Title 1 Obligations
Art. 1156.
An obligation is a juridical necessity to give, to do or not to do.
Definition
Tolentino: An obligation is the juridical relation created by virtue of certain facts,
between two or more persons, whereby one of them, known as the creditor or
obligee, may demand of the other, known as the debtor or obligor, a definite
presentation.
Paras: This definition in Art. 1156, taken from Sanchez Roman is incomplete, in that,
it views obligations only from the debit side. There is no debt without a credit, and
the credit is an asset in the patrimony of the creditor just as the debt is a liability of
the obligor. Following the defective method of the Spanish Civil Code, the new Code
separates responsibility from the other element of obligation.” He then quotes with
approval the following definition given by Arias Ramos:
“An obligation is a juridical relation whereby a person (called the creditor) may
demand from another (called the debtor) the observance of a determinative
conduct (the giving, doing, or not doing), and in case of breach, may demand
satisfaction from the assets of the latter.”
This definition is accurate because it views “obligation” from a “total” standpoint
(both active and passive viewpoint).
Elements of an Obligation
(derived from the Latin “obligare”— to bind)
1. An active subject
(called the obligee or creditor)
i. the possessor of a right;
ii. he in whose favor the obligation is constituted
iii. He has the power to demand the performance of the
obligation.
iv. The active subject is always a person whether juridical or
natural.
2. A passive subject
(called the obligor or debtor)
i. he who has the duty of giving, doing, or not doing
ii. He is the one bound to perform the obligation
iii. The passive subject must be determinate or determinable
1. Determined at the birth of the obligation
3. The object or prestation
(the subject matter of the obligation).
More specifically, it is the subject matter of an obligation and may
consist of either
i.
Giving a thing (to deliver)
ii.
Doing a certain act (to give)
iii.
Not doing a certain act
Why is prestation important? Because it is the conduct in which the debtor should
act upon.
Requisites of Object L P D P
 It must be licit (legal)
o Example: Can‘t validly enter into a contract for sexual services
 It must be possible (both in fact and law)
o Determined by the rules of experience
 It must be determinate or determinable
o Can‘t say that ―I promise to sell you something‖.
o Example of determinate: I promise to sell you my car.
o Example of determinable: I promise to sell you my Riceland
 Must have pecuniary value
o Pecuniary value means money, a negotiable instrument, a commercial
interest, or anything of value
4. The efficient cause (the vinculum or juridical tie)
— the reason why the obligation exists.
i. The law speaks of an obligation as a juridical necessity to comply
with a prestation.
ii. There is a “juridical necessity,” for non-compliance can result in
juridical or legal sanction.
iii. It is that which binds or connects the parties to the obligation.
(De Leon) In other words, it is the legal relation between the
debtor and the creditor (or obligor and obligee).
5. Causa
Causa means the why of an obligation.
 The object of an obligation answers the question ―What is owed?‖ (Quid).
 The causa answers the question ―Why is it owed?‖ (Cur).
 causa - a comprehensive term for any proceeding in a court of law whereby
an individual seeks a legal remedy;
 the reason why a party entered into a contract; essential reason which
moves the parties to enter into the contract; the immediate, direct and
proximate reason which justifies the creation of an obligation through
through the will of the contracting parties.
(NOTE: In a few cases, FORM — or the manner in which the obligation is manifested
— is also important.)
Example
A promises to paint B’s picture for B as a result of an agreement.
(Here A is the obligor; B is the obligee; the painting of B’s picture is the object or
prestation; the agreement or contract is the efficient cause.)
6. Form
Another commentators say that the 6th essential requisite is form. Form means
some manifestation of intent. In some cases the manifestation is specific such as
in the case of donations.
In some cases the manifestation is specific such as in the case of donations.
According to Professor Balane that the general rule is that there is no specific form
for a valid obligation. However, if form means that there is some external
manifestation, fine, since we are not telepathic after all. However, there should still
be no specific form.
Characteristics of Obligations
1. It represents an exclusively private interest
2. It creates ties which are by nature transitory
Because obligations are extinguished. But the period is relative – could be
seconds (e.g., buying coke) and could be years (e.g., partnership, lease)
3. It involves the power to make the juridical tie defective in case of non-fulfillment
through satisfaction of the debtor‘s property
Trends in the Modern Law of Obligations
1. Progressive spiritualization of the law on obligations
Before, obligations were very formal and ritualistic. If it was not in the proper form,
no obligations will assume. Now, the emphasis is in the meeting of the minds, and
not on the specific form.
2. The principle of autonomy of will of the parties is now subject to several
restrictions
a. While the principle still operates, the exceptions (prohibited areas)
have grown larger and larger. Article 1306 gives the five restrictions:
not contrary to law, morals, good customs, public order, or public
policy. Those which are against these five restrictions are void, as can
be seen in Article 1409*. However, now we have restrictions such as
social justice, environmental preservation, etc. This is because of the
rising tide of social discontent, hence social legislation came to be for
the underprivileged
3. The mitigation of the principle that the debtor should answer with all his
property
b. Before, the debtor had to answer his debts with all his property. Now,
certain properties are exempt and these can be found in substantive
law (i.e., home) and in procedural law (i.e. support, etc.)
c. Also, the debtor may not be imprisoned for non-payment of debts.
d. The theory is to leave the debtor something to live decently by.
4. The weakening of the principle that liability arises from responsibility
e. This is basically the principle in quasi-delicts. Now, in many cases, a
person may be held liable even if not responsible.
f. For example, under workman‘s compensation, the employer is liable
to compensate the employee even if the employer was not negligent.
5. The tendency of unity in modern legislation
g. This can be manifest in the rise of a ―global village‖. This can be seen
particularly in trade laws.
h. The tendency now is to make things uniform especially in commerce.
Different rules would impede commerce.
Concept of Prestation
 A prestation is an obligation; more specifically, it is the subject matter of an
obligation — and may consist of giving a thing, doing or not doing a certain
act. The law speaks of an obligation as a juridical necessity to comply with a
prestation.
 There is a “juridical necessity,” for non-compliance can result in juridical or
legal sanction.
Example
Under PD 1517, tenants-lessees are given pre-emptive or preferential rights (right
of first refusal) if they have occupied the land or lot for over ten (10) years. The
owner has this obligation to grant said preference. Thus, he cannot sell to a third
person without fi rst offering the same to the lessee. If the latter renounces said
right, the waiver must be in a public instrument.
(Mataas na Lupa Tenants’ Association v. Carlos Dimayuga and Juliana Diego Vda.
de Gabriel)
Kinds of Prestations
WHAT IS THE DIFFERENCE BETWEEN TO GIVE AND TO DO???
a. To give
To give a determinate thing
— a thing is determinate when it is —
i. Particularly designated
ii. Physical segregated from all others of the same class.
Example — a particular car with serial and engine numbers xxxxx, this particular
compass, my mom’s iPhone
Primary Obligation
Giving what is supposed to be given.
3 Accessory Obligations
1. After constitution of the obligation and before delivery, to take care of it with
the proper diligence of a good father of the family (Article 1163)
 General Rule: Diligence of a good father of the family
 Exception: Law or stipulation requires different standard of care
 If through negligence, something causes the thing damage, the debtor is
liable for damages.
 This is not applicable to a generic thing.
2. To account and deliver to the creditor the fruits if the thing bears fruits upon
the time the obligation to deliver it arises (Article 1164).
Example: A sold B a mango plantation to be delivered on January 1. Come
January 1, A did not deliver. A instead sold the fruits to C, a buyer in good faith.
B sues A for specific performance. Court awards the plantation to B. Does B have
a right to the fruits? Yes, as against A. No, as against C, because B‘s right over
the fruits is only personal. B‘s remedy is to go against A for the value of the fruits.
3. To deliver the accessions and accessories (Article 1166)

Don‘t take accession in the technical sense (or else, it might overlap
with ii). Understand it to mean things that go with the thing to be delivered
(i.e. radio of the car).
Requisites
a. Obligation has a suspensive condition, a resolutory condition or term
b. The obligor is obligated to deliver a determinate thing
c. There is improvement, loss or deterioration before the fulfillment of the
condition or the period
d. The condition is fulfilled or the period arrives
To give a generic thing
Generic Thing: — a thing is generic or indeterminate when it refers only to a class,
to a genus, and cannot be pointed out with particularity.
Example — a car, a 2005 BMW automobile, the sum of P5 million, a kilo of sugar
b. To do
i.
ii.
Only the obligor can do
Anyone else can do it
Remedy: Equivalent Performance or Substitute Performance only
Why? You can ask for a specific performance.
You are paying for a particular service.
c. Not to do

includes the obligation not to give

Remedy: Equivalent Performance or Substitute Performance only
Remedies Available to the Creditor
 Substitute performance
 done by someone else (perform at the expense of the debtor)
 the performance of the prestation itself.
 when someone else performs or something else is performed at
the expense of the debtor.
 Equivalent performance - damages

Damages may be obtained exclusively or in addition to the 1st 2
actions.

the payment of damages
Kinds of Obligations
(a) From the viewpoint of “sanction” C N M
1. civil obligation (or perfect obligation)
The sanction is judicial process. Non-compliance gives a right of action
to compel their performance.
Example: A promises to pay B his (A’s) debt of P1 million.
2. natural obligation
 the duty not to recover what has voluntarily been paid although
payment was no longer required
 Based on equity and natural law, they do not grant a right of
action to enforce their performance, but after “voluntary”
fulfillment by the obligor, they authorize the retention of what
has been delivered or rendered by reason thereof. A natural
obligation is basically an obligation which was originally a civil
obligation, which was converted to a natural obligation upon
the happening of an event which extinguishes its legal
demandability (such as prescription)
Example: A owes B P1 million. But the debt has already prescribed. If
A, knowing that it has prescribed, nevertheless still pays B, he (A)
cannot later on get back what he voluntarily paid. The sanction is the
law of course, but only because conscience had originally motivated
the payment.
NOTE — “Voluntary” means the creditor had knowledge of the
existence of the debt and the fact that he is not legally obligated to
pay. If the debtor made a payment by mistake, then the rule on natural
obligations does not apply.
3. moral obligation (or imperfect obligation)

The duty of a Catholic to hear mass on Sundays and holy days of
obligation.The sanction here is conscience or morality, or the law of the
church.
NOTE — If a Catholic promises to hear mass for 10 consecutive
Sundays in order to receive P1 million this obligation becomes a
civil one.]
Example:


To support a friend
To support parents in old age
(b) From the viewpoint of subject matter R P
1. real obligation
— the obligation to give or that in which the subject matter is a thing which the
obligor must deliver to the obligee
Example:
 Mortgage
 A promised to deliver his car to B. B promised to deliver 500,000.00 to A.
2. personal obligation
— the obligation to do or not to do or that in which the subject matter is an act to
be done or not to be done.
Example
 The duty to paint a house, or to refrain from committing a nuisance
 A promised under a contract of employment to work for B as adriver.
 A promised to sing in B’s birthday party.
A promised not to sing in B’s wedding.
(c) From the affirmativeness and negativeness of the obligation (Kinds of Personal
Obligations)
1. positive or affirmative obligation
— the obligation to give or to do to render service
2. negative obligation
— the obligation not to do (which naturally includes “not to give”) (which naturally
includes obligations “not to give”)
(d) From the viewpoint of persons obliged — U B
1. unilateral
— where only one of the parties is bound
(NOTE: Every obligation has 2 parties; If only one of them is bound, we have a
unilateral obligation.
Example
A owes B P1 million. A must pay B.
2. bilateral
— where both parties are bound
Example
In a contract of sale, the buyer is obliged to pay, while the seller is obliged to deliver.
[NOTE: Bilateral obligations may be:


reciprocal
non-reciprocal (where performance by one is nondependent upon
performance by the other).
(e) As to perfection and extinguishment
1. Pure Obligations
2. Conditional Obligations
i. Obligations subject to a suspensive condition
ii. Obligations subject to a resolutory condition
3. Obligations with a Period
i. Obligations subject to a suspensive period
ii. Obligations subject to a resolutory period
(f) As to plurality of prestations
1. Conjunctive obligation
— one where the debtor has to perform several prestations. This is extinguished
only by the performance of all of them.
2. Alternative obligation
— one where out of the two or more prestations which may be given, only one is
due.
3. Facultative obligation
— one where only one prestation has been agreed upon but the obligor may render
another in substitution.
(g) As to the plurality of the subject-persons
1. Joint obligation
— one in which each of the debtors is liable only for a proportionate part of the
debt, and each creditor is entitled only to a proportionate part of the credit. Each
creditor can only recover his share of the obligation and each debtor can only be
made to pay his part.
2. Solidary obligation
— one in which each debtor is liable for the entire obligation, and each creditor is
entitled to demand the whole obligation. Each creditor may enforce the entire
obligation, and each debtor may be obliged to
Criticism of the Definition by the Code
This definition in Art. 1156, taken from Sanchez Roman is incomplete, in that, it
views obligations only from the debit side. There is no debt without a credit, and
the credit is an asset in the patrimony of the creditor just as the debt is a liability of
the obligor. Following the defective method of the Spanish Civil Code, the new Code
separates responsibility from the other element of obligation.” He then quotes with
approval the following definition given by Arias Ramos:
“An obligation is a juridical relation whereby a person (called the creditor) may
demand from another (called the debtor) the observance of a determinative
conduct (the giving, doing, or not doing), and in case of breach, may demand
satisfaction from the assets of the latter.” This definition is accurate because it
views “obligation” from a “total” standpoint (both active and passive viewpoint).
Cases
Pelayo v. Lauron 12 Phil. 453 (BAR)
FACTS: A wife was about to deliver a child. Her parentsin- law called the doctor.
ISSUE: Who should pay the doctor: the husband or the parents?
HELD: The husband should pay, even if he was not thebone who called the doctor.
It is his duty to support the wife, and support includes medical attendance. The
duty to pay is an obligation to give, and is imposed by the law.
Poss v. Gottlieb
FACTS: There were two partners engaged in buying and reselling land. After they
had bought a piece of land, one asked the other to sell the latter’s share to him for
the price invested by the latter. The first partner, who now completely owned the
land, resold it at a huge profi t to a third person. The second partner would not
have sold his share had he known that a big offer had been made by such third
person. The fi rst partner alleged that he should not be blamed on the ground that
he, after all did not make any false concealment to his partner, that is, he did not
tell the latter that nobody wanted the land.
Issue: May the second partner successfully bring an action for damages against the
first partner?
HELD: Yes, because the fi rst partner is liable. He had the duty not only to make any
false concealment but also to abstain from all kinds of concealment insofar as the
partnership was concerned. This is an obligation to do (to relay all pertinent
information).
Joaquin P. Nemenzo v. Bernabe Sabillano
FACTS: A municipal mayor, upon assumption of office arbitrarily dismissed a
corporal (a civil service eligible) in the police force of the municipality, without due
investigation.
Issue: Is the mayor personally liable?
HELD: Yes, because his act of dismissing the corporal without previous
administrative investigation and without justifi able cause is clearly an injury to the
corporal’s rights. The mayor cannot hide under the mantle of his offi cial capacity
and pass the liability to the municipality of which he was mayor. There are
altogether too many cases of this nature, wherein local elective officials, upon
assumption of office, wield their new-found power indiscriminately by replacing
employees with their own protegés, regardless of the laws and regulations
governing the civil service. Victory at the polls should not be taken as authority for
the commission of such illegal acts.
Leonides Pengson v. Court of Appeals
If the owner of certain shares should pledge the same to his creditor, and later said
owner sells his shares to a third person, the creditor cannot be compelled to
surrender the share certificates to the buyer, and this refusal will not invalidate the
sale.
Phil. National Bank v. Court of Appeals
A local bank, while acting as local correspondent bank, does not have the right to
intercept funds being coursed thru it by its foreign counterpart for transmittal and
deposit to the account of an individual with another local bank, and thereafter
apply the said funds to certain obligations owed to it by the said individual.
In an Option to Buy, Payment of Purchase Price By Creditor Is Contingent Upon
Execution and Delivery of a Deed of Sale By Debtor
Obligations under an option to buy are reciprocal obligations. Performance of one
obligation is conditioned on the simultaneous fulfi llment of the other obligation.
In other words, in an option to buy, payment of purchase price by creditor is
contingent upon the execution and delivery of a deed of sale by the debtor.
(Heirs of Luis Bacus, et al. v. CA & Spouses Faustino and Victoriana Duray, GR
127695, Dec. 3, 2001).
Art. 1157.
Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.
Sources of Obligation
An obligation imposed on a person and the corresponding right granted to another
must be rooted in at least any of the following sources:
 There is really only one source of obligations – just law.
 In the ultimate sense, law is the solitary source.
 In the immediate sense, there are 5, those enumerated in Article 1157. Law
is therefore both an immediate and ultimate source. Examples of law being
an immediate source are payment of taxes and accession.
 Is this enumeration of the sources of obligation exclusive?
o The Supreme Court in the case of Sagrada Orden vs. NACOCO seem to
answer it in the affirmative. However, this is only by implication or
indication. The Court did not make an explicit statement that it is.
o Many commentators including Professor Balane believe that the list is
not exclusive. They criticize the case because it is not a good way of
enumerating. At present, there is one more possible source of
obligations – public offer.
o Example: In commercials, there is an offer to replace 30 sachets of
Tide for one Venetian-cut glass until the end of the year. There is no
contract or quasi-contract. But if before the end of the year, you
present your Tide sachets, you can demand for your glass.
o Public offer is in fact a source of obligation under the BGB (the
German Civil Code), Article 657 which provides that a person who by
public notice announces a reward in the performance of the act is
liable even if such person did not act in view of such reward.
o Although public officers are supplemented by DTI regulations,
Professor Balane thinks that public offer should be made part of the
law since regulations easily change.
1. Law (obligations ex lege) Art 1158
 the system of rules which a particular country or community
recognizes as regulating the actions of its members and which it may
enforce by the imposition of penalties.
Examples:

like the obligation to pay taxes
o Those which are clearly stipulated in the National Internal
Revenue Code (R.A. 8424) are demandable and those which are
not clearly expressed are not presumed.

