Civil Law Pages Deleted

U.P.
LAW BOC OBLIGATIONS AND CONTRACTS CIVIL LAW
OBLIGATIONS AND
CONTRACTS
CIVIL LAW
Page 252 of 539

U.P. LAW BOC OBLIGATIONS AND CONTRACTS CIVIL LAW
3. Sources of Obligations
A. GENERAL PROVISIONS
Art. 1157, CC. Obligations arise from:
1. Law;
1. Definition 2. Contracts;
3. Quasi-contracts;
Art. 1156, CC. An obligation is a juridical 4. Acts or omissions punished by law;
necessity to give, to do or not to do. and
5. Quasi-delicts.
An obligation is a juridical relation, whereby a

person (called the creditor) may demand from a. Law
another (called the debtor) the observance of a Obligations arise when imposed by the law
determinative conduct, and in case of breach, itself and cannot be presumed. [Art. 1158, CC]
may obtain satisfaction from the assets of the
latter. [Makati Stock Exchange v. Campos, b. Contracts
G.R. No. 138814 (2009)] Obligations arise from the stipulation of the
parties; it has the force of law and should be
complied with in good faith. [Art. 1159, CC]
2. Elements of an obligation
c. Quasi-Contracts
a. Active Subject (Obligee/Creditor): The Certain lawful, voluntary and unilateral acts
person (natural or juridical) who has the give rise to the juridical relation of quasi-
right or power to demand the prestation. contract to the end that no one shall be
b. Passive Subject (Obligor/Debtor): The unjustly enriched or benefited at the expense
person bound to perform the prestation. of another. [Art. 2142, CC]
c. Prestation (Object): The conduct required
to be observed by the debtor/obligor (to d. Acts or Omissions Punishable by
give, to do, or not to do). Law
Responsibility for fault or negligence under a
Requisites quasi-delict [Art. 2176, CC] is entirely separate
1. Must be possible - physically and and distinct from the civil liability arising from
juridically. negligence under the penal code. But the
2. Must be determinate or at least plaintiff cannot recover damages twice for the
determinable according to pre- same act or omission of the defendant. [Art.
established elements. 2177, CC]
3. Must have possible equivalent in
money e. Quasi-Delicts
Obligations arise from damages caused to
d. Vinculum Juris (Juridical or Legal Tie; another through an act or omission, there being
Efficient Cause): That which binds or fault or negligence but no contractual relations
connects the parties to the obligation. [de exist between the parties. [Art. 2176, CC]
Leon]
It is established by:
1. law
2. bilateral acts (e.g. contracts giving rise
to obligations stipulated therein)
3. unilateral acts (e.g. crimes and quasi-
delicts)
Page 253 of 532

B. NATURE AND EFFECT 4. To deliver its even if not
accessions and mentioned
OF OBLIGATIONS accessories [Art. [Art. 1166,
1166, CC] CC]
1. Obligation to give • Accessions – 4. Not to be
everything compelled to
a. Type of things which is receive a
produced by a different one,
Specific/ Generic Limited
thing, or which although of
Determinate Thing Generic
is incorporated the same
Thing Thing
or attached value as, or
Particularly Object is When the thereto, more valuable
designated or designated generic excluding fruits than that
physically only by its objects are • Accessories – which is due
segregated class/ confined to a things designed [Art. 1244,
from all genus/ particular for the CC]
others of the species. class. embellishment, 5. To recover
same class use or damages in
[Art.1460, preservation of case of
CC]; another thing of breach,
Identified by more exclusive or in
individuality. importance addition to
5. To pay damages in specific
Cannot be Can be Can be case of breach [Art. performance
substituted substituted substituted 1170, CC] [Arts. 1165,
against the by any of the by any of the 1170, CC]
obligee’s will. same class same
and same particular
kind. class. To Give a Generic Thing
1. To take care of the 1. To ask that

b. Rights and Duties of Parties thing [Art. 1163, CC] the obligation
2. To deliver a thing of be complied
Duties of the Debtor Rights of the
the quality intended with [Art.
Creditor
by the parties taking 1165, CC]
To Give a Specific Thing into consideration 2. To ask that
the purpose of the the obligation
1. To preserve or take 1. To compel obligation and other be complied
care of the thing due delivery [Art. circumstances [Art. with by a third
with the proper 1165, CC] 1246, CC] person at the
diligence of a good 2. To the fruits 3. Creditor cannot expense of
father of a family from the time demand a thing of the debtor
[Art. 1163, CC] the obligation superior quality; 3. To recover
2. To deliver the to deliver neither can the damages in
thing itself [Art. arises [Art. debtor deliver a case of
1165, CC] 1164, CC] thing of inferior breach [Art.
3. To deliver the 3. To the quality. 1165, CC]
fruits of the thing accessions 4. To pay damages in 4. Not to be
[Art. 1164, CC] and case of breach [Art. compelled to
accessories, 1170, CC] receive a
Page
different one, 2. To shoulder expense. [Art.

although of cost of undoing 1168, CC]
the same what should not 2. To recover
value as, or have been done damages, where
more valuable [Art. 1168, CC] it would be
than that 3. To pay physically or
which is due damages in legally
[Art. 1244, case of breach impossible to
CC] [Art. 1170, CC] undo what should
not have been
done, because
2. Obligation to do or not to do of:
• the very nature
a. Rights and Duties of Parties of the act itself;
Duties of the Rights of the • rights acquired
Debtor Creditor by third persons
who acted in
Obligation To Do good faith;
• when the effects
1. To do it [Art. 1. To have the of the acts
1167, CC] obligation prohibited are
2. To shoulder executed at definite in
the cost of the cost of character and
execution the debtor will not cease
should he [Art. 1167, even if the thing
fail to do it CC] prohibited be
[Art. 1167, 2. To recover undone.
CC] damages in
3. To undo case of
what has breach [Art. 3. Transmissibility of
been poorly 1170, CC] obligations
done [Art.
1167, CC] Note: The debtor General Rule: All rights acquired by virtue of
4. To pay cannot be compelled an obligation are transmissible. [Art. 1178, CC];
damages in to perform his Contracts take effect only between the parties,
case of obligation. The their assigns and heirs [Art. 1311, CC]
breach [Art. ultimate sanction of
1170, CC] civil obligations is Exception: Nature of obligation, law or
indemnification of stipulation to the contrary provides otherwise
damages. This would [Art. 1178].
be tantamount to
involuntary Only personal obligations, or those identified
servitude. with the persons themselves are extinguished
by death. [Stronghold Insurance Co. v.
Obligation Not To Do
Republic-Asahi Glass Corp., G.R. No. 147561
1. Not to do what 1. To ask to undo (2006)]
should not be what should not
done be done, at the
debtor’s
Page 255 of 532

4. Performance of Obligations 5. Breaches of Obligations

a. Definition Those who in the performance of their
Payment means not only (1) the delivery of obligations are guilty of the following are liable
money, but also (2) the performance, in any for damages [Art. 1170, CC]:
other manner, of an obligation. [Art. 1232, CC] a. Fraud (dolo): The fraud contemplated by
the foregoing provision is the deliberate
b. General Rule/Requirement and intentional evasion of the normal
The thing or service in which the obligation fulfillment of obligations.
consists [must be] completely delivered or b. Negligence (culpa): Fault or negligence of
rendered, as the case may be. [Art. 1233, CC] the debtor as an incident in the fulfillment
of an existing obligation.
c. Exceptions c. Delay (mora): Delay in the fulfillment of the
1. Substantial performance obligation. The delay however must be
TRIGGER: The obligation has been imputable to the debtor/obligor.
substantially performed in good faith. d. And those who in any manner contravene
the tenor thereof: Covers any illicit act
EFFECT: The obligor may recover as which impairs the strict and faithful
though there had been a strict and fulfillment of the obligation,
complete fulfillment, less damages
suffered by the obligee. [Art. 1234, CC] a. Failure to Perform
2. Incomplete/irregular performance Effect of Failure to Perform
TRIGGER: Obligee accepts
performance despite knowledge of its Substantial Slight or Casual
incompleteness or irregularity. Breach Breach
1. Total breach 1. Partial breach

EFFECT: The obligation is deemed 2. Amounts to 2. There is partial/
fully complied with. [Art. 1235, CC]
non- substantial
performance, performance in
3. Partial prestation
basis for good faith
General rules: rescission 3. Gives rise to
1. The creditor CANNOT be under Art. liability for
compelled to receive partial 1191 and damages only [Art.
payments. payment of 1234, CC]
2. The debtor CANNOT be required damages
to make partial payments.
Exception: when expressly stipulated. General Rule

[Art. 1248, par. 1, CC] Rescission of a contract will not be permitted
for a slight or causal breach, but only for such
4. Partial liquidation substantial and fundamental breach as would
TRIGGER: The debt is partly liquidated defeat the very object of the parties in
and partly unliquidated. executing the agreement. [Vermen Realty
Corp. v. CA, G.R. No. 101762 (1993)]
EFFECT: The creditor may demand
and the debtor may effect the payment Substantial performance contemplates
of the liquidated debt without waiting • an attempt in good faith to perform,
for the liquidation of the unliquidated without any willful or intentional
debt. departure therefrom
Page 256 of 532

• the deviation from the obligation must When demand is not necessary in order
be slight, and the omission or defect that delay may exist [par. 2, Art. 1169, CC]
must be technical and unimportant, 1. When demand would be useless, as
and must not pervade the whole or be when the obligor has rendered it beyond
so material that the object which the his power to perform; such as:
parties intended to accomplish in a a. When the impossibility is caused by
particular manner is not attained. some act or fault of the debtor (e.g.
[International Hotel Corp v. Joaquin, debtor absconded or has destroyed the
G.R. No. 158361 (2013)] thing to be delivered);
b. When the impossibility is caused by a
The question of whether a breach of contract is fortuitous event, but the debtor has
substantial depends upon the attending bound himself to be liable in case of
circumstances and not merely on the such event. [Tolentino]
percentage of the amount not paid. [Cannu v. 2. When from the nature and the
Galang, G.R. No. 139523 (2005)] circumstances of the obligation it appears
that the designation of the time when the
b. Default, Delay, or Mora thing is to be delivered or the service is
to be rendered was a controlling motive
Definition: Failure to perform an obligation for the establishment of the contract (time
on time which constitutes a breach of the is of the essence);
obligation. [de Leon] 3. When the law so provides; or
4. When the obligation expressly so
Rules on Default, Delay, or Mora declares.
Unilateral Obligations Reciprocal Note: It is insufficient that the law or obligation
Obligations fixes a date for performance. It must further
state expressly that after the period lapses,
General Rule: “No Neither party
default will commence.
demand, No delay.” incurs in delay if
the other does not
KINDS OF DELAY
The mere expiration of comply or is not
1. Moral Solvendi;
the period fixed by the ready to comply in
2. Mora Accipiendi;
parties is not enough in a proper manner
3. Compensatio Morae
order that the debtor with what is
may incur in delay. incumbent upon
MORA SOLVENDI
him. From the
Delay on the part of the debtor to fulfil his
Those obliged to deliver moment one of the
obligation either to give (ex re) or to do (ex
or to do something parties fulfills his
persona).
incur in delay from obligation, delay
the time the obligee by the other
Requisites
judicially or begins. [Art. 1169
1. Obligation must be liquidated, due and
extrajudicially par. 3, CC]
demandable
demands from them
2. Non-performance by the debtor within the
the fulfillment of their No delay if neither
period agreed upon
obligation. [Art. 1169 performs.
3. Demand, judicial or extra-judicial, by the
par. 1, CC]
creditor, unless demand is not necessary
under the circumstances enumerated in Art
1169 par (2).
Page 257 of 532

Effects Equitable Tempering under Art. 1192 vs.

1. The debtor is liable for damages. [Art. Under Art. 2215 [Ong v. Bognalbal, G.R. No.
1170, CC] 149140 (2006)]
2. For determinate objects, the debtor shall
Art 1192 Art 2215
bear the risk of loss, even if the loss is due
to fortuitous events. [Art. 1165 par. 3, CC] “In case both “In contracts, quasi-
parties have contracts, and quasi-
MORA ACCIPIENDI committed a breach delicts, the court may
Delay on the part of the creditor to accept the of the obligation, equitably mitigate the
performance of the obligation. the liability of the damages under
first infractor shall circumstances other
Requisites be equitably than the case referred
1. Debtor offers performance. tempered by the to in the preceding
2. Offer must be in compliance with the courts. xxx” article, as in the ff.
prestation as it should be performed. instances:
3. Creditor refuses performance without just
cause. (1) That the plaintiff
himself has
Effects contravened the terms
1. The responsibility of the debtor is reduced of the contract xxx”
to fraud and gross negligence.
2. The debtor is exempted from risk of loss of Second infractor Does not appear to
the thing, which is borne by the creditor. not liable for consider which
3. The expenses incurred by the debtor for damages at all; infractor first
the preservation of the thing after the mora only the first committed the breach.
shall be chargeable to the creditor. infractor is liable,
4. If the obligation bears interest, the debtor but with his liability
does not have to pay from the time of delay. mitigated.
5. The creditor is liable for damages.
6. The debtor may relieve himself of the
obligation by consigning the thing. c. Fraud (Dolo) in the
[Tolentino] Performance of the Obligation
COMPENSATIO MORAE Art. 1171, CC. Responsibility arising from

Delay of both parties in reciprocal fraud is demandable in all obligations. Any
obligations. waiver of an action for future fraud is void.
Effects
1. Delay of the obligor cancels delay of Definition: Fraud (dolo) is the deliberate or
obligee (and vice versa) hence it is as if intentional evasion of the normal fulfilment of
there is no default. an obligation. [de Leon]
2. The liability of the first infractor shall be
equitably tempered by the courts. If it
cannot be determined which of the parties
first violated the contract, the same shall be
deemed extinguished, and each shall bear
his own damages. [Art. 1192, CC]
Page 258 of 532

Two Types of Fraud d. Negligence (Culpa) in the

Dolo Causante Dolo Incidente Performance of the Obligation
[Art. 1338, par. 1, Art. [par. 2, Art. 1344,
1344, CC] CC] Art. 1172, CC. Responsibility arising from
negligence in the performance of every kind
Definition
of obligation is also demandable, but such
liability may be regulated by the courts,
Those deceptions or Those which are according to the circumstances.
misrepresentations of a not serious in
serious character character and
employed by one party without which the Art. 1173, CC. The fault or negligence of the
and without which the other party would obligor consists in the omission of that
other party would not still have entered diligence which is required by the nature of
have entered into the into the contract. the obligation and corresponds with the
contract. [Tankeh v. [Tankeh v. DBP, circumstances of the persons, of the time
DBP, G.R. No. 171428 G.R. No. 171428 and of the place.
(2013)] (2013)] xxxx
If the law or contract does not state the
When Present diligence which is to be observed in the
performance, that which is expected of a
Deception used by one Deception used
good father of a family shall be required.
party prior to or by one party at the
simultaneous with the time of birth or
contract, in order to perfection, or General Rule: Standard of care required is
secure the consent of performance of diligence of a good father of family.
the other [Tankeh v. the obligation
DBP, G.R. No. 171428 Exceptions (Other standards of care)
(2013)] 1. Common Carriers
They are bound to observe extraordinary
Object diligence in the vigilance over the goods
and for the safety of the passengers
Essential cause of the Some particular or transported by them [Art. 1733, CC]
obligation without which accident of the
the other party would obligation 2. Hotel and inn-keepers
not have entered into The keepers of hotels or inns shall be
the contract. responsible for the deposit of effects, made
by travellers, as depositaries, provided
Effect
that notice was given to them, or their
Voidable and Damages Damages employees of such effects and that they
take precautions relative to the care and
vigilance of their effects [Art. 1998, CC]
Requisites for Fraud to Vitiate a Contract
(Dolo Causante) This responsibility shall include the loss of,
1. It must have been employed by one or injury to the personal property of the
contracting party upon the other; guests caused by the servants or
2. It must have induced the other party to employees of the keepers of hotels or inns
enter into the contract; as well as strangers; but not that which may
3. It must have been serious; and proceed from any force majeure. [Art.
4. It must have resulted in damage or injury to 2000, CC]
the party seeking annulment. [Tolentino]
Page 259 of 532

3. Banks Extent of Damages to be Awarded [Art.

Banks have the obligation to treat the 2201, CC]
accounts of its clients ‘meticulously and
Good Faith Bad Faith
with the highest degree of care’. [Poole-
Blunden v. UnionBank, G.R. No. 205838 Obligor is liable for Obligor shall be
(2017)] those that are the responsible for all
natural and probable damages which may
4. Pharmacists consequences of be reasonably
As active players in the field of dispensing the breach of the attributed to the non-
medicines to the public, the highest degree obligation, and performance of the
of care and diligence is expected [Mercury which the parties obligation.
Drug Corporation v. de Leon, G.R. No. have foreseen or
165622 (2008)] could have Any waiver or
reasonably foreseen renunciation made in
Test of Negligence at the time the the anticipation of
“Whether or not the defendant, in doing the obligation was such liability is null
alleged negligent act, observed the reasonable constituted. and void.
care and caution, which an ordinary and
prudent person would have used in the same
situation.” If not, then he is guilty of negligence. e. Contravention of the Tenor of
[Mandarin Villa Inc. v. CA, G.R. No. 119850 the Obligation
(1996)]
“In any manner contravenes the tenor” means
Kinds of Civil Negligence any illicit act, which impairs the strict and
faithful fulfillment of the obligation, or every
Culpa Contractual Culpa Aquiliana
kind of defective performance. [Tolentino]
Negligence is merely Negligence is
incidental in the direct, substantive 6. Remedies available to
performance of an and independent. creditor in cases of breach
obligation.
There is always a pre- There may or may a. Principal remedies of creditors

existing contractual not be a pre- Obligation to Obligation to Give a
relation. existing contractual Give a Specific Generic Thing and
obligation. Thing Obligation to Do
The source of the The source of Alternative Remedies

obligation of the obligation is the
defendant to pay defendant’s Compel the Ask the obligation be
damages is the breach negligence itself. debtor to make complied with at the
or non-fulfillment of the delivery (specific expense of the debtor.
contract. performance) [par. 2, Art. 1165, CC]
[par. 1, Art. 1165,
Proof of the existence The negligence of CC]
of the contract and of the defendant must
its breach or non- be proven. Rescission [Art. If a person obliged to do
fulfillment is sufficient 1191] something fails to do it,
prima facie to warrant the same shall be
recovery. executed at his cost [Art.
1167, CC ]
Page 260 of 532

[Universal Food Corporation v. CA, G.R. No. L-

What has been poorly
29155 (1970)]
done [may] be undone.
[Art. 1167]
Effect of Rescission under Art 1191
Rescission [Art. 1191] Extinguishes the obligatory relation as if it had
never been created, the extinction having a
Damages in any event retroactive effect. Both parties must surrender
what they have respectively received and
Those who in the performance of their return each other as far as practicable to their
obligations are guilty of fraud, negligence, or original situation. [Tolentino]
delay, and those who in any manner
contravene the tenor thereof, are liable for Rescission may take place extrajudicially, by
damages. [Art. 1170, CC] declaration of the injured party. The party who
deems the contract violated may consider it
Rescission (Resolution in Reciprocal resolved or rescinded, and act accordingly,
Obligations) without previous court action, but it
proceeds at its own risk. For it is only the final
Art. 1191, CC. The power to rescind judgment of the corresponding court that will
obligations is implied in reciprocal ones, in conclusively and finally settle whether the
case one of the obligors should not comply action taken was or was not correct in law. But
with what is incumbent upon him. the law definitely does not require that the
contracting party who believes itself injured
The injured party may choose between the must first file suit and wait for a judgment
fulfillment and the rescission of the before taking extrajudicial steps to protect its
obligation, with the payment of damages in interest. [UP v. Delos Angeles, G.R. No. L-
either case. He may also seek rescission, 28602 (1970)]
even after he has chosen fulfilment, if the
fulfillment of the obligation should become Under Art 1191, the right to rescind an
impossible. obligation is predicated on the violation of the
reciprocity between parties, brought about by a
The court shall decree the rescission breach of faith by one of them. Rescission,
claimed, unless there be just cause however, is allowed only where the breach is
authorizing the fixing of a period. substantial and fundamental to the
fulfillment of the obligation. [Del Castillo Vda
This is understood to be without prejudice to de Mistica v. Naguiat,G.R. No. 137909 (2003);
the rights of third persons who have acquired Cannu v. Galang, G.R. No. 139523 (2005)].
the thing, in accordance with articles 1385
and 1388 and the Mortgage Law. It will not be permitted in casual or slight
breach. [Song Fo v. Hawaiian Philippines, G.R.
Rescission No. 23769, (1925)]
The unmaking of a contract, or its undoing from
the beginning, and not merely its termination
[Pryce Corp v. Pagcor, G.R. No. 157480
(2005)]
Right to Rescind
The rescission on account of breach of
stipulations is not predicated on injury to
economic interests of the party plaintiff but
on the breach of faith by the defendant, that
violates the reciprocity between the parties.
Page 261 of 532

