7. Decision of the Court declaring it as terminated equivalent, constituting, valuable consideration; and b) such consideration must be furnished by the
8. Merger of the rights of the trustor and the trustee, as when the trustor waived his beneficial alleged beneficiary of a resulting trust
rights in favor of the trustee, or vice-versa
9. Prescription, which arises when there is an express repudiation of the trust, and continuous Exception: if the trustee who receives the legal title is a legitimate or illegitimate child of the one
possession which is public, adverse, and peaceful in the concept of an owner for the required paying the price, there is no trust implied by law. There is however a disputable presumption that
period there is gift given by in favor of the child. But such presumption does not lie when the child is an
illegitimate one. Under this provision, formalities of donation is not required.
Acquisitive Prescription based on Trust
1. Express Trust- generally such acquisition does not apply because the possession of the trustee Art. 1449. There is also an implied trust when a donation is made to a person but it
is not one that is adverse. Exception is when the following circumstances are present: appears that although the legal estate is transmitted to the donee, he nevertheless
a) the trustee has performed unequivocal acts of repudiation amounting to an ouster of the is either to have no beneficial interest or only a part thereof.
beneficiary
b) such positive acts of repudiation have been made known to the beneficiary Here the donee is just like a dummy or a part owner only of the property donated.
c) the evidence thereon is clear and conclusive

Art. 1450. If the price of a sale of property is loaned or paid by one person for the The mistake must be committed by a third person. If made by a party, there is no trust.
benefit of another and the conveyance is made to the lender or payor to secure the
payment of the debt, a trust arises by operation of law in favor of the person to Ex: A mistakenly delivered the property of B to C. C then is a mere trustee of B.
whom the money is loaned or for whom its is paid. The latter may redeem the
property and compel a conveyance thereof to him. The article does not cover case of violation of a condition in donation.
Ex: a donee breached the condition, no trust is created. The property remains in the ownership of
This is a constructive trust. the donee subject, however, to a proper action for revocation. If the action had already
prescribed, the ownership remains in the donee.
Art. 1451. When land passes by succession to any person and he causes the legal
title to be put in the name of another, a trust is established by implication of law for Art. 1457. An implied trust may be proved by oral evidence.
the benefit of the true owner.
In implied trust, whether the property is movable or immovable, oral evidence is allowed. Express
This is an implied trust. Therefore, there is a clear intention to establish a trust. According to trust, where the property is movable, then oral evidence is likewise allowed.
Pineda, there’s no reason why the law did not include personal properties from the article.
The oral evidence, however, must be clear, satisfactory and convincing intent to establish a trust
cannot rest on vague, uncertain evidence or on loose, equivocal or indefinite declaration. (De Leon
Art. 1452. If two or more persons agree to purchase property and by common v. Molo-Peckson)
consent the legal title is taken in the name of one of them for the benefit of all, a
trust is created by force of law in favor of the others in proportion to the interest of
THE END
each.
GOOD LUCK!
Art. 1453. When property is conveyed to a person in reliance upon his declared
intention to hold it for, or transfer it to another or the grantor, there is an implied
trust in favor of the person whose benefit is contemplated.
Art. 1454. If an absolute conveyance of property is made in order to secure the

performance of an obligation of the grantor toward the grantee, a trust by virtue of
law is established. If the fulfillment of the obligation is offered by the grantor when
it becomes due, he may demand the reconveyance of the property to him.
This is akin to a sale with right to repurchase, except that the right is not stated in the document.
The seller is the beneficiary and the buyer, the trustee. When the seller offers to pay his obligation
when due, the buyer must reconvey the property.
Art. 1455. When any trustee, guardian or other person holding a fiduciary
relationship uses trust funds for the purchase of property and causes the
conveyance to be made to him or to a third person, a trust is established by
operation of law in favor of the person to whom the funds belong.
Persons covered under this article are those holding a fiduciary relationship like a trustee, guardian,
agent, partner, a confidential employee, etc.
If the fiduciary uses funds of the principal in buying a property, the acquisition shall inure to the
benefit of the principal.
Art. 1456. If property is acquired through mistake or fraud, the person obtaining it
is, by force of law, considered a trustee of an implied trust for the benefit of the
person from whom the property comes.

Obligations and Contracts Notes

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OBLIGATIONS AND CONTRACTS 1. Unilateral- only one of the parties is bound to perform an obligation. (i.e.

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Consequences of premature payment on the part of the debtor

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ARTICLE 1231. Obligations are extinguished:

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Rule if there is liquidated and there is non-liquidated

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Requisites of Condonation or Remission

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-If the quality is determined, they must be of the same kind.

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Limitations To Assignment of Rights

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Two forms of passive subjective novation

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1) absolute simulation- it is void Requisites of Object

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Reckoning period Effects of ratification

Effects of lack of ratification

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