Like the duty to support one’s family

You leave house and walk down the street → traffic laws are designed
dot make that a safe and convenient experience
2. Contracts (obligations ex contractu) Art 1159
 A contract is a meeting of minds between two persons whereby one
binds himself with respect to another, to give something or to render
some services (Art 1305)
 when they arise from the stipulation of the parties
 This provision combines two concepts of Roman law – equity or good
faith (ius gentium) and strict compliance by the parties (ius chinile).
 Contractual obligations have the force of law between the contracting
parties and should be complied with in good faith (Article 1159).
 The contracting parties may establish such stipulations, clauses, terms
and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy
(Article 1306).

Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according
to their nature, may be in keeping with good faith, usage and law
(Article 1315).

In case of doubt, the interpretation consistent with good faith is
followed.

Party cannot excuse themselves on the ground that it has become
unprofitable. Law will not protect you from your own bad judgment.
Examples:



like the duty to repay a loan by virtue of an agreement
when they arise from the stipulation of the parties
Romeo executed a contract of loan to borrow money from Juliet
whom he wishes to spend in courting Juliet. Juliet in turn agreed and
lend money to Romeo. The meeting of the minds of Romeo and Juliet
created the contract of loan and to enforce what they have agreed
upon they put it in writing (contract of loan) which is what the statute
of fraud demand.
3. Quasi-contracts (obligations ex quasi-contractu) Art. 1160
 A quasi contract is a contract that exists by order of a court, not by
agreement of the parties.
 Courts create quasi-contracts to avoid the unjust enrichment of a party in
a dispute over payment for a good or service
 A retroactive arrangement between two parties who have no previous
obligations to one another. It is created by a judge to correct a
circumstance in which one party acquires something at the expense of
the other.
 when they arise from lawful, voluntary and unilateral acts and which are
enforceable to the end that no one shall be unjustly enriched or benefited
at the expense of another
Example:
 like the duty to refund an “over change” of money because of the
quasi-contract of solutio indebiti or “undue payment.”
 The obligation to return money paid by mistake or which is not due.
Two Kinds Of Quasi-Contracts
The obligation to return money paid by mistake or which is not due.
1. Solutio Indebiti, exist when;
a) Something is received;
b) When there is no right to demand it;
c) It was unduly delivered through mistake.
Example: Mr. A the assistant of Mr.B,in the absence of Mr.B, Mr.A received the
amount of 5000 for the payment of B’s labor. Mr.A has the obligation to give the
amount to Mr.B.
2. Negotiorum Gestio, Which exist when one:
a) Voluntary takes charge of the agency or management of the business or
property of another.
b) Without any power from the latter.
Example: Mr. Juan the caretaker of house for rent received the amount of more
than the boarders due. Mr. Juan without the power of the owner of the house
increase the payment which is not due to the boarders. Mr.Juan has the obligation
to return the money paid which is not due to the boarders.
4. Delict or Crimes or Acts or Omissions Punished by Law (obligations ex maleficio
or ex delicto)
 Civil liability is arised and it is the consequences of the criminal offense
committed.
 like the duty to return a stolen carabao
 The obligation of a thief to return the car stolen by him; the duty
of a killer toindemnify the heirs of his victim.
 General Rule: If you commit a crime, you are liable both criminally and
civilly.
 Exception: No private offended party (e.g. contempt, etc.)
Example:
o Mr. X inflicted serious physical injury to Mr.Y, Mr.X will be
responsible for the payment of all the medical expenses and
damages of Mr.Y. Hence, Mr.X has the obligation for the payments
of medical expenses and damages of Mr.Y.
o the obligation of a thief to return the car stolen by him
o the duty of a killer to indemnify the heirs of his victim
5. Quasi-delicts or Torts
 (obligation ex quasi-delicto or ex quasi-malefi cio)
 when they arise from damage caused to another through an actor omission,
there being fault or negligence, but no contractual relation exists
between the parties
 like the duty to repair damage due to negligence
 The obligation of the head of a family that lives in a building or a part thereof
to answer for damages caused by things thrown or falling from the same; the
obligation of the possessor of an animal to pay for the damage which it may
have caused
 Another name for quasi-delict is “tort” or “culpa aquiliana.”
 A quasi-delict is a fault or act of negligence (or omission of care) which
causes damages to another, there being no preexisting contractual
relations between the parties.
 can refer to acts which are criminal in character, whether the same be
voluntary or negligent.
 Example:
o Mr. A bitten by my German dog, I as a possessor of that Dog has the
obligation to the injury of Mr. A caused by my Dog.
o the obligation of the head of a family that lives in a building or a part
thereof to answer for damages caused by things thrown or falling from
the same
o the obligation of the possessor of an animal to pay for the damage
which it may have caused
NOTE— Obligation arising from quasi-contract,delict and quasi delicts are really
imposed by law. In other words we have only two sources of obligation which is
the LAW and CONTRACTS.
Difference between Contractual Liability and Quasi-Delict
In quasi-delict, the obligation arises only when there is a violation. Without
violation, there is no obligation. It is the breach itself which gives rise to the
obligation.
In contracts, there is already an obligation which exists prior to or even without a
breach. The breach of the contract is immaterial to the legal obligation.
Example: Contract of sale of watch. If both parties perform their obligation, the
contract is extinguished. There is no breach, but there is an obligation.
Sources of Obligations Classified
(1) Those emanating from law; and
(2) Those emanating from private acts which may be further subdivided into:
(a) those arising from licit acts, in the case of contracts and quasi
contracts; and
(b) those arising from illicit acts, which may be either punishable by law
in the case of delicts, or not punishable in the case of quasi-delicts.
NOTE: Actually, there are only two (2) sources: law and contracts, because
obligations arising from quasi-contracts, crimes, and quasi-delicts are really
imposed by law. Where the source of the obligation is a private act, the law merely
recognizes or acknowledges the existence of the obligation.
Example: Liability of sheriff lawfully enforcing a judgment in an ejectment suit.
Criticism of the Enumeration Listed Down by the Law
The enumeration is not scientific because in reality there are only two sources: the
law and contracts, because obligations arising from quasi-contracts, crimes, and
quasi-delicts are really imposed by the law. (Leung Ben v. O’Brien, 38 Phil. 182).
Offers of Reward in Newspaper or Public Contest
Although no express provision of law regulates said contests, it is understood that
once contestants accept the offer by submitting entries, there is a sort of implied
contract that prizes would eventually be awarded. It is understood that the rules of
the contest form part of the contractual stipulations.
Exclusiveness of the Enumeration
The enumeration by the law is exclusive; hence, no obligation exists if its source is
not one of those enumerated under Art. 1157. (Navales v. Rias, 8 Phil. 508).
Art. 1158. (Law)
Obligations derived from law are not presumed. Only those expressly determined
in this Code or in special laws are demandable, and shall be regulated by the
precepts of the law which establishes them; and as to what has not been
foreseen, by the provisions of this Book.
Rules in Art. 1158 —
1. Obligations from law are not presumed
2. Only obligations expressly provided by laws are demandable
3. Obligations from law are primarily regulated by the law which established
them
4. The Civil Code will govern in a supplementary manner
Meaning of the Article
Article 1158 refers to legal obligations or obligations arising from law.
The law says “obligations derived from law are not presumed.”
o They are not presumed because they are considered a burden upon the
obligor. They are the exception, not the rule. To be demandable, they
must be clearly set forth in the law, i.e., the Civil Code or special laws.
o Example 1: An employer has no obligation to furnish free legal assistance
to his employees because no law requires this, and, therefore, an
employee may not recover from his employer the amount he may have
paid a lawyer hired by him to recover damages caused to said employee
by a stranger or strangers while in the performance of his duties.
o Example 2: A private school has no legal obligation to provide clothing
allowance to its teachers because there is no law which imposes this
obligation upon schools. But a person who wins money in gambling has
the duty to return his winnings to the loser. This obligation is provided by
law.
 This merely means that the obligation must be clearly (expressly or
impliedly) set forth in the law (the Civil Code or Special Laws).
 The obligation is imposed by the law itself
 This is consider as the most important source of obligation
 It does not depend on the will of the parties but is imposed by the state and
are generally imbued with public policy considerations
 The importance of law as a source of obligation is highlighted by the legal
principle that existing law enters into and forms part of a valid contract
without need for the parties expressly making reference thereto
Example: No agreement is necessary before obligation ex lege can arise, but of
course the law steps in only because of human actuations. For example, one who
gambles and wins can be compelled by the loser to return the winnings. (Art. 2014).
The action by the loser is called indebitatus assumpsit. (Leung Ben v. O’Brien, 38
Phil. 182).
Obligations Ex Lege
Examples:
1) the duty to support. (Art. 291, Civil Code).
2) the duty to pay taxes. (National Internal Revenue Code)
Cases
Vda. de Recinto v. Inciong
A person who buys another’s property unaware of the right thereto of some other
party is to be considered a buyer in good faith. While he is liable, his is the liability
of a person in good faith.
Serrano v. Central Bank
The Central Bank (now Bangko Sentral) is NOT OBLIGED to pay the deposit of a
depositor made in an insolvent bank.
(NOTE: The Philippine Deposit Insurance Corporation — PDIC — pays up to
P100,000.00 per depositor).
Conflict Between Civil Code and Special Laws
 If regarding an obligation ex lege, there is a conflict between the New Civil
Code and a special law, the latter prevails unless the contrary has been
expressly stipulated in the New Civil Code.
 Under Article 1158, special laws refer to all other laws not contained in the
Civil Code.
 Example 1: Liability of husband for medical assistance rendered to his
wife but contracted by his parents; Who is bound to pay the bill: B and
C, the parents-in-law of the patient, or the husband of the woman in
laborious childbirth?
The rendering of medical assistance in case of illness is comprised
among the mutual obligations to which spouses are bound by way of
mutual support. If spouses are mutually bound to support each
other, there can be no question that when either of them by reason
of illness should be in need of medical assistance, the other is to
render the unavoidable obligation to furnish the services of a physician
and is liable for all expenses, including the fees for professional
services.
B and C not having personally bound themselves to pay are not liable.
 Example 2: X, of legal age, bought two vessels from B, the purchase
price thereof being paid by C, X’s father. Subsequently, differences
arose between X and C. The latter brought action to recover the
vessels, he having paid the purchase price.
Is there any obligation on the part of X to transfer the ownership of
the vessel to C?
None. If any such obligation was ever created on the part of X, said
obligation must arise from law. But obligations derived from law are
not presumed. Only those expressly determined in the Civil Code or in
special laws are demandable. Whatever right C may have against
either for the recovery of the money paid or for damages, it is clear
that such payment gave him no title, either legal or equitable, to these
vessels.
Note: If X were a minor, the vessels would belong to C in ownership
and usufruct under Article 161 of the old Civil Code.
Art. 1159. (Contracts)
Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith.
Rules in Art. 1159 —
1. Contracts have force of law between the contracting parties
2. Contracts should be complied with in good faith
Art. 1159 means
that neither party may unilaterally and upon his own exclusive volition, escape his
obligations under the contract, unless the other party assented thereto, or unless
for causes sufficient in law and pronounced adequate by a competent tribunal.
“Compliance in good faith”
 means that we must interpret “not by the letter that killeth but by the spirit
that giveth life.”
 The right to enter into lawful contracts constitutes one of the liberties of the
people of the State. If that right be struck down or arbitrarily interfered with,
a substantial impairment of constitutional rights would result. (People v.
Pomar).
 Nevertheless, in contracts where public interest is involved (as in the case of
labor agreements), the government has a right to intervene for the
protection of the whole. (Leyte Land Trans. v. Leyte Farmer’s Union 1948)
Obligations Ex-Contractu
While obligations arising from a contract have the force of law between the parties,
this does not mean that the law is lower to contracts. This is because before a
contract can be enforced, it must first be valid, and it cannot be valid if it is against
the law.
“The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided, they are not contrary to law,
morals, good customs, public order, or public policy.”
The Right to Enter into Contracts
The right to enter into lawful contracts constitutes one of the liberties of the people
of the State. If that right be struck down or arbitrarily interfered with, a substantial
impairment of constitutional rights would result. (People v. Pomar, 46 Phil.440).
Nevertheless, in contracts where public interest is involved (as in the case of labor
agreements), the government has a right to intervene for the protection of the
whole. (Leyte Land Trans. v. Leyte Farmer’s Union, GR L-1977, May 12, 1948).
Differences Between an Obligation and a Contract
Obligation
the result of a contract (or some other source).
Contract
 A contract is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some
service.
 It is the formal expression by the parties of their rights and obligations they
have agreed upon with respect to each other.
 If valid, contract always results in obligations, not all obligations come from
contracts.
 A contract always presupposes a meeting of the minds; this is not necessarily
true for all kinds of obligations.
 From another viewpoint, a contract may itself be the result of an obligation
Example: If P engages A as the former’s agent, we have the contract of agency. As
an agent, A has the obligation, say to look around for clients or buyers, as in the
real estate business. As a result of such obligation, A may enter into a contract of
sale with C, a customer. The contract of sale itself results in the obligations to pay
and to deliver. The obligation to deliver may result in a contract of carriage, and so
on, ad infi nitum.
(a) Binding Force
 Obligations arising from contracts are governed primarily by the agreement
of the contracting parties.
 Once perfected, valid contracts have the force of law between the parties
who are bound to comply therewith in good faith, and neither one may
without the consent of the other, back out therefrom.
(a) The law, recognizing the obligatory force of contracts (Arts. 1139, 1308,
1315, 1356.), will not permit a party to be set free from liability for any kind
of misperformance of the contractual undertaking or a contravention of the
tenor thereof.
(b) In law, whatever fairly puts a person on inquiry is sufficient notice, where the
means of knowledge are at hand, which if pursued by proper inquiry, the full
truth might have been ascertained.
(c) If it occurs to one of the contracting parties to allege some defect in a
contract as a reason for invalidating it, such alleged defect must be proved
by him by convincing evidence since its validity or compliance cannot be left
to will of one of them.
(d) Courts have no alternative but to enforce contracts as they were agreed
upon and written when the terms thereof are clear and leave no room for
interpretation.
(e) A compromise agreement is immediately executory and not appealable,
except for vices of consent (Art. 1330.) or forgery.
(b) Requirements of a valid contract
 As a source of obligation, a contract must be valid and enforceable.
 A contract is valid if it is not contrary to law, morals, good customs, public
order, and public policy. It is invalid or void if it is contrary to law, morals,
good customs, public order, or public policy.
 In the eyes of the law, a void contract does not exist.
(c ) Where contract requires approval by the government.
 Where a contract is required to be verified and approved by the government
before it can take effect, such contract becomes the law between the
contracting parties only when approved, and where there is nothing in it
which is contrary to law, etc., its validity must be sustained.
(d ) Compliance in Good Faith
 It means compliance or performance in accordance with the stipulations or
terms of the contract or agreement
 Good faith and fair dealing must be observed to prevent one party from
taking unfair advantage over the other.
(e ) Liability for breach of Contract
 Although the contract imposes no penalty for its violation, a party cannot
breach it with impunity. Our law on contracts recognizes the principle that
actionable injury inheres in every contractual breach.
 The failure of either party to a contract to demand performance of the
obligation of the other for an unreasonable length of time may render the
contract ineffective where the contract does not provide for the period
within which the parties may demand the performance of their respective
undertakings but the parties did not contemplate that the same could be
made indefinitely.
(f ) Preservation of interest of promise
 A breach upon the contract confers upon the injured party a valid cause for
recovering that which may have been lost or suffered.
Example 1: Binding force of an oral agreement inconsistent with a prior written
one.
X verbally agrees to pay Y the balance of an account in advance,
notwithstanding the different stipulation of a prior written agreement.
Is X bound to perform said obligation?
Yes. Since he agreed to pay Y the balance of the account independently
of the terms of the written contract, he must perform his obligation to
pay according to the tenor of his verbal agreement which has the force
of law between them.
Example 2: Validity of contract stipulating that in case of failure of debtor to pay
amount of loan, his property shall be considered sold to creditor.
D borrowed from C money to be paid within a certain period, under
the agreement that, if D fails to pay at the expiration of said period,
the house and lot described in the contract would be considered sold
for the amount of the loan. D failed to pay as promised. C brought
action for the delivery of the house and lot.
Are both contracts valid and, therefore, should be given effect?
Yes. The fact that the parties have agreed at the same time, in such a
manner that the fulfi llment of the promise of sale would depend upon
the non-payment or return of the amount loaned has not produced
any change in the nature and legal conditions of either contract, or any
essential defect which would nullify them.
As the amount loaned has not been paid and continues in possession
of the debtor, it is only just that the promise of sale be carried into
effect, and the necessary instruments be executed. That which is
agreed to in a contract is law between the parties, and must be
enforced
The So-called Innominate Contracts
For want of an express name, the following are termed “contratos innominados”:
(a) Do ut des — I give that you may give.
(b) Do ut facias — I give that you may do.
(c) Facio ut des — I do that you may give.
(d) Facio ut facias — I do that you may do.
Example: A worked for B as interpreter. Even without an express agreement as to
compensation, A is entitled to compensation because of facio ut des — I do the
interpreting that you may give the money. (Perez v. Pomar, 2 Phil. 682).
Art. 1160. (Quasi Contracts)
Obligations derived from quasi-contracts shall be subject to the provisions of
Chapter 1, Title XVII, of this book.
 Article 1160 treats of obligations arising from quasi-contracts of contracts
implied in law.
‘Quasi-Contract’ Defined
A quasi-contract is that juridical relation resulting from a lawful, voluntary, and
unilateral act, and which has for its purpose the payment of indemnity to the end
that no one shall be unjustly enriched or benefited at the expense of another. (See
Art. 2142, Civil Code).
Contract vs Quasi Contract
In a contract, there is a meeting of the minds or consent; the parties must have
deliberately entered into a formal agreement.
In a quasi-contract, there is no consent but the same is supplied by fiction of law.
It is governed by the Civil Code.
Quasi Contract Examples
Example 1: When a party benefited at the expense of another not liable to the
latter.
By virtue of an agreement between X and Y, X assisted Y in improving
a large tract of land which was later declared by the court as belonging
to Z.
Has X the right to be reimbursed by Z for X’s services and expenses on
the ground that the improvements are being used and enjoyed by Z?
No. From the language of Article 2142, it is obvious that a presumed
quasi-contract cannot emerge as against one party when the subject
matter thereof is already covered by an existing contract with another
party. X’s cause of action should be against Y who, in turn, may seek
relief against Z.
Example 2: Bank paid the seller of goods under an expired letter of credit but the
goods subject thereof were voluntarily received and kept by the buyer which
refused to pay the bank.
X opened with B (bank) a domestic letter of credit (LC) in favor of Y for
the purchase from the latter of hydraulic loaders. B paid Y for the
equipment after the expiration of the letter of credit. X refused to pay
B claiming that there was breach of contract by B which acted in bad
faith in paying Y knowing that Y delivered the loaders to X after the
expiry date of the subject LC. X offered to return the loaders to B which
refused to take possession three (3) years after X accepted delivery,
when B made a demand for payment.
Was it proper for B to pay the LC which had long expired or been
cancelled?
X should not have paid the LC which had become invalid upon the
lapse of the period fixed therein. Be that as it may, X should pay B the
amount B expended for the equipment belatedly delivered by Y and
voluntarily received and kept by X. B’s right to seek recovery from X is
anchored, not upon the inefficacious LC, but on Article 2142 of the Civil
Code.
The 2 Principal Kinds of Quasi Contracts
(a) negotiorum gestio (unauthorized management)
This takes place when a person voluntarily takes charge of another’s
abandoned business or property without the owner’s authority. (Art. 2144,
Civil Code). Reimbursement must be made to the gestor for necessary and
useful expenses, as a rule. (See Art. 2150, Civil Code).
Example: If through the efforts of X, a neighbor, the house of Y was saved
from being burned, Y has the obligation to reimburse X for the expenses X
incurred although Y did not actually give his consent to the act of X in saving
his house on the principle of quasi-contract.
HOWEVER, this juridical relation does not arise in either of these instances:
(a) When the property or business is not neglected or abandoned, in
which case the provisions of the Civil Code regarding unauthorized
contracts shall govern
(b) If, in fact, the manager has been tacitly authorized by the owner,
in which case the rules on agency shall govern.
(b) solutio indebiti (undue payment)
 This takes place when something is received when there is no right to
demand it, and it was unduly delivered thru mistake.
 The recipient has the duty to return it.
 The quasi-contract of solution indebiti is based on the ancient principle that
no one shall enrich himself unjustly at the expense of another.
Solutio indebiti applies where:
(a) payment is made when there exists no binding relation between the
payor, who has no duty to pay, and the person who received the payment
(b) the payment is made through mistake and not through liberality or some
other cause.
The requisites for this are:
(a) he who paid was NOT under obligation to do so;
(b) the payment was made by reason of an essential mistake of fact.
Example 1: If I let a storekeeper change my P50.00 bill and by error he gives me
P50.60, I have the duty to return the extra P0.60). (See Art. 2154, Civil Code).
Example 2: Recovery of taxes paid under a mistake
X, a tax-exempt cooperative store, paid taxes to the City of Manila,
believing that it was liable.
May X recover the payment?
Yes, as it was made under a mistake.
Example 3: Recovery of backwages paid which are legally due.
X, an employee of Cebu City, sued certain offi cials of the City for claim
of backwages.
May the City of Cebu successfully recover the payment later made by
it to X on the ground that it was not made a party to the case?
No, because a judgment against a municipal officer in his official
capacity binds the city. The city was under obligation to make the
payment. It cannot, therefore, be said that the payment was made by
reason of mistake.
Is a Quasi-Contract an Implied Contract?
No, because in a quasi-contract (unlike in an implied contract) there is NO meeting
of the minds.
Other Examples of Quasi-Contracts
No Unjust Enrichment
Lirag Textile Mills, Inc. v. Reparations Commission
If the price of certain goods is determined, considering the rate of exchange at the
time of its procurement, there is no unjust enrichment involved.
Article 1161. (Delict)
Civil obligations arising from criminal offenses shall be governed by the penal
laws, subject to the provisions of article 2177, and of the pertinent provisions of
Chapter 2, Preliminary Title, on Human Relations, and of Title XVIII of this Book,
regulating damages. (1092a)
 This article deals with civil liability arising from crimes or delicts.
Civil liability arising from crimes or delicts
(a ) Pronged Effects
 one, on the public as it breaches the social order
 the other, upon the private victim as it causes personal sufferings or injury,
each of which is addressed, respectively, by the imposition of heavier
punishment on the accused and by an award of additional damages to the
victim.
(b) Not only moral evil but also material damage
 every person criminally liable for a felony is also civilly liable
 In crimes, however, which cause no material damage (like contempt, insults
to person in authority, gambling, violations of traffic regulations, etc.), there
is no civil liability to be enforced. But a person not criminally responsible may
still be liable civilly
Scope of Civil Liability
(a) restitution;
(b) reparation of the damage caused;
(c) indemnification for consequential damages. (Art. 104, Rev. Penal Code).
Example: X stole the car of Y. If X is convicted, the court will order X: (1) to
return the car (or to pay its value if it was lost or destroyed); (2) to pay for
any damage caused to the car; and (3) to pay such other damages suffered
by Y as a consequence of the crime.
Revised Penal Code
Article 100. Every person criminally liable for a felony is also civilly liable.
The reason lies in the fact that oftentimes the commission of a crime causes
not only moral evil but also material damage. If no material damage is done,
civil liability cannot be enforced.
Article 101. The exemption from criminal liability established in subdivisions 1, 2,
3, 5, and 6 of Art. 12 and in subdivision 4 of Art. 11 of this Code does not include
exemption from civil liability.
 Art 12 Par 1: An imbecile or an insane person, unless the latter has
acted during a lucid interval. When the imbecile or an insane person
has committed an act which the law defines as a felony (delito), the
court shall order his confinement in one of the hospitals or asylums
established for persons thus afflicted, which he shall not be permitted
to leave without first obtaining the permission of the same court.
 Art 12 Par 2. A person under nine years of age.
 Art 12 Par 3. A person over nine years of age and under fifteen, unless
he has acted with discernment, in which case, such minor shall be
proceeded against in accordance with the provisions of Art. 80 of this
Code.
When such minor is adjudged to be criminally irresponsible, the court,
in conformably with the provisions of this and the preceding
paragraph, shall commit him to the care and custody of his family who
shall be charged with his surveillance and education otherwise, he
shall be committed to the care of some institution or person
mentioned in said Art. 80.
 lArt 12 Par 5. Any person who act under the compulsion of irresistible
force.
 Art 12 Par 6. Any person who acts under the impulse of an
uncontrollable fear of an equal or greater injury.
 Art 11 Par 4. Any person who, in order to avoid an evil or injury, does
an act which causes damage to another, provided that the following
requisites are present;
First. That the evil sought to be avoided actually exists;
Second. That the injury feared be greater than that done to avoid it;
Third. That there be no other practical and less harmful means of
preventing it.
Article 104. Civil liability established in Art. 100, 101, 102, and 103 includes
Restitution, Reparation, and Indemnification
Obligations Ex Delicto or Ex Maleficio
Governing rules (BAR QUESTION)
(a) Pertinent provisions of the Revised Penal Code and other penal laws,
subject to the provisions of Art. 2177, Civil Code.
(b) Chapter 2, Preliminary Title, on Human Relations (of the Civil Code).
(c) Title 18 of Book IV of the Civil Code — on damages
Liability of an Insane Criminal
An insane man who commits a crime is exempted from criminal liability, but his
guardian can be held civilly liable unless the latter was diligent in his task of taking
care of the insane. If there is no guardian, or if said guardian (in the proper case) is
insolvent, the property of the insane man can be made liable.
Effect of Aggravating and Mitigating Circumstances
In crimes, the damages to be settled may be, respectively, increased or lessened
according to the aggravating or mitigating circumstances.
Damages in Case of Death
If a crime results in death, Art. 2206 of the Civil Code states that at least three
thousand pesos must be given to the heirs of the victim. However, said minimum
amount has now been raised to P50,000 in view of the decreasing value of the peso.
(Loss of earning capacity and moral damages, among other things, should be given.)
Civil Action Implicitly Instituted in Criminal Case
As a general rule, whenever a criminal action is instituted, the civil action for the
civil liability is also impliedly instituted together with the criminal action.
Effect of Death of the Criminal Offender Pending Trial
Death is not a valid cause for the extinguishment of a civil obligation. Had the only
basis been the commission of estafa, it is clear that the extinguishment of the
criminal responsibility would also extinguish the civil liability, provided that death
comes before final judgment.
Kind of Proof Needed
(a) If a civil action merely is instituted, mere preponderance of evidence is
sufficient.
(b) If a criminal case is brought (and with it, the civil case), the guilt must be
established by proof beyond reasonable doubt.
Art. 1162. (Quasi Delicts)
Obligations derived from quasi-delicts shall be governed by the provisions of
Chapter 2, Title XVII of this Book, and by special laws.