Distinguished from Rescission under Art. Right of the creditor to exercise all of the rights
1380 and bring all the actions which his debtor may
have against third persons.
Rescission / Rescission [Art.
Resolution [Art. 1380, CC] In order to satisfy their claims against the
1191, CC] debtor, creditors have the ff. successive rights:
1. To levy by attachment and execution upon
Based on non- Based on lesion or all the property of the debtor, except those
performance or fraud upon creditors. exempt from execution;
non-fulfillment of 2. To exercise all the rights and actions of the
obligation. debtor, except such as are inherently
personal to him; and
Action is instituted Action is instituted by 3. To ask for rescission of the contracts made
only by the injured either party or by a by the debtor in fraud of their rights.
party. third person.
Requisites
Principal action, Subsidiary action, in
1. The person to whom the right of action
retaliatory in the absence of any
pertains must be indebted to the creditor
character. other legal means to 2. The debt is due and demandable
obtain reparation.
3. The creditor must be prejudiced by the
Applies only to Applies to either failure of the debtor to collect his debts due
reciprocal unilateral or reciprocal him from third persons, either through
obligations where obligations even when malice or negligence
one party is guilty the contract has been 4. The debtors assets are insufficient (debtor
of non-fulfillment fully fulfilled. is insolvent)
5. The right of action is not purely personal to
In some cases, Court cannot grant a the debtor
court may grant a period or term within
term for which one must Previous approval of the court is not necessary
performance. comply. to exercise the accion subrogatoria.
Non-performance Non-performance by ACCION PAULIANA

by the other party is the other party is Creditors may also impugn the acts which the
important. immaterial. debtor may have done to defraud them. [Art.
1177, CC]
b. Subsidiary Remedies of
Creditors Par. 3, Art. 1381. The following contracts are
rescissible:
ACCION SUBROGATORIA
(3) Those undertaken in fraud of creditors
Art. 1177, CC. The creditors, after having when the latter cannot in any other manner
pursued the property in possession of the collect the claims due them.
debtor to satisfy their claims, may exercise
all the rights and bring all actions of the latter
for the same purpose, save those which are Requisites [Cheng v. CA, G.R. No. 144169
inherent in his person; they may also impugn (2001)]
the acts which the debtor may have done to 1. There is a credit in favor of the plaintiff
defraud them. prior to the alienation by the debtor
2. The debtor has performed a subsequent
contract conveying patrimonial benefit to
third person/s.
Page 262 of 532

3. The debtor’s acts are fraudulent to the

prejudice of the creditor.
C. KINDS OF
4. The creditor has no other legal remedy to OBLIGATIONS
satisfy his claim
5. The third person who received the 1. Pure
property is an accomplice to the fraud.
Art. 1179, CC. Every obligation whose
An accion pauliana thus presupposes the performance does not depend upon a future
following: or uncertain event, or upon a past event
1. A judgment; unknown to the parties, is demandable at
2. the issuance by the trial court of a writ of once.
execution for the satisfaction of the
judgment, and; Every obligation which contains a resolutory
3. the failure of the sheriff to enforce and condition shall also be demandable, without
satisfy the judgment of the court. prejudice to the effects of the happening of
the event.
It requires that the creditor has exhausted the
property of the debtor. The date of the A pure obligation is IMMEDIATELY
decision of the trial court is immaterial. DEMANDABLE, regardless of the presence of
What is important is that the credit of the a condition or a term/period.
plaintiff antedates that of the fraudulent
alienation by the debtor of his property.
After all, the decision of the trial court against 2. Conditional
the debtor will retroact to the time when the Art. 1181, CC. In conditional obligations, the
debtor became indebted to the creditor. [Cheng acquisition of rights, as well as the
v. CA, supra] extinguishment or loss of those already
acquired, shall depend upon the happening
Accion Accion Pauliana of the event which constitutes the condition.
Subrogatoria
A condition is a future AND uncertain event.
Not necessary Credit must exist before the This includes acquisition of proof/knowledge of
that creditor’s fraudulent act [Tolentino] a past event unknown to the parties.
claim is prior to
the acquisition Note: Commentators have Kinds of conditions
of the right by conflicting views on WoN
the debtor new debts contracted by
i. As to Effect
the debtor fall under the
scope of accion pauliana. 1. SUSPENSIVE – Obligation shall only be
No need for Fraudulent intent is effective upon the fulfillment of the condition
fraudulent required if the contract [Art. 1181, CC]. The obligee acquires a mere
intent rescinded is onerous hope or expectancy, protected by law, upon the
constitution of the obligation.
No period for Prescribes in 4 years from
prescription the discovery of the fraud
Page 263 of 532

Principle of Retroactivity in Suspensive

Before Fulfillment After Fulfillment
Conditions
The demandability The obligation Par. 1, Art. 1187, CC. The effects of a
and acquisition/ arises or becomes conditional obligation to give, once the
effectivity of the rights effective. condition has been fulfilled, shall retroact to
arising from the the day of the constitution of the obligation.
obligation is The obligor can be Nevertheless, when the obligation imposes
suspended, but the compelled to reciprocal prestations upon the parties, the
creditor may bring the comply with what is fruits and interests during the pendency of
appropriate actions incumbent upon the condition shall be deemed to have been
for the preservation of him. mutually compensated.
his right. [Art. 1188,
CC] Rationale: Obligation is constituted when its
essential elements concur. The condition
Doctrine of Constructive Fulfillment of imposed is only an accidental element.
Suspensive Conditions
Applicability: This applies to consensual
Art. 1186, CC. The condition shall be contracts only.
deemed fulfilled when the obligor voluntarily
prevents its fulfillment. Exception: This does not apply to real
contracts which can only be perfected by
Suspensive condition is deemed fulfilled when: delivery.
1. Obligor intends to prevent obligee from
complying with the condition Effects of the Happening of Suspensive
2. Obligor actually prevents obligee from Conditions
complying with the condition To Give To Do/Not To Do
The two requisites must concur. Mere If reciprocal, the In obligations to do or
intention of the debtor to prevent the happening fruits and interests not to do, the court
of the condition, or to place ineffective shall be deemed to shall determine the
obstacles to its compliance, without actually have been mutually retroactive effect of
preventing the fulfillment, is insufficient. compensated a the condition that has
[International Hotel Corporation v. Joaquin, matter of justice and been complied with
G.R. No. 158361 (2013)] convenience [Art. [Art. 1187, par. 2]
1187, par. 1]
Doctrine does not apply to:
1. Resolutory conditions If unilateral, the The power of the court
2. External contingency that is lawfully debtor shall includes the
within the control of the obligor [Taylor appropriate the determination of
v Uy Tieng, G.R. No. L-16109 (1922)] fruits and interests whether or not there
3. Obligor, in preventing the fulfilment of received, unless will be any retroactive
the condition, acts pursuant to a right from the nature and effect. This rule shall
circumstance it likewise apply in
should be inferred obligations with a
that the intention of resolutory condition.
the persons [Art. 1190, par. 3]
constituting the
same was different.
[Art. 1187, par. 1]
Page 264 of 532

[Art. 1182, the principle of mutuality of

2. RESOLUTORY – The obligation is
CC] contracts.
demandable at once, without prejudice to the
effects of the happening of the event [par. 2, Exclusively Condition and obligation
Art. 1179, CC]. upon the are valid because in such
Debtor’s Will situation, the position of
Before After Fulfillment in case of a the debtor is exactly the
Fulfillment Resolutory same as the position of the
Condition creditor when the condition
Preservation of Whatever may have [par. 2, Art. is suspensive. It does not
creditor’s rights been paid or delivered by 1179, CC] render the obligation
[par. 1, Art. one or both of the parties illusory.
1188, CC] also upon the constitution of
applies to the obligation shall have
The condition that payment should be made by
obligations with to be returned upon the
Hermosa as soon as he receives funds from
a resolutory fulfillment of the condition
the sale of his property in Spain is a mixed
condition. [par. 1, Art. 1190, CC].
condition. The condition implies that the
There is no return to the
obligor already decided to sell the house
status quo. However,
and all that was needed to make the
when the condition is not
obligation demandable is that the sale be
fulfilled, rights are
consummated and the price thereof
consolidated and they
remitted to the islands. There were still other
become absolute in
conditions that had to concur to effect the sale,
character.
mainly that of the presence of a buyer, ready,
able and willing to purchase the property under
ii. As to Cause/Origin the conditions set by the intestate. [Hermosa
vs. Longara, G.R. No. L-5267 (1953)]
a. POTESTATIVE – The fulfillment of the
condition depends on the sole act or Loss, Deterioration, or Improvement of a
decision of a party. Specific Thing before Fulfillment of
b. CASUAL – The fulfilment of the condition Suspensive Condition in Obligations to
depends upon chance or upon the will of a Give (Art. 1189) or of Resolutory Condition
third person. [Art. 1182, CC] in Obligations to Do or Not to Do [par. 2, Art.
c. MIXED – The fulfilment of the condition 1190, CC]
depends partly upon the will of a party to Loss of a A thing is deemed lost:
the contract and partly upon chance and/or Thing a. When it perishes;
will of a third person. b. When it goes out of
commerce of man; or
Exclusively Condition and obligation c. When it disappears
upon the are valid. in such a manner that its
Creditor’s Will existence is unknown or it
cannot be recovered
Exclusively Condition and obligation
upon the are void because to allow Deterioration Any reduction or impairment
Debtor’s Will such condition would be of a Thing in the substance or value of
in case of a equivalent to sanctioning a thing which does not
Suspensive obligations which are amount to a loss
Condition illusory. It also constitutes
a direct contravention of
Page 265 of 532

Re: Obligations To Do and Not To Do

Improvement Anything added to,
of a Thing incorporated in, or attached Par. 3, Art. 1190, CC. As for the obligations
to the thing that is due. to do and not to do, the provisions of the
second paragraph of article 1187 shall be
observed as regards the effect of the
Re: Obligation to Deliver a Determinate
extinguishment of the obligation.
Thing
When the conditions have been imposed with
the intention of suspending the efficacy of an
Par. 2, Art. 1187, CC. In obligations to do
obligation to give, the following rules shall be
and not to do, the courts shall determine, in
observed in case of the improvement, loss or
each case, the retroactive effect of the
deterioration of the thing during the pendency
condition that has been complied with.
of the condition [Art. 1189, CC]:
Re: Obligations With a Resolutory

Without With Debtor’s Fault/Act
Condition
Debtor’s
Upon the happening of the resolutory
Fault/Act
condition, the rules of Article 1189 shall be
Loss applied to the party who is bound to return (i.e.
the creditor in the original obligation).
Obligation is Obligation is converted into
extinguished. one of indemnity for Impossible Conditions
damages.
1. Impossible conditions, those contrary to
Deterioration good customs or public policy, and those
prohibited by law shall annul the obligation
Impairment to Creditor may choose which depends upon them.
be borne by between bringing an action 2. The part of a divisible obligation which is
the creditor. for rescission of the not affected by such condition shall be
obligation OR bringing an valid. [Art. 1183, CC]
action for specific
performance, with Positive and Negative
damages in either case.
Conditions
Improvement
Positive [Art. 1184, Negative [Art.
Improvement Improvement by the thing’s CC] 1185, CC]
at the debtor’s nature or by time shall inure
expense, the to the benefit of the The condition that The condition that
debtor shall creditor. some event happen at some event will not
ONLY have a determinate time happen at a
usufructuary shall extinguish the determinate time
rights. obligation shall render the
1. as soon as the obligation effective
time expires or from the moment
2. if it has 1. the time
become indicated has
indubitable elapsed, or
that the event 2. if it has
will not take become evident
place.
Page 266 of 532

that the event No effect on Gives rise to an

cannot occur. existence of the obligation or
obligation, only its extinguishes one
demandability or already existing
Where no date of fulfilment is stipulated, the
performance
condition must be fulfilled within a reasonable
time or the time probably contemplated No retroactive effect Has retroactive
according to the nature of the obligation [par. 2, unless there is an effect
Art. 1185, CC]. agreement to the
contrary
3. Obligation with a period or a
When it is left When it is left
term exclusively to the will exclusively to the
of the debtor, the will of the debtor, the
1. Obligations for whose fulfillment a day existence of the very existence of the
certain has been fixed ⎯ shall be obligation is not obligation is affected
demandable only when that day affected
comes. [Art. 1193, CC]
2. Obligations with a resolutory period ⎯
take effect at once, but terminate upon Kinds of Period [Art. 1193, CC]
arrival of the day certain. [Art. 1193, 1. Ex die/ Suspensive Period –
CC] Obligation becomes demandable after
3. When the debtor binds himself to pay the lapse of the period.
when his means permit him to do so, 2. In die/ Resolutory period – Obligation
the obligation shall be deemed to be becomes demandable at once but is
one with a period [Art. 1180, CC] extinguished after the lapse of the
period.
Period or Term
Interval of time, which either suspends Effect of Advance Payment or Delivery [Art.
demandability or produces extinguishment. 1195, CC]
A fortuitous event does not interrupt the Trigger: (1) Something has been paid or
running of the period. It only relieves the delivered before the arrival of the period, (2) the
contracting parties from the fulfillment of their obligor being unaware of the period or
respective obligations during the period. believing that the obligation has become due
[Victoria’s Planters v. Victoria Milling Co., G.R. and demandable
No. L-6648 ] Effect: That thing paid or delivered may be
recovered with fruits and interests
Term/Period and Condition Distinguished
Loss, Deterioration, or Improvement of the
Term/Period Condition Thing Before Period Expires [Art. 1194, CC]
Interval of time which Fact or event which
Trigger: In case of loss, deterioration or
is future and certain is future and
improvement of the thing before the arrival of
uncertain
the day certain
Must necessarily May or may not Effect: The rules in Art. 1189 shall apply
come, although it happen
may not be known Benefit of the Period [Art. 1196, CC]
when
Trigger: Whenever in an obligation a period is
designated
Page 267 of 532

Effect: It is presumed to have been When Courts May Fix Period

established for the benefit of both the creditor General Rule: Courts may fix the period of an
and the debtor obligation when:
1. the obligation does not fix a period but from
Exception: From the tenor of the same or its nature and the circumstances it can be
other circumstances it should appear that the inferred that a period was intended;
period has been established in favor of one or 2. the obligation depends upon the will of the
of the other. debtor.
Period for the benefit of either creditor or Exceptions: If the Court determines that one
debtor of the 3 circumstances [below] are present, it
must decide the period “probably contemplated
Creditor Debtor
by the parties” [Araneta v. Phil. Sugar Estates,
Creditor may Debtor may oppose any G.R. No. L-22558 (1967)]
demand the premature demand on 1. obligation does not fix a period, but from its
fulfillment or the part of the obligee for nature and circumstances, it can be
performance of the performance of the inferred that a period was intended
the obligation at obligation, or if he so 2. the period is void, such as when it depends
any time but the desires, he may upon the will of the debtor
obligor cannot renounce the benefit of 3. If the debtor binds himself when his means
compel him to the period by performing permit him to do so.
accept payment his obligation in advance.
before the Courts shall determine such period as may
expiration of the have been probably contemplated by the
period. parties [Art. 1197, CC]
Application: When a period was intended by
the parties [Macasaet v. Macasaet, G.R. Nos.
If the period is for the benefit of the debtor 154391-92 (2004)]
alone, he shall lose every right to make use General Rule: Once fixed by the courts, the
of it: period cannot be changed by them.
(a) When after the obligation has been Exception: The rule does not apply to contract
contracted, he becomes insolvent, unless of services and to pure obligations. [Tolentino]
he gives a guaranty or security for the debt;
(b) When he does not furnish to the creditor
the guaranties or securities which he has
4. Alternative or facultative
promised;
(c) When by his own acts he has impaired said Alternative and Facultative Conditions
guaranties or securities after their Distinguished
establishment, and when through a Alternative Facultative
fortuitous event they disappear, unless he Obligations Obligations
immediately gives new ones equally
satisfactory; Of the two or more Of the two or more
(d) When the debtor violates any undertaking, prestations, several prestations, only
in consideration of which the creditor are due. one is due, while the
agreed to the period; other/s may be
(e) When the debtor attempts to abscond [Art. performed in
1198, CC] substitution of the
(f) When required by law or stipulation; one due.
(g) If parties stipulated an acceleration clause
[Tolentino]
Page 268 of 532

May be complied May be complied Form of notice

with by performance with by performance Notice of selection or choice may be in any
of one of the of another prestation form provided it is sufficient to make the other
prestations which in substitution of party know that the selection has been made.
are alternatively that which is due. It can be:
due. 1. oral
2. in writing
The right of choice Choice of prestation 3. tacit
belongs to the pertains only to the 4. any other equivocal means [Tolentino]
debtor, unless it debtor.
has been expressly Consent of other party
granted to the The law does not require the other party to
creditor. [Art. 1200, consent to the choice made by the party
CC] entitled to choose. The only possible exception
is when the debtor has chosen a prestation
Loss/impossibility of Loss/impossibility of which could not have been the object of the
all prestations due the prestation due obligation; the creditor’s consent would bring
to a fortuitous event to a fortuitous event about a novation of the obligation [Ibid.]
shall extinguish the is sufficient to
obligation. extinguish the Debtor cannot make a choice, or delays
obligation. selection
If through the creditor's acts the debtor cannot
Loss/impossibility of Loss/impossibility of make a choice according to the terms of the
one of the the substitute/s obligation, the latter may rescind the
prestations does does not extinguish contract with damages. [Art. 1203, CC]
not extinguish the the obligation,
obligation. provided the If the debtor does not select at the time
obligation which is when performance should be effected, the
due subsists choice can be made for him by the creditor
by applying Art. 1167
Culpable loss of any Culpable loss of the
In obligations to do (debtor considered to have
of the objects object which the
waived his right, subject to equity
alternatively due debtor may deliver in
considerations) [Tolentino].
before the choice is substitution before
made may give rise the substitution is
Effect of notice of choice
to liability on the effected does not The effect of the notice is to limit the obligation
part of the debtor. give rise to any
to the object or prestation selected. The
liability on the part of
obligation is converted into a simple obligation
the debtor.
to perform the prestation chosen. Once a
selection has been communicated, it is
Right of Choice [Art. 1200, CC] irrevocable [Ibid.]
General Rule: Belongs to the debtor
Instances when obligation is converted into
Exceptions a simple obligation
1. it is expressly granted to the creditor 1. The person with the right of choice has
2. it is expressly granted to a third person communicated his choice [Arts. 1201 and
par. 1, 1205, CC]
2. Only one prestation is practicable [Art.
1202, CC]
Page 269 of 532

Loss of Specific Things or Impossibility of

shall choose without a right to
Performance of Prestations in an
from among the damages OR price/value
Alternative Obligation
remainder. of the thing lost, with right
to damages.
If Debtor’s Choice [Art. 1204, CC]
Fortuitous Debtor’s Fault One prestation remains
Event
Debtor to Creditor may claim the
All prestations lost/impossible perform that remaining thing without a
which remains. right to damages OR the
Debtor is Creditor shall have a price/value of the thing
released from right to indemnity for lost with right to
the obligation. damages based on the damages.
value of the last thing
which disappeared or
Facultative Obligations
service which become
Only one prestation is agreed upon, but the
impossible, plus
obligor may render another in substitution. [Art.
damages other than the
1206, CC]
value may also be
awarded
Loss or deterioration of Substitute in
Some prestations lost/impossible Facultative Obligations [Art. 1206, CC]
Before After Substitution is
Debtor to Debtor to perform that Substitution is Made
perform that which the debtor shall Made
which he shall choose from among the
choose from remainder, without If due to bad faith The loss or deterioration
among the liability for damages. or fraud of of the substitute on
remainder. obligor: obligor is account of the obligor’s
liable. delay, negligence, or
One prestation remains fraud, renders the obligor
If due to the liable because once the
Debtor to Debtor to perform that
negligence of the substitution is made, the
perform that which remains.
obligor: obligor is obligation is converted
which remains.
not liable. into a simple one with the
substituted thing as the
If Creditor’s Choice [Art. 1205, CC] object of the obligation.
Fortuitous Debtor’s Fault
Event 5. Joint and Solidary
All prestations lost/impossible Obligations
Debtor is Creditor may claim the Joint Obligations
released from price/value of any of
the obligation. them, with indemnity for The whole obligation, whether capable of
damages. division into equal parts or not, is to be paid or
performed by several debtors (joint debtors)
Some prestations lost/impossible and/or demanded by several creditors (joint
creditors).
Debtor to deliver Creditor may claim any
that which he of those subsisting
Page 270 of 532

Each debtor is liable only for a proportionate JOINT INDIVISIBLE OBLIGATION

part of the debt, and each creditor is entitled
Art. 1209, CC. If the division is impossible,
only to a proportionate part of the credit.
the right of the creditors may be prejudiced
[Tolentino]
only by their collective acts, and the debt can
be enforced only by proceeding against all
Presumption of Joint Obligation [Article
the debtors. If one of the latter should be
1207, CC]
insolvent, the others shall not be liable for his
General Rule: An obligation is presumed joint
share.
if there is a concurrence of several creditors, or
of several debtors, or of several creditors and
debtors in one and the same obligation When there are several debtors or creditors,
but the prestation is indivisible, the obligation is
Exceptions joint, unless solidarity has been stipulated
1. When the obligation expressly states [Tolentino]
that there is solidarity
2. When the law requires solidarity, i.e. When Indivisible [Art. 1225, CC]
quasi-delicts [Art. 2194, CC], joint 1. Obligations to give definite things
payees by mistake [Art. 2157, CC], 2. Obligations not susceptible of partial
acts under articles 19-22 if committed performance
by two or more persons acting jointly 3. Indivisibility is provided by law or intended
3. When the nature of the obligation by the parties, even though the object or
requires solidarity service may be physically divisible
4. When a charge or condition imposed 4. In obligations not to do, when character of
upon heirs or legatees, and the prestation requires indivisibility
testament expressly makes the charge
or condition in solidum Summary: in case of breach
5. When the solidary responsibility is Joint Divisible Joint Indivisible
imputed by a final judgment upon Obligations Obligations
several defendants
In case of In case of breach where
Presumption of Divisibility in Joint breach of one of the joint debtors
Obligations [Art. 1208, CC] obligation by fails to comply with his
Credit or debt shall be presumed to be divided one of the undertaking, the
into as many equal shares as there are debtors, obligation can no longer
creditors or debtors, the credits or debts being damages due be fulfilled or performed.
considered distinct from one another. must be borne Thus, the action must be
by him alone. converted into one for
JOINT DIVISIBLE OBLIGATION indemnity for damages,
One where a concurrence of several creditors, with each debtor liable
or of several debtors, or of several creditors only for his part in the
and debtors, by virtue of which, each of the price or value of the
creditors has a right to demand, and each of prestation.
the debtors is bound to render compliance with
his proportionate part of the prestation which
constitute the object of the obligation. Solidary Obligations
An obligation where there is concurrence of

several creditors, or of several debtors, or of
several creditors and several debtors, by virtue
of which, each of the creditors has the right to
demand, and each of the debtors is bound to
Page 271 of 532

render, entire compliance with the prestation KINDS OF SOLIDARY OBLIGATIONS

which constitutes the object of the obligation.
As to Source
The indivisibility of an obligation does not 1. Legal – imposed by law
necessarily give rise to solidarity. Nor does 2. Conventional – agreed upon by
solidarity of itself imply indivisibility. [Art. 1210, parties
CC] 3. Real – imposed by the nature of the
obligation
Solidarity may exist although the creditors and
the debtors may not be bound in the same As to Parties Bound
manner and by the same periods and 1. Active (solidarity among creditors) –
conditions. [Art. 1211, CC] Each creditor has the authority to claim
and enforce the rights of all, with the
Solidarity Indivisibility resulting obligation of paying everyone
what belongs to him.
Refers to the legal tie Refers to the 2. Passive (solidarity among debtors) –
(vinculum juris), and prestation that is not Each debtor can be made to answer for
consequently to the capable of partial the others, with the right on the part of
subjects or parties of performance the debtor-payor to recover from the
the obligation others their respective shares.
3. Mixed (solidarity among creditors and
More than one Exists even if there is debtors) – The creditor can commence
creditor or more than only one creditor an action against anyone of the debtors
one debtor (plurality and/or one debtor for the compliance with the entire
of subjects) obligation minus the portion or share
which corresponds to the debtor
Each creditor may Each creditor cannot affected by the condition or period. [Art.
demand the entire demand more than 1211, CC]
prestation and each his share and each
debtor is bound to debtor is not bound ACTIVE SOLIDARY OBLIGATION (among
pay the entire to pay more than his creditors)
prestation share
Effect of breach: Effect of breach: Art. 1214, CC. The debtor may pay any one
Solidarity remains Obligation is of the solidary creditors; but if any demand,
converted to judicial or extrajudicial, has been made by
indemnity for one of them, payment should be made to
damages him.
All debtors are liable Only the debtors

Effects of Active Solidarity [Tolentino]
for breach committed guilty of breach of
1. Death of solidary creditor does not transmit
by a co-debtor obligation is liable for
solidarity to his heirs but rather to all of
damages
them taken together (joint)
All debtors are Other debtors are 2. Each represents the other in receiving
proportionately liable not liable if one payment and all other advantageous acts
for insolvency of one debtor is insolvent (i.e. interrupt prescription and render the
debtor debtor in default for the benefit of all
creditors)
3. Each one of the solidary creditors may do
whatever may be useful to the others, but
Page 272 of 532

not anything which may be prejudicial to can recover from the co-debtors their
the latter. [Art. 1212, CC] respective shares
4. One creditor does NOT represent all others 2. Each debtor may set up his own claims
in acts such as novation (even if against the creditor as payment of the
advantageous), compensation and obligation
remission. In this case, even if the debtor is 3. Remission of the entire debt affects all
released, the other creditors can still debtors, but when remission is limited
enforce their rights against the creditor who to the share of one debtor, the other
made the novation, compensation or debtors are still liable for the balance of
remission [par. 2, Art. 1215, CC] the obligation
5. The creditor who collects the debt, shall be a. The remission of the whole obligation,
liable to the others for the share in the obtained by one of the solidary debtors,
obligation corresponding to them. [par. 2, does not entitle him to reimbursement
Art. 1215, CC] from his co-debtors. [Art. 1220, CC]
6. The credit and its benefits are divided b. The remission made by the creditor of
equally among them, unless agreement to the share which affects one of the
the contrary. solidary debtors does not release the
7. Debtor may pay any one of the solidary latter from his responsibility towards
creditors; but if any demand, judicial or the co-debtors, in case the debt had
extrajudicial, has been made by one of been totally paid by any one of them
them, payment should be made to him who before the remission was effected. [Art.
demanded [Art. 1214, CC] 1219, CC]
4. All debtors are liable for the loss of the
PASSIVE SOLIDARY OBLIGATION thing due, even if only one of them is at
fault, or after incurring delay it is lost by
General Rules fortuitous event
1. The creditor may proceed against any 5. Interruption of prescription as to one
one of the solidary debtors or some or debtor affects all others, but
all of them simultaneously...so long as renunciation of prescription already
the debt has not been fully collected had does not prejudice the others.
[Art. 1216, CC] (Reason: prescription extinguishes the
2. Payment made by one of the solidary mutual representation among solidary
debtors extinguishes the obligation. If debtors)
two or more solidary debtors offer to 6. Interests due by delay of one is borne
pay, the creditor may choose which by all of them
offer to accept. [Art. 1217, CC]
3. A solidary debtor may, in actions filed DEFENSES AVAILABLE TO A SOLIDARY
by the creditor, avail himself of all DEBTOR [Art. 1222, CC]
defenses which are derived from the
nature of the obligation and of those 1. Those derived from the nature of the
which are personal to him, or pertain to obligation
his own share. For defenses which Defenses inherent in an obligation include
personally belong to the others, such non-existence of the obligation because of
debtor may avail himself thereof only absolute simulation or illicit object, nullity
as regards that part of the debt for due to defect in capacity or consent of all
which the latter are responsible. [Art. debtors, unenforceability, non-
1222, CC] performance of suspension condition or
non-arrival of period, extinguishment of the
Effects of Passive Solidarity [Tolentino] obligation, res judicata, and prescription.
1. Each debtor can be required to pay the
entire obligation, but after payment he
Page 273 of 532

2. Those personal to him Loss of the thing or impossibility of

Personal defenses such as minority, performance of the passive/mixed solidary
insanity, fraud, violence, or intimidation will obligation [Art. 1221, CC]
serve as a complete exemption of the
defendant debtor from liability to the
Without The obligation shall be
creditor fault of extinguished.
the
3. Those pertaining to his own share debtors
4. Those personally belonging to other co- With fault All debtors shall be responsible to
debtors but only as regards that part of of any of the creditor, for the price and the
the debt for which the latter are the payment of damages and interest,
responsible. debtors without prejudice to their action
against the guilty or negligent
Comparing demand upon Solidary Debtor debtor.
and Payment by a Solidary Debtor
Through All debtors shall be responsible to
Demand Upon a Payment by a a the creditor, for the price and the
Solidary Debtor Solidary Debtor fortuitous payment of damages and interest,
event without prejudice to their action
The demand made Full payment made after one against the guilty or negligent
against one of them shall by one of the incurred debtor.
not be an obstacle to solidary debtors in delay
those which may extinguishes the
subsequently be directed obligation [Art.
against the others so 1217, CC]. 6. Obligations with a penal
long as the debt has not
been fully collected [Art. clause
1216, CC].
Penal Clause
The creditor may If two or more An accessory undertaking to assume greater
proceed against any one solidary debtors liability in case of breach. It is generally a sum
of the solidary debtors or offer to pay, the of money, but it can be any other thing like an
all simultaneously [Art. creditor may act or abstention. [Tolentino]
1216, CC]. choose which offer
to accept [Art. If the principal obligation is void, the penal
1217, CC]. clause shall also be void. However, the nullity
of the penal clause does not carry with it the
A creditor’s right to The solidary debtor
nullity of the principal obligation [Art.1230, CC].
proceed against the who made the
surety exists payment shall have
Rules on Penalty
independently of his right the right to claim
to proceed against the from his co-debtors
a. The penalty shall substitute the
principal. the share which indemnity for damages and payment of
corresponds to interest in case of non-compliance [Art.
them with interest, 1226, CC], unless:
UNLESS barred by i. There is an express provision
prescription or to that effect
illegality [Art. 1218, ii. The obligor refuses to pay the
CC]. penalty
iii. The obligor is guilty of fraud in
non-fulfillment
Page 274 of 532

b. Debtor cannot exempt himself from the 3. If the penalty is iniquitous or

performance of the principal obligation unconscionable, even if there has been no
by paying the stipulated penalty unless performance.
this right has been expressly reserved
for him [Art. 1227, CC]. The question of whether a penalty is
c. Creditor cannot demand the fulfillment reasonable or iniquitous can be partly
of the principal obligation and subjective and partly objective. Its resolution
demanding the satisfaction of the would depend on such factors as, but not
penalty at the same time unless the necessarily confined to, the type, extent and
right has been clearly granted to him purpose of the penalty, the nature of the
[Art. 1227, CC]. A tacit or implied grant obligation, the mode of breach and its
is admissible. consequences, the supervening realities, the
i. If the creditor chooses to standing and relationship of the parties, and
demand the satisfaction of the like, the application of which, by and large,
the penalty, he cannot is addressed to the sound discretion of the
afterwards demand the court. [Ligutan v CA, G.R. No. 138677 (2002)]
fulfillment of the obligation.
ii. If there was fault on the part
of the debtor, creditor may
D. EXTINGUISHMENT OF
demand not only the OBLIGATIONS
satisfaction of the penalty but
also the payment of damages. Modes of extinguishing obligations
iii. If the creditor has chosen to
demand the fulfillment of the Art. 1231, CC. Obligations are extinguished:
principal obligation and the 1. By payment or performance;
performance thereof 2. By the loss of the thing due;
becomes impossible without 3. By the condonation or remission of
his fault, he may still demand the debt;
the satisfaction of the penalty. 4. By the confusion or merger of the
rights of creditor and debtor;
Enforcement of the Penalty 5. By compensation;
The enforcement of the penalty can be 6. By novation.
demanded by the creditor only when the non-
performance is due to the fault or fraud of the Other causes of extinguishment of
debtor. However, the creditor does not have to obligations, such as annulment, rescission,
prove fault or fraud, since the non-performance fulfillment of a resolutory condition, and
gives rise to the presumption of fault. prescription, are governed elsewhere in this
[Tolentino] Code.
Proof of Actual Damage 1. Payment or performance

Proof of actual damage suffered by the creditor
is not necessary in order that the penalty may
be enforced [Art. 1228, CC].
a. Payment
When Penalty may be Reduced [Art. 1229, The delivery of money OR

CC]: The performance of obligation [Art. 1232,
1. If the principal obligation has been partly CC]
complied with.
2. If the principal obligation has been
irregularly complied with.
Page 275 of 532

OBJECT OF PAYMENT 2. Debtor may not be required to make partial

payments
1. Integrity of Prestation
Exception:
General Rule: A debt is understood to have 1. There is an express stipulation that permits
been paid when the thing or service in which partial performance.
the obligation consists has been completely 2. When the debt is in part liquidated and in
delivered or rendered [Art. 1233, CC] part unliquidated, the creditor may demand
and the debtor may effect the payment of
2. Identity of Prestation the former without waiting for the
liquidation of the latter.
For obligations to give: The debtor of a thing
cannot compel the creditor to receive a BY WHOM
different one, although the latter may be of the
same value as, or more valuable than that Payor must have (1) free disposal of the
which is due. [Art. 1244, CC] thing due and (2) capacity to alienate it. [Art.
1239, CC]
For obligations to do or not to do: an act or
forbearance cannot be substituted by another Free disposal of the thing due means that the
act or forbearance against the obligee's will. thing to be delivered must not be subject to any
[Art. 1244, CC] claim or lien or encumbrance of a third person.
Capacity to alienate means that the person is
Exceptions to Art. 1244, CC: not incapacitated to enter into contracts [Arts.
a. If the obligation is facultative [Art. 1206, 1327, 1329, CC] and for that matter, to make a
CC] disposition of the thing due. [de Leon]
b. If the creditor agrees (Dation in payment)
[Art. 1245, CC] Payor may either be:
c. Substantial Performance by Debtor 1. The debtor or his duly authorized agent
(Creditor only has a right to damages) [Art. 2. The debtor’s heir or successor in
1234, CC] interest
3. A third person interested in the
If the obligation has been substantially fulfillment of the obligation (i.e. co-
performed in good faith, the obligor may debtor, guarantor) whether the debtor
recover as though there had been a strict consents to it or not, and even without
and complete fulfillment, less damages debtor’s knowledge [Art. 1302, CC]. This
suffered by the obligee. includes payment by a joint debtor [Monte
de Piedad y Caja de Ahorros de Manila v.
d. When the obligee accepts the Rodrigo, G.R. No. L-42928 (1936)] but not
performance, knowing its a solidary co-debtor.
incompleteness or irregularity, and 4. A third person not interested in the
without expressing any protest or obligation; but the creditor is not bound to
objection, the obligation is deemed fully accept payment by him, unless there is a
complied with. [Art. 1235, CC] stipulation to the contrary [Art. 1236, CC].
Necessity of Complete Performance [Art. Payment by a third person

1248, CC] General Rule: The creditor is not bound to
accept payment or performance by a third
General Rules: person who has no interest in the fulfillment
1. Creditor cannot be compelled partially to of the obligation [Art. 1236, CC]
receive the prestations in which the
obligation consists.
Page 276 of 532

Exception: Stipulation to the contrary [Art. interest; or any person authorized to

1236, NCC] receive it [Art. 1240, CC]
2. Payment to a person who is
Reimbursement for Payment Made by a
incapacitated to administer his property
Third Person
shall be valid:
The third party The third party pays 3. if he has kept the thing delivered, OR
pays with the without the 4. insofar as the payment has been
consent of the knowledge or consent beneficial to him. [Art. 1241 par 1, CC]
debtor of the debtor 5. Payment made in good faith to any
person in possession of the credit shall
The third party The third party may only release the debtor. [Art. 1242, CC]
may claim claim insofar as the 6. Payment to a third person
reimbursement payment has been 7. Payment made to the creditor by the debtor
for the full beneficial to the debtor. after the latter has been judicially ordered
amount. [Art. [Art. 1236, CC] to retain the debt shall not be valid. [Art.
1236, CC] 1243, CC]
The third party is The third party cannot General Rule

presumed to be compel the creditor to 1. Valid insofar as it has redounded to the
legally subrogate him on his benefit of the creditor [par. 2, Art. 1241, CC]
subrogated [Art. rights. [Art. 1237, CC] 2. Proof that such payment has redounded to
1302, CC] the benefit of the creditor is required.
Exceptions: [par. 2, Art. 1241, CC]

Reimbursement & Subrogation
1. If after the payment, the third person
Distinguished
acquires the creditor's rights
Reimbursement Subrogation (SUBROGATION);
2. If the creditor ratifies the payment to the
third person (RATIFICATION);
Personal action to Includes 3. If by the creditor's conduct, the debtor has
recover amount paid reimbursement, but been led to believe that the third person
also the exercise of had authority to receive the payment
other rights attached (ESTOPPEL). [Art. 1241, CC]
to the original
obligation (e.g. PLACE OF PAYMENT
guaranties,
securities) 1. In the place designated in the obligation.
2. In the absence of stipulation—
a. If obligation is to deliver a determinate
Art. 1238, CC. Payment made by a third thing: wherever the thing might be at
person who does not intend to be the moment the obligation was
reimbursed by the debtor is deemed to be a constituted.
donation, which requires the debtor's b. In any other case: domicile of debtor
consent. But the payment is in any case valid [Art. 1251]
as to the creditor who has accepted it.
TIME OF PAYMENT
TO WHOM
General Rule: Upon demand
1. The person in whose favor the obligation
has been constituted; orHis successor in
Page 277 of 532

Exceptions: b. Application of Payments

1. When time is of the essence
2. When the debtor loses the benefit of the
period Art. 1252, par. 1, CC. He who has various
3. When the obligation is reciprocal debts of the same kind in favor of one and
the same creditor, may declare at the time of
FORM OF PAYMENT making the payment, to which of them the
same must be applied. Unless the parties so
stipulate, or when the application of payment
Art. 1249, CC. The payment of debts in is made by the party for whose benefit the
money shall be made in the currency term has been constituted, application shall
stipulated, and if it is not possible to deliver not be made as to debts which are not yet
such currency, then in the currency which is due.
legal tender in the Philippines.
The delivery of promissory notes payable to
order, or bills of exchange or other Requisites
mercantile documents shall produce the 1. There is a plurality of debts
effect of payment only when they have been 2. Debts are of the same kind
cashed, or when through the fault of the 3. Debts are owed to the same creditor and
creditor they have been impaired. by the same debtor
In the meantime, the action derived from the 4. All debts must be due, UNLESS parties so
original obligation shall be held in the stipulate, or when application is made by
abeyance. the party for whose benefit the term has
been constituted
5. Payment made is not sufficient to cover all
When payment is made in money/ legal debts [Art. 1252, CC]
tender
General Rule: pay in the currency stipulated Rules on Application of Payments
1. Preferential right of debtor - debtor has the
Exception: payment not possible in such right to select which of his debts he is
currency, then pay in legal tender. paying. [Art. 1252, CC]
2. The debtor makes the designation at the
Legal Tender time he makes the payment.
Such currency which in a given jurisdiction can 3. If not, the creditor makes the application,
be used in the payment of debts, and which by so stating in the receipt that he issues,
cannot be refused by the creditor. unless there is cause for invalidating the
contract.
When payment is not in legal tender 4. If neither the creditor nor debtor exercises
General Rule: The creditor may refuse to the right to apply, or if the application is not
accept payment (e.g. checks) not made in legal valid, the application is made by operation
tender [Philippine Airlines v. Court of Appeals, of law. (see no. 6)
G.R. No. L-49188 (1990)]. 5. If debt produces interest, the payment is
not to be applied to the principal unless the
Extraordinary Inflation or Deflation interests are covered. [Art. 1253, CC]
Art. 1250, CC. In case an extraordinary 6. When no application can be inferred from
inflation or deflation of the currency the circumstances of payment, it is applied:
stipulated should supervene, the value of the (a) to the most onerous debt of the debtor;
currency at the time of the establishment of or (b) if debts due are of the same nature
the obligation shall be the basis of payment, and burden, to all the debts in proportion.
unless there is an agreement to the contrary. [Art. 1254, CC]
Page 278 of 532

7. Rules on application of payment may not proceeds thereof, the latter may obtain
be invoked by a surety or solidary payment of their credits.
guarantor.
Requisites
Exceptions 1. There is a plurality of debts
1. Rules on application of payment cannot be 2. There is a plurality of creditors
made applicable to a person whose 3. Partial or relative insolvency of debtor
obligation as a mere surety is both 4. Acceptance of the cession by the
contingent and singular. There must be full creditors [Art. 1255, CC]
and faithful compliance with the terms of 5. Debtor is released only for the net
the contract. [Reparations Commission v. proceeds unless there is a stipulation to the
Universal Deep Sea Fishing Corp, G.R. contrary.
Nos. L-21901 and L-21996 (1978)]
2. The debtor’s right to apply payment can be Cession and Dation Distinguished
waived and even granted to the creditor if
Cession Dacion en pago
the debtor so agrees [Premiere
Development v. Central Surety, G.R. No. Plurality of creditors One creditor
176246 (2009)]
Debtor must be Debtor not
Limitations partially or relatively necessarily in state
1. Right of creditor to refuse partial payment insolvent of financial difficulty
[Art. 1248, CC]
2. Rule on satisfaction of interest before the Universality of Thing delivered is
Principal. [Art. 1453, CC] property is ceded equivalent of
3. Debtor cannot apply payment to a debt performance
which is not yet liquidated
4. He cannot choose a debt with a period Merely releases Extinguishes
(established for the creditor’s benefit) debtor for the net obligation to the
before the period has arrived. proceeds of things extent of the value
5. Stipulation as to preference of payment. ceded or assigned, of the thing
[Tolentino] unless there is delivered, as
contrary intention agreed upon,
c. Dation in Payment proved or implied
from the conduct of
Delivery and transmission of ownership of the creditor
a thing by the debtor to the creditor as an
Involves all Does not involve all
accepted equivalent of the performance of the
properties of debtor properties of debtor
obligation (dacion en pago).
Creditor does not Creditor becomes
Requisites become owner of the owner
1. Existence of a money obligation ceded property
2. Alienation to the creditor of a property by
the debtor with the creditor’s consent
3. Satisfaction of the money obligation e. Tender of Payment and
Consignation
d. Payment by Cession
Tender of payment
Special form of payment where the debtor Manifestation made by the debtor to the
assigns/abandons ALL his property for the creditor of his desire to comply with his
benefit of his creditors in order that from the obligation, with offer of immediate
Page 279 of 532

performance. [Del Carmen v. Sps. Sabordo, Unless there is an unjust refusal by a creditor
G.R. No. 181723 (2014)] to accept payment from a debtor, Article 1256
cannot apply. [Llobrera v. Fernandez, G.R. No.
Tender of payment must be made in the lawful 142882 (2006)].
currency. The tender of a check to pay for an
obligation is not a valid tender of payment What constitutes valid consignation
thereof. [Soco v. Militante, G.R. No. L-58961, In order that the consignation of the thing due
(1983)] may release the obligor, it must first be
announced to the persons interested in the
Consignation fulfilment of the obligation. The consignation
Deposit of the object of obligation in a shall be ineffectual if it is not made strictly in
competent court in accordance with the rules consonance with the provisions which regulate
prescribed by law whenever the creditor payment. [Art. 1257, CC]
unjustly refuses payment or because of some
circumstances which render direct payment to How consignation is made
the creditor impossible or inadvisable. Consignation shall be made by depositing the
things due at the disposal of judicial
Requisites of consignation authority, before whom the tender of payment
1. There is a debt due shall be proved, in a proper case, and the
2. Consignation is made because of some announcement of the consignation in other
legal cause cases. The consignation having been made,
a. There was tender of payment and the interested parties shall also be notified
creditor refuses without just cause thereof.
to accept it
b. Instances when consignation alone Who bears the expenses
would suffice as provided under The expenses of consignation, when properly
Art. 1256 made, shall be charged against the creditor.
3. Previous notice of consignation was [Art. 1259, CC]
given to those persons interested in the
performance of the obligation. Previous Effects of Consignation
notice is essential to the validity of the If accepted by the creditor or declared properly
consignation and its lack invalidates the made by the Court:
same. [Soco v. Militante, G.R. No. L- 1. Debtor is released in same manner as if
58961, (1983)] (1st notice) he had performed the obligation at the time
4. Amount or thing due was placed at the of consignation
disposal of the court 2. Accrual of interest is suspended from
5. After the consignation has been made, the moment of consignation.
the persons interested were notified 3. Deterioration or loss of the thing or
thereof (2nd notice) amount consigned, occurring without the
fault of debtor, must be borne by creditor
When tender and refusal not required [Art. from the moment of deposit
1256, CC]
1. Creditor is absent or unknown, or does Withdrawal of Consigned Amount by the
not appear at the place of payment. Debtor
2. Creditor is incapacitated to receive the 1. Before approval of the court or acceptance
thing due at the time of payment. of the creditor- Obligation remains in force.
3. Without just cause, creditor refuses to [par. 2, Art. 1260, CC]
give receipt. 2. After approval of the court or acceptance
4. Two or more persons claim the same by the creditor, with the consent of the latter
right to collect (i.e. Interpleader) - Obligation remains in force, but
5. Title of the obligation has been lost. guarantors and co-debtors are liberated.
Page 280 of 532