The above provision treats of obligations arising from quasi-delicts or
torts.

Another name for quasi-delict is “tort” or “culpa aquiliana.”

A quasi-delict is a fault or act of negligence (or omission of care) which
causes damages to another, there being no preexisting contractual
relations between the parties.

can refer to acts which are criminal in character, whether the same be
voluntary or negligent.
Example:
 A person is sued for causing damage thru the violation of traffic rules.
 Violation of traffic rules” is merely descriptive of the failure of the driver to
observe, for the protection of the interests of others, that degree of care,
precaution, and vigilance which circumstances justly demand, which failure
results in injury on claimants. Excessive speed in violation of traffic rule is a
clear indication of negligence.
 While cleaning my window sill, my negligence caused a flower pot to fall on
the street, breaking the arms of my neighbor.
NOTE—In the above examples, I can also be charged with the crime of physical
injuries thru simple or reckless imprudence.
Quasi-delict Defined
A quasi-delict is an act or omission by a person (tort feasor) which causes damage
to another in his person, property, or rights giving rise to an obligation to pay for
the damage done, there being fault or negligence but there is no pre-existing
contractual relation between the parties.
Requisites of quasi-delict
De Leon:
Before a person can be held liable for quasi-delict, the following requisites must be
present:
(1) There must be an act or omission by the defendant;
(2) There must be fault or negligence of the defendant;
(3) There must be damage caused to the plaintiff;
(4) There must be a direct relation or connection of cause and effect between
the act or omission and the damage; and
(5) There is no pre-existing contractual relation between the parties.
Balane:
a) there must be fault or negligence attributable to the person charged;
b) there must be damage or injury;
c) there must be a direct relation of cause and effect between the fault or
negligence on the one hand and the damage or injury on the other hand
(proximate cause)
o Proximate cause is that adequate and efficient cause, which in the
natural order of events, necessarily produces the damages or
injury complained of.
Crime vs Quasi-delict
(1) In crime or delict, there is criminal or malicious intent or criminal
negligence, while in quasi-delict, there is only negligence;
(2) Crime affects public interest, while quasi-delict concerns private interest;
(3) In crime, there are generally two liabilities: criminal and civil,23 while in
quasi-delict, there is only civil liability;
(4) In crime or delict, the purpose is punishment, while in quasidelict,
indemnification24 of the offended party;
(5) Criminal liability can not be compromised or settled by the parties
themselves, while the liability for quasi-delict can be compromised as any
other civil liability;
(6) In crime, the guilt of the accused must be proved beyond reasonable
doubt, while in quasi-delict, the fault or negligence of the defendant need
only be proved by preponderance of evidence; and
(7) In crime, the liability of the person responsible for the author of the
negligent act or omission is subsidiary, while in quasi-delict, it is direct and
primary.
Recovery of damages twice for the same act or omission prohibited
 The same negligent act or omission causing damage may produce civil
liability arising from a crime under Article 100 of the Revised Penal Code
(supra.) or create an action for quasi-delict
 Under Article 1157, quasi-delict and an act or omission punishable by law are
two different sources of obligations
Definitions of Negligence (Culpa)
 Negligence is the failure to observe, for the protection of the interests of
another person, that degree of care, precaution, and vigilance which the
circumstances justly demand, whereby such other person suffers injury.
 As defined by the Civil Code, negligence is the omission of that diligence
which is required by the circumstances of person, place, and time.
Test for Determination of Negligence
The law imposes a duty on the actor to refrain from that course, or to take
precaution against its mischievous results, and the failure to do so constitutes
negligence.
Reasonable foresight of harm, followed by the ignoring of the admonition born of
this provision, is the constitute fact of negligence.
Chapter 2
NATURE AND EFFECT OF OBLIGATIONS
Art. 1163.
Every person obliged to give something is also obliged to take care of it with the
proper diligence of a good father of a family, unless the law or the stipulation of
the parties requires another standard of care.
Rule
Every person obliged to give something is also obliged to take care of it with the
proper diligence of a good father of a family.
 Once the determinate thing becomes the specified object of the
prestation, the debtor is bound to take care of it in the way the parties
stipulated or the law expressly provides, only in the absence of such
will Art. 1163 take effect which requires the proper diligence of a good
father of a family.
Exception
When the
(1) law or
(2) the stipulation of the parties requires another standard of care.
Example — Common carriers are required by law to exert extraordinary diligence
in the performance of their obligations. (Art. 1755). The parties may also stipulate
that the highest degree of diligence must be exerted.
Meaning of specific or determinate thing
The above provision refers to an obligation to give a specific or determinate thing.
A thing is said to be specific or determinate when it is particularly designated or
physically segregated from all others of the same class.
Examples:
(1) The watch I am wearing.
(2) The car sold by X.
(3) My dog named “Terror.”
(4) The house at the corner of Rizal and Del Pilar Streets.
(5) The Toyota car with Plate No. AAV 344.
(6) This cavan of rice.
(7) The money I gave you.
Meaning of generic or indeterminate thing
A thing is generic or indeterminate when it refers only to a class or genus to which
it pertains and cannot be pointed out with particularity.
Examples:
(1) a Bulova calendar watch.
(2) a 2006 model Japanese car.
(3) a police dog.
(4) a cavan of rice.
(5) the sum of P10,000.00.
3 Accessory Obligations
1. After constitution of the obligation and before delivery, to take care of it with
the proper diligence of a good father of the family (Article 1163)
 General Rule: Diligence of a good father of the family
 Exception: Law or stipulation requires different standard of care
 If through negligence, something causes the thing damage, the debtor is
liable for damages.
 This is not applicable to a generic thing.
4. To account and deliver to the creditor the fruits if the thing bears fruits upon
the time the obligation to deliver it arises (Article 1164).
Example: A sold B a mango plantation to be delivered on January 1. Come
January 1, A did not deliver. A instead sold the fruits to C, a buyer in good faith.
B sues A for specific performance. Court awards the plantation to B. Does B have
a right to the fruits? Yes, as against A. No, as against C, because B‘s right over
the fruits is only personal. B‘s remedy is to go against A for the value of the fruits.
5. To deliver the accessions and accessories (Article 1166)

Don‘t take accession in the technical sense (or else, it might overlap
with ii). Understand it to mean things that go with the thing to be delivered
(i.e. radio of the car).
Specific things vs Generic Thing
 A determinate thing is identified by its individuality. The debtor cannot
substitute it with another although the latter is of the same kind and quality
without the consent of the creditor.
 A generic thing is identified only by its specie. The debtor can give anything
of the same class as long as it is of the same kind.
 Example 1: If D’s obligation is to deliver to C a Bulova calendar watch, D can
deliver any watch as long as it is Bulova with calendar.
But if D’s obligation is to deliver to C a particular watch, the one D is wearing,
D cannot substitute it with another watch without C’s consent nor can C
require D to deliver another watch without D’s consent although it may be
of the same kind and value.