Preference of the creditor over the thing is When the legal excuse of fortuitous
lost. [Art. 1261, CC] event is not applicable, in cases of:
3. After approval of the court or acceptance 1. Delay or promise to deliver thing
by the creditor, and without creditor’s to two or more persons. [Art.
consent - debtor can no longer withdraw 1165 (3), CC]
the consigned amount since the obligation 2. Nature of the Obligation
has already been extinguished [Pabugais Requires Assumption of Risk
v. Sahijwani, G.R. No. 156846 (2004)] [Art. 1174, CC]
4. If the creditor authorizes the debtor to 3. Liability of a Bailee in fortuitous
withdraw, third persons who were events. [Art. 1942 , CC]
benefited by the consignation are not 4. Liability of a depositary in
prejudiced by the revival of the obligation. fortuitous events. [Art. 1979, CC]
5. Liability of the officious manager
2. Loss of determinate thing due in fortuitous events. [Art. 2147,
CC]
or impossibility or difficulty of
performance 2. Loss of Generic Things
Loss Obligation is NOT Extinguished: In an

obligation to deliver a generic thing, the
1. Loss of Determinate Things loss or destruction of anything of the same
kind does not extinguish the obligation.
General Rule: Loss of determinate things [Art. 1263 , CC]
extinguishes the obligation when: [Par.
1, Art. 1262 CC]. 3. Partial Losses
a. An obligation which consists in the
delivery of a determinate thing Upon the Determination of the Court: The
b. Thing is lost or destroyed courts shall determine whether, under the
c. Debtor is without fault circumstances, the partial loss of the
d. Delay not incurred object of the obligation is so important as to
extinguish the obligation. [Art. 1264, CC]
However, the obligor is still liable for
damages when the following requisites 4. Presumption of Fault
concur: [Par. 2, Art. 1262 CC].
When Presumption Applies [Art. 1265,
e. There is law or a stipulation for CC]:
fortuitous events or the nature of a. Thing is lost while in the
the obligation requires an possession of the debtor
assumption of risk b. No proof of fortuitous event
f. The thing is lost
Effect: It is presumed that loss was due to
Exceptions (When the Loss Does Not his fault.
Extinguish)
a. When the obligation to deliver a Exceptions [Art. 1265, CC]
determinate object arises from a a. There is proof to the contrary
criminal act. [Art. 1268, CC] b. In case of earthquake, flood, storm
b. Acceptance of payments in bad or other natural calamity.
faith. [Art. 2159, CC]
5. Loss in Obligations to Give With
Resolutory Conditions
Page 281 of 532

When the conditions have been imposed Impossibility at Constitution and

with the intention of suspending the Subsequent Impossibility Distinguished
efficacy of an obligation to give, the
Impossibility at Impossibility which
following rules shall be observed in case of
the Time the Supervenes at the Time
the improvement, loss or deterioration of
Obligation was of Performance [Art.
the thing during the pendency of the
Constituted 1266]
condition:
[Art. 1348, CC]
a. If the thing is lost without the fault of
the debtor, the obligation shall be Brings about the Brings about a
extinguished; nullity of the modification or
b. If the thing is lost through the fault of contract extinguishment of the
the debtor, he shall be obliged to pay obligation, depending on
damages; it is understood that the whether or not it is
thing is lost when it perishes, or imputable to the debtor
goes out of commerce, or
disappears in such a way that its
existence is unknown or it cannot be TYPES OF IMPOSSIBILITY
recovered. [Art. 1189, CC] a. Physical and Legal
Physical Impossibility: There is
Effects of Loss [Arts. 1262-1263, CC] physical impossibility when the act, by
reason of its nature, cannot be
Obligation to Obligation to Deliver a accomplished. [Tolentino]
Deliver a Generic Thing
Specific Thing Legal Impossibility: There is legal
impossibility when, the act, by
Obligation is Loss of a generic thing
subsequent law, is prohibited.
extinguished if does not extinguish an
[Tolentino]
the thing was obligation, EXCEPT in
destroyed case of delimited generic
b. Subjective and Objective
without fault of things, where the kind or
Objective Impossibility: There is
the debtor and class is limited itself, and
objective impossibility when the act or
before he has the whole class
service in itself, without considering the
incurred delay. perishes.
person of the obligor, becomes
impossible. [Tolentino]
Impossibility or Difficulty of
Performance Subjective Impossibility: There is
subjective impossibility when the act or
1. Impossibility service cannot be done by the debtor
himself, but it can be accomplished by
The debtor in obligations to do shall also be others. [Tolentino]
released when the prestation becomes legally Partial Impossibility: The rule in Art.
or physically impossible without the fault of 1264 (Partial Loss) may be applied.
the obligor. [Art. 1266, CC] Thus the Courts shall determine
whether it is so important as to
Triggers extinguish the obligation. If the debtor
a. Obligation to do has performed part of the obligation
b. Becomes legally or physically when impossibility occurred, the
impossible creditor must pay the part done as long
as he benefits from it. [Tolentino]
Page 282 of 532

2. Unforeseen Difficulty normal

manner
When the service has become so difficult as to
be manifestly beyond the contemplation of Fault Without May be Without
all the parties, the obligor may also be fault with or Fault
released therefrom, in whole or in part. [Art. without
1267, CC]. fault
Requisites Effect Non- If without Release

a. The event or change in circumstances liability for fault, from the
could not have been foreseen at the delay/ extinguish obligation
time of the execution of the contract; damages es the in whole or
obligation; in part
b. It makes the performance of the
If with
contract extremely difficult but not
fault,
impossible;
liability for
c. The event must not be due to the act damages
of any of the parties; and
d. The contract is for a future prestation.
[Tagaytay Realty Co, Inc. v. Gacutan Creditors’ rights
G.R. No. 160033, July 01, 2015] Art. 1269, CC. The obligation having been
extinguished by the loss of the thing, the
Doctrine of Unforeseen Events creditor shall have all the rights of action
The parties to the contract must be presumed which the debtor may have against third
to have assumed the risks of unfavorable persons by reason of the loss.
developments. It is therefore only in
absolutely exceptional changes of
circumstances that equity demands Requisites:
assistance for the debtor. [PNCC v. CA, G.R. a. Obligation is extinguished
No. 1116896 May 5, 1997.] b. Extinguishment is due to the loss of the
thing
Fortuitous Events, Loss/Impossibility, and
Unforeseen Difficulty Distinguished Effect: Creditor shall have all rights of action
which the debtor may have against third
Fortui- Loss/ Unfor- persons by reason of the loss.
tous Impos- seen
Events sibility Difficul-ty
3. Condonation or remission of
Eleme Could not Perishes, Could not debt
nts have been goes out have been
forseen or of forseen. Definition and General Rule
forseen commerce Service
but or has
General Rules
inevitable. disappear become so
Causes s difficult but
1. Condonation or remission is essentially
loss of the not gratuitous, and
thing or impossible. 2. requires the acceptance by the
obligation obligor.
could not 3. It may be made expressly or
be impliedly.
complied 4. One and the other kinds shall be
with in the subject to the rules which govern
inofficious donations. Express
Page 283 of 532

condonation shall, furthermore, comply b. Implied Condonation

with the forms of donation. [Art. 1270,
CC] It is inferred from the acts of the parties.
Requisites [Tolentino] 2. As to Extent

1. The debt must be existing and a. Total - extinguishes the entire
demandable; obligation; or
2. The renunciation must be gratuitous; b. Partial - refers to only a particular
and aspect of the obligation, i.e. amount of
3. The debtor must accept the remission. indebtedness or an accessory
obligation. [Tolentino]
Effect: The obligation is extinguished.
3. As to Manner
Definition a. Inter vivos - effective during the
Remission is an act of liberality, by virtue of lifetime of the creditor; or
which, without receiving any equivalent, the b. Mortis Causa - effective upon the
creditor renounces the enforcement of the death of the creditor.
obligation. The obligation is extinguished either
in whole or in such part of the same to which Rules and Form
remission refers. [Tolentino]
1. Express Remission
If 2nd Requisite not Met
If the renunciation is not gratuitous, the nature Art. 1270 (2), CC: One and the other kinds
of the act changes and it may become: shall be subject to the rules which govern
1. Dation in payment – when the creditor inofficious donations. Express condonation
receives a thing different from that shall, furthermore, comply with the forms of
stipulated; donation.
2. Novation – when the object or
principal conditions of the obligation The law subjects express remission to the
have changed; or same formalities as donations.
3. Compromise – when the matter
renounced is in litigation or dispute and Express Remission of Movable or Personal
in exchange of some concession which Property
the creditor receives. [Tolentino] The donation of a movable may be made orally
or in writing.
Kinds of Remission
An oral donation requires the simultaneous
1. As to Form delivery of the thing or of the document
a. Express Condonation representing the right donated.
It is formally: in accordance with forms of If the value of the personal property donated
ordinary donations. [Art. 1270, CC] exceeds five thousand pesos, the donation
and the acceptance shall be made in writing.
An express remission must be accepted in Otherwise, the donation shall be void. [Art. 748,
order to be effective. CC]
When the debt refers to movable or Express Remission of Immovable or Real

personal property, Art. 748 will govern; if it Property
refers to immovable or real property, Art. In order that the donation of an immovable
749 applies. may be valid, it must be made in a public
document, specifying therein the property
Page 284 of 532

donated and the value of the charges which the

donee must satisfy. Presumption of Delivery
Whenever the private document in which the
The acceptance may be made in the same debt appears is found in the possession of the
deed of donation or in a separate public debtor, it shall be presumed that the creditor
document, but it shall not take effect unless it delivered it voluntarily, unless the contrary is
is done during the lifetime of the donor. proved. [Art. 1272, CC]
If the acceptance is made in a separate Trigger: The private document in which the
instrument, the donor shall be notified thereof debt appears is found in the possession of the
in an authentic form, and this step shall be debtor.
noted in both instruments. [Art. 749, CC]
Effect: There is a presumption that it has been
2. Implied Remission voluntarily delivered by the creditor.
Presumption of Renunciation Exception: The contrary is proved.

The delivery of a private document evidencing
a credit, made voluntarily by the creditor to the 3. Partial Remission
debtor, implies the renunciation of the action
which the former had against the latter [Art. Renunciation of the principal debt shall
1271, CC] extinguish the accessory obligations, but
remission of the latter leaves the principal
Trigger: (1) Delivery of a private document obligation in force. [Art. 1273, CC]
evidencing a credit; and (2) delivery was made
voluntarily by the creditor to the debtor Trigger: The remission was only to the extent
of the accessory obligation
Effect: There will be implied renunciation. Effect: The principal obligation remains in
force
Exception: The contrary is proved.
4. Other Rules on Donation Applicable to
Note: If in order to nullify this waiver it should Remission
be claimed to be inofficious, the debtor and
his heirs may uphold it by proving that the Condonation or remission is essentially a
delivery of the document was made in virtue of donation. It is a bilateral act which requires
payment of the debt. [Art. 1271, CC] acceptance by the debtor. It is therefore
subject to the rule on donations with respect to
Presumption of Renunciation of Accessory acceptance, amount and revocation; where
Obligation donor refers to the creditor, and donee to the
Accessory obligation of pledge has been debtor, and donation to the remission.
remitted when the thing after its delivery is [Tolentino]
found in the possession of the debtor or third
person. [Art. 1274, CC] On Acceptance
1. The donee must accept the donation
Triggers: (1) A thing is pledged; (2) there has personally, or through an authorized
been a delivery of such thing to the creditor; or person with a special power for the
(3) the thing pledged is found in the possession purpose, or with a general and sufficient
of the debtor, or of a third person who owns the power; otherwise, the donation shall be
thing. void. [Art. 745, CC]
2. Acceptance must be made during the
Effect: It is presumed that the accessory lifetime of the donor and of the donee.
obligation of pledge has been remitted. [Art. 746, CC]
Page 285 of 532

guarantors. Confusion which takes place in the

On Amount person of any of the latter does not extinguish
1. The donation may comprehend all the the obligation.
present property of the donor, or part
thereof, provided he reserves, in full c. In case of joint or solidary obligations
ownership or in usufruct, sufficient
Confusion in Confusion in
means for the support of himself, and
Joint Obligation Solidary
of all relatives who, at the time of the
Obligation
acceptance of the donation, are by law
entitled to be supported by the donor. Confusion DOES NOT Extinguishes the
Without such reservation, the donation extinguish a joint entire obligation,
shall be reduced on petition of any obligation EXCEPT as but the other
person affected. [Art. 750, CC] regards the share of debtors may be
2. The provisions of Art. 750 the person in whom liable for
notwithstanding, no person may give or the two characters reimbursement if
receive, by way of donation, more than concur [Art. 1277, CC] payment was made
he may give or receive by will. The prior to remission.
donation shall be inofficious in all that it
may exceed this limitation. [Art. 752,
CC] Obligation is not extinguished when confusion
takes place in the person of subsidiary debtor
Effect: Renunciation of the principal debt shall (i.e. guarantor), but merger in the person of the
extinguish the accessory obligations, but principal debtor shall benefit the former.
remission of the latter leaves the principal
obligation in force. [Art. 1273, CC] Note: Where, however, the mortgagee
acquires ownership of the entire mortgaged
property, the mortgage is extinguished; but this
4. Confusion does not necessarily mean the extinguishment
of the obligation secured thereby, which may
Definition
become an unsecured obligation.
The meeting in one person of the qualities of
creditor and debtor of the same obligation.
[Tolentino] 5. Compensation
Requisites Definition [Art. 1278, CC]

a. It should take place between principal Compensation shall take place when two
debtor and creditor; persons, in their own right, are creditors and
b. The very same obligation must be involved; debtors of each other.
and
c. The confusion must be total, i.e. as regards Requisites [Art. 1279, CC]
the whole obligation. [Valmonte v. CA, G.R. a. Each obligor is bound principally, and at
No. L-41621, February 18, 1999] the same time a principal creditor of the
other;
Effects b. Both debts must consist in a sum of money,
a. In general or if the things due are consumable, of the
The obligation is extinguished from the time the same kind and quality;
characters of the debtor and creditor are
merged in the same person. [Art. 1275, CC] Note: The term ‘consumable’ is
erroneously used in Art 1279. The
b. Confusion among the Guarantors appropriate term is ‘fungible’. [Tolentino]
A merger which takes place in the person of the
principal debtor or creditor benefits the c. Both debts are due;
Page 286 of 532

d. Debts are liquidated and demandable; and

There are two persons There is only one
e. There must be no retention or controversy
who are mutually person whom the
over either of the debts, commenced by
debtors and creditors characters of the
third persons and communicated in due
of each other in two creditor and debtor
time to the debtor.
separate obligations, meet.
each arising from the
To warrant the application of set off under
same cause.
Article 1278 of the Civil Code, the debtor’s
admission of his obligation must be clear
and categorical and not one which merely Compensation Payment
arise by inference or implication from the
customary execution of official documents in
assuming the responsibilities of a predecessor Capacity to dispose Requires capacity
[Bangko Sentral v. COA, G.R. No. 168964 and receive the thing to dispose of the
(2006)] is unnecessary since thing paid and
compensation capacity to receive
Nature and Effects operates by law
General Rule May be partial Must be total

When all requisites mentioned in Art. 1279 are performance
present, compensation takes effect by
operation of law, and extinguishes both
debts to the concurrent amount, even
though the creditors and debtors are not aware Compensation Counterclaim
of the compensation. [Art. 1290, CC]
Takes place by Must be pleaded to
By Operation of Law operation of law be effectual
Compensation takes place by operation of law,
even though the debts may be payable at
different places, but there shall be an indemnity Kinds of Compensation
for expenses of exchange or transportation to
the place of payment. [Art. 1286 CC] As to extent [Art. 1281, CC]
1. Total – when two debts are of the same
Compensation takes effect by operation of law amount
even without the consent or knowledge of 2. Partial - when the two obligations are of
the parties concerned when all the different amounts and a balance remain
requisites mentioned in Article 1279 of the
Civil Code are present. [Trinidad v. Acapulco, As to cause
G.R. No. 147477, June 27, 2006.] 1. Legal
2. Voluntary
Compensation Distinguished from Other 3. Judicial
Modes of Extinguishment 4. Facultative
Compensation Confusion
LEGAL COMPENSATION
Takes place by operation of law from the
There must always be Involves only one moment all requisites are present.
two obligations. obligation.
Since it takes place ipso jure, when used as a
defense, it retroacts to the date when all its
requisites are fulfilled.
Page 287 of 532

This kind of compensation can only be set up

Art. 1290, CC. When all the requisites
at the option of a creditor, when legal
mentioned in article 1279 are present,
compensation cannot take place because
compensation takes effect by operation of
some legal requisites in favor of the creditor are
law, and extinguishes both debts to the
lacking.
concurrent amount, even though the
creditors and debtors are not aware of the
Obligations which cannot be compensated
compensation.
[Arts. 1287-1288, CC]
1. Contracts of depositum
Legal compensation may apply to: 2. Contracts of commodatum
1. Awards of attorney’s fees, against the 3. Future support due by gratuitous title
litigant and not his lawyer [Gan Tion v. CA, 4. Civil liability arising from a penal offense
G.R. No. L-22490 (1969)] 5. Obligations due to the government
2. Bank deposits, against the accounts of a 6. Damage caused to the partnership by a
depositor whose checks were dishonored partner
[BPI v. CA, G.R. No. 116792 (1996)]
Right of a Guarantor
VOLUNTARY COMPENSATION A guarantor may set up compensation as
Takes place when parties who are mutually regards what the creditor may owe the principal
creditors and debtors of each other agree to debtor. [Art. 1280, CC]
compensate their respective obligations even
though one of the requisites of compensation Effect of Assignment of Rights by the
may be lacking. Creditor to a Third Person [Art. 1285, CC]
With Debtor cannot set up against
Art. 1282, CC. The parties may agree upon debtor’s assignee compensation
the compensation of debts which are not yet consent pertaining to him against
due. assignor UNLESS he
reserved such right at the time
The only requisites of conventional he gave his consent
compensation are (1) that each of the parties
With Debtor may set up
can dispose of the credit he seeks to
debtor’s compensation of debts
compensate, and (2) that they agree to the
knowledge previous to the assignment
mutual extinguishment of their credits
but but not of subsequent ones
[United Planters v. CA, G.R. No. 126890
without
((2009)].
consent
JUDICIAL COMPENSATION Without Debtor may set up
Takes place by judicial decree. debtor’s compensation of all credits
knowledge prior and also later to the
Art. 1283, CC. If one of the parties to a suit assignment until he had
over an obligation has a claim for damages knowledge of the assignment
against the other, the former may set it off by
proving his right to said damages and the Order of Compensation
amount thereof. If a person should have against him several
debts which are susceptible of compensation,
FACULTATIVE COMPENSATION the rules on application of payments shall apply
When it can be claimed by one of the parties to the order of the compensation. [Art. 1289
who, however, has the right to object to it. CC]
Page 288 of 532

6. Novation void: No void: No

novation. novation.
Obligations may be modified by:
a. Changing their object or principal b. Original B. New
conditions; obligation obligation
b. Substituting the person of the debtor; and voidable: voidable:
c. Subrogating a third person in the rights of Effective if Novation is
the creditor. [Art. 1291, CC] contract is effective.
ratified before
Unlike other modes of extinguishment, it is a novation.
juridical act of dual function—it
extinguishes an obligation, and at the same
Accessory Obligations
time, it creates a new one in lieu of the old. It
Accessory obligations are also extinguished,
operates as a relative, not an absolute,
but may subsist only insofar as they may
extinction.
benefit third persons who did not give their
consent to the novation. [Art. 1296, CC]
Requisites:
a. A previous valid obligation
Accidental Modifications
b. Agreement of all the parties to the new
The extension or shortening of the period for
obligation
the performance of the obligation is generally
c. Animus novandi or intent to novate
considered as merely accidental and does not
d. Substantial difference between old and
bring about a novation. [Tolentino]
new obligations and, consequently,
extinguishment of the old obligation
Original or new obligation with suspensive
e. Validity of the new obligation
or resolutory condition
Effects Art. 1299, CC. If the original obligation was
subject to a suspensive or resolutory
In General If Original If New
condition, the new obligation shall be under
Obligation is Obligation
the same condition, unless it is otherwise
Void is Void
stipulated.
Old Novation is New
obligation is void if the obligation is
Compatible Incompatible
extinguished original void, the old
and obligation was obligation Conditions Conditions
replaced by void, EXCEPT subsists, a. Fulfillment of both a. Original
the new one when UNLESS the conditions: new obligation is
stipulated. annulment parties obligation becomes extinguished, while
may be intended
demandable. new obligation exists.
claimed only that the
by the debtor, former b. Fulfillment of b. Demandability
or when relations condition concerning shall be subject to
ratification shall be the original fulfillment/
validates acts extinguished obligation: old nonfulfillment of the
that are in any event obligation is revived; condition affecting it.
voidable [Art. [Art. 1297,
new obligation loses
1298, CC] CC] force.
a. Original a. New
obligation is obligation
Page 289 of 532

c. Fulfillment of AS TO ESSENCE OR OBJECT

condition concerning
the new obligation: Objective/Real Subjective/Personal
no novation;
requisite of a 1. Change 1. Substitution of
previous valid and of the subject debtors
effective obligation matter; a. Expromision
lacking. 2. Change b. Delegacion
of cause or 2. Subrogation of a third
consideration; or person to the rights of
Kinds of Novation 3. Change the creditor
of the principal a. Conventional
AS TO FORM conditions or b. Legal
1. Express – declared in unequivocal terms terms
2. Implied – the old and new obligations are
on every point incompatible with each other
1. Substitution of Debtors
Novation is not presumed
In the absence of an unequivocal declaration of Expromision Delegacion
extinguishment of the pre-existing obligation,
only proof of incompatibility between the old
and new obligation would warrant a novation Initiative for change Debtor
by implication. [California Bus Line v. State does not emanate from (delegante)
Investment, G.R. No. 147950 (2003)] the debtor, and may offers or initiates
even be made without the change, and
Test of Incompatibility his knowledge. the creditor
The test of incompatibility is whether or not the (delegatorio)
two obligations can stand together, each one accepts a third
having its independent existence. If they person
cannot, they are incompatible and the latter (delegado) as
obligation novates the first. consenting to the
substitution.
The incompatibility must take place in any of
the essential elements of the obligation, such Requisites
as its object, cause or principal conditions
thereof; otherwise, the change would be 1. Consent of the Consent of
merely modificatory in nature and insufficient to creditor and the new 1. old debtor;
extinguish the original obligation [Quinto v. debtor; and 2. new debtor;
People, G.R. No. 126712 (1999)] 2. Knowledge or and
consent of the old debtor 3. creditor.
AS TO ESSENCE OR OBJECT is not required.
1. Objective/Real
Effects
2. Subjective/Personal
Page 290 of 532

original agreement. [Molino v. Security Diners

1. Old debtor is 1. Insolvency of
International Corp, G.R. No. 136780 (2001)].
released the new debtor
2. Insolvency of revives the
2. Subrogation
the new debtor obligation of the
does not revive old debtor if it was
Transfers to the person subrogated the credit
the old anterior and
with all the rights thereto appertaining, either
obligation in public, and
against the debtor or against third persons, be
case the old known to the old
they guarantors or possessors of mortgages,
debtor did not debtor.
subject to stipulation in a conventional
agree to 2. New debtor
subrogation. [Art. 1303, CC]
expromision. can demand
3. If with the reimbursement of
Effects
knowledge and the entire amount
consent of the he has paid from Total Partial
old debtor, the the original
new debtor can debtor. He may Transfers to the A creditor, to whom
demand compel the person partial payment has been
reimbursement creditor to subrogated, the made, may exercise his
of the entire subrogate him to credit with all the right for the remainder,
amount paid and all of his rights. rights thereto and shall be preferred to
with subrogation appertaining, the person subrogated in
of creditor’s either against his place in virtue of the
rights. the debtor or partial payment.
4. If without third persons.
knowledge of
the old debtor, Conventional Subrogation – takes place by
the new debtor agreement of parties
can demand
reimbursement Difference between Conventional
only up to the Subrogation and Assignment of Credit
extent that the [Licaros v. Gatmaitan, G.R. No. 142838
latter has been (2001)]
benefited
without Conventional Assignment of credit
subrogation of subrogation
creditor’s rights.
Debtor’s consent Debtor’s consent is not
is necessary. required.
For subjective novation, it is insufficient that
the juridical relation between the parties to Extinguishes an Refers to the same
the original contract is extended to a third obligation and right which passes from
person. If the old debtor is not released, no gives rise to a new one person to another,
novation occurs and the third person who has one. without modifying or
assumed the debtor’s obligation becomes extinguishing the
merely a co-debtor or surety or co-surety. obligation.
[Conchinyan, Jr. v. R&B Surety and Insurance
Company, G.R. No. L-47369, (1987)] Defects/vices in Defects/vices in the old
the old obligation obligation are not
An accessory surety may not be released if he are cured. cured.
expressly waives his discharge from the
obligation in case of change or novation in the
Page 291 of 532

Legal Subrogation
The stage to The stage to
Takes place by operation of law.
look at to look at to
determine the determine
Legal subrogation is not presumed, except
status of the whether
in the following circumstances:
contract (i.e., there has
a. When creditor pays another creditor
valid, voidable, been a
who is preferred, even without the
void, breach of
debtor’s knowledge
unenforceable) the contract
b. When a third person not interested in
the obligation pays with the express or
tacit approval of the debtor 2. Classification
c. When, even without the knowledge of
the debtor, a person interested in the a. To their subject matter
fulfillment of the obligation pays, • Things, e.g. sale, deposit, pledge
without prejudice to the effects of • Services, e.g. agency, lease of
confusion as to the latter’s share [Art. services
1302, CC]
d.
b. To formation or perfection
• Consensual – consent is sufficient to
CONTRACTS perfect the contract [Art. 1315, CC]
• Real – delivery, actual or constructive,
is required in addition to consent [Art.
A.GENERAL 1316, CC]
PROVISIONS • Solemn or formal – where special
formalities are required for perfection
[Art. 1356, CC]
1. Stages of Contracts c. To relation to other contracts

• Principal – may exist alone; e.g. lease
a. Preparation (conception or “generation” or • Accessory – depends on another
negotiation) – begins from time the parties contract for its existence, e.g. guaranty
manifest their interest and ends prior to the • Preparatory – a preliminary step
moment of agreement towards the celebration of a
b. Perfection (or birth) – when the parties subsequent contract; e.g. agency
agreed upon essential elements of contract
c. Consummation (or death) - when parties d. To form
fulfill or perform the agreement • Common or informal – may be
entered into in whatever form as long
Preparation Perfection Consum- as there is consent, object and cause
mation • Special or formal – required by law to
be in a certain specified form
Exchanges Parties come Parties
of offers and to an perform e. To cause/by equivalence of prestations
counter- agreement. their • Onerous – there is an exchange of
offers. obligations correlative values, e. g. sale
All the under the • Remuneratory – where the
No contract essential contract outstanding prestation is premised
yet, thus no requisites upon services or benefits already
binding concur received
effect
Page 292 of 532

• Gratuitous – where no correlative

Book, by the rules governing the most
prestation is received by one party, e.g. analogous nominate contracts, and by the
donation, commodatum customs of the place.
f. To purpose
• Transfer of ownership, e.g. sale 3. Essential requisites
• Conveyance of Use, e.g. commodatum
• Rendition of Service, e.g. agency
Art 1318, CC. There is no contract unless
the following requisites concur:
g. To time of fulfillment
a. Consent of the contracting parties;
• Executed – where the obligations are
b. Object certain which is the subject
fulfilled at the time the contract is
matter of the contract
entered into
c. Cause of the obligation which is
• Executory – where fulfillment of
established
obligations does not take place at the
time the contract is made
a. Consent
h. To risk
• Commutative – fulfillment is The meeting of the minds of the parties on
predetermined in advance the subject matter and cause of the contract.
• Aleatory – fulfillment is dependent
upon chance The facts that the signatures of the witnesses
and the notary public were forged does not
i. To the nature of the vinculum produced negate the existence of the contract for as
• Unilateral – only one party is bound by long as the parties consented to it. The
the prestation, e.g. commodatum signatures of the witnesses and the notary
• Bilateral – both parties are bound by public are necessary simply to make the
reciprocal prestations, e.g. sale contract binding on the third person. [Soriano
o All contracts are bilateral in the v. Soriano, G.R. No. 130348 (2007)]
consent, but not all are bilateral
in effects. Requisites for valid consent
a. It must be manifested by the concurrence
j. To their designation/name of the offer and acceptance [Arts. 1319-
• Nominate – where the law gives the 1326, CC].
contract a special designation or b. The contracting parties must possess the
particular name; e.g. deposit necessary legal capacity [Arts. 1327-1329,
• Innominate – where the contract has CC].
no special name c. It must be intelligent, free, spontaneous,
o Do ut des (I give so that you and real (not vitiated) [Arts. 1330-1346,
may give) CC].
o Do ut facias (I give so that you
may do) CONCURRENCE OF OFFER AND
o Facio ut facias (I do so that you ACCEPTANCE
may do)
o Facio ut des (I do so that you A contract is perfected by mere consent. From
may give) the moment of a meeting of the offer and the
acceptance upon the object and the cause
that would constitute the contract, consent
Art. 1307, CC. Innominate contracts shall be
arises. However, “the offer must be certain”
regulated by the stipulations of the parties,
and “the acceptance seasonable and
by the provisions of Titles I and II of this
absolute; if qualified, the acceptance would
Page 293 of 532

merely constitute a counteroffer. [Insular Life v. d. Lapse of the time stated in the offer
Asset Builders Corp., G.R. No. 147410 (2004)] without acceptance being conveyed
e. Revocation of the offer before learning of
OFFER acceptance
A unilateral proposition which one party makes f. Supervening illegality before acceptance
to the other for the celebration of the contract. [Reyes and Puno]
[Tolentino]
ACCEPTANCE
Invitation to make offers (Advertisements) To produce a contract, the acceptance must
a. Business Advertisements of things for not qualify the terms of the offer. It is necessary
sale are NOT definite offers, just invitations that the acceptance be unequivocal and
to make an offer, UNLESS the contrary unconditional, and the acceptance and the
appears [Art. 1325, CC]. proposition shall be without any variation
b. Advertisement for bidders are invitations whatsoever; and any modification or variation
to make proposals, the advertiser is NOT from the terms of the offer annuls the latter and
bound to accept the lowest or highest frees the offeror. [Tolentino]
bid; UNLESS the contrary appears. The
bidder is the offeror [Art. 1326, CC]. Acceptance must be absolute, unconditional,
and without variance of any sort from the offer.
The Terms and Conditions of the bidding It must also be made known to the offeror.
disseminated… constitutes the An acceptance not made in the manner
"advertisement" to bid on the project. The prescribed is not effective but constitutes a
bid proposals or quotations submitted by counter-offer. [Malbarosa v. CA, G.R. No.
the prospective suppliers… are the offers. 125761 (2003)]
The reply… constitutes the acceptance or
rejection of the respective offers. [Jardine Requisites of Acceptance
Davies v. CA, G.R. No. 128066 (2000)] a. Unqualified and unconditional, i.e. it
c. Statements of intention: no contract must conform with all the terms of the offer,
results even if accepted. otherwise it is a counter-offer [Art. 1319,
CC]
In a letter informing another that the sender b. Directed and communicated to the offeror
was “in a position and is willing to entertain” and learned by him [Art. 1319, CC] If made
the purchase of a yacht under some terms, through an agent, the offer is accepted
the word “entertain” applied to an act does from the time the acceptance is
not mean the resolution to perform said act, communicated to such agent. [Art. 1322,
but simply a position to deliberate for CC]
deciding to perform or not to perform said c. Made within the proper time
act. It was merely a position to deliberate d. May be express/implied, but is not
whether or not he would purchase the presumed [Art 1320, CC]. Time, place and
yacht and invitation to a proposal being manner of acceptance may be fixed by
made to him, which might be accepted by offeror [Art 1321, CC].
him or not. [Rosenstock v. Burke, G.R. No.
20732 (1924)] Cognition Theory
Acceptance made by letter or telegram does
Termination of Offer not bind the offeror except from the time it
a. Rejection by the offeree came to his knowledge. The contract, in such a
b. Incapacity (death, civil interdiction, case, is presumed to have been entered into in
insanity, or insolvency) of the offeror or the place where the offer was made. [par. 2,
offeree before acceptance is conveyed Art. 1319, CC]
[Art. 1323, CC]
c. Submission of a counter-offer
Page 294 of 532

Option Contract 1. Where necessaries are sold or

A preparatory contract in which one party delivered [Art 1489, CC]
grants to the other, for a fixed period, the option 2. Where the minor actively
to decide whether or not to enter into a principal misrepresents his age (estoppel)
contract. [Art. 1324, CC] 3. When it involves a natural obligation
and such obligation is fulfilled
voluntarily by the minor [Art. 1425-27,
With Without
CC]
consideration consideration
4. Contracts entered into by guardians
or legal representatives
Offeror cannot Offeror may withdraw 5. When upon reaching the age of
unilaterally by communicating majority they ratify the same
withdraw his offer. withdrawal to the 6. When a minor opens a savings
offeree before account without the assistance of his
acceptance. parents, provided that the minor is at
least 7 years old and can read and
write [PD 1734].
Art. 1324, CC provides the General Rule b. Insane or demented persons, UNLESS
regarding offer and acceptance: when the they contract during a lucid interval. [Art.
offerer gives to the offeree a certain period to 1328, CC]
accept, "the offer may be withdrawn at any c. Deaf-mutes who do not know how to read
time before acceptance" except when the AND write.
option is founded upon consideration.
Minors were held in estoppel through active
However, Art. 1479, CC modifies the General misrepresentation. [Mercado v. Espiritu, G.R.
Rule, which applies to "a promise to buy and No. L-11872 (1917)]
sell" specifically. This rule requires that a
promise to sell to be valid and binding must be There is no estoppel if the minority was
supported by a consideration distinct from the known by the other party, and there was no
price. Otherwise, the option can still be active misrepresentation on the part of the
withdrawn, even if accepted. [Tuazon v. Del minors. [Bambalan v. Maramba, G.R. No. L-
Rosario-Suarez, G.R. No. 168325 (2010)] 27710 (1928)]
NECESSARY LEGAL CAPACITY Persons Disqualified to Contract

a. Those under civil interdiction for
There are two types of void contracts: transactions inter vivos [Art. 34, RPC]
a. Those where one of the essential b. Undischarged insolvents [Sec. 24,
requisites of a valid contract as provided Insolvency Law]
for by Article 1318 of the Civil Code is c. Husband and wife cannot donate to each
totally wanting; and other [Art. 123, FC], nor sell to each other
b. Those declared to be so under Article if the marriage is under the regime of
1409 of the Civil Code. By contrast, a Absolute Community of Property [Art.
voidable or annullable contract is one in 1490, CC]
which the essential requisites for validity d. The ff. cannot purchase, whether in public
under Article 1318 are present, but vitiated or private sale [Art. 1491, CC]:
by mistake, violence, intimidation, undue 1. Guardian - Property of the ward
influence, or fraud [Art. 1330, CC]. 2. Agent - Property of the Principal
3. Executors and Administrators -
Persons incapacitated to give consent [Art. Property under administration
1327, CC] 4. Public Officers - Property under their
a. Minors, EXCEPT: administration
Page 295 of 532

5. Justices, judges, prosecutors, clerks of Requisites

court, lawyers - property attached in a. The error must be substantial regarding:
litigation 1. The object of the contract (error in re)
which may be:
Incapacity to Give Consent vs. • Mistake as to the identity of the
Disqualification to Contract thing (error in corpore)
Incapacity to Give Disqualification to • Mistake as to the substance of the
Consent Contract thing (error in substantia)
• Mistake as to the conditions of the
Restrains the exercise Restrains the very thing provided, or
of the right to contract right itself • Mistake as to the quantity of the
thing (error in quantitate)
Based upon Based upon public 2. The condition which primarily moved
subjective policy and morality or induced one or both parties to enter
circumstances of the contract.
certain persons 3. Identity or qualifications of one of the
parties (error in persona), but only if
Voidable Void such was the principal cause of the
contract.
INTELLIGENT, FREE, SPONTANEOUS, AND b. The error must be excusable
REAL (NOT VITIATED) c. The error must be a mistake of fact and
not of law.
Vices of Consent (makes contract
voidable) [Art. 1330, CC] Mistake which vitiates consent is an error of
1. Mistake fact, and not an error of law. Ignorance of the
2. Intimidation law excuses no one from compliance therewith
3. Violence [Art. 3, CC]; but the modern tendency is to
4. Undue influence allow an excusable mistake of law to be
5. Fraud invoked as vitiating consent. [Tolentino]
MISTAKE See also Art. 526, CC on Possession: Mistake

“A misunderstanding of the meaning or upon a doubtful or difficult question of law may
implication of something” or a “wrong action or be the basis of good faith.
statement proceeding from a faulty judgment”.
[Domingo Realty v. CA] Ignorantia Facti Excusat vs. Ignorantia
Legis Neminem Excusat
Inadvertent and excusable disregard of a Mistake of Fact Mistake of Law
circumstance material to the contract [Reyes
and Puno] One or both One or both parties arrive
contracting at an erroneous
In order that mistake may invalidate consent, it parties believe conclusion on the
should refer to the substance of the thing that a fact exists interpretation of a
which is the object of the contract, or to those when in reality it question of law or its legal
conditions which have principally moved one or does not, or vice effects
both parties to enter into the contract. versa
[Art.1331, CC]
Vitiates consent Does not vitiate consent
There is no mistake if the party alleging it EXCEPT when it involves
knew the doubt, contingency or risk affecting mutual error as to the
the object of the contract. [Art. 1333, CC] effect of an agreement
Page 296 of 532

when the real purpose is External or Internal or induces the

frustrated. prevents the will to performance of an act
manifest itself
Note: The obligation to show that the terms of
the contract had been fully explained to the Determined by 1) 1) Age 2) Sex 3)
party who is unable to read or understand the Intention 2) Means Condition
language of the contract, when fraud or employed
mistake is alleged, devolves on the party
seeking to enforce it. [Art. 1332, CC] 1) Physical force 1) Intimidation must be
employed must be the determining cause
INTIMIDATION irresistible, or of of the contract OR
One of the contracting parties is compelled by such degree that must have caused the
a reasonable and well-grounded fear of an victim has no other consent to be given
imminent and grave evil upon his person or recourse under the
property, or upon the person or property of his circumstances but 2) Threatened act
spouse, descendants or ascendants, to give to submit must be unjust or
his consent. [Art. 1335, CC] unlawful
2) Such force is the
To determine the degree of intimidation, the determining cause 3) The threat must be
age, sex and condition of the person shall be in giving of consent real and serious
borne in mind. [Art. 1335, CC]
4) Produces a
Requisites reasonable and well-
a. One party is compelled to give his consent grounded fear from the
by a reasonable and well-grounded fear of fact the person has the
an evil; necessary means or
b. The evil must be imminent and grave; ability to inflict
c. The evil must be upon his person or threatened injury
property, spouse, descendants or
ascendants; Note: Violence or intimidation shall annul the
d. The evil must be unjust. obligation, although it may have been
employed by a third person who did not take
VIOLENCE part in the contract. [Art. 1336, CC]
Serious or irresistible force used to wrest
consent [Art. 1335, CC] UNDUE INFLUENCE
When a person takes improper advantage of
Violence Intimidation his power over the will of another, depriving the
latter of a reasonable freedom of choice. [Art.
Serious or Reasonable and well- 1337, CC]
irresistible force grounded fear of an
imminent and grave Requisites
evil upon his person or a. Improper advantage
property, or person or b. Power over the will of another
property of his spouse, c. Deprivation of the latter’s will of a
descendants, or reasonable freedom of choice
ascendants
Circumstances to consider
Physical Moral compulsion a. Relationship of the parties (family, spiritual,
compulsion confidential etc.)
Page 297 of 532

b. That the person unduly influenced was 1. Usual exaggerations in trade, when the
suffering from mental weakness, ignorance other party had an opportunity to know
or in financial distress [Art.1337, CC] the facts [Art. 1340, CC]
2. A mere expression of an opinion
Note: By analogy, undue influence employed UNLESS made by an expert and the
by a third person may annul the contract. other party has relied on the former’s
special knowledge [Art. 1341, CC]
Test of Undue Influence: Whether or not the 3. Misrepresentation made in good faith
influence exerted has so overpowered or [Art. 1343, CC]
subjugates the mind of a contracting party
as to destroy his free agency, making him Note: Not fraudulent, but this may
express the will of another rather than his own. constitute error
[Coso-Fernandez v. Deza, G.R. No. L-16763
(1921)] b. Fraudulent
Failure to disclose facts, when there is a
duty to reveal them, as when the parties
Intimidation Undue Influence
are bound by confidential relations [Art.
Must be an unlawful act There need not 1339, CC]
or unjust act which is be an unjust or
threatened and which unlawful act. Dolo Causante vs. Dolo Incidente
causes the consent to Dolo Causante Dolo Incidente
be given (Causal Fraud) (Incidental Fraud)
Refers to those Refers to those