Example 2: If D’s obligation is to deliver to C one of his cars, the object
refers to a class which in itself is determinate. Here, the
particular thing to be delivered is determinable without the
need of a new contract between the parties (see Art. 1349.);
it becomes determinate upon its delivery.
Duties of debtor in obligation to give a determinate thing
They are:
(1) To preserve or take care of the thing due;
(2) To deliver the fruits of the thing (see Art. 1164.);
(3) To deliver its accessions and accessories (see Art. 1166.);
(4) To deliver the thing itself (see Arts. 1163, 1233, 1244; as to kinds of
delivery, Arts. 1497 to 1501.); and
5) To answer for damages in case of non-fulfi llment or breach. (see Art.
1170.)
Obligation to take care of the thing due
(a) Diligence of a good father of a family.
— In obligations to give (real obligations), the obligor has the incidental duty to
take care of the thing due with the diligence of a good father of a family pending
delivery. The phrase has been equated with ordinary care or that diligence which
an average (a reasonably prudent) person exercises over his own property.
(b )Another standard of care.
— However, if the law or the stipulation of the parties provides for another
standard of care (slight or extraordinary diligence), said law or stipulation must
prevail. (Art. 1163.)
Example 1: Under the law, for instance, a common carrier (person or company
engaged in the transportation of persons and/or cargoes) is “bound to carry the
passengers safely as far as human care and foresight can provide, using utmost
(extraordinary) diligence of very cautious persons, with a due regard for all the
circumstances.” (Art. 1755.) In case of accident, therefore, the common carrier will
be liable if it exercised only ordinary diligence or the diligence of a good father of a
family.
Example 2: Banks are duty bound to treat the deposit accounts of their depositors
with the highest degree of care where the fiduciary nature of their relationship with
their depositors is concerned. But such degree of diligence is not expected to be
exerted by banks in commercial transactions that do not involve their fiduciary
relationship with their depositors.
(c ) Factors to be considered
 The diligence required depends upon the nature of the obligation and
corresponds with the circumstances of the person, of the time, and of
the place. (Art. 1173.) It is not necessarily the standard of care one
always uses in the protection of his own property. As a general rule,
the debtor is not liable if his failure to preserve the thing is not due to
his fault or negligence but to fortuitous events or force majeure.
(d ) Reason for debtor’s obligation
 The debtor must exercise diligence to insure that the thing to be
delivered would subsist in the same condition as it was when the
obligation was contracted. Without the accessory duty to take care of
the thing, the debtor would be able to afford being negligent and he
would not be liable even if the property is lost or destroyed, thus
rendering illusory the obligation to give.
Duties of debtor in obligation to deliver a generic thing.
They are:
(1) To deliver a thing which is of the quality intended by the parties taking
into consideration the purpose of the obligation and other circumstances
(see Art. 1246.); and
(2) To be liable for damages in case of fraud, negligence, or delay, in the
performance of his obligation, or contravention of the tenor thereof.
Duty to Exercise Diligence
This Article deals with the first effect of an obligation to deliver a determinate thing
(as distinguished from a generic thing — or one of a class) — namely — the duty to
exercise proper diligence. Unless diligence is exercised, there is a danger that the
property would be lost or destroyed, thus rendering illusory the obligation.
Diligence Needed
(a) That which is required by the nature of the obligation and corresponds
with the circumstances of person, time, and place. (Art. 1173, Civil Code). This
is really diligence of a good father of a family.
(b) However, if the law or contract provides for a different standard of care,
said law or stipulation must prevail. (Art. 1163, Civil Code).
Example: A common carrier is bound to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very
cautious persons, with a due regard for all the circumstances.” (Art. 1755,
Civil Code).
Applicability Of Art. 1163
(a ) Obligations to give
 This is expressed in Art. 1163.
 BUT — Even in obligations to do or not to do, proper performance with
due diligence is also required. (See Art. 1173)
 It applies only when the subject-matter of the obligation is a
determinate thing.
a. Obligations to give a determinate thing
 An obligation to give
 Real obligation is one which has for its object the delivery of a thing which the
debtor must transfer to the creditor because of some right which the latter may
have acquired over the same
 Object of the prestation is something determinate, specific, individualized
 No substitution is allowed even if the substitute is more valuable than that
agreed upon
Accessory Obligations to give a determinate thing:
 due diligence
o arises from the time of the constitution of the obligation to the time
of delivery
o the general standard of care is the diligence of a good father of a family
 fruits
o Example: A sold B a mango plantation to be delivered on January 1.
Come January 1, A did not deliver. A instead sold the fruits to C, a buyer
in good faith. B sues A for specific performance. Court awards the
plantation to B. Does B have a right to the fruits? Yes, as against A. No,
as against C, because B’s right over the fruits is only personal. B’s
remedy is to go against A for the value of the fruits.
 accessions and accessories
o Don’t take accession in the technical sense (or else, it might overlap
with ii). Understand it to mean things that go with the thing to be
delivered (i.e. radio of the car).
A thing is determinate when it is:
o Particularly designated
o Physical segregated from all others of the same class.
Example—
A particular car with serial and engine numbers xxxxx, this particular compass, my
mom’s iPhone
b. Obligations to give a generic thing
o a thing is generic or indeterminate when it refers only to a class, to a
genus, and cannot be pointed out with particularity.
Example — a car, a 2005 BMW automobile, the sum of P5 million, a kilo of
sugar
NOTE — The word “something” is understood as a determinate thing because
proper diligence is NOT needed in
cases of indeterminate/generic things because they are easily replaceable.
(b ) Obligations to do
(c ) Obligations not to do
Art. 1164.
The creditor has a right to the fruits of the thing from the time the obligation to
deliver it arises. However, he shall acquire no real right over it until the same has
been delivered to him.
Derivation
Art 1095. The creditor is entitled to the fruits of the thing from the time the
obligation to deliver it arises. Nevertheless, no real right therein shall pass to him
until the things has been delivered to him.
Example—
A is obliged to give B on Dec. 3, 2004, a particular parcel of land. (Before Dec. 3, he
has no right whatsoever over the fruits). After Dec. 3, 2004, B, the creditor is
entitled (as of right) to the fruits. But if the fruits and the land are actually or
constructively delivered only on Dec. 15, 2004, B becomes owner of said fruits and
land only from said date. Between Dec. 3 and Dec. 15, B had only a personal right
(enforceable against A, which is to deliver the thing); after Dec. 15, he has a real
right (which is ownership over the properties), a right that is enforceable against
the whole world.
A. This is the second accessory obligation in an obligation to deliver a determinate
thing.
B. When does the obligation to deliver arise?
a. In a pure obligation: from the time of its creation or constitution
b. In an obligation with a suspensive condition: only upon the
happening of a suspensive condition
o the fruits produced during the pendency of the condition are set
off in case of reciprocal obligations, or belong to the debtor in
case of unilateral obligations
c. In obligations with a suspensive term:
o A divergence of opinion:
Does the creditor have the right to the fruits produced from the
time of the constitution of the obligation or only from the time
the term arrives?
Tolentino: From the time the term arrives
Caguioa: From the perfection of the contract
The uncertainty derives from the codal provision “from the
obligation to deliver it arises”.
C. Nature of Creditor’s Right to Fruits Before Delivery
 Before the fruits are delivered to him, the creditor’s right to the fruits is
purely personal.
 No real right enforceable against the whole world, arises in his favor until
delivery.
 NOTE — This only applies to obligations to give determinate things.
(a ) Different kinds of fruits
 Natural fruits are the spontaneous products of the soil, and the young and
other products of animals, e.g., grass; all trees and plants on lands produced
without the intervention of human labor
 Industrial fruits are those produced by lands of any kind through cultivation
or labor, e.g., sugar cane; vegetables; rice; and all products of lands brought
about by reason of human labor.
 Civil fruits are those derived by virtue of a juridical relation, e.g., rents of
buildings, price of leases of lands and other property and the amount of
perpetual or life annuities or other similar income. (Art. 442.)
(b ) Right of Creditor to the fruits
 This article is a logical application of the basic principle stated in Article 712,
paragraph two of the Civil Code that “Ownership and other real rights over
property are acquired and transmitted by law, by donation, by testate and
intestate succession, and in consequence of certain contracts, by tradition.”
 By law, the creditor is entitled to the fruits of the thing to be delivered from
the time the obligation to make delivery of the thing arises. The intention of
the law is to protect the interest of the obligee should the obligor commit
delay, purposely or otherwise, in the fulfillment of his obligation.
 In case of rescission, the parties are under “obligation to return the things
which were the object of the contract, together with their fruits and the price
with its interest.’’
NOTE — Under Art. 1164, the creditor acquires a real right over the fruits (and also
the principal thing) only upon its actual or constructive delivery (When it is
delivered). Thus, before delivery, the creditor cannot assert any right (such as
ownership) against other persons over the thing and its fruits. The creditor acquires
a mere personal right to the fruits of the thing from the time the obligation to
deliver it arises (When it becomes due and demandable). It is only upon delivery
that the creditor obtains ownership of the thing and its fruits.
(b ) Personal Rights vs Real Rights
a. Personal right (jus in personam) — is power demandable by one
person of another person — to give, to do, or not to do, It is
enforceable only against the debtor and not the entire world
o there is a definite active subject and a definite passive
subject
o binding or enforceable only against a particular person
b. Real right (jus in re) — is a power over a specific thing (like the right
of ownership or possession) and is binding on the whole world.
o there is only a definite active subject without any definite
passive subject
o directed against the whole world
Example: X is the owner of a parcel of land under a torrens title
registered in his name in the Registry of Property. His ownership is a
real right directed against everybody. There is no definite passive
subject.
If the land is claimed by Y who takes possession, X has a personal right
to recover from Y, as a definite passive subject, the property.
If the same land is mortgaged by X to Z, the mortgage, if duly
registered, is binding against third persons. A purchaser buys the land
subject to the mortgage which is a real right.
Exception
EXCEPT —
The Fruits Or The Accessories And Accessions May Not Be Included When The
 Law
 The Stipulation Of The Parties Requires Otherwise
o This exception pertains to the right to the fruits, and the accessories
or accessions. The law or the parties may stipulate that they will not
form part of the obligation. This takes precedence over their inclusion
by Art. 1164 and 1166.
Ownership acquired by delivery
 Ownership and other real rights over property are acquired and
transmitted by law, by donation, by testate and intestate succession,
and in consequence of certain contracts by tradition (Art. 712.) or
delivery.
 Delivery in sale may be actual or real, constructive or legal, or in any
other manner signifying an agreement that the possession of the thing
sold is transferred from the vendor to the vendee.
 “he shall acquire no real right over it until the same has been delivered
to him” means that the creditor does not become the owner until the
specific thing has been delivered to him.
 Example 1: A document transfers to a person certain funds in the
possession of another but there is no actual delivery of said funds.
For the security of the Government, X Company (and another
company) became a surety on the offi cial bond of W, an employee of
the Government for the sum of $15,000.00. W defaulted in the
amount of $8,900.00 and X Company paid the Government the sum of
$14,462.00.
When W was apprehended, he had on his person $750.00 which
amount was turned over to B, the Insular Treasurer. Later, W signed a
document transferring to T all his rights to said $785.00 for
professional services rendered by the latter as attorney’s fee. B was
duly notified of the transfer.
X filed an action against W to recover the sum of $785.00 in partial
payment of the amount paid by X to the Government. T fi led a
complaint in intervention and claimed the money as his.
(1) Ownership was not acquired by T. — The delivery of a thing
constitutes a necessary and indispensable requisite for the purpose of
acquiring the ownership of the same by virtue of a contract. The
transfer by itself, and afterwards the notification to B, did not produce
the effect of delivery to T of the funds so transferred.
2) Mere personal right was acquired by T. — It is only the jus ad
rem,and not the jus in re, that was acquired by T by virtue of the
transfer made by the consent of the transferor and the transferee but
not consummated by the delivery which never came to pass and which
delivery was the object of such transfer.
Latin Maxim (Re Delivery and Ownership)
“Non nudis pactis, sed traditionis dominia rerym transferantur.”
(As a consequence of certain contracts, it is not agreement but tradition or delivery
that transfers ownership).
When obligation to deliver arises
1) Generally, the obligation to deliver the thing due and, consequently, the fruits
thereof, if any, arises from the time of the perfection of the contract. Perfection
in this case refers to the birth of the contract or to the meeting of the minds
between the parties.
2) If the obligation is subject to a suspensive condition or period (Arts. 1179, 1189,
1193.), it arises upon fulfillment of the condition or arrival of the period. However,
the parties may make a stipulation to the contrary as regards the right of the
creditor to the fruits of the thing.
3) In a contract of sale, the obligation arises from the perfection of the contract
even if the obligation is subject to a suspensive condition or a suspensive period
where the price has been paid.
4) In obligations to give arising from law, quasi-contracts, delicts, and quasi-delicts,
the time of performance is determined by the specific provisions of law applicable.
Example: S sold his horse to B for P15,000.00. No date or condition was
stipulated for the delivery of the horse. While still in the possession of S, the
horse gave birth to a colt.
Who has the right to the colt?
In a contract of sale “all the fruits shall pertain to the vendee from the day
on which the contract was perfected.” (Art. 1537, 2nd par.) Hence, B is
entitled to the colt. This holds true even if the delivery is subject to a
suspensive condition (see Art. 1179; e.g., upon the demand of B) or a
suspensive period (see Art. 1193; e.g., next month) if B has paid the purchase
price.
But S has a right to the colt if it was born before the obligation to deliver the
horse has arisen (Art. 1164.) and B has not yet paid the purchase price. In this
case, upon the fulfi llment of the condition or the arrival of the period, S does
not have to give the colt and B is not obliged to pay legal interests on the
price since the colt and the interests are deemed to have been mutually
compensated. (see Art. 1187.)
Kinds of Delivery
(a) Actual delivery (or tradition)
— where physically, the property changes hands.
Example: If A sells B a fountain pen, the giving by A to B of the fountain
pen is actual tradition.
(b) Constructive delivery
— that where the physical transfer is implied. This may be done by:
 traditio simbolica (symbolical tradition)
— (as when the keys of a bodega are given)
 traditio longa manu
o (delivery by mere consent or the pointing out of the object)
(Etymologically, “the extending of the hand.”)
Example: pointing out the car, which is the object of the sale.
 traditio brevi manu
o (Delivery by the short hand; that kind of delivery whereby a
possessor of a thing not as an owner, becomes the possessor
as owner)
o Example: when a tenant already in possession buys the
house he is renting.
 traditio constitutum possessorium
o the opposite of brevi manu; thus, the delivery whereby a
possessor of a thing as an owner, retains possession no
longer as an owner, but in some other capacity (like a house
owner, who sells a house, but remains in possession as
tenant of the same house).
 tradition by the execution of legal forms and solemnities
o (like the execution of a public instrument selling land).
NOTE: A sale which is simulated, or even a genuine one, where there is no delivery
of the object, does not transfer ownership.
Art. 1165.
When what is to be delivered is a determinate thing, the creditor, in addition to
the right granted him by Article 1170, may compel the debtor to make the
delivery.
If the thing is indeterminate or generic, he may ask that the obligation be
complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or more
persons who do not have the same interest, he shall be responsible for fortuitous
event until he has effected the delivery.
Derivation
a. Should the thing to be delivered be a determinate one, the creditor
independently of the right granted by him, may compel the debtor to make
the delivery.
b. Should the thing be indeterminate or generic, he may demand that the
obligation be performed at the expense of the debtor.
c. Should the debtor be in default, or should he have engaged himself to
deliver the same thing to two or more different persons, it shall be his risk,
even if case of loss by fortuitous event, until the delivery is made.
Remedies of creditor in real obligation
(1 ) Specific Real Obligation
In a specific real obligation (obligation to deliver a determinate thing), the creditor
may exercise the following remedies or rights in case the debtor fails to comply
with his obligation.
Remedies of the Creditor When the Debtor Fails to Comply With His Obligation
De Leon:
(a) demand specific performance or fulfillment (if it is still possible) of the
obligation with a right to indemnity for damages; or Art. 1165
(b) demand rescission or cancellation (in certain cases) of the obligation also
with a right to recover damages (Art. 1170.); or
(c) demand the payment of damages only (see Art. 1170.) where it is the
only feasible remedy.
Balane:
a)
(b)
(c)
demand specific performance (or compliance) of the obligation
(This is true whether the obligation be generic or specific.)
demand rescission (more properly resolution).
demand damages either with or without either of the first two, (a) or (b).
 In an obligation to deliver a determinate thing, the very thing itself must be
delivered.
(2 ) Generic Real Obligation
can be performed by a third person since the object is expressed only according to
its family or genus. It is thus not necessary for the creditor to compel the debtor to
make the delivery although he may ask for performance of the obligation. In any
case, the creditor has a right to recover damages under Article 1170 in case of
breach of the obligation.
Where debtor delays or has promised delivery to separate creditors
 Paragraph 3 gives two instances when a fortuitous event does not exempt
the debtor from responsibility. It likewise refers to a determinate thing.
 An indeterminate thing cannot be the object of destruction by a fortuitous
event because genus nunquam perit (genus never perishes).
Right to Demand Performance
 primary remedy available to the creditor in all obligations is that of
performance
 grants to every creditor the remedy
 The kind of performance the creditor may demand depends on what kind of
obligation is involved:
(a ) Obligation to give Determinate thing
 An obligation to give
 Real obligation is one which has for its object the delivery of a thing which
the debtor must transfer to the creditor because of some right which the
latter may have acquired over the same
 Object of the prestation is something determinate, specific, individualized
 No substitution is allowed even if the substitute is more valuable than that
agreed upon
(a ) Obligation to give Generic thing
 a thing is generic or indeterminate when it refers only to a class, to a genus,
and cannot be pointed out with particularity.
 Obligation to do (Art 1167)
 Obligation not to do (Art 1168)
 Obligation to deliver determinate thing: Instances when debtor is liable for
fortuitous event:
 General rule: Fortuitous event excuses from non-performance
Effect of Fortuitous Events
Another important difference between a generic and a specifi c obligation is that, a
specifi c obligation, that is, an obligation to deliver a specifi c thing, is, as a rule,
extinguished by
a fortuitous event or act of God. Upon the other hand, generic obligations are never
extinguished by fortuitous events.
Examples:
(a) A is obliged to give B this car. Before delivery, an earthquake destroys
completely the car. The obligation to deliver is extinguished.
(b) A is obliged to give B a book. Since this is a generic thing, even if one
particular book is lost, other books may take its place. Hence, the obligation
is not extinguished (genus
nunquam perit).
Two Instances When the Debtor is Liable for Fortuitous Event
The 3rd paragraph of Art. 1165 gives two instances when a fortuitous event does
not excuse compliance:
(a) if the obligor “delays” (This is really default or “mora.”); failure to
perform on time
(b) if the obligor is guilty of BAD FAITH (for having promised to deliver the
same thing to two or more persons with different interests — as when one
is not the agent merely of the other)
Ordinary Delay’ vs ‘Default’
(a ) Ordinary delay
merely non-performance at the stipulated time
(b ) Legal delay (default)
that delay which amounts to a virtual nonfulfillment of the obligation. (As a rule, to
put a debtor in default, there must be a demand for fulfillment, the demand being
either judicial or extrajudicial.)
Examples
(a) A is obliged to give B his Jaguar car on Dec. 7, 2005. If on said day, A does
not deliver, he is in ordinary delay (not default). If on Dec. 8, 2005, an
earthquake destroys the Jaguar car, A is not liable because the obligation is
extinguished.
(b) If, however, on Dec. 8, demand was made for delivery, A would be in legal
delay (default) and if later, the car is destroyed by a fortuitous event, he
would still be liable (in that the obligation to deliver the lost specific thing is
converted into a monetary claim for damages). (See Art.
1165, Civil Code). However, if the car would have been destroyed at any rate
even if no demand had been made, the amount of damage would be
reduced. (Art. 2215, No. 4, Civil Code).
Classification of Obligation from the Viewpoint of Subject Matter
From the viewpoint of the subject matter (or object) of the obligation, obligations
are divided into:
(a) real obligations (to give):
1) to give a specific thing (set apart from a class);
2) to give a generic or indeterminate thing (one of a class).
(b) personal obligations (to do or not to do).
Art. 1166.
The obligation to give a determinate thing includes that of delivering all its
accessions and accessories, even though they may not have been mentioned.
Derivation
Art 1097. The obligation to give a determinate thing includes that of delivering all
of it accessories, even though they may have not been mentioned.
Accessions defined
De Leon:
 Accessions are the fruits of, or additions to, or improvements upon, a thing
(the principal), e.g., house or trees on a land; rents of a building; air
conditioner in a car; profits or dividends accruing from shares of stocks
 The concept includes accession in its three forms of building, planting, and
sowing and accession natural, such as alluvion (see Art. 457.), avulsion (see
Art. 459.), change of course of rivers (see Arts. 461-462.), and formation of
islands. (see Arts. 464-465.) “Fruits of the thing” are specifically provided for
in Art. 1164
Balane:
 additions to or improvements upon a thing. These include alluvium (soil
gradually deposited by the current of a river on a river bank) and whatever
is built, planted, or sown on a person’s parcel of land
 (NOTE: Even if the windows of a building have been temporarily removed,
they should still be included.)
 Coverage: refers to fruits, whether natural, industrial, or civil governed with
respect to immovable and movable property
Accessories defined
De Leon:
 things joined to, or included with, the principal thing for the latter’s
embellishment, better use, or completion, e.g., key of a house; frame of a
picture; bracelet of a watch; machinery in a factory; bow of a violin.
 Note that while accessions are not necessary to the principal thing, the
accessory and the principal thing must go together but both accessions and
accessories can exist only in relation to the principal.
Balane:
 Coverage: should not be taken in its juridical sense but in its ordinary, nontechnical connotation
 those joined to or included with the principal for the latter’s better use,
perfection, or enjoyment.
 Examples:
 the keys to a house, the dishes in a restaurant.
 The equipment in a factory; with respect to a machine, the tools and
spare parts for minor and ordinary repairs
 The case or container of a thing
Right of creditor to accessions and accessories
(a )General Rule
 The general rule is that all accessions and accessories are considered
included in the obligation to deliver a determinate thing although they may
not have been mentioned. This rule is based on the principle of law that the
accessory follows the principal. In order that they will be excluded, there
must be a stipulation to that effect.
 Unless otherwise stipulated, an obligation to deliver the accessions or
accessories of a thing does not include the latter.
 Example: a sale of the improvements (e.g., house) upon a thing (e.g., land)
is not sufficient to convey title or any right to the thing. BUT the lease of a
building or house naturally includes the lease of the lot, and the rentals
include those of the lot for the occupancy of a building or house not only
suggests but also implies the tenancy or possession in fact of the land on
which it is constructed.
Accession as a right
Accession is also used in the sense of a right. In that sense, it may be defined as
the right pertaining to the owner of a thing over its products and whatever is
incorporated or attached thereto, either naturally or artificially. (3 Sanchez
Roman 89; Art. 440.)
Accession includes, therefore, the right to the fruits and the right to the accessory.
It is one of the rights which go to make up dominion or ownership. (3 Manresa 166.)
But it is not, under the law, a mode of acquiring ownership.
Obligations to Give a Determinate Thins
This is the third accessory obligations in obligations to give a determinate thing.
The first two have already been discussed under Article 1163 and 1164.
(a ) Three accessory Obligations
1. After constitution of the obligation and before delivery, to take care of it with
the proper diligence of a good father of the family (Article 1163)
General Rule: Diligence of a good father of the family
Exception: Law or stipulation requires different standard of care
 If through negligence, something causes the thing damage, the debtor
is liable for damages.
 This is not applicable to a generic thing.
2. To account and deliver to the creditor the fruits if the thing bears fruits upon
the time the obligation to deliver it arises (Article 1164).
 However, ownership is transferred only by delivery. Hence, creditor’s
right over the fruits is merely personal.
 Example: A sold B a mango plantation to be delivered on January 1.
Come January 1, A did not deliver. A instead sold the fruits to C, a buyer
in good faith. B sues A for specific performance. Court awards the
plantation to B. Does B have a right to the fruits?
Yes, as against A. No, as against C, because B’s right over the fruits is
only personal. B’s remedy is to go against A for the value of the fruits.
3. To deliver the accessions and accessories (Article 1166)
 Don’t take accession in the technical sense (or else, it might overlap with ii).
Understand it to mean things that go with the thing to be delivered (i.e. radio
of the car).
Effect of Stipulation
Of course, if there is a stipulation to said effect, accessions and accessories do not
have to be included.
Art. 1167.
If a person obliged to do something fails to do it, the same shall be executed at
his cost.
This same rule shall be observed if he does it in contravention of the tenor of the
obligation. Furthermore, it may be decreed that what has been poorly done be
undone.
Derivation
If the person obligated to do something should fail to do it, it shall be ordered done
at his expense.
The same rule shall apply should he do it in a manner contrary to the terms of the
obligation. It may also be decreed that that which has been done badly be undone.
Situations contemplated in Article 1167
Article 1167 refers to an obligation to do, i.e., to perform an act or render a service.
It contemplates three situations:
(1) The debtor fails to perform an obligation to do; or
(2) The debtor performs an obligation to do but contrary to the terms
thereof; or
(3) The debtor performs an obligation to do but in a poor manner.
Positive Personal Obligations
The first sentence of the Article deals with a positive personal obligation (TO DO).
Remedies of Creditor if Debtor Fails to Do (in positive personal obligation)
1) If the debtor fails to comply with his obligation to do, the creditor has the right:
(a) To have the obligation performed (by himself or by another) at debtor’s
expense (only if another can do the performance).
(See Chavez v. Gonzales, L-27454, Apr. 30, 1970).
(b) Also — to obtain damages. (Art. 1170, Civil Code). (Damages alone
cannot substitute for performance if owners can do it; if purely personal
or special — as a painting to be done by a reputed artist — only damages
may be asked, unless substitution is permitted.)
2) In case the obligation is done in contravention of the terms of the same or is
poorly done, it may be ordered (by the court) that it be undone if it is still possible
to undo what was done.
Performance by a third person
 A personal obligation to do, like a real obligation to deliver a generic thing,
can be performed by a third person. While the debtor can be compelled to
make the delivery of a specific thing (Art. 1165.), a specific performance
cannot be ordered in a personal obligation to do because this may amount
to involuntary servitude which, as a rule, is prohibited under our
Constitution.
 HOWEVER, the personal qualifications of the debtor are the determining
motive for the obligation contracted (e.g., to sing in a night club), the
performance of the same by another would be impossible or would result to
be so different that the obligation could not be considered performed.
 HENCE, the only feasible remedy of the creditor is indemnification for
damages. But where the obligation can still be performed at the expense of
the debtor notwithstanding his failure or refusal to do so, the court is not
authorized to merely grant damages to the creditor.
 Example: Liability of debtor who fails to comply with an obligation to do.
A delivered to B, a typewriter repairer, a portable typewriter for
routine cleaning and servicing. B was not able to finish the job
after some time despite repeated reminders made by A. Finally,
B returned the typewriter unrepaired, some of the parts
missing. A had the typewriter repaired by F Business Machines,
and the repair job cost him P58.75 for labor or service and
P31.10 for the missing parts or a total of P89.85. The lower court
rendered judgment ordering B to pay only P31.10.
Is B liable also for P58.75, the cost of the service expended in
the repair?
Yes. B contravened the tenor of his obligation (see Art. 1170.)
because he not only did not repair the typewriter but returned
it “in shambles.” For such contravention, he is liable under
Article 1167 for the cost of executing the obligation in a proper
manner, which in the case should be the cost of the labor or
service expended in its repair, because the obligation or
contract was to repair it.
When a Thing May Be Ordered Undone
a) if made poorly (Art. 1167) (Here performance by another and damages
may be demanded).
(b) if the obligation is a negative one (provided the undoing is possible).
Art. 1168.
When the obligation consists in not doing, and the obligor does what has been
forbidden him, it shall also be undone at his expense.
Derivation
Art. 1099 The provisions of the second paragraph of the next preceding article shall
also be applicable when the obligation consists in doing something, if the debtor
should do that which is forbidden him.
Remedies of creditor in negative personal obligation.
 IN AN OBLIGATION NOT TO DO, the duty of the obligor is to abstain from an
act. Here, there is no specific performance. The very obligation is fulfilled in
not doing what is forbidden. Hence, in this kind of obligation the debtor
cannot be guilty of delay.
 As a rule, the remedy of the obligee is the undoing of the forbidden thing
plus damages. (Art. 1170.) However, if it is not possible to undo what was
done, either physically or legally, or because of the rights acquired by third
persons who acted in good faith, or for some other reason, his remedy is an
action for damages caused by the debtor’s violation of his obligation.
 Example: S sold a land to B. It was stipulated that S would not construct a
fence on a certain portion of his land adjoining that sold to B. Should S
construct a fence in violation of the agreement, B can have the fence
removed at the expense of S.
These two articles govern performance in obligations to do or not to do
Obligation to do
 Specific Performance
o Not available in an obligation to do because of the Constitutional
prohibition against involuntary servitude
o The courts cannot order the employment to force or compel the
obligor to perform
o Example: Contract of Services: The employee or laborer obviously
cannot be compelled to perform the service because that would
reduce him to a state of slavery
 Remedies Available to Obligee (Creditor)
o (a) SUBSTITUTE PERFORMANCE In an obligation to do which is not
purely personal, the obligee (creditor), should the obligor (debtor),
may demand that the prestation be performed at the obligor’s
expense.
(See Chavez v. Gonzales, L-27454, Apr. 30, 1970)
o (b) EQUIVALENT PERFORMANCE In an obligation to do which is
purely personal, the obligee’s (creditor) only remedy in case of the
obligor’s refusal is damages.
o (c) SPECIFIC PERFORMANCE is the performance of the prestation
itself. In obligations to do or not to do, specific performance is not
available since it will go against the constitutional prohibition against
involuntary servitude.
Negative Personal Obligations
(a) This Article refers to a negative personal obligation.
(b) As a rule, the remedy is the undoing of the prohibited thing plus damages
Art. 1169.
Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their
obligation. However, the demand by the creditor shall not be necessary in order
that delay may exist:
(1) When the obligation or the law expressly so declares;
or
(2) When from the nature and the circumstances of the obligation it appears that
the designation of the time when the thing is to be delivered or the service is to
be rendered was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond
his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply
or is not ready to comply in a proper manner with what is incumbent upon him.
From the moment one of the parties fulfills his obligation, delay by the other
begins.
Applicability
It applies only in obligations to give and to do (for obvious reasons)
Delay (Mora) Defined