FRAUD
deceptions or deceptions or
When, through insidious words or
misrepresentations of misrepresentations
machinations of one of the contracting
a serious character which are not
parties, the other is induced to enter into a
employed by one serious in character
contract which, without them, he would not
party and without and without which
have agreed to. [Art. 1338, CC]
which the other party the other party
would not have would have still
In order that fraud may make a contract
entered into the entered into the
voidable, it should be serious and should not
contract contract [Art. 1344,
have been employed by both contracting
CC]
parties. [Art. 1344, CC]
Determines or is the
Requisites:
essential cause of the Refers only to some
a. It must be made in bad faith
consent [Tankeh v. particular or
b. One party must have employed fraud or
DBP, G.R. No. accident of the
insidious words or machinations
171428 (2013)] obligation [Tankeh
c. Damage or injury resulted to the other
v. DBP, G.R. No.
party
171428 (2013)]
d. It must have been serious
e. It induced the other party to enter into a Renders the contract Renders the party
contract voidable liable for damages
f. It must have been employed by one
contracting party upon the other and not
employed by both contracting parties nor Fraud to vitiate consent must fulfill two
by third persons. conditions
1. The fraud must be dolo causante or it
Determining the existence of Fraud must be fraud in obtaining the consent
a. Not Fraudulent of the party. The deceit must be serious.
Page 298 of 532

Absolute vs. Relative Simulation [Art. 1345,

The fraud is serious when it is sufficient to CC]
impress, or to lead an ordinarily prudent
Absolute Relative Simulation
person into error; that which cannot
Simulation (Disimulados)
deceive a prudent person cannot be a
(Simulados)
ground for nullity. The circumstances of
each case should be considered, taking The parties have The parties conceal
into account the personal conditions of the no intention to their true agreement.
victim. be bound at all
2. The fraud must be proven by clear and
convincing evidence and not merely by a Fictitious Disguised contract
preponderance thereof. [ECE Realty v. contract
Mandap, G.R. No. 196182 (2014)]
Void. (Because Bound to their real
Note: However, fraud in its general sense there is an agreement, so long as it
(false representation of a fact) coming about in absolute lack of does not prejudice a
the consummation stage of the sale, as cause) [Art. third person and is not
opposed to the negotiation and perfection 1346, CC] contrary to law, morals,
stages, entitles the aggrieved party to the good customs, public
rescission of the sales contract. [Sps. Tongson order or public policy.
v. Emergency Pawnshop, GR. No. 167874 [Art. 1346, CC]
(2010)]
If the parties merely state a false cause in the
SIMULATION OF CONTRACTS contract to conceal their real agreement, the
Simulation is the declaration of a fictitious contract is relatively simulated and the parties
will, deliberately made by agreement of the are still bound by their real agreement.
parties, in order to produce, for the purposes Hence, where the essential requisites of a
of deception, the appearances of a judicial act contract are present and the simulation refers
which does not exist or is different with that only to the content or terms of the contract, the
which was really executed [Nautica Canning agreement is absolutely binding and
Corporation v. Yumul, G.R. No. 164588 enforceable between the parties and their
(2005)]. There exists an instrument, but there successors in interest. [Valerio v. Refresca,
is no contract. G.R. No. 163687 (2006)]
Requisites of Simulation
a. An outward declaration of will different from b. Object of Contracts
the will of the parties
b. The false appearance must have been The subject matter; the thing, right or service
intended by mutual agreement which is the subject matter of the obligation
c. The purpose is to deceive third persons arising from the contract. [Tolentino]
[Penalosa v. Santos, G.R. No. 133749
(2001)] Requisites
1. Within the commerce of men [Art. 1347,
The primary consideration in determining the CC]
true nature of a contract is the intention of the 2. Not legally or physically impossible [Art.
parties. Such intention is determined not only 1348, CC]
from the express terms of their agreement, but 3. In existence or capable of coming into
also from the contemporaneous and existence [See Arts. 1461, 1493, 1495, CC]
subsequent acts of the parties. [Spouses 4. Determinate or determinable, without the
Lopez v. Sps. Lopez, G.R. No. 161925 (2009)] need of a new contract between the parties
[Arts. 1349 and par. 2, 1460, CC]
Page 299 of 532

What may be the object of a contract [JLT Agro v. Balansag, G.R. No. 141882
General Rule: All things or services may be (2005)]
the object of contracts, which includes future
things [Art. 1347, CC] c. Cause of Contracts
In order that a thing, right, or service may be The essential and impelling reason why a
the object of a contract, it should be in party assumes an obligation.
existence at the moment of the celebration
of the contract, or at least, it can exist Motive, on the other hand, is the particular
subsequently or in the future. reason for a contracting party which does not
affect the other. [Manresa]
A showing of mere inconvenience, unexpected
impediments, or increased expenses is not Requisites
enough to relieve a party of the obligation. [De a. Exists at the time the contract is entered
Castro v. Longa, G.R. No L-2152-53 (1951)] into [Par. 3, Art. 1409, CC]
b. Lawful [Art. 1352, CC]
A future thing may be the object of a contract. c. True or real [Art. 1353, CC]
Such contract may be interpreted as a:
a. Conditional contract, where its efficacy Cause vs. Object
should depend upon the future existence of
Cause Object
the thing.
b. Aleatory contract, where one of the As to Remuneration
contracting parties assumes the risk that
the thing will never come into existence, The service or The thing which is given
e.g. insurance. [Tolentino] benefit which is in remuneration
remunerated
Except [Art. 1347-1349, CC]
a. Things which are outside the commerce of As to Donation
men
b. Intransmissible rights The liberality of The thing which is given
c. Future inheritance except in cases the donor or or donated
authorized by law benefactor
Requisites As to the Thing

1. The succession has not yet been opened;
2. The object of the contract forms part of the Prestation or The thing or service itself
promise of a thing
inheritance; and
or service by the
3. The promissor has an expectancy of a right
other
which is purely hereditary in nature
As to Contracting Parties
d. Services that are contrary to law, morals,
good customs, public order, or public policy Different with May be the same for
e. Impossible things or services respect to each both parties
f. Objects which are indeterminable as to part
their kind, the genus should be expressed
EXCEPTIONS TO THE EXCEPTION

b. In case of marriage settlements under Art.
130, CC
c. In case of partition of properties inter vivos
by the deceased under Art. 1080, NCC
Page 300 of 532

Distinguished from Motive

Contrary to VOID.
Cause Motive law, morals, If parts of a contract are
good customs, illegal but the rest are
Proximate Remote reason for the public policy supported by lawful
reason for contract and public cause, claimant of such
contract order (unlawful has the burden of
cause) showing proof; otherwise,
Objective or Psychological and the whole contract is
juridical reason purely personal reason VOID.
Always the same Differs for each
Contracts with illegal
for each contracting party
cause may still produce
contracting party
effect in certain cases
Illegality affects Illegality does not affect where parties are not of
existence or existence or validity of equal guilt:
validity of the contract (1) innocent party cannot
contract be compelled to perform
his obligation and he may
recover what has already
Cause in contracts [Art. 1350] been given;
Onerous Remuneratory Pure (2) if both parties are
Contracts Contracts Beneficence guilty, neither can sue the
other, the law leaving
them as they are (in pari
delicto, Art. 1411, CC).
The The service or Mere
undertaking benefit which liberality of Falsity of REVOCABLE/VOIDABLE
or the is the cause – cause Parties are given a
promise of remunerated benefactor is stated but is chance to show that a
the thing or untrue cause really exists, and
service by that said cause is true and
the other lawful.
party
Lesion or General Rule: NO
Effect of Lack of Cause, Unlawful Cause, inadequacy of EFFECT.
cause – cause Exception: Inadequacy of
False Cause and Lesion [Arts. 1352 – 1355]
is not cause shall invalidate the
Cause Effect proportionate contract when:
to object (1) there is fraud,
mistake, undue influence
Lack of Cause VOID. (2) when parties
– absence or Note: Cause must exist at intended a donation
total lack of the time of the perfection
cause of the contract; it need not
exist later. Note: Inadequacy of cause may be a badge of
fraud.
Page 301 of 532

instrument.
B. FORMALITY Otherwise, the
contract of partnership
is void. [Art. 1773, CC]
General rule: No form necessary for contracts
provided that all the essential requisites for Contract of The amount of the
their validity are present [Par. 1, Art. 1356, antichresis principal and the
CC] interest, if any, must
be specified in
Exception: writing; otherwise,
1. When the law requires that a contract be in the contract of
some form in order that it may be valid [par. antichresis shall be
2, Art. 1356, CC] void [Art. 2134, CC]
2. When the law requires that a contract be
proved in a certain way to be enforceable Agency to sell Authority of the agent
(Statute of Frauds) [par. 2, Art. 1356, CC] land or any interest must be in writing;
3. When the law requires a contract to be in therein otherwise, the sale
some form for convenience, or to be shall void [Art. 1874,
effective against third parties [Arts. 1357 CC]
and 1358, CC]
Stipulation to pay Must be expressly
interest on loans, made in writing [Art.
Kinds of Formalities Required by Law
interest for the use 1956, CC]
1. For the Validity of Contracts (Ad
of money
Essentia /Ad Solemnitatem/ Solemn
Contracts) Stipulation limiting Must be (1) in writing,
common carrier’s signed by the shipper
Formal or Solemn Special Form duty of or owner; (2)
Contract Required by Law extraordinary supported by a
diligence to valuable
Donation of Must be in a public ordinary diligence consideration; and
Immovables instrument, (3) reasonable, just,
specifying therein the and not contrary to
property donated and public policy [Art.
the value of the 1744, CC]
charges which the
donee must satisfy. Transfer of large Requires transfer of
[Art. 749, CC] cattle the certificate of
registration [Sec.
Donation of Must be in writing; 523, Administrative
movables when otherwise, the Code]
the value of the donation is void. [Art.
personal property 748, CC]
2. For the Purpose of Proving the
donated exceeds
Existence of the Contract (Ad
P5,000
Probationem/ Statute of Frauds)
Partnerships An inventory of said
where immovable property must be The following contracts are
property is made, signed by the UNENFORCEABLE, UNLESS they are
contributed parties and attached ratified:
to the public
Page 302 of 532

1. Those entered into in the name of on whose account the sale is made, it
another person by one who has is a sufficient memorandum;
been: 5. An agreement of the leasing for a
i. given no authority longer period than one year, or for
ii. or legal representation, the sale of real property or of an
iii. or who has acted beyond his interest therein;
powers; 6. A representation as to the credit of a
2. Those that do not comply with the third person
Statute of Frauds
3. Those where both parties are This article speaks of contracts that cannot be
incapable of giving consent to a proven except by written note or memorandum,
contract. [Art. 1403, CC] unless the party charged waives the objection.
[Rule 123, Sec. 21, Rules of Court]
Statute of Frauds
An agreement as to the following shall be This article applies to executory contracts
unenforceable UNLESS: only. [Almirol v. Monserrat, G.R. No. 23717
1. The agreement, or some note or (1925)]
memorandum, thereof, be in writing,
and 3. For the Effectivity of the Contract
2. Subscribed by the party charged, or by Against Third Persons
his agent; evidence, therefore, of the
agreement cannot be received without If the law requires a document or other
the writing, or a secondary evidence of special form (Art. 1357, CC)
its contents. [Art. 1403, CC] 1. The contracting parties may compel
each other to observe that form,
Agreements under the Statute of Frauds once the contract has been perfected.
[Art. 1403, CC]: 2. This right may be exercised
1. An agreement that by its terms is not simultaneously with the action upon the
to be performed within a year from contract.
the making thereof;
2. A special promise to answer for the Art. 1358, CC which requires the embodiment
debt, default, or miscarriage of of certain contacts in a public instrument, is
another; only for convenience, and registration of the
3. An agreement made in consideration instrument only adversely affects third parties.
of marriage, other than a mutual Formal requirements are, therefore, for the
promise to marry; benefit of third parties. Non-compliance
4. An agreement for the sale of goods, therewith does not adversely affect the validity
chattels or things in action, at a of the contract nor the contractual rights and
price not less than five hundred obligations of the parties thereunder. [Fule v.
pesos, unless the buyer accept and CA, G.R. No. 112212 (1998)
receive part of such goods and
chattels, or the evidences, or some of
Art. 1358, CC. The following must appear in
them, of such things in action or pay at
a public document:
the time some part of the purchase
1. Acts and contracts which have for their
money; but when a sale is made by
object the creation, transmission,
auction and entry is made by the
modification or extinguishment of real
auctioneer in his sales book, at the time
rights over immovable property; sales of
of the sale, of the amount and kind of real property or of an interest therein as
property sold, terms of sale, price,
governed by Articles 1403, No. 2, and
names of the purchasers and person 1405;
Page 303 of 532

2. The cession, repudiation or renunciation

of hereditary rights or of those of the C. REFORMATION OF
conjugal partnership of gains;
3. The power to administer property, or any
INSTRUMENTS
other power which has for its object an
act appearing or which should appear in Reformation – remedy in equity by means of
a public document, or should prejudice a which a written instrument is made or
third person; construed so as to express or conform to the
4. The cession of actions or rights real intention of the parties when some error or
proceeding from an act appearing in a mistake has been committed [Reyes and Puno]
public document.
All other contracts where the amount Requisites [Art. 1359, CC]:
involved exceeds five hundred pesos must 1. There must be a meeting of the minds of
appear in writing, even a private one. But the contracting parties
sales of goods, chattels or things in action 2. Their true intention is not expressed in
are governed by Articles, 1403, No. 2 and the instrument;
1405. 3. Such failure to express their true intention
is due to mistake, fraud, inequitable
conduct, or accident; and
Enumerated contracts in Art. 1358, CC are 4. There is clear and convincing proof of
valid even when not reduced into writing, mistake, fraud, inequitable conduct, or
although parties may have recourse under Art. accident.
1357, CC to compel execution of the writing,
except in the following cases: The appellant’s complaint states no cause of
1. Solemn Contracts (action under Art. action, for it fails to allege that the instrument to
1357, CC is not available at all) be reformed does not express the real
2. Real Contracts (action under Art. agreement or intention of the parties. Such
1357, CC is available if there is allegation is essential since the object sought
consent, subject matter, cause, and in an action for reformation is to make an
delivery) instrument conform to the real agreement
3. Contracts under the Statutes of or intention of the parties. Moreover, courts
Fraud (remedy under Art. 1357, CC is do not reform instruments merely for the sake
applicable only if the defense of the of reforming them, but only to enable some
Statute is waived expressly or impliedly party to assert right under them as reformed.
by the party charged [Garcia v. Bisaya, G.R. No. L-8060 (1955)].
Actions under Art. 1357, CC may be exercised Note: If mistake, fraud, inequitable conduct, or
simultaneously with (i.e. need not be separate accident has prevented a meeting of the minds
nor need it precede) the action to enforce the of the parties, the proper remedy is not
contract, although questions of form must be reformation of the instrument but annulment of
decided first. the contract [par. 2, Art. 1359, CC]
The action for reformation of instrument should

not be confused with the action for annulment
of contract. [Veluz v. Veluz, G.R. No. L-23261
(1968)]
Page 304 of 532

Reformation v. Annulment [Veluz v. Veluz, 3. Cases Where Reformation is

supra]
Proper
Reformation of Annulment
Instrument
a. Mistake
Presupposes a valid, Presupposes a The mistake should be of fact generally,
existing contract, in defective contract and not of law [BPI v Fidelity and Surety
which there had been in which the minds Co., G.R. No. L-26743 (1927)]
a meeting of the minds of the parties did
of the parties but the not meet, or the Mutual
instrument drawn up consent of one was Mutual mistake of parties that causes
and signed by them vitiated. failure to disclose real agreement [Art.
does not correctly 1361, CC]
express the terms of
their agreement. Unilateral
1. One party was mistaken, while
Equity of reformation is Intended to declare the other acted fraudulently [Art.
ordinarily limited to the inefficiency 1362, CC]
written agreements, which the contract 2. One party was mistaken, while
and its purpose is to already carries in the other knew or believed that the
establish and itself and to render instrument did not state their real
perpetuate the true the contract agreement, but concealed it from
agreement. inefficacious. the former [Art. 1363, CC]
b. Fraud
1. Burden of Proof Active
If one party was mistaken and the other
The presumption is that an instrument sets out acted fraudulently in such a way that the
the true agreement of the parties and that it instrument does not show their true
was executed for valuable consideration. Thus,
intention [Art. 1362, CC]
when there is some error or mistake in the
contract, the onus probandi is upon the party Passive
who insists that the contract should be When one party was mistaken and the
reformed.
other knew or believed that the
While intentions involve a state of mind, instrument did not state their real
subsequent and contemporaneous acts of agreement [Art. 1363, CC]
the parties as well as the evidentiary facts as
proved and admitted can be reflective of one’s
intention. [Multi-Ventures Capital Management
c. Inequitable conduct
If one party was mistaken and the other
Corporation v Stalwart, G.R. No. 157439
acted fraudulently or inequitably in such a
(2007)]
way that the instrument does not show their
true intention [Art. 1362, CC]
2. Effect of Reformation
d. Accident
In granting reformation, the remedy in equity is When through the ignorance, lack of skill,
not making a new contract for the parties, but negligence or bad faith on the part of the
establishing and perpetuating the real person drafting the instrument or of the
contract between the parties which, under the clerk or typist, the instrument does not
technical rules of law, could not be enforced but express the true intention of the parties
for such reformation. [Quiros vs Arjona, G.R. [Art. 1364, CC]
No. 158901 (2004)]
Page 305 of 532

subsequently ask for its reformation

No fraud exists in the sense that neither of [Art. 1367, CC]
the parties took part therein.
e. Severe Pacto de Retro / Relative

6. Prescriptive Period for
Simulation Reformation
The prescriptive period for actions based upon
Art. 1365, CC. If two parties agree upon the a written contract and for reformation of an
mortgage or pledge of real or personal instrument is ten (10) years under Article 1144
property, but the instrument states that the of the Civil Code. [Rosello-Bentir v. Leanda,
property is sold absolutely or with a right of G.R. No. 128991 (2000)]
repurchase, reformation of the instrument is
proper.
4. Who May Ask for Reformation

a. When through mistake of the parties
b. Either party or his successors in
interest, if the mistake was mutual;
otherwise.
c. Upon petition of the injured party, or his
heirs and assigns [Art. 1368, CC]
d. When through the ignorance, lack of
skill, negligence or bad faith on the part
of the person drafting the instrument or
of the clerk or typist, Courts may order
that the instrument be reformed [Art.
1364, CC]
5. Cases Where Reformation is

Not Proper
1. Simple donations inter vivos—
wherein no condition is imposed—
because donation is an act of liberality
[Art. 725, CC] and cannot be
compelled;
2. Wills—no reformation before the
testator dies because the making of a
will is strictly personal [Art. 784, CC], a
free act [Art. 839, CC], and essentially
revocable [Art. 828, CC];
3. When the real agreement is void—
because there is nothing to reform. The
power of the court to reform is not for
accomplishing a vain thing [Tolentino].
4. Implied Ratification/Estoppel: the
party who has brought an action to
enforce the instrument cannot
Page 306 of 532

D. INTERPRETATION OF CONTRACTS
1. Primacy of Language or terms which he voluntarily consented to, or

impose on him those which he did not.
Intention [Bautista v. CA, G.R. No. 1263655 (2000)]
a. Cardinal/First Rule of b. Rule if Language Contrary to

Interpretation – Literal Meaning Intent – Intent over Literal
Governs Interpretation
If the terms of a contract are clear and leave no If the words appear to be contrary to the
doubt upon the intention of the contracting evident intention of the parties, the latter
parties, the literal meaning of its stipulations shall prevail over the former. [Art. 1370, par. 2,
shall control. [Art. 1370, par. 1, CC] CC]
Application The cardinal test is the intention of the parties,

Where the language of a contract is plain and to be derived from the terms/language of the
unambiguous, its meaning should be contract.
determined without reference to extrinsic facts
or aids. The intention of the parties must be In order to judge the intention of the contracting
gathered from that language, and from that parties, their contemporaneous and
language alone. Courts cannot make for the subsequent acts shall be principally
parties better or more equitable agreements considered. [Art. 1371, CC]
than they themselves have been satisfied to
make, or rewrite contracts because they
operate harshly or inequitably as to one of the
parties, or alter them for the benefit of one party
and to the detriment of the other, or by
construction, relieve one of the parties from the
Page 307 of 532

c. Exclusion to Rules – Distinct Trigger: Words which may have different

and Different Cases significations.
However general the terms of a contract may Effect: They shall be understood in what is
be, they shall not be understood to most keeping with the contract’s nature and
comprehend things that are distinct and object.
cases that are different from those upon
which the parties intended to agree. [Art. g. Interpretation against Party
1372, CC] Causing Obscurity
d. Stipulation Rendered to be The interpretation of obscure words or