Delay has nothing to do with quality but only with punctuality.

Delay is the non-fulfillment of the obligation with respect to time. In
fraud and negligence, the question is the quality even if performed on
time. In delay, even if the quality is excellent but the performance is
not in due time, the debtor is liable.

The word delay, as used in the law, is not to be understood according
to its meaning in common parlance. A distinction, therefore, should
be made between ordinary delay and legal delay (default or mora) in
the performance of an obligation.
(a ) Ordinary Delay
 merely the failure to perform an obligation on time
(b ) Legal delay, Default, Mora
 failure to perform an obligation on time which failure, constitutes a breach
of the obligation.
Requisites of Delay (Mora)
1. Obligation is demandable and liquidated
2. Delay is through fault or negligence
3. Creditor requires performance either judicially (through court action) or
extrajudicially (any communication by the creditor to debtor).
Note:
In reciprocal obligations (obligations with a counterpart prestation) which require
simultaneous performance, demand is still needed.
What is the form of such demand? Any communication of a party that he is ready
and willing to comply with his obligation. If after receipt of demand and the other
party does not comply with his obligation, he is in delay.
Kinds of Mora (Delay)
1. Mora solvendi
 Delay in performance incurred by the debtor.
 the delay on the part of the debtor to fulfill his obligation (to give or to do)
by reason of a cause imputable to him
o a. Mora solvendi ex re — debtor’s default in real obligations
o b. Mora solvendi ex persona — debtor’s default in personal obligations
Requisites
Balane:
a. The obligation is demandable and liquidated
b. Debtor delays performance either because of dolo or culpa
c. The creditor demands the performance either judicially or
extrajudicially
De Leon:
(1) failure of the debtor to perform his (positive) obligation on the date
agreed upon;
(2) demand (not mere reminder or notice) made by the creditor upon the
debtor to fulfill, perform, or comply with his obligation which demand, may
be either judicial (when a complaint is fi led in court) or extra-judicial (when
made outside of court, orally or in writing); and
(3) failure of the debtor to comply with such demand.
 The above presupposes that the obligation is already due or demandable and
liquidated.
 There is no delay if the obligation is not yet due or demandable.
 Failure to furnish a debtor a detailed statement of account does not ipso
facto result in an unliquidated obligation.
Example S obliged himself to deliver to B a specific refrigerator on December 10.
If S does not deliver the refrigerator on December 10, he is only in
ordinary delay in the absence of any demand from B although a period
has been fixed for the fulfillment of the obligation. The law presumes
that B is giving S an extension of time within which to deliver the
refrigerator. Hence, there is no breach of the obligation and S is not
liable for damages.
If a demand is made upon S by B on December 15 and S fails to deliver
the refrigerator, S is considered in default only from the date.
If an action for specific performance is fi led by B on December 20, he
payment of damages for the default must commence on December 10
when he made the extra-judicial demand and not on December 20.
General Rule
 Demand is necessary. (mora solvendi ex persona). Thus, no demand, no
delay.
Exceptions
a. When the obligation or the law expressly so declares


Mere setting of due date is not enough. This does not constitute
automatic delay.
There must be an express stipulation to the following effect: ―Nonperformance on that day is delay without need of demand.‖ (Dela Rosa
vs. BPI)
b. When it appears from the nature and circumstances of the obligation
that time was a controlling motive for the establishment of the contract.
Example: The wedding gown has to be ready before the wedding.
c. When demand would be useless, when obligor has rendered it beyond
his power to perform
Example: A sold the fruits of the mango plantation he already sold to
B to C. B need not make a demand on A to deliver the fruits since
demand would be useless perform.
Effects of Mora Solvendi
a. When the obligation is to deliver a determinate thing, the risk is placed on
the part of the debtor (Article 116)
b. Damages
c. Rescission/ Resolution (Article 1191)
2. Mora accipiendi (Delay by the creditor)
 The creditor incurs in delay when debtor tenders payment or performance,
but the creditor refuses to accept it without just cause.
 Mora accipiendi is related to payment (consignation).
 delay on the part of the creditor without justifiable reason to accept the
performance of the obligation
Requisites
a. An offer of performance by the debtor who has the required capacity
b. The offer must be to comply with the prestation as it should be performed
c. The creditor refuses the performance without just cause.
Effects of Mora Accipiendi
a. Responsibility of debtor for the thing is limited to fraud and gross negligence
b. Debtor is exempted from risk of loss of thing w/c automatically pass to creditor
c. Expenses incurred by debtor for preservation of thing after the delay shall be
chargeable to creditor.
d. If the obligation has interest, debtor shall not have obligation to pay the same
from the time of the delay
e. Creditor becomes liable for damages
f. Debtor may relieve himself by consignation of the thing
What is the remedy of the debtor if the creditor is in mora accipiendi?
a. Consign it in court (expenses chargeable to creditor); or
b. Keep it himself (here he should still exercise diligence and care, but this
time, he would not be liable for loss due to a fortuitous event).
Example: The improper refusal of the lessor (creditor) to accept the rents tendered
by the lessee places said lessor in default (mora) and he must shoulder the
subsequent accidental loss of the premises leased. The mora accipiendi of said
lessor is not cured by the lessee’s failure to make consignation of the rejected
payments, but the lessee remains obligated to pay the amounts he had tendered
but did not deposit in court. (Vda. De Villaruel vs Manila Motor Co. & Caloniares
1958)
4.