Effectual stipulations in a contract shall not favor the
party who caused the obscurity. [Art. 1377, CC]
If some stipulation of any contract should
admit of several meanings, it shall be Interpretation of Contracts of Adhesion
understood as bearing that import which is A contract of adhesion is just as binding as
most adequate to render it effectual. [Art. 1373, ordinary contracts. Contracts of adhesion are
CC] not invalid per se; they are not entirely
prohibited. The one who adheres to the
e. Stipulations Interpreted contract is in reality free to reject it entirely; if
he adheres, he gives his consent.
Together
While ambiguities in a contract of adhesion
The various stipulations of a contract shall be
are to be construed against the party that
interpreted together, attributing to the doubtful
prepared the same, this rule applies only if
ones that sense which may result from all of
the stipulations in such contract are
them taken jointly. [Art. 1374, CC] obscure or ambiguous. If the terms thereof
are clear and leave no doubt upon the intention
Difference between Art. 1373 and Art. 1374
of the contracting parties, the literal meaning of
Art. 1373 Provides that which of the its stipulations shall control. In the latter case,
several meanings of a there would be no need for construction.
stipulation would most [RCBC v. CA G.R. No. 133107(1999)]
adequately render the contract
effectual would be adopted. h. Nomenclature not Decisive of
the Character
Art. 1374 Provides that the various
stipulations of a contract would
A contract is what the law defines it to be, and
be interpreted together, and
not what it is called by the contracting parties.
attributing to doubtful
The Title of the contract does not necessarily
stipulations the sense resulting
determine its nature. [Tolentino]
from the joint interpretation.
i. Separability Clause
f. Interpretation according to
Nature and Object of Contract Another fundamental rule in the interpretation
of contracts is that the terms, clauses and
Words which may have different conditions contrary to law, morals and
significations shall be understood in that public order should be separated from the
which is most in keeping with the nature and valid and legal contract and when such
object of the contract. [Art. 1375, CC] separation can be made because they are
Page 308 of 532

independent of the valid contract. [Kasilag v. 3. Rule 123, Rules of Court

Rodriguez, G.R. No. 46623 (1939)]
Note: This is now found in Secs. 10-19, Rule
Exceptions: 130.
a. Where the statute expressly or by
necessary implication declares the entire
contract void; or Art. 1379, CC. The principles of
b. Where the terms, clauses, and conditions, interpretation stated in Rule 123 of the Rules
by an established connection or by of Court shall likewise be observed in the
manifest intention of the parties, is construction of contracts.
inseparable from the principal obligation,
and is a condition, juridically speaking, of Summary of rules on interpretation [Rule
that the nullity of which it would also 130, ROC]
occasion. [Manresa] 1. Writing is to be interpreted according to its
legal meaning UNLESS parties intended
2. Rules on Doubt [Art. 1378, otherwise. [Sec. 10]
CC] 2. Instrument must be construed to give effect
to all provisions. [Sec. 11]
3. Particular provisions are paramount to
When it is absolutely impossible to settle
general ones when they are inconsistent.
doubts by the rules established in the
[Sec. 12]
preceding articles:
4. The circumstances under which the
instrument was made must be considered.
When doubts are cast The contract shall [Sec. 13]
upon the principal be null and void. 5. The terms of a writing are presumed to
object/s of any have been used in their primary and
contract and it cannot general acceptation unless contrary
be known what may evidence is presented. [Sec. 14]
have been the 6. Written words prevail over printed ones.
intention or will of the [Sec. 15]
parties 7. Experts and interpreters may be used in
explaining language not understood by the
When doubts refer to The least court. [Sec. 16]
the incidental transmission of 8. When conflicting constructions of
circumstances of rights and provisions are equally proper that which is
gratuitous contracts interests shall the most favorable to the party in whose
and it is absolutely prevail. favor the provision was made shall be
impossible to settle accepted. [Sec. 17]
doubts by the rules 9. When an instrument is equally susceptible
of two interpretations, one in favor of
When doubts refer to The doubt shall
natural right and the other against it, the
the incidental be settled in favor
former is to be adopted. [Sec. 18]
circumstances of of the greatest
An instrument may be construed according
onerous contracts and reciprocity of
10.
to usage, in order to determine its true

it is absolutely interests.
character. [Sec. 19]
impossible to settle
doubts by the rules
Page 309 of 532

their condition at the moment prior to the

E. DEFECTIVE celebration of said contract. [Tolentino]
CONTRACTS
[Tolentino] Relief to protect one of the parties or a third
person from all injury and damages which the
contract may cause, to protect some
Rescissible A contract that has caused preferential right [Aquino v. Tañedo, G.R. No.
a particular damage to L-12457 (1919)]
one of the parties or to a
third person and which for Lesion
EQUITABLE REASONS The injury which one of the parties suffers by
may be set aside even if virtue of a contract which is disadvantageous
valid. for him. To give rise to rescission, the lesion
must be known or could have been known at
Annulable or A contract in which
the time of making of the contract. [Tolentino]
Voidable CONSENT of one of the
(contrato nulo) parties is defective, either
Lesion does not invalidate a contract except
because of WANT OF
only in special cases provided by law [Art.
CAPACITY or because it
1355, CC]
is VITIATED, but which
contract is VALID until
Subsidiary Remedy
JUDICIALLY set aside.
Rescission is not a principal remedy, but a
Unenforceable A contract that for some subsidiary one. It can only be availed of only if
reason CANNOT BE the injured party proves that he has no other
ENFORCED, UNLESS legal means to obtain redress for the damage
RATIFIED in the manner caused [Art. 1177, CC]
PROVIDED BY LAW.
Necessary Extent
Void or A contract which is an The rescission shall only be to the extent
Inexistent ABSOLUTE NULLITY and necessary to cover the damages caused, i.e.
produces NO EFFECT, as partial rescission. [Art. 1384, CC]
if it had never been
executed or entered into. b. Characteristics of Rescissible
Contracts
1. Rescissible contracts 1. The defect consists in injury or damage
either to one of the contracting parties
Contracts which are valid until rescinded. All or to third persons;
essential requisites of a contract exist but there 2. Before rescission, they are valid, and
is injury or damage to one of the parties or to therefore, legally effective;
third persons – external or extrinsic defect 3. They can only be attacked directly only
consisting of an economic damage or lesion. and not collaterally;
[Paras] 4. They can be attacked only by a
contracting party or a third person who
a. Rescission is injured or defrauded;
5. They are susceptible of convalidation
Rescission is a remedy granted by law to the only by prescription and not ratification;
contracting parties and even to third persons, and
to secure reparation for damages caused to 6. They must be rescinded within four
them by a contract, even if this should be years, the prescription for actions to
valid, by means of the restoration of things to claim rescission [Art.1389, CC].
Page 310 of 532

5. The person bringing the action must be

c. Rescissible Contracts and Their able to return whatever he may be obliged
Requisites [Arts. 1381-1383, 1385, to restore. [Art. 1385(1), CC]
1389, CC] 6. The object of the contract must not be
legally in the possession of a third person
Art. 1381, CC. The following contracts are who did not act in bad faith [Art. 1385(2),
rescissible: CC]
1. Those which are entered into by
guardians whenever the wards whom Note: For Art. 1381 (4), CC: Any disposition of
they represent suffer lesion by more than the thing subject of litigation or any act which
one-fourth of the value of the things tends to render inutile the court’s impending
which are the object thereof; disposition in such case without the knowledge
2. Those agreed upon in representation of and approval of the litigants or of the court, is
absentees, if the latter suffer the lesion unmistakably and irrefutably indicative of bad
stated in the preceding number; faith.
3. Those undertaken in fraud of creditors
when the latter cannot in any other However, even without knowledge or approval
manner collect the claims due them; from the court, the conveyance of a property
4. Those which refer to things under subject of litigation may still be valid but is
litigation if they have been entered into susceptible for rescission under Art. 1381(4),
by the defendant without the knowledge CC.
and approval of the litigants or of
competent judicial authority; A definitive judicial determination with respect
to the thing subject of litigation is not a
All other contracts specially declared by law condition sine qua non before the rescissory
to be subject to rescission. [Art. 1381, CC] action contemplated under Article 1381(4) of
the Civil Code may be instituted. The primordial
Requisites for Rescission under Art. 1381 purpose of Article 1381(4) of the Civil Code is
(1) (2), CC to secure the possible effectivity of the
1. Contract was entered into by a guardian in impending judgment by a court with respect to
behalf of his ward or by a legal the thing subject of litigation. [Ada v. Baylon,
representative in behalf of an absentee. G.R. No. 182435 (2012)]
[Arts. 1381 (1) and (2) CC]
Requisites before a Contract Entered Into in
Note: A guardian is authorized only to Fraud of Creditors May Be Rescinded under
manage the estate of the ward; should he Art. 1381 (3):
dispose a portion thereof without authority 1. There is a credit existing prior to the
from the court by way of a contract, the celebration of the contract, although not yet
same is unenforceable under Art. 1403(1), due or demandable;
CC, irrespective of whether there is lesion 2. There is fraud, or at least, the intent to
or not. commit fraud to the prejudice of the creditor
2. It was entered into without judicial seeking rescission, which may be
approval. [Art. 1386, CC] presumed or proved [Art 1387, CC];
3. Ward or absentee suffered lesion of more 3. Creditor cannot in any legal manner collect
than one-fourth of the value of the property his credit; insolvency of the debtor is not
which is the object of the contract. [Art. required; and
1381 (1) and (2), CC] 4. The object of the contract must not be
4. There is no other legal means of obtaining legally in the possession of a third person
reparation for the lesion. [Art. 1383, CC] who did not act in bad faith.
Page 311 of 532

Accion Pauliana Do all creditors benefit from the rescission?

The action to rescind contracts in fraud of As a rule, the rescission should benefit only the
creditors. Consequently, accion pauliana creditor who obtained the rescission, because
presupposes a judgment and unsatisfied the rescission is to repair the injury caused to
execution which cannot exist when the debt is him by the fraudulent alienation. If a balance is
not yet demandable at the time the rescissory left after satisfying the claim of the creditor who
action is brought. [Tolentino] brought the action, other creditors who are
qualified to bring an accion pauliana should be
Note: Even secured creditors are entitled to given the benefit of rescission, instead of
accion pauliana. requiring them to bring other rescissory
actions. However, creditors who only became
Payments made in a state of insolvency for such after the fraudulent alienation, cannot
obligations to whose fulfillment the debtor benefit from the rescission.
could not be compelled at the time they were
effected, are also rescissible. [Art. 1382, CC] e. Presumption of Fraud
Requisites Before Payment Made by When alienation of property presumed in fraud
Insolvent can be Rescinded: of creditors:
1. It was made in a state of insolvency; 1. Alienation by gratuitous title if the debtor
2. Obligation must have been one which has not reserved sufficient property to pay
debtor could not be compelled to pay at the all of his debts contracted before alienation
time such payment was effected. [Art. 1387(1), CC]
2. Alienation by onerous title if made by a
Note: A debtor can be compelled to pay by the debtor against whom some judgment has
creditor even before the expiration of the period been rendered in any instance or some writ
since by his insolvency he has already lost his of attachment has been issued [Art.
right to the benefit of such period. [Art. 1198(1), 1387(2), CC]
CC]
Badges of Fraud
d. Effects of Rescission [Art. 1385, A conveyance leaving no property for other
CC] creditors to attach is an evidence of fraud.
[China Banking v. CA, G.R. No. 129644
It creates an obligation of mutual restitution (2000)]:
or the obligation to return the things which were 1. Consideration is fictitious or inadequate;
the object of the contract, together with their 2. Transfer was made while suit had begun or
fruits, and the price with its interests. pending;
3. Sale was upon credit by insolvent debtor;
However, if the object of the contract is in the 4. There was large indebtedness or complete
possession of third persons in good faith, insolvency;
rescission cannot take place and indemnity for 5. Transfer consisted of all or nearly all
damages may be demanded from the person property especially when insolvent or
causing the loss [Art. 1385, CC] greatly;
6. The transfer was made between father and
Rescission prescribes in a period of four years. son when other above circumstances
For persons under guardianship and for present; and
absentees, the period of four years shall not 7. There was failure of vendee to take
begin until the termination of the former's exclusive possession of all property
incapacity, or until the domicile of the latter is embarrassed financially.
known. [Art. 1389, CC]
Page 312 of 532

2. Voidable contracts Private interest Direct influence of the

alone governs public interest is
Voidable or annullable contracts are existent, involved
valid and binding, although they can be
annulled because of want of capacity or vitiated May be compatible Based on a vice of the
consent of one of the parties. [Tolentino] with the perfect contract which
validity of the invalidates it
contract
Art. 1390, CC. The following contracts are
voidable or annullable, even though there A remedy A sanction
may have been no damage to the
contracting parties: Equity The law
1. Those where one of the parties is predominates predominates
incapable of giving consent to a contract;
2. Those where the consent is vitiated May be demanded Can be demanded
by mistake, violence, intimidation, undue by third parties only by parties to the
influence or fraud. affected by the contract
These contracts are binding, unless they are contract
annulled by a proper action in court. They are
susceptible of ratification.
b. Who may institute action for
Note: Art. 1390 refers to a “proper action in
annulment
court”. The validity of a voidable contract may
General Rule: Action for annulment may be
only be attacked either by way of a direct action
instituted by all who are thereby obliged
or by way of defense via a counterclaim, and
principally or subsidiarily.
not a special or affirmative defense. [Jurado]
Exceptions: (1) Persons capable of giving
a. Characteristics of Voidable consent and (2) guilty parties who have caused
Contracts the vitiation of consent cannot allege the
incapacity or want of consent of those they
• Its defect consists of the vitiation of contracted with. [Art. 1397, CC].
consent of one of the contracting parties;
• It is binding until it is annulled; Requisites:
• It is susceptible of convalidation by 1. Plaintiff must have an interest in the
ratification or prescription; once ratified, contract;
they become absolutely valid and can no 2. The victim and not the party
longer be annulled [Art. 1392, CC]; and responsible for the vice or defect
• Its defect or voidable character cannot be must assert the same
invoked by third persons.
Exception: If a third person is prejudiced in his
Rescission Annulment rights with respect to one of the contracting
parties and can show detriment which would
Merely produces the Declares the positively result to him from the contract in
inefficacy of the inefficacy which the which he has no intervention. [Teves v.
contract, which did contract already People’s Homesite & Housing Corp., G.R. No.
not essentially exist carries in itself L-21498 (1968)]
in the contract
Needs ratification to Requires an act of

be effective ratification to be cured
Page 313 of 532

c. Effects of Annulment 3. By loss of the thing which is the object of

the contract through the fraud or fault of the
person who is entitled to institute the action
Contract has been Contract has not for the annulment [Art.1401, CC]
Consummated been
Consummated PRESCRIPTION
The parties shall be Mutual Restitution - Prescription of the Action for Annulment
released from the the contracting
obligations arising parties shall restore Grounds for being Reckoning Point
therefrom. to each other the voidable
things which have
been the subject
matter of the Intimidation, Four years from the
contract, with their violence, or undue time the defect of the
fruits, and the price influence consent ceases
with its interest,
Fraud or Mistake Four years from
except in cases
discovery thereof
provided by law. [Art.
1398-1402] Minors and Four years from the
Incapacitated time the guardianship
Mutual Restitution Persons ceases.
Vitiation of Parties shall restore to each
Consent other the subject matter of Constructive Notice
the contract with its fruits Discovery or fraud must be reckoned from the
and the price thereof with time the document was registered in the office
legal interest. of the Register of Deeds. Registration
constitutes constructive notice to the whole
In obligations to render world. [Carantes v. CA, G.R. No. L-33360
service, the value thereof (1977)]
shall be the basis for
damages. [Art. 1398, CC] RATIFICATION
Incapacity Incapacitated person is not The act or means by virtue of which efficacy is
obliged to make any given to a contract which suffers from a vice of
restitution except insofar as curable nullity [Arts. 1392-1396, CC].
he has been benefited by the Ratification is either express or tacit.
thing or price received by 1. EXPRESS or
him. [Art. 1399, CC] 2. TACIT
When the person who has the right to
invoke it, with the knowledge of the
d. Three Ways or Modes of reason which renders the contract
Convalidating a Voidable voidable and such reason having
Contract ceased, executes an act implying an
intention to waive his right [Art. 1393,
1. By prescription of the action for annulment CC]
[Art.1391, CC]
2. By ratification or confirmation [Art. 1392- Requisites of Ratification
1396, CC] 1. Contract is tainted with a vice
susceptible of being cured;
Page 314 of 532

2. Confirmation is effected by the person a. Characteristics

who is entitled to do so under the law;
3. It is effected with knowledge of the 1. Cannot be enforced by a proper action in
vice or defect of the contract; court;
4. Cause of the nullity or defect has 2. Susceptible of ratification;
already disappeared. 3. Cannot be assailed by third persons [Art.
1408, CC]
The right to ratify may be transmitted to the
heirs of the party entitled to such right. It may b. Kinds of Unenforceable
likewise be exercised by the guardian of the
Contracts [Art. 1403, CC]
incapacitated person having such right. [Art.
1394, CC]
1. Unauthorized contracts – those entered
into by one who has no authority or legal
Ratification does not require the conformity of representation, or who has acted beyond
the contracting party who has no right to bring
his powers [par. 1, Art. 1403, CC]
an action for annulment. [Art. 1395, CC]
2. Those which did not comply with the
Statute of Frauds [par. 2, Art. 1403, CC]
Effect of Ratification
3. Those where both parties are incapable of
It extinguishes the action for annulment of a
giving consent to a contract [par. 3, Art.
voidable contract. [Art. 1392, CC] 1403, CC]
It cleanses the contract from all its defects from
the moment it was constituted. [Art. 1396, CC]
LOSS OF THE THING
Loss of thing by Loss of thing by

Plaintiff Defendant
If the loss of the If it is lost through the

object in his defendant’s fault, he
possession is due to is liable for fruits
his fault or fraud, the received, value of the
action for thing at the time it was
annulment of lost, with interest from
contracts shall be the same date. [Art.
extinguished. He 1400, CC]
cannot ask for
annulment. [Art.
14010, CC]
3. Unenforceable contracts
Unenforceable Contracts – contracts that by
reason of statutory defects do not confer any
action to enforce the same until and unless
they are ratified in the manner prescribed by
law [Reyes]
Page 315 of 532

SUMMARY OF UNENFORCEABLE CONTRACTS

Contract entered Contracts covered by Statute Contract where both
into without of Frauds parties are incapable of
authority giving consent
Effect on No effect unless ratified. Cannot be enforced by a proper action in court

the
Contract
How to Not by direct action. Not by direct action. Not by direct action.
assail
As a defense, by As a defense, by motion to As a defense, by motion to
motion to dismiss dismiss on the ground that the dismiss the complaint on
the complaint on the contract is unenforceable the ground that the contract
ground that the is unenforceable
contract is Objection to the presentation of
unenforceable oral evidence to prove an oral
contract [see Art. 1405]
Who can By the person By the party against whom the By the party against whom
assail - whose name the contract is being enforced; or the contract is being
cannot be contract was his privies enforced; or his privies; or
assailed by entered into / by parents or guardians, as it
third owner of property is a personal defense
persons
[Art. 1408,
CC]
When When a party asks the court to enforce the contract
How to Cure Ratification by Ratification by party against Ratification of party against

Defect person whose name whom the contract is being whom the contract is being
the contract was enforced enforced; or his privies; or
entered into parents or guardians
Failure to object to the
presentation of oral evidence to The ratification by one party
prove the contract amounts to converts the contract into a
waiver [Art. 1405, CC]; makes it voidable contract [Art.
as binding as if written 1407, CC]
4. Void or inexistent contracts also those which are declared void by positive
provision of law or statute.
Those which, because of certain defects,
generally produce no effect at all. They are
considered as inexistent from its inception or
from the very beginning [de Leon].
Includes not only those contracts in which one

of the essential requisites is totally wanting, but
Page 316 of 532

those which are inherent in his person,

Art. 1409, CC. The following contracts are
including therefore, his right to the
inexistent and void from the beginning:
annulment of said contract, even
1. Those whose cause, object or
though such creditors are not affected
purpose is contrary to law, morals,
by the same, except indirectly, in the
good customs, public order or
manner indicated in said legal
public policy;
provision. [Pascual v. Secretary of
2. Those which are absolutely
Public Works, G.R. No. L-10405
simulated or fictitious;
(1960)]
3. Those whose cause or object did not
exist at the time of the transaction;
Void vs. Inexistent Contracts
4. Those whose object is outside the
commerce of men; Void Inexistent
5. Those which contemplate an
impossible service; Those where all the Those where one or
6. Those where the intention of the requisites of a some or all of the
parties relative to the principal object contract are present requisites essential
of the contract cannot be but the cause, for the validity of a
ascertained; object or purpose is contract are
7. Those expressly prohibited or contrary to law, absolutely lacking
declared void by law morals, good
These contracts cannot be ratified. Neither customs, public
can the right to set up the defense of illegality order or public
be waived. policy, or the
contract itself is
prohibited or
a. Characteristics of a Void Contract declared void by
law
1. It does not produce any legal effect;
2. It is not susceptible of ratification; Principle of pari Principle of pari
3. The right to set up the defense of delicto is applicable delicto is inapplicable
inexistence or absolute nullity cannot
be waived or renounced; May produce legal Cannot produce any
4. The action or defense for the effects effect
declaration of their inexistence or
nullity is imprescriptible; [Art. 1410, Covers Art. 1409 Covers Art. 1409 (2)
CC] (1), (3), (4), (5), (6) and (3)
and (7)
Note: This provision does not apply to
wills. [Gallanosa v. Arcangel, G.R. No. Void vs. Voidable Contracts
L-29300 (1978)]
5. The inexistence or absolute nullity of a Void Voidable
contract cannot be invoked by a
person whose interests are not Those where one of Those where all the
directly affected. [Art. 1421, CC] the essential essential requisites
requisites is are present, but
Note: Article 1421 is subject to wanting, either in consent is vitiated by
exceptions. For instance, the creditors fact or in law, or is want of capacity, or by
of a party to an illegal contract may, declared void by error, violence,
under the conditions set forth in Article statute. intimidation, or deceit
1177 of said Code, exercise the rights
and actions of the latter, EXCEPT only
Page 317 of 532