Compensatio morae (Both are in delay)
Both are in delay so there is no delay
Delay on both sides in reciprocal obligations, cancel each other out.
the delay of the obligors in reciprocal obligations (like in sale), i.e., the delay
of the obligor cancels the delay of the obligee, and vice versa.
No delay in negative personal obligation
In an obligation not to do, non-fulfillment may take place but delay is impossible
for the debtor fulfills by not doing what has been forbidden him. (see Art. 1168.)
Effects of Delay (Mora)
Mora solvendi.
a. The creditor may elect to demand either the remedy of performance or of
resolution (rescission)
b. If the obligation consists in the delivery of a specific or determinate thing,
the risk of loss due to fortuitous event is laid on the debtor
c. The debtor is liable for damages.
Mora accipiendi.
(a) The creditor is guilty of breach of obligation;
(b) He is liable for damages suffered, if any, by the debtor;
(c) He bears the risk of loss of the thing due (see Art. 1162.);
(d) Where the obligation is to pay money, the debtor is not liable for interest
from the time of the creditor’s delay; and
(e) The debtor may release himself from the obligation by the consignation
of the thing or sum due. (see Art. 1256.)
Compensatio morae
The delay of the obligor cancels out the effects of the delay of the obligee and vice
versa. The net result is that there is no actionable default on the part of both
parties, such that as if neither one is guilty of delay.
If the delay of one party is followed by that of the other, the liability of the fi rst
infractor shall be equitably tempered or balanced by the courts. If it cannot be
determined which of the parties is guilty of delay, the contract shall be deemed
extinguished and each shall bear his own damages.
When demand not necessary to put debtor in delay.
(a ) When the obligation so provides.
Example: D promised to pay C the sum of P20,000.00 on or before November 30
without the need of any demand. Therefore, if D fails to pay on November 30, he
is automatically in default. In this case, the parties stipulate to dispense with the
demand.
 The mere fixing of the period is not enough. The arrival of the period merely
makes the obligation demandable. Before its arrival, the creditor cannot
demand performance. The obligation must expressly so declare that demand
is not necessary or must use words to that effect, as for instance, “the debtor
will be in default” or “I will be liable for damages.”
o Example: The contract of loan between D and C provides that failure
of D to pay any installment therein stipulated would mature the entire
obligation. It does not state that in such an event, D shall thereafter
be in default. Demand is still necessary to hold D in default upon failure
to pay any such installments. He is not liable for interest for default for
the whole debt except from the time that judicial or extrajudicial
demand for payment is made upon him.
(b ) When the law so provides
Examples:
(a) Under the law, taxes should be paid on or before a specific date;
otherwise, penalties and surcharges are imposed without the need of
demand for payment by the government.
(b) The partner is liable for the fruits of the thing he may have promised to
contribute to the partnership from the time they should have been delivered
without the need of any demand. (Art. 1786; see also Art. 1788.)
(c )When time is of the essence
Example: The delivery of balloons on a particular date when a children’s party will
be held; the making of a wedding dress where the wedding is scheduled at a certain
time; payment of money at a particular time so that the creditor could pay off
certain debts due on the same date; the delivery of a car to be used in a trip at a
particular time; etc.
(d ) When demand would be useless.
Example: S obliged himself to deliver a specific horse to B on December 5. Through
S’s negligence or deliberate act, or by reason of a fortuitous event for which S has
expressly bound himself responsible (see Art. 1174.), the horse died on December
2.
Under this situation, any demand for the delivery of the horse on December 5
would be useless as S has made it impossible for him to perform his obligation.
Demand is also unnecessary where it is apparent that it would be unavailing, as
where there has been a prior absolute refusal by S (see 13 C.J. 661.) or S has
manifested an intention not to comply with his obligation.
(e )When there is performance by a party in reciprocal obligations.
 In case of reciprocal obligations (see Art. 1191.), the performance of one is
conditioned upon the simultaneous fulfillment on the part of the other.
o (a) So neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon
him.
o (b) From the moment a party in reciprocal obligations fulfills or is ready
to fulfill his obligation, delay by the other begins.
o (c ) Obligations under an option to buy (see Art. 1324.) are reciprocal
obligations, i.e., the payment of the purchase price by the would-be
buyer is contingent upon the execution of the deed of sale by the
owner of the property hence, notice to the latter of the former’s
decision to exercise his option to buy and readiness to pay the price
need not be coupled with actual payment thereof and since the
obligation is not yet due, consignation in court (Art. 1256.) of the
purchase price is not required.
Ex Persona vs Ex Re
General Rule
Mora solvendi ex persona—Demand is necessary to constitute the debtor in delay
(mora).
For reciprocal obligations requiring simultaneous performance:
Demand consists in one party communicating to the other that he is ready to
perform.
Example: In a contract of sale, the parties agree that delivery by the vendor and
payment by the vendee are to done simultaneously, the vendee will be in mora if
on the stipulated date, the vendor manifests to the vendee his readiness to deliver
and the vendee is not ready to pay.
For reciprocal obligations calling for different dates of performance:
Demand must be made by the party entitled to performance on the party bound
to perform.
Example: In a contract of sale, the parties agree that the thing is to be delivered on
a certain day and the purchase price is to be paid sixty days after, demand must be
made by the vendee upon the vendor on the due date for delivery.
Judicial or Extrajudicial
Judicial demand consists in the filing of a suit by the creditor against the debtor.
Extrajudicial demand may take any form, as long as it can be proved; when the
creditor demands the performance of the obligation from the debtor without court
proceedings, as by oral or written demand.
Exceptions
Mora Solvendi Ex Rex—
Article 1169, Paragraph 2, demand is not required for mora to set in. Non
performance on due date automatically gives rise to delay (mora).
1. When the obligation or the law expressly so declares;
Example:
Taxes should be paid within a definite period, otherwise penalties are imposed
without need of demand for payment.
2. When from the nature and the circumstances of the obligation it appears
that the designation of the time when the thing is to be delivered or the
service is to be rendered was a controlling motive for the establishment of
the contract; or
This means that the fixing of the time was the controlling motive for the
establishment of the contract
NOTE — It is not essential for the contract to categorically state that time is of the
essence; the intent is sufficient as long as this is implied
Example — The making of a wedding dress, if the wedding is scheduled at the time
the dress is due; agricultural contracts where implements are needed at a particular
time; the selling of land with payment at specified time, so that the seller could pay
off certain debts that were due on said date.
3. When demand would be useless, as when the obligor has rendered it beyond
his power to perform.
Example — When before the maturity, the seller has disposed of it in favor of
another, or has destroyed the subject matter, or is hiding.
Art 1170.
Those who in the performance of their obligations are guilty of fraud, negligence,
or delay, and those who in any manner contravene the tenor thereof, are liable
for damages.
Derivation
Any person who is guilty of fraud, negligence, or delay in the fulfillment of his
obligations, or who in any manner whatsoever shall fail to comply with the
terms thereof, shall be liable for any damage caused thereby.
 Article 1170 provides that those who in the performance of their obligations
are guilty of fraud, negligence, or delay and those who in any manner
contravene the tenor thereof, are liable for damages.
 According to Professor Balane, the phrase “ who in any manner contravene
the tenor thereof” is a catch-all provision. However, such is unnecessary.
Nothing will escape fraud, negligence or delay.
Art. 1171.
Responsibility arising from fraud is demandable in all obligations. Any waiver of
an action for future fraud is void.
Derivation
Liability arising from fraud (dolo) is demandable with respect to all obligations. The
renunciation of the action to enforce it is void.
From Tiu:
 Fraud or malice (dolo) has been defined as a "conscious and intentional
design to evade the normal fulfillment of existing obligations" and is, thus,
incompatible with good faith
 Fraud may be past or future — Liability for past fraud may be waived; this is
not so for future fraud because any waiver of an action for future fraud is
void
 Fraud refers to all kinds of deception — whether through insidious
machination, manipulation, concealment or misrepresentation that would
lead an ordinarily prudent person into error after taking the circumstances
into account.
 Fraud contemplated under Art. 1170 and 1171 is “fraud in the performance
of the obligation” and NOT fraud in the perfection of the contract
De Leon:
Grounds for Liability
(a ) Fraud
 Fraud (deceit or dolo). — As used in Article 1170, it is the deliberate or
intentional evasion of the normal fulfillment of an obligation.
 As a ground for damages, it implies some kind of malice or dishonesty and it
cannot cover cases of mistake and errors of judgment made in good faith. It
is synonymous to bad faith in that it involves a design to mislead or deceive
another
(b ) Negligence (fault or culpa)
 It is any voluntary act or omission, there being no malice, which prevents the
normal fulfillment of an obligation.
(c ) Delay (mora)
 This has already been discussed under Article 1169 which determines the
commencement of delay. It has been ruled that the delay in the performance
of the obligation under Article 1170 must be either malicious or negligent.
(d ) Contravention of the terms of the obligation
 This is the violation of the terms and conditions stipulated in the obligation.
The contravention must not be due to a fortuitous event or force majeure.
The unilateral act of terminating a contract without legal justification by a
party makes him liable for damages suffered by the other pursuant to Article
1170.
Recovery of damages for breach of contract or obligation
Breach of contract is the failure without justifiable excuse to comply with the terms
of a contract. The breach may be willful or done unintentionally. It has been defined
as the failure, without legal excuse, to perform any promise which forms the whole
or part of the contract.
(a ) Measure of recoverable damages.
 that one injured by a breach of a contract, or by a wrongful or negligent act
or omission shall have a fair and just compensation commensurate to the
loss sustained as a consequence of the defendant’s act.
(b ) Contractual interests of obligee or promisee, remedy serves to preserve.
A breach upon the contract confers upon the injured party a valid cause for
recovering that which may have been lost or suffered. The remedy serves to
preserve the interests of the promise that may include:
(a) Expectation interest, which is his interest in having the benefit of his
bargain by being put in as good a position as he would have been had the
contract been performed; or
(b) Reliance interest, which is his interest in being reimbursed for loss caused
by reliance on the contract by being put in as good a position as he would
have been had the contract not been made;
or
(c) Restitution interest, which is his interest in having restored to him any
benefit that he has conferred on the other party
(c ) Excuse from ensuing liability
 The effect of every infraction is to create a new duty, that is, to make
recompense to the one who has been injured by the failure of another to
observe his contractual obligation.
 The mere proof of the existence of the contract and the failure of its
compliance justify a corresponding right of relief to the obligee unless the
obligor can show extenuating circumstance, like proof of his exercise of due
diligence (normally that of the diligence of a good father of a family or,
exceptionally by stipulation or by law such as in the case of common carriers,
that of extraordinary diligence) or of the attendance of fortuitous event, to
excuse him from his ensuing liability.
(d ) Duty of obligee to minimize his damages.
 An obligee is duty bound to minimize the damages for which he intends to
hold any obligor responsible. (see Art. 2203.) He cannot recover damages for
any loss which he might have avoided with ordinary care. If his negligence
was contributory to the loss, the court may equitably mitigate the damages.
Damages recoverable where obligation to pay money
(a ) Penalty interest for delay or non-performance
 Damages may be recovered under Article 1170 when the obligation is to do
something other than the payment of money but when the obligation which
the debtor failed to perform consists only in the payment of money, the rule
of damages is that laid down in Article 2209 of the Civil Code.
o “If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary shall be the payment of the interest agreed
upon, and in the absence of stipulation, the legal interest, which is six
per cent per annum. (1108)”
(b ) Rate of the penalty interest.
 The rate of the penalty interest payable shall be that agreed upon.
 In the absence of stipulation of a particular rate of penalty interest, then
the additional interest shall be at a rate equal to the regular monetary
interest;
 If no regular interest had been agreed upon, then the legal interest shall be
paid.
 Until the principal due is returned to the creditor, such interest continues to
accrue since the debtor continues to use such principal amount
For Art 1170 and Art 1171
 The problem with fraud is the term. It is used in different meanings in the
Code.
 Fraud may be defined as the voluntary execution of a wrongful act, or willful
omission, knowing and intending the effects which naturally and necessarily
arise from such act or omission.
 Fraud is the deliberate and intentional evasion of the normal fulfillment of
the obligation. It is distinguished from negligence by the presence of
deliberate intent, which is lacking in the latter. (Legaspi Oil vs. CA)
(a ) Fraud under Art 1170
 Fraud under Article 1170 is more properly called as malice.
 Fraud under Article 1170 must not be confused with fraud under Article
1338.
 Fraud under Article 1338 is more properly called as deceit.
 In Article 1338, fraud preexists the obligation, thus the obligation is voidable.
Deceit vitiates consent in contracts. Deceit is antecedent fraud. The deceit
occurs by using insidious words machinations. Without this deceit, the other
party would not have entered into the contract.
(b ) Fraud under Art 1171
In Article 1171, there was already an obligation before the fraud exists. Malice is
subsequent fraud.
Example of fraud as deceit under Article 1338:
A and B entered a contract of sale of a diamond necklace. However, the necklace
was really made of glass. Fraud here is deceit. There was vitiation of consent hence
the contract is voidable.
Example of fraud as malice under Article 1171.
A and B entered into a contract. B will deliver furniture made of narra but B
delivered one made of plywood. Fraud here is malice. It will not affect the validity
of the contract.
2 Kinds of Fraud Distinguished As To Moment of Occurrence
 Valid obligation arising from any source and occurs in the course of the
performance of the obligation (Art 1171)
 Contractual obligation and prevents a valid obligation from arising (Art 1338)
Effects of Fraud (Articles 1170, 1171)
1. Creditor may insist on proper substitute or specific performance (Article
1233); or
2. Rescission/Resolution (Article 1191)
3. Damages may be recovered in either case (Article 1170)
Fraud in the perfection of the contract
a. Causal fraud (dolo causante) — This is fraud in obtaining consent to a contract
which is serious enough to vitiate consent. In contracts, a fraud known as dolo
causante or causal fraud is basically a deception used by one party prior to or
simultaneous with the contract, in order to secure the consent of the other.
Needless to say, the deceit employed must be serious.
b. Incidental fraud (dolo incidente) — Cover fraud during the perfection stage of
the contract but which is not serious enough to vitiate consent, it not serious in
character and without which the other party would still have entered into the
contract. Only some particular or accident of the obligation is referred to by
incidental fraud or dolo incidente, or that which is not serious in character and
without which the other party would have entered into the contract anyway.
 This fraud or dolo which is present or employed at the time of birth or
perfection of a contract may either be dolo causante or dolo incidente. The
first, or causal fraud referred to in Article 1338, are those deceptions or
misrepresentations of a serious character employed by one party and
without which the other party would not have entered into the contract.
Dolo incidente, or incidental fraud which is referred to in Article 1344, are
those which are not serious in character and without which the other party
would still have entered into the contract. Dolo causante determines or is
the essential cause of the consent, while dolo incidente refers only to some
particular or accident of the obligation. The effects of dolo causante are the
nullity of the contract and the indemnification of damages, and dolo
incidente also obliges the person employing it to pay damages. To
summarize, if there is fraud in the performance of the contract, then this
fraud will give rise to damages. If the fraud did not compel the imputing party
to give his or her consent, it may not serve as the basis to annul the contract,
which exhibits dolo causante. (Tankeh vs DBP 2013)
Fraud in the performance of the obligations
This is the kind of fraud contemplated in Art. 1170 and 1171
Waiver of Action for Future Fraud Void
 Art 1171 prohibits waivers of future fraud.
 According to the time of commission, fraud may be past or future.
 This waiver is contrary not only to public policy but to law as well
 A sensu contrario, waiver of fraud already committed is permissible.
 A waiver of an action for future fraud is void (no effect, as if there is no
waiver) as being against the law and public policy. (Art. 1409[1].) A contrary
rule would encourage the perpetration of fraud because the obligor knows
that even if he should commit fraud he would not be liable for it thus making
the obligation illusory.
Waiver Of Action For Past Fraud Valid
 What the law prohibits is waiver anterior to the fraud and to the knowledge
thereof by the aggrieved party.
 A past fraud can be the subject of a valid waiver because the waiver can be
considered as an act of generosity and magnanimity on the part of the party
who is the victim of the fraud. Here, what is renounced is the effects of the
fraud, that is, the right to indemnity of the party entitled thereto.
Art 1172
Responsibility arising from the negligence in the performance of every kind of
obligation is also demandable, but such liability may be regulated by the courts,
according to circumstances.
Derivation
Liability arising from negligence in the fulfillment of all kinds of obligations is also
demandable; but it may be mitigated by the court according to the circumstances
of the case.
 Like fraud, negligence results in improper performance. But it is
characterized by lack of care, unlike fraud which is characterized by malice.
 Lack of care means lack of due diligence or the care of a good father of the
family (bonus paterfamilias) under Article 1163.
 In English law, due diligence is called the diligence of a prudent businessman,
since they are more commerce-oriented.
 Essentially a negative concept
 Imports an absence, a privation, which means an absence of something that
should be present
 The absence of due diligence
From Tiu:
 The determination of the existence of negligence is always a fact-driven
exercise. It would always depend on the facts and circumstances of each
case. It is context-specific. There are a lot of cases involving different facts
and circumstances to prove this point.
 Relate the concept of negligence with “due diligence” or the standard of care
or conduct. Negligence is the failure to observe the standard of care/conduct
required depending on the circumstances. Jurisprudence helps us determine
the standard of care depending on what is involved. Generally, the standard
of care is that of a good father of a family, this is so, unless the law or the
contract provides otherwise (Art. 1173).
 TEST OF NEGLIGENCE — This is an objective test. The test is in Picart vs Smith,
“what would an ordinarily reasonable prudent man would do or not do?”
Sometimes it’s easy to determine (by common sense), sometimes hard (such
as in medical negligence cases), and sometimes the standard is higher (like
in the case of banks and common carriers)
 Negligence is defined in Art. 1173, this is the statutory definition but Picart
defines it as something a reasonably prudent man would do or not do.
Responsibility arising from negligence demandable
(a ) In the performance of every kind of obligation, the debtor is also liable for
damages resulting from his negligence or culpa.
 The reason is because negligence is a question which must necessarily
depend upon the circumstances of each particular case.
 Moreover, negligence is not as serious as fraud because in the case of the
former, there is no bad faith or deliberate intention to cause injury or
damages. The courts, however, may increase the damages.
(b ) When both parties to a transaction are mutually negligent in the performance
of their obligations, the fault of one cancels the negligence of the other.
 Thus, their rights and obligations may be determined equitably under the law
prescribing unjust enrichment. No one shall enrich himself at the expense of
another
Negligence vs Fraud
When negligence equivalent to fraud
 Where the negligence shows bad faith or is so gross that it amount to malice
or wanton attitude on the part of the defendant, the rules on fraud shall
apply. (see Art. 1173.) In such case, no more distinction exists between the
two at least as to effects.
 Gross negligence is negligence characterized by want or absence of or failure
to exercise even slight care or diligence, or the entire absence of care, acting
or omitting to act on a situation where there is a duty to act, not
inadvertently but willfully and intentionally.
Types of Negligence
1. Simple
 Failure to use the level of care and caution that an ordinary person
would use in similar circumstances. It often involves a careless mistake
or inattention that causes an injury.
 Example:
o Running a stop sign resulting in a crash
o Failing to place a sign indicating a wet floor after mopping,
resulting in a fall or injury
o Failing to replace wood-rotted stairs on your porch, causing a
guest to fall
2. Gross
 Gross negligence implies a want or absence of or a failure to exercise
slight care or diligence, or the entire absence of care. It evinces a
thoughtless disregard of consequences without exerting any effort to
avoid them.
 Example:
o Speeding your car through an area with a lot of pedestrian
traffic
o Doctors prescribing medications that a patient’s medical
records list as a drug allergy
o Staff at a nursing home failing to provide the food and water a
resident needs for multiple days
NOTE—The Civil Code does not contain a classification of negligence, However, it
uses words wanton, gross, reckless to signify what would be understood as a
degree of negligence exceeding ordinary or simple.
Kinds of negligence classified according to the source of the obligation
1. Contractual negligence (culpa contractual)
 that which results in a breach of a contract
 This kind of negligence is not a source of obligation.
 It merely makes the debtor liable for damages in view of his negligence
in the fulfillment of a pre-existing obligation resulting in its breach or
non-fulfillment. (Arts. 1170-1174, 2201.)
 is a kind of civil negligence if it does not amount to a crime;
2. Civil negligence or negligent tort (culpa aquiliana)
 negligence which by itself is the source of an obligation between the
parties not formally bound before by any pre-existing contract
 It is also called “tort” or “quasidelict.”
 A pre-existing contractual relation between the parties does not,
however, preclude the existence of culpa aquiliana.
 A quasi-delict can be the cause for breaching a contract that might
thereby permit the application of governing principles of tort even
when there is a pre-existing contract between the parties.
3. Criminal negligence (culpa criminal)
 that which results in the commission of a crime or a delict
 The same negligent act causing damages may produce civil liability
arising from a crime under Article 100 of the Revised Penal Code
Examples:
(1) If S entered into a contract of sale with B to deliver a specific horse on a certain
day and the horse died through the negligence of S before delivery, S is liable for
damages to B for having failed to fulfi ll a pre-existing obligation (contract may be
either express or implied) because of his negligence. This is culpa contractual.
(2) Assume now, that the horse belongs to and is in the possession of B. The
negligence of S which results in the death of the horse is culpa aquiliana. In this
case, there is no pre-existing contractual relation between S and B. The negligence
itself is the source of liability. (Art. 1157[5].)
(3) A crime can be committed by negligence. If B wants, he can bring an action for
culpa criminal (damage to property through simple or reckless imprudence). Here,
the crime is the source of the obligation of S to pay damages.
Importance of distinction between culpa contractual and culpa aquiliana.
 The distinction between the fi rst two kinds of negligence is important in our
jurisdiction.
 Where liability arises from a mere tort (culpa aquiliana), not involving a
breach of positive obligation, an employer or master may excuse himself
under the last paragraph of Article 218011 by proving that he had exercised
“all the diligence of a good father of a family to prevent the damage.” It is a
complete defense.
 This defense is not available if the liability of the employer or master arises
from a breach of contractual duty (culpa contractual) though this may
mitigate damages.
Determination of Due Diligence
The determination of due diligence is always relative. It will depend on
1. The nature of the obligation
2. Nature of the circumstances of
a. Person
b. Time
c. Place
Example
The diligence required in shipping hinges is different from the diligence required in
shipping the Pieta de Michaelangelo. The shipper must observe the diligence of a
good father of the family in both cases but the standard of care is different. It is
much higher for the Pieta.
The diligence of a good father of the family is the imaginary standard.
Effects of Negligence (Articles 1170, 1172)
1. Creditor may insist on proper substitute or specific performance (Article
1233); or
2. Rescission/Resolution (Article 1191)
3. Damages in either case (Article 1170)
Waiver of Negligence
Validity of waiver of action arising from negligence.
(1) An action for future negligence (not fraud) may be renounced except
where the nature of the obligation requires the exercise ofextraordinary
diligence as in the case of common carriers. (see Art. 1733.)
(2) Where negligence is gross or shows bad faith, it is considered equivalent
to fraud. Bad faith does not simply connote negligence or bad judgment
causing damages to another. Any waiver of an action for future negligence
of this kind is, therefore, void.
Art. 1173.
The fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place.
When negligence shows bad faith, the provisions of articles 1171 and 2201,
paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required.
Derivation
Fault or Negligence Defined
 Fault or negligence is defi ned by the above provision. (par. 1.)
 According to our Supreme Court, “negligence is conduct that creates undue
risk or harm to another. It is the failure to observe for the protection of the
interests of another person, that degree of care, precaution and vigilance
which the circumstances justly demand, whereby such other person suffers
injury.”
 It is “the want of care required by the circumstances.’’
Test for determining whether a person is negligent.
(1) Reasonable care and caution expected of an ordinary prudent person
 The test for determining whether a person is negligent in doing an act
whereby injury or damage results to the person or property of another is
this: Would a prudent man, in the position of the person to whom negligence
is attributed, foresee harm to the person injured as a reasonable
consequence of the course about to the pursued?
If so, the law imposes the duty on the actor to refrain from that course or to
take precaution against its mischievous results, and the failure two do so
constitutes negligence. Reasonable foresight of harm followed by the
ignoring of the admonition born of this provision, is the constitutive fact of
negligence.”
Simply stated: “Did the defendant in doing the alleged negligent act use the
reasonable care and caution which an ordinary prudent person would have
used in the same situation. If not, then he is guilty of negligence.’’
(2) No hard and fast rule for measuring degree of care
 it can readily be seen that there is no hard and fast rule whereby the degree
of care and vigilance required is measured
 It is dependent upon the circumstances in which a person fi nds himself
situated.
Factors to be considered.
(1) Nature of the obligation. — e.g., smoking while carrying materials known to be
inflammable constitutes negligence;
(2) Circumstances of the person. — e.g., a guard, a man in the prime of life, robust
and healthy, sleeping while on duty is guilty of negligence;
(3) Circumstances of time. — e.g., driving a car without headlights at night is gross
negligence but it does not by itself constitute negligence when driving during the
day; and
(4) Circumstances of the place. — e.g., driving at 60 kilometers per hour on the
highway is permissible but driving at the same rate of speed in Quezon Boulevard,
Manila, when traffi c is always heavy is gross recklessness.
Measure of liability for damages.
(1) Civil Code provisions
“Art. 2201. In contracts and quasi-contracts, the damages for which the
obligor who acted in good faith is liable shall be those that are the natural
and probable consequences of the breach of the obligation, and which the
parties have foreseen or could have reasonably foreseen at the time the
obligation was constituted. In case of fraud, bad faith, malice or wanton
attitude, the obligor shall be responsible for all damages which may be
reasonably attributed to the non-performance of the obligation.”
(2) Contractual breach committed in good faith/bad faith.
The law distinguishes a contractual breach effected in good faith from one
attended by bad faith.
(3 ) With respect to moral damages
They are not punitive in nature. Although incapable of pecuniary estimation,
such damages must somehow be proportional to and in approximation of
the suffering inflicted, the factual basis for which must be satisfactorily
established by the aggrieved party.
4) Code of Commerce provisions.
Art. 587. The ship agent shall also be civilly liable for the indemnities
in favor of third persons which may arise from the conduct of the
captain in the care of goods which he loaded on the vessel; but he may
exempt himself therefrom by abandoning thevessel with all the
equipments and the freight it may have earned during the voyage.’’
Diligence Defined
 “the attention and care required of a person in a given situation and is the
opposite of negligence
Kinds of Diligence
(1) that agreed upon by the parties, orally or in writing;
(2) in the absence of stipulation, that required by law in the particular case
(like the extraordinary diligence18 required of common carriers); and
(3) if both the contract and law are silent, then the diligence expected of a
good father of a family (par. 2.) or ordinary diligence.
NOTE: Whether or not the negligence of the obligor is excusable will depend on the
degree of diligence required of him. Under No (3), for example, the obligor is not
liable for damages where his negligence is one which ordinary diligence and
prudence could not have guarded against.
Art. 1174.
Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk,
no person shall be responsible for those events which could not be foreseen, or
which, though foreseen, were inevitable. (Fortuitous event)
 Also governed by Article 1221Æ but is called ‘loss’ there, a cause fo
extinguishment of obligation.
 Also called caso fortuioto, force marjeure, act of God/act of man.
Derivation
Art. 1105. No one shall be liable for events which could not be foreseen or which,
even if foreseen, were inevitable, with the exception of the cases in which the law
expressly provides otherwise and those in which the obligation itself imposes such
a liability.
Fortuitous Event Defined
 A fortuitous event is any extraordinary event which cannot be foreseen, or
which, though foreseen, is inevitable. In other words, it is an event which is
either impossible to foresee or impossible to avoid.
 The essence of a fortuitous event consists of being a happening independent
of the will of the obligor and which happening, makes the normal fulfillment
of the obligation impossible.
Kinds of Fortuitous Event
(1) Ordinary fortuitous events or those events which are common and which the
contracting parties could reasonably foresee (e.g., rain);
and
(2) Extraordinary fortuitous events or those events which are uncommon and
which the contracting parties could not have reasonably foreseen (e.g.,
earthquake, fi re, war,19 pestilence, unusual flood).
Requisites of Fortuitous Event
As shown in (Nakpil vs. CA)
1. The cause of the unforeseen and unexpected occurrence, or the failure
to comply with his obligations, must be independent of the human will.
Example — Loss of a firearm which fell to the bottom of the sea when
the ship sank during a storm.
2. It must be impossible to foresee the event which constitute the caso
fortuito, or if it can be foreseen, it must be impossible to avoid.
Example — Damage to train passengers when the train is hit by
lightning
3. The occurrence must be such as to render it impossible for the debtor to
fulfill his obligation in a normal manner.
Examples — Armed robbery causing the loss of a specific radio, but not
if money is taken for money is a generic thing; seizure by the Japanese
military forces, during the war, of copra deposited in a warehouse.
NOTE — When the thing lost due to a fortuitous event is generic, then
the obligation still subsists because it is still possible for the debtor to
comply with his obligation in a normal manner.
This is another important difference between a generic and a specific
obligation is that, a specific obligation, that is, an obligation to deliver
a specific thing, is, as a rule, extinguished by a fortuitous event or act
of God. Upon the other hand, generic obligations are never
extinguished by fortuitous events.
Examples —
 A is obliged to give B this car. Before delivery, an
earthquake destroys completely the car. The obligation
to deliver is extinguished.
 A is obliged to give B a book. Since this is a generic thing,
even if one particular book is lost, other books may take
its place. Hence, the obligation is not extinguished (genus
nunquam perit).
4. The obligor must be free from any participation in the aggravation of the
injury resulting to the creditor
General Rule:
When a debtor is unable to fulfill his obligation because of a fortuitous event or
force majeure, he cannot be held liable for damages or non-performance.
Fortuitous event vs force majeure
(1) Acts of man. — Strictly speaking, fortuitous event is an event independent of
the will of the obligor but not of other human wills, e.g., war, fire, robbery, murder,
insurrection, etc.
(2) Acts of God. — They are those events which are totally independent of the will
of every human being, e.g., earthquake, flood, rain, shipwreck, lightning, eruption
of volcano, etc. They are also called force majeure. The term generally applies to a
natural accident.
NOTE: In our law, fortuitous events and force majeure are identical in so far as they
exempt an obligor from liability. Both are independent of the will of the obligor.
Exceptions to rule of non-liability for Fortuitous Event (caso fortuito)
1. When the law so provides (i.e. Article 1165, ¶2Å)
2. When there is express stipulation (by contract)
 Fortuitous event yields to contrary stipulation
 This is when the parties themselves stipulate that the debtor will be
liable even if the nonperformance of the obligation is due to a
fortuitous event.
 Example: Responsibility for fortuitous events is not clearly stipulated.
In the contract, it is declared the duty of E, lessee, to
maintain
the improvements of the hacienda in good condition and
to deliver them in the same state to R, lessor, upon the
termination of the lease.
Is E responsible for loss resulting from fortuitous events?
No. The above is merely a statement of the obligation
imposedby law, generally upon all lessees. (see Arts.
1657[2], 1665.) It is true that under Article 1174 a party
to a contract may make himself responsible for loss
occurring without his fault. But the provision imposing
this obligation should be clearly expressed. Where the
parties to a contract desire to
create an unusual obligation, the expression of an
intention to that effects should be clear.
3. When the nature of the obligation requires the assumption of risk (i.e.
insurance contracts)
 This is the Doctrine of Assumption of Risk. It is basically a form of
implied waiver.
 Example — When a carrier transports dynamite, and because of an
accidental tire blow-out it injures nearby property, the carrier
would be responsible. This is because of the nature of carrying
dynamite. Upon the other hand, injuries caused by a tire blow-out
of a perfectly new tire, or at least a still good one, when no
explosives or dangerous things were being carried, are due to an
unavoidable accident, and the owner of the car would not be liable.
Effect of obligor’s negligence upon his liability.
(1) Negligence contributed to the loss or damage
 In order that fortuitous event may release a debtor from his obligation, it is
necessary that he be free from previous negligence or misconduct by which
the loss or damage may have been occasioned.
(2) Negligence not contributory to the loss or damage
 — But where both fortuitous event and lack of due diligence are present
under conditions that the loss would have happened with or without the
negligence of the obligor — hence, the consequences are all a derivation of
the fortuitous event — it cannot be said that responsibility arises therefrom.
Caso Fortuito vs Fuerza Mayor
Caso fortuito is independent not only of the debtor’s will but of any human will
Fuerza mayor proceeds from an inevitable occurrence or from an act, whether legal
or illegal, of a person other than the debtor, which makes it impossible for the
debtor to comply with his obligation.
Enumeration: Irregularity in Performance
a. Attributable to the debtor (culpable)
 Fraud (Art 1170, 1171)
 Negligence (Art 1170, 1172, 1173)
 Delay/ Mora (Art 1169 and 1170)
b. Non-attributable to the debtor (non-culpable)
 Fortuitous event (Art 1174)
c. Fraud
 The term fraud is equivocal. It is used here as an instance of culpable
irregularity and in Articles 1338 to 1344 as ground for annulling a
contract. The two concepts are different and the use of the same word to
denote the two may cause confusion.
 Fraud here means malice or bad faith, while fraud in Article 1338 means
deceit.
 Example: Legaspi Oil Co Inc vs The Court of Appeals and Bernard Oseraos
 Example of fraud as deceit under Article 1338:
A and B entered into a contract of sale of a diamond necklace. However,
the necklace was really made of glass. Fraud here is deceit. There was
vitiation of consent hence the contract is voidable.
 Example of fraud as malice under Article 1171.
A and B entered into a contract. B will deliver furniture made of narra but
B delivered one made of plywood. Fraud here is malice. It will not affect
the validity of the contract.
d. Negligence (Culpa)
 Essentially a negative concept
 Imports an absence, a privation, which means an absence of something
that should be present
 The absence of due diligence
 Determination of Due Diligence: The determination of due diligence is
always relative. It will depend on
o The nature of the obligation
o Nature of the circumstances of
 Person
 Time
 Place
 Example
The diligence required in shipping hinges is different from the diligence
required in shipping the Pieta de Michaelangelo. The shipper must observe
the diligence of a good father of the family in both cases but the standard
of care is different. It is much higher for the Pieta.
Note: The diligence of a good father of the family is the imaginary
standard.
e. Delay (Mora)
 Mora distinguished from Fraud and Negligence—
o Fraud and Negligence consists in irregularity as to quality and manner
o Delay (mora) consists in irregularity as to time
o Mora is the non-fulfillment with respect to time
 Kinds of Mora—
1. Mora solvendi
Delay in performance incurred by the debtor.
Requisites:
a. The obligation is demandable and liquidated
b. Debtor delays performance either because of dolo or culpa
c. The creditor demands the performance either judicially or
extrajudicially
General Rule:
Demand is necessary. (mora solvendi ex persona). Thus, no demand,
no delay.
Exceptions:
a. When the obligation or the law expressly so declares
Mere setting of due date is not enough. This does not constitute
automatic delay.
There must be an express stipulation to the following effect:
―Non-performance on that day is delay without need of
demand.‖ (Dela Rosa vs. BPI)
b. When it appears from the nature and circumstances of the
obligation that time was a controlling motive for the establishment of
the contract.
Example: The wedding gown has to be ready before the
wedding.
c. When demand would be useless, when obligor has rendered it
beyond his power to
Example: A sold the fruits of the mango plantation he already
sold to B to C. B need not make a demand on A to deliver the
fruits since demand would be useless perform.
Effects of Mora Solvendi:
a. When the obligation is to deliver a determinate thing, the risk
is placed on the part of the debtor (Article 116)
b. Damages
c. Rescission/ Resolution (Article 1191)
2. Mora accipiendi
 The creditor incurs in delay when debtor tenders payment or
performance, but the creditor refuses to accept it without just
cause.
 Mora accipiendi is related to payment (consignation).
Requisites:
a. An offer of performance by the debtor who has the required
capacity
b. The offer must be to comply with the prestation as it should
be performed
c. The creditor refuses the performance without just cause.
Effects of Mora Accipiendi:
a. Responsibility of debtor for the thing is limited to fraud and
gross negligence
b. Debtor is exempted from risk of loss of thing w/c
automatically pass to creditor
c. Expenses incurred by debtor for preservation of thing after
the delay shall be chargeable to creditor.
d. If the obligation has interest, debtor shall not have obligation
to pay the same from the time of the delay
e. Creditor becomes liable for damages
f. Debtor may relieve himself by consignation of the thing
3. Compensatio morae
Delay on both sides in reciprocal obligations, cancel each other
out.
f. Contravention
 Contravention can cover any breach, violation, irregularity, or improper
performance
 On the other hand, fraud, negligence, and delay taken together can
comprehend every conceivable culpable breach, etc.
 Contravention serves as the catch-all term for any instance of culpable
irregularity which may slip through the fine meshes of fraud, negligence, and
delay.
 From Tiu:
o It is the violation of the terms and conditions stipulated in the
obligation
o Includes any illicit act which impairs the strict and faithful fulfilment of
the obligation, or every kind of defective performance
g. Fortuitous Event
Art. 1175.
Usurious transactions shall be governed by special laws.
Derivation
This is a new provision.
 ARTICLE NOW INOPERATIVE: Article 1175 is dead letter law because of the
lifting of the ceiling on interest rates. Thus, usury has been decriminalized,
but the decriminalization cannot be given retroactive effect (with respect to
the civil aspect).
 Some decisions have struck down high interests, not because they were
usurious but because such rates were unconscionable.
 Correlate Article 1175 with Articles 1957, 1413 and 1961
 EXORBITANT OR UNCONSCOINABLE RATES: Although usury legally does not
exist, the Supreme Court has struck down as contrary to public policy, or
morals, or good customs, stipulations imposing excessive rates of interest.
Meaning of simple loan or mutuum.
 Simple loan or mutuum is a contract whereby one of the parties delivers to
another money or other consumable thing, upon the condition that the same
amount of the same kind and quality shall be paid. It may be gratuitous or
with a stipulation to pay interest.
Meaning of usury.
 Usury is contracting for or receiving interest in excess of the amount allowed
by law for the loan or use of money, goods, chattels, or credits.
Kinds of interest
(1) Simple interest. — when the rate of interest is stipulated by the parties (Art.
2209.);
(2) Compound interest. — when the interest earned is upon interest due (Arts.
2212, 1959.);
(3) Legal interest. — when the rate of interest intended by the parties is presumed
by law, as when the loan mentions interest but does not specify the rate thereof.
(Art. 2209.) The same rate is allowed in judgments where there is no express
contract between the parties in anticipation of the same. Its use is not justified
where there is a stipulated rate of interest in the loan contract;
(4) Lawful interest. — when the rate of interest is within the maximum allowed by
(usury) law (Secs. 2, 3, Usury Law, Act No. 2655, as amended.); and
(5) Unlawful interest. — when the rate of interest is beyond the maximum fixed by
law.
Interest Rules
Page 84 De Leon
Requisites for recovery of monetary interest.
Page 84 De Leon
Liability for legal interest.
(1) Loan or forbearance of money.
 When the obligation consists in the payment of money (i.e., loan or
forbearance of money, goods or credits), the interest due should be that
which may have been stipulated in writing.
 Legal interest in the nature of (actual and compensatory) damages for noncompliance with an obligation to pay a sum of money is recoverable even if
not expressly stipulated in writing.
(2) Other than loan or forbearance of money.
Page 86 De Leon
(3) Final and executory judgment awarding a sum of money.
Page 86 De Leon
Art. 1176
The receipt of the principal by the creditor without reservation with respect to
the interest, shall give rise to the presumption that said interest has been paid.
The receipt of a later installment of a debt without reservation as to prior
installments, shall likewise raise the presumption that such installments have
been paid.
Derivation
Presumption Defined
By presumption is meant the inference of a fact not actually known arising from its
usual connection with another which is known or proved.
Example: D borrowed P1,000.00 from C. Later, D shows a receipt signed by
C. The fact not actually known is the payment by D. The fact known is the
possession by D of a receipt signed by C. The presumption is that the
obligation has been paid unless proved otherwise by C as, for example, that
D forced C to sign the receipt.
Two kinds of presumption.
(1) Conclusive presumption. — one which cannot be contradicted like the
presumption that everyone is conclusively presumed to know the law (see Art. 3.);
and
(2) Disputable (or rebuttable) presumption. — one which can be contradicted or
rebutted by presenting proof to the contrary like the presumption established in
Article 1176.
Example 1: B owes C the amount of P10,000.00 with interest at 14% a year. C issued
a receipt for the principal. The interest was not referred to in the payment whether
or not it has been paid.
It is presumed that the interest has been previously paid by B because normally the
payment of interest precedes that of the principal. (Art. 1253.) This, however, is
only a disputable presumption and may be overcome by suffi cient evidence that
such interest had not really been paid.
Example 2: E is a lessee in the apartment of R, paying P5,000.00 rental a
month, E failed to pay the rent for the months of February and March. In
April, E paid P5,000.00 and R issued a receipt that the payment is for the
month of April.
The presumption is that the rents for the months of February and March had
already been paid. This is also in accordance with the usual business practice
whereby prior installments are first liquidated before payments are applied
to the later installments. Again, this presumption is merely disputable.
Presumptions regarding—
a. Interest bearing debt
 Presumption that interest has been paid if the principal has been received
without reservation regarding interest
b. Debt in payable installments
 Presumption that earlier installments have been paid if the later installment
has been received without reservation regarding the previous installments.
 These are only rebuttable presumptions, you can prove through other
evidence. You can prove mistake.
When presumptions in Article 1176 do not apply.
With reservation as to interest.
 The presumptions established in Article 1176 do not arise where there is a
reservation as to interest or prior installments, as the case may be. The
reservation may be made in writing or verbally.
Receipt for a part of principal.
 receipt for a part of the principal, without mentioning the interest, merely
implies that the creditor waives his right to apply the payment fi rst to the
interest and then to the principal
Receipt without indication of particular installment paid
 It has been held that the presumption in paragraph 2, Article 1176 is not
applicable if the receipt does not recite that it was issued for a particular
installment due as when the receipt is only dated. Thus, in the preceding
example (No. 2), the fact alone that the receipt issued by R is dated April 5,
does not justify the inference that the rents for February and March had
been paid.
Payment of taxes.
Article 1176 does not apply to the payment of taxes. Taxes payable by the year are
not installments of the same obligation.
Non-payment proven.
Of course, Article 1176 is not applicablewhere the non-payment of the prior
obligations has been proven. Between a proven fact and a presumption pro tanto,
the former stands, and the latter falls.
Art. 1177
The creditors, after having pursued the property in possession of the debtor to
satisfy their claims, may exercise all the rights and bring all the actions of the
latter for the same purpose, save those which are inherent in his person; they
may also impugn the acts which the debtor may have done to defraud them.
Derivation
Remedies available to creditors for the satisfaction of their claims
(1) exact fulfillment (specific performance) with the right to damages;
(2) pursue the leviable (not exempt from attachment under the law) property of
the debtor;
(3) “after having pursued the property in possession of the debtor,’’ exercise all the
rights (like the right to redeem) and bring all the actions of the debtor (like the right
to collect from the debtor of his debtor) except those inherent in or personal to the
person of the latter (such as the right to vote, to hold office, to receive legal
support, to revoke a donation on the ground of ingratitude
(4) ask the court to rescind or impugn acts or contracts which the debtor may have
done to defraud him when he cannot in any other manner recover his claim.
Enforcement of Creditor’s Remedies
a. Levy and execution of the debtor’s non-exempt properties (Articles 1177, 2236)