General Rules
Void; no contract at Valid until annulled
all Nullity proceeds from the illegality of the
cause or object of the contract, and the act
May be assailed Must be assailed constitutes a criminal offense [Art.
indirectly through an action for 1411, CC]
that purpose by a
party to the contract, 1. Parties shall have no cause of
and never by a third action against each other
person (direct attack) 2. Both parties shall be prosecuted.
3. Things or price of the contract
Nullity may be set- Nullity may only be which are considered as effects or
up against anyone set-up against a party instruments of a crime are forfeited
who asserts a right thereto. in favor of the government.
arising from it.
The act in which the unlawful or forbidden
Not susceptible to May be validly ratified cause consists does not constitute a
ratification criminal offense
[Art. 1412, CC]
Action to declare Action for annulment
nullity does not prescribes When both When only one of the
prescribe [Art. parties are contracting parties is at fault
1410, CC] at fault
Neither may Guilty Party Innocent

b. Divisibility of Contracts
recover Party
what he has
Trigger: A contract has separate provisions of 1. He cannot 1. He may
given by
which only one or more provisions is invalid recover what demand the
virtue of the
contract, or he has given return of
General Rule: if the illegal terms can be by reason of what he has
demand the
separated from the legal ones, the latter may the contract, given
performanc
be enforced [Art. 1420, CC]
e of the
other's 2. He cannot 2. He is
c. In Pari Delicto Principle (in pari undertaking ask for the without any
delicto, non oritur actio) [Art. 1411, fulfillment of obligation to
CC] what has comply with
been his promise.
Parties to a void agreement cannot expect the promised
aid of the law; the courts leave them as they him.
are, because they are deemed in pari delicto or
"in equal fault." [Menchavez v. Tevez, G.R. No.
Exceptions to the Principle of In Pari
153201 (2005)].
Delicto:
1. Payment of usurious interest paid in
excess of the interest may be recovered by
the debtor. [Art. 1413, CC]
2. Payment of money or delivery of property
for an illegal purpose, where the party who
paid or delivered repudiates the contract
before the purpose has been
accomplished, or before any damage has
been caused to a third person. May allow
Page 318 of 532

the repudiating party to recover money or 3. if public policy is enhanced thereby.

property. [Art. 1414, CC] [See Hulst v. PR [Acabal v. Acabal, G.R. No. 148376
Builders Inc., G.R. No. 156364 (2007)] (2005)]
3. Payment of money or delivery of property
made by an incapacitated person. It is not d. Void contract cannot be novated
necessary that the illegal purpose has not [Art 1422, CC]
been accomplished, or no damage has yet
been caused. [Art. 1415, CC] A contact which is a direct result of a previous
4. Agreement or contract not illegal per se but illegal contract is also void and inexistent. This
merely prohibited by law, and the is based on requisites of a valid novation [Art
prohibition is designed for the plaintiff’s 1298, CC].
protection. Plaintiff may recover as
allowing recovery enhances public policy.
[Art. 1416, CC]
5. Distinguish: resolution and
5. Note: When the assailed contracts are void rescission of contracts
ab initio, Art. 1416 cannot be applied, as in
the case of aliens purchasing property Tolentino notes that Article 1191 is taken from
despite knowing fully well the constitutional Article 1124 of the Old Civil Code, but the
prohibition against foreigners owning land present Code uses the term “rescission”
in the Philippines at the time of purchase. instead of the original “resolution” in the old
[Frenzel v. Catito, G.R. No. 143958 (2003)] Code. Nevertheless, the Code uses the terms
6. Payment of any amount in excess of the synonymously.
maximum price of any article or commodity
fixed by law [Art. 1417, CC] Definition
7. Contract whereby a laborer undertakes to
Rescission Resolution
work longer than the maximum number of
hours fixed by law [Art. 1418, CC] A subsidiary action As referred to in
8. Contract whereby a laborer accepts a based on injury to Article 1191, the
wage lower than the minimum wage fixed the plaintiff’s action is based on
by law. He may recover the deficiency with economic interests the defendant’s
legal interest, and the employer shall be as described in breach of faith, a
criminally liable [Art. 1419, CC] Articles 1380 and violation of the
9. In case of divisible contracts, the legal 1381. reciprocity between
portions/terms may be enforced separately the parties.
from the illegal portions/terms [Art. 1420,
CC]; and [Heirs of Sofia Quirong v. Development Bank
10. One who lost in gambling because of of the Philippines, G.R. No. 173441, December
fraudulent schemes practiced on him. He is 3, 2009]
allowed to recover his losses [Art.
315(3)(b)] even if gambling is prohibited Similarities According to Tolentino:
1. Both presuppose contracts validly entered
The principle of in pari delicto admits of an into and existing (this distinguishes
exception under Art. 1416 of the Civil Code. rescission from annulment, in which there
Under this article, recovery for what has been is a defect which vitiates the contract)
paid or delivered pursuant to an inexistent 2. Both require mutual restitution when
contract is allowed only when the following declared proper.
requisites are met:
1. the contract is not illegal per se but
merely prohibited;
2. the prohibition is for the protection of
the plaintiffs; and
Page 319 of 532

Differences
or non-
Rescission Resolution performance
[Art 1380 and [Art 1191,
1381, CC] CC] As to action Right to seek May be
by courts remedy is not denied if
As to Subsidiary Principal affected by court finds
Nature of Action Action, extension of that there is
Action involving retaliatory in time sufficient
partial nature reason to
resolution justify
extension
As to Basis Economic Breach of
prejudice faith As to Four years Ten years
rendering the prescriptive [Art. 1389,
contract period CC]
legally
rescissible
[Congregation of the Religious Virgin Mary v.
Orola, G.R. No. 169790 (2008)]
Note: Not all
forms of
economic NATURAL OBLIGATIONS
prejudice are
recognized by
law as a Art 1423, CC. Natural obligations, not being
ground to based on positive law but on equity and
rescind natural law, do not grant a right of action
to enforce their performance, but after
As to effect The cause of The voluntary fulfillment by the obligor, they
action is reparation of authorize the retention of what has been
subordinated damages for delivered or rendered by reason thereof.
to the the breach is
existence of purely General Rule: Do not grant a right of action to
an economic secondary. enforce their performance.
prejudice.
Hence, where Exception: After voluntary fulfillment, they
the defendant authorize the retention of what has been
makes good delivered/rendered by reason thereof.
the damages
caused, the In order that there may be a natural obligation
action cannot there must exist a juridical tie which is not
be maintained prohibited by law and which in itself could give
or continued. a cause of action but because of some special
circumstances is actually without legal sanction
As to Prejudiced Only party to or means of enforcing compliance by
parties- third party the contract intervention of courts. [Tolentino]
in- may also may seek
interest seek remedy remedy Two Conditions Necessary for Natural
Obligations
As to Equity Non-
a. That there be a juridical tie between two
grounds compliance
persons; (this distinguishes it from moral
obligations) and
Page 320 of 532

b. That this tie is not given effect by law (this

Voluntary fulfillment Voluntary fulfillment
distinguishes it from civil obligations).
of such produces of such does not
legal effects which the produce any legal
Four Types of Obligations in Juridical
court will recognize effect which the
Science
and protect. court will recognize
a. Moral Obligations – duties of conscience
and protect.
completely outside the field of law
b. Natural Obligations – duties not Within the domain of Within the domain
sanctioned by any action but have a law of morals
relative judicial effect
c. Civil Obligations – juridical obligations
that are in conformity with positive law but Conversion to Civil
are contrary to juridical principles and
susceptible of being annulled; enforceable
Obligations
by action
General Rule: Partial payment of a natural
d. Mixed Obligations – full juridical effect;
obligation does not make it civil; the part paid
falls under civil obligations
cannot be recovered but the payment of the
balance cannot be enforced.
Natural Civil
Obligations Obligations This is applicable only to natural obligations
because of prescription or lack of formalities
As to Not by court Court action (nullity due to form e.g. Art. 1430) and not to
enforceability actions, but or the natural obligations subject to ratification or
by good coercive confirmation
conscience power of
of debtor public Note: Payment by mistake is not voluntary and
authority may be recovered. Payment is voluntary when
the debtor knew that the obligation is a natural
As to basis Equity and Positive law
one. The debtor, however, has the burden of
natural [Art. 1157,
proving the mistake.
justice CC]
Natural obligations may be converted to civil
obligations by way of:
Natural Obligations Imperfect
1. Novation
Obligations
2. Ratification or confirmation
Only the Existence of the
performance of the obligation depends Rules on Natural Obligation:
obligation is left to exclusively upon the a. The promise to perform a natural obligation
the will of the debtor judgment of debtor is as effective as performance itself and
converts the natural obligation to a civil
obligation.
Natural Obligations Moral Obligations b. Partial payment of a natural obligation does
not make it civil; the part paid cannot be
There is a juridical tie No juridical tie recovered, but payment of the balance
between the parties whatsoever cannot be enforced. The exception would
which is not be if the natural obligation is susceptible of
enforceable by court ratification.
action. c. Guaranties for the performance of a natural
obligation are valid. [Art. 2052, CC]
Page 321 of 532

d. In principle, however, natural obligations c. A third person, without the knowledge

cannot be guaranteed. The guaranty or against the will of the debtor, pays
changes the character of obligation. The the debt
debtor impliedly accepts coercive remedies d. Debtor voluntarily reimburses the third
to enforce the guaranty, and the person
transformation into civil. [Tolentino]
e. Payment of a natural obligation is not Consequence: Obligor cannot recover what
subject to reduction by reason of he has paid.
inofficiousness, appearance of children or
ingratitude. 2. Contract Made by a Minor
Art. 1426, CC. When a minor between
Examples Of Natural eighteen and twenty-one years of age who
Obligations has entered into a contract without the
consent of the parent or guardian, after
the annulment of the contract voluntarily
1. Performance after prescription returns the whole thing or price received,
Art. 1424, CC. When a right to sue upon a notwithstanding the fact that he has not been
civil obligation has lapsed by extinctive benefited thereby, there is no right to
prescription, the obligor who voluntarily demand the thing or price thus returned.
performs the contract cannot recover what
he has delivered or the value of the service
Requisites under Art. 1426 (Voluntary Return
he has rendered.
of Payment – Minor between 18 and 21)
a. There is a civil obligation
Requisites under Art. 1424 (Prescribed Civil b. Minor between 18 and 21 entered into
Obligation – Obligor) the contract without consent of parent
a. There is a civil obligation or guardian
b. The right to sue upon it has already c. Obligation is annulled after minor has
lapsed by extinctive prescription received the price or whole thing
c. Obligor performs contract voluntarily d. Minor returns whole thing or price
received voluntarily
Consequence: Obligor cannot recover what
he has delivered or value of the service he Consequence: There is no right to demand
rendered. Obligee gains the right to retain what the thing or price returned.
has been paid.
Art. 1427. When a minor between
eighteen and twenty-one years of age, who
Art. 1425, CC. When without the has entered into a contract without the
knowledge or against the will of the consent of the parent or guardian,
debtor, a third person pays a debt which voluntarily pays a sum of money or
the obligor is not legally bound to pay delivers a fungible thing in fulfillment of
because the action thereon has prescribed, the obligation, there shall be no right to
but the debtor later voluntarily reimburses recover the same from the obligee who
the third person, the obligor cannot recover has spent or consumed it in good faith.
what he has paid.
Requisites under Art 1427 (Voluntary
Requisites under Art. 1425 (Prescribed Civil Payment – Minor between 18 and 21)
Obligation – Payment to 3rd Person) a. There is a civil obligation
a. There is a debt b. Minor between 18 and 21 entered into
b. Action upon the debt has prescribed the contract without consent of parent
or guardian
Page 322 of 532

c. Minor pays a sum of money or delivers

a fungible thing voluntarily 4. Payment beyond Inheritance
d. Obligee spends the money or
Art. 1429, CC. When a testate or intestate
consumes the thing in good faith
heir voluntarily pays a debt of the
decedent exceeding the value of the
Consequence: There is no right to recover the
property which he received by will or by the
money paid or thing delivered.
law of intestacy from the estate of the
deceased, the payment is valid and cannot
It is not the voluntary payment that prevents
be rescinded by the payer.
recovery, but the consumption or spending of
the thing or money in good faith.
Requisites under Art 1429 (Payment made
Arts. 1426 and 1427, CC, distinguished by Heir)
Art. 1426 Art. 1427 a. Decedent incurred in debt during his
lifetime
Presupposes a prior No prior annulment b. Heir voluntarily pays debt
annulment is involved c. Value of debt exceeds value of heir’s
inheritance
Refers to any object Refers to money or
fungible things Consequence: Payment is valid and heir
cannot rescind it.
Consumption in good Requires
faith is not required consumption in good 5. Payment of a Void Legacy
faith
Art. 1430, CC. When a will is declared void
because it has not been executed in
3. Performance by Winning Party accordance with the formalities required
by law, but one of the intestate heirs, after
Art. 1428, CC. When, after an action to
the settlement of the debts of the deceased,
enforce a civil obligation has failed the
pays a legacy in compliance with a clause
defendant voluntarily performs the
in the defective will, the payment is
obligation, he cannot demand the return of
effective and irrevocable.
what he has delivered or the payment of the
value of the service he has rendered.
Requisites under Art 1430 (Payment of
legacy – Will declared Void)
Requisites under Art 1428 (Payment by
a. There is a will providing for a legacy
Defendant notwithstanding failed action)
b. The will is declared void because it was
a. There is a civil obligation
not executed in accordance with the
b. An action to enforce such has failed
formalities required by law
c. Defendant voluntarily performs the
c. Heir pays legacy in compliance with a
obligation
clause in the defective will
Consequence: Defendant cannot demand
Consequence: Payment is effective and
return of what he has delivered or the payment
irrevocable.
of the value of the service.
Page 323 of 532

ESTOPPEL C. PERSONS BOUND
Estoppel is effective only as between the:

A. DEFINITION 1. parties thereto or
2. their successors-in-interest. [Art. 1439,
CC]
A condition or state by virtue of which an
admission or representation is rendered
The government is not estopped by mistake
conclusive upon the person making it, and
or error on the part of its officials or agents. In
cannot be denied or disproved as against the
Manila Lodge No. 761 Benevolent and
person relying thereon [Art. 1431, CC]
Protective Order of the Elks v. CA, G.R. No. L-
41001 (1976), the sale executed by the City of
Estoppel is a bar which precludes a person
Manila to Manila Lodge was certainly a
from asserting anything contrary to that
contract prohibited by law, and that estoppel
which has been established as the truth, either
cannot be urged even if the City of Manila
by the acts of judicial or legislative officers or
accepted the benefits of such contract of sale
by his own deed or representation, either
and the Manila Lodge No. 761 had performed
express or implied. [Tolentino]
its part of the agreement, for to apply the
doctrine of estoppel against the City of Manila
in this case would be tantamount to enabling it
B. KINDS OF ESTOPPEL to do indirectly what it could not do directly.
a. Equitable Estoppel or Estoppel in pais D. CASES WHERE

or by conduct [Art. 1433, CC] ESTOPPEL APPLIES
1. Estoppel by silence [Art. 1437, CC]
2. Estoppel by acceptance of benefits a. Sale or alienation of a thing which does not
b. Technical Estoppels belong to the seller or grantor and later on
1. Estoppel by Deed – a party to a acquire title thereto [Art. 1434, CC].
deed is precluded from asserting
as against the other party, a Requisites
material fact asserted therein; [Art. a. The seller or grantor is not the
1433, CC] and owner of a thing
2. Estoppel by Record – a party is b. The person sells or alienates and
precluded from denying the truth of delivers it to another
the matters set forth in a record c. The person later on acquires title to
whether judicial or legislative and the thing
also to deny the facts adjudicated
by a court of competent jurisdiction. Effect: Title passes by operation of law to
c. Estoppel by Judgment – a party to a case the buyer or grantee.
is precluded from denying the facts
adjudicated by a court of competent b. Agent sells or alienates a thing [Art. 1435,
jurisdiction CC]
d. Estoppel by laches
Requisites:
a. Person in representation of another
sells or alienates a thing
Page 324 of 532

Effect: The person cannot set up his own

title as against the buyer or grantee.
E. LACHES
c. Title of the lessee or bailee against the
lessor or bailor [Art. 1436, CC].
Laches is defined as the failure or neglect for
Requisites: an unreasonable and unexplained length of
a. There exists a lessor-lessee time to do that which, by exercising due
relationship diligence, could or should have been done
earlier; it is negligence or omission to assert a
Effect: The lessee or bailee is estopped right within a reasonable time, warranting a
from asserting title to the thing leased or presumption that the party entitled to assert
received. it either has abandoned it or declined to
assert it. [Pangasinan v. Disonglo-Almazora,
d. Contract between third persons concerning G.R. No. 200558 (2015)]
immovable property where one of them is
misled by a person with respect to the Elements [Pangasinan v. Disonglo-Almazora,
ownership or real right over the real estate. G.R. No. G.R. No. 200558 (2015)]
[Art. 1437, CC] a. Conduct on the part of the defendant, or
of one under whom he claims, giving rise to
Requisites: the situation of which complaint is made
a. There must be fraudulent for which the complaint seeks a remedy;
representation or wrongful b. Delay in asserting the complainant’s
concealment of facts known to the rights, the complainant having had
party estopped; knowledge or notice, of the defendant’s
b. The party precluded must intend conduct and having been afforded an
that the other should act upon the opportunity to institute a suit;
facts as misrepresented; c. Lack of knowledge or notice on the part
c. The party misled must have been of the defendant that the complainant
unaware of the true facts; and would assert the right on which he bases
d. The party defrauded must have his suit; and
acted in accordance with the d. Injury or prejudice to the defendant in the
misrepresentation event relief is accorded to the complainant,
or the suit is not held to be barred.
Effect: The guilty party is precluded from Prescription Laches
asserting his legal title or interest therein,
Concerned with the Concerned with the
provided all these requisites are present.
fact of delay effect of delay
e. One who has allowed another to assume Question of inequity of
Question or matter
apparent ownership of personal property permitting the claim to
of time
for the purpose of making any transfer of it, be enforced
cannot, if he received the sum for which a Statutory Not statutory
pledge has been constituted, set up his Applies in law Applies in equity
own title to defeat the pledge of the Cannot be availed of
property, made by the other to a pledgee unless it is Being a defense in
who received the same in good faith and specifically pleaded equity, it need not be
for value [Art. 1438, CC]. as an affirmative specifically pleaded
allegation
Based on a fixed Not based on a fixed
time time
Page 325 of 532

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U.P.

LAW BOC OBLIGATIONS AND CONTRACTS CIVIL LAW

Page 252 of 539

An obligation is a juridical relation, whereby a

Page 253 of 532

1. To take care of the 1. To ask that

different one, 2. To shoulder expense. [Art.

Page 255 of 532

4. Performance of Obligations 5. Breaches of Obligations

1. Total breach 1. Partial breach

Exception: when expressly stipulated. General Rule

Page 256 of 532

Page 257 of 532

Effects Equitable Tempering under Art. 1192 vs.

COMPENSATIO MORAE Art. 1171, CC. Responsibility arising from

Page 258 of 532

Two Types of Fraud d. Negligence (Culpa) in the

Page 259 of 532

3. Banks Extent of Damages to be Awarded [Art.

There is always a pre- There may or may a. Principal remedies of creditors

The source of the The source of Alternative Remedies

Page 260 of 532

[Universal Food Corporation v. CA, G.R. No. L-

Page 261 of 532

Non-performance Non-performance by ACCION PAULIANA

Page 262 of 532

3. The debtor’s acts are fraudulent to the

Page 263 of 532

Principle of Retroactivity in Suspensive

Page 264 of 532

[Art. 1182, the principle of mutuality of

Page 265 of 532

Re: Obligations To Do and Not To Do

Re: Obligations With a Resolutory

Page 266 of 532

that the event No effect on Gives rise to an

Page 267 of 532

Effect: It is presumed to have been When Courts May Fix Period

Page 268 of 532

May be complied May be complied Form of notice

Page 269 of 532

Loss of Specific Things or Impossibility of

Page 270 of 532

Each debtor is liable only for a proportionate JOINT INDIVISIBLE OBLIGATION

An obligation where there is concurrence of

Page 271 of 532

render, entire compliance with the prestation KINDS OF SOLIDARY OBLIGATIONS

All debtors are liable Only the debtors

Page 272 of 532

Page 273 of 532

2. Those personal to him Loss of the thing or impossibility of

Page 274 of 532

b. Debtor cannot exempt himself from the 3. If the penalty is iniquitous or

Proof of Actual Damage 1. Payment or performance

When Penalty may be Reduced [Art. 1229, The delivery of money OR

Page 275 of 532

OBJECT OF PAYMENT 2. Debtor may not be required to make partial

Necessity of Complete Performance [Art. Payment by a third person

Page 276 of 532

Exception: Stipulation to the contrary [Art. interest; or any person authorized to