The most immediate object of the debtor’s remedy of
compliance is
the property already existing in the debtor’s
patrimony (things he actually owns or possesses)
Properties that are exempt from execution:
o The judgement obligor’s family home as provided
by law or the homestead in which he resides, and
land necessarily used in connection therewith
o
o
o
o
o
o
o
o
o
o
o
o
Ordinary tools and implements personally used by
him in his trade, employment, or livelihood
Three horses, or three cows, or three carabaos, or
other beasts of burden, such as the judgment
obligor may select necessarily used by him in his
ordinary occupation
His necessary clothing and articles for ordinary
personal use excluding jewelry.
Household furniture and utensils necessary for
housekeeping,
Provisions for individual or family use sufficient for
four months
Professional libraries and equipment of judges,
lawyers, physicians, etc.
One fishing boat and accessories not exceeding
100,000
Salaries, wages, earnings within 4 months
Lettered gravestones
Monies, benefits, privileges growing out of any life
insurance
Legal support, money, property obtained
b. Accion subrogatoria
 Subrogatory action premised on the theory that “the debtor of
my debtor is my debtor.”
 Requisites:
o Creditor has a right of credit against the debtor.
o Credit is due and demandable.
o Failure of debtor to collect his own credit from a third
person either through malice or negligence.
o Insufficiency of assets of the debtor to satisfy the
creditor’s credit
o Right (of account) is not intuitu personae
c. Accion pauliana (Articles 1380-1389)
 Right of creditors to rescind alienations by debtor which are
prejudicial to them to the extent of the prejudice.
 Example: A donates land to C but he owes B. A has no other
property. B can rescind the donation to C. The donation is
rescissible to the extent of the debt.
 Requisites:
o There is a credit in favor of the plaintiff
o The debtor has performed an act subsequent to the
contract, giving advantage to other persons.
o The creditor is prejudiced by the debtor’s act which are in
favor of third parties and rescission will benefit the
creditor.
o The creditor has no other legal remedy.
o The debtor’s acts are fraudulent.
d. Accion directa
 A direct (not subrogatory) action by the creditor against his
debtor’s debtor, a remedy which gives the creditor the
prerogative to act in his own name, such as the actions of the
lessor against the sublessee (Article 1652À), the laborer of an
independent contractor against the owner (Article 1729*), the
principal against the subagent (Article 1893§), and the vendoraretro against the transferee of the vendee (Article 1608¨).
 This is an exception to the relativity of contracts.
 Example 1:
There are two separate contracts here: The contract of lease
between A and B and the contract of sub-lease between B and
C. C owes B P7000. B owes A P5000. Ordinarily, A cannot sue C
since there is no relationship between them, but in Article
1652, A can sue C for P5000.
 Example 2:
Again, there are two separate contracts here: The contract for a
piece of work between A and B and the contract of labor
between B and C. A owes B P10,000 which is not fully paid yet.
B owes C P5000 for unpaid wages. C can go after A directly for
P5000.
Art. 1178
Subject to the laws, all rights acquired in virtue of an obligation are transmissible,
if there has been no stipulation to the contrary.
Derivation
Art.1112. All the rights acquired by virtue of an obligation are transmissible, subject
to law, should there be no stipulation to the contrary.
Transmissibility of rights.
All rights acquired in virtue of an obligation are generally transmissible.
Exceptions to Rule of Transmissibility
(1) Prohibited by law. — When prohibited by law, like the rights in partnership,
agency, and commodatum which are purely personal in character.
(a) By the contract of partnership, two or more persons bind themselves to
contribute money, property or industry to a common fund, with the
intention of dividing the profits among themselves. (Art. 1767.)
(b) By the contract of agency, a person binds himself to render some service
or to do something in representation or on behalf of another, with the
consent or authority of the latter. (Art. 1868.)
(c) By the contract of commodatum, one of the parties delivers to another
something not consumable so that the latter may use the same for a certain
time and return it. Commodatum is essentially gratuitous. (Art. 1933.)
(2) Prohibited by stipulation of parties
 When prohibited by stipulation of the parties, like the stipulation that
upon the death of the creditor, the obligation shall be extinguished
or that the creditor cannot assign his credit to another. The
stipulation against transmission must not be contrary to public policy.
A. Obligations which by law or by nature are intuitu personae
Example:
B. Obligations declared in transmissible by agreement.
CHAPTER 3
DIFFERENT KINDS OF OBLIGATIONS
Kind 1: According to Demandability (Art 1179-1192)
(a) P U R E
 no term nor condition, demandable at once.
 A pure obligation is one which has neither a condition nor a term attached
to it. It is one which is subject to no contingency.
 A pure obligation is demandable at once (Article 1179).
 Example 1: D obliges himself to pay C Php 1,000.00.
o The obligation is immediately demandable if there is no
condition, and no date is mentioned for its fulfillment. Of
course, if the loan has just been contracted by D, a period
must have been intended by the parties for performance but
the duration thereof will depend upon the nature of the
obligation and the circumstances. A distinction must be
made between the immediate demandability of a pure
obligation and its fulfillment by the obligor who may be granted
by the court a reasonable period for performance. The period
remains pure even where such period is fixed by the court.
 Example 2: D promises to pay C P26,900 upon receipt by D of his share from
the estate of X or “upon demand of C.”
o The obligation of D is immediately due and demandable, for C may rely
on the wording “upon demand.”
 Example 3: I promise to give you P5,000.
o This is immediately demandable since there is no term that
must expire or a condition that must happen for the obligation
to be demandable
(b) C O N D I T I O N A L
 A conditional obligation is one whose demandability or extinguishment
depends upon the happening condition.
 A condition is a future and uncertain event
 Future AND Uncertain Event, gives rise to obli or extinguishes obli
 A conditional obligation is one whose consequences are subject in
one way or another to the fulfillment of condition.
 There is a condition imposed in its performance
 All conditions are future.
 Article 1179 mentions the term “past event unknown to the parties”. This
has been criticized by many commentators. This is a contradiction in terms.
The condition in a past even unknown to the parties is knowledge by the
parties of the past event.
 In conditional obligation, the happening of the condition determines its birth
or death. In term, the happening of the term determines its demandability.
 Example 1: "I will give you my car if you pass the CPA Examination"
o The condition here is suspensive. You may not demand the
delivery of my car until you pass the CPA Examination
 Example 2: "I will let you use my car until you pass the CPA
Examination"
o The condition here is resolutory. You may demand the delivery
of the car now but you must return it to me when you pass the CPA
Examination.
Types of Conditions
As to Effect: S R
(1) Suspensive
 fulfillment of condition gives rise to obli
 a condition which suspends the rights and obligations (or the coming into
operation of the entire agreement), until a certain future event occurs. Upon
the occurrence of the event, the suspended part of the agreement (or the
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entire agreement) is brought to life. The moment the suspensive condition
happens, the obligation becomes effective and enforceable.
The fulfillment of a suspensive condition results in the acquisition of rights
arising out of the obligation. The condition that some event happen at a
determinate time shall extinguish the obligation as soon as the time expires
or if it has become indubitable that the event will not take place (Article
1184)
The condition that some event will not happen at a determinate time shall
render the obligation effective from the moment the time indicated has
elapsed, or if it has become evident that the event cannot occur (Article
1185).
The moment the suspensive condition happens, the obligation becomes
effective and enforceable. However, the effects of the obligation retroact to
the moment when such obligation was constituted or created. By the
principle of retroactivity, therefore, a fiction is created whereby the
binding tie of the conditional obligation is produced from the time of its
perfection, and not from the happening of the condition (Article 1187)
The law does not require the delivery or payment of the fruits or interests
accruing before the happening of the suspensive condition. The right to the
fruits of the thing is not within the principle of retroactivity of conditional
obligations (Article 1187)
If the obligation imposes reciprocal prestations, fruits and interest are
deemed mutually compensated.
Example 1: I promise to sell my mango plantation at P5000/hectare if you
pass the bar examination. I do not have to give you the fruits from the time
of the agreement to the release of the bar exams.
Example 2: "I will give you my car if you pass the CPA Examination"
o The condition here is suspensive. You may not demand the
delivery of my car until you pass the CPA Examination
If the obligation is unilateral, debtor appropriates the fruits.
In obligations to do and not to do, the courts shalL use sound discretion to
determine the retroactive effect of the fulfillment of the condition (Article
1187).
 The creditor may, before the fulfillment of the condition, bring the
appropriate actions for the preservation of his right (Article 1188, 1st ¶). JBL
Reyes criticizes the use of the word “bring”. The 1st ¶ of Article 1188 does
not limit itself to judicial actions. Thus, the word “take” is better.
 The debtor who paid before the happening of the condition may recover only
when he paid by mistake and provided the action to recover is brought
before the condition (Article 1188).
(2) Resolutory
 fulfillment of condition extinguishes obli
 The fulfillment of the resolutory condition results in the extinguishments of
rights arising out of the obligation.
 A resolutory condition (condition subsequent) extinguishes the obligation
upon its fulfillment.
 If the resolutory condition is fulfilled, the obligation is treated as if it did not
exist. Thus, each party is bound to return to the other whatever he has
received, so that they may be returned to their original condition before the
creation of the obligation (Article 1190).
 Example: "I will let you use my car until you pass the CPA
Examination"
o The condition here is resolutory. You may demand the delivery
of the car now but you must return it to me when you pass the CPA
Examination.
 Resolution (Article 1191) is found on the conditional obligations because if
there is a breach, the breach is a resolutory condition which extinguishes the
obligation.
 Article 1191 uses the term “rescission”. The better term is “resolution”. The
term rescission is also found in Article 1381©, rescissible contracts.
 Resolution is different from rescission. Resolution is based on the
nonfulfillment of the obligation. Rescission is based on economic prejudice.
Furthermore, the character of resolution is principal and retaliatory while the
character of rescission is subsidiary.
 This means that in resolution there is no need to show that there is no other
remedy. In rescission, the plaintiff must show that there is no other recourse.
 The right of resolution applies to reciprocal obligations.
o Elements of Reciprocal Obligations:
1. 2 prestations arising from the same source
2. Each prestation is designed to be the counterpart of the other
Example: a contract of sale
 Summary of Rulings on Resolution
1. The right to resolve is in inherent in reciprocal obligations.
2. The breach of the obligation must be substantial. Proof of
substantial breach is a prerequisite for resolution.
3. The right of resolution can be exercised extrajudicially and will take
effect upon communication to the defaulting party. This notice of
resolution is necessary.
4. The exercise of this right can be the subject of judicial review.
Judicial review: Judicial review is a process under which executive,
legislative and administrative actions are subject to review by the
judiciary.
5. Upon resolution, there must be mutual restitution of the object and
its fruits
o The parties are returned to their original situation
– status quo ante.
6. If the aggrieved party has not performed the prestation and resolves
extrajudicially, then all the aggrieved party has to do is to refuse to
perform his prestation.
7. If the aggrieved party has performed the prestation, the aggrieved
party can demand recovery. If the defaulting party refuses to return it,
the aggrieved party must go to court in order to recover.
 In Ilingan vs.CA (September 26, 2001) case, there was an
obiter dictum that the operative act that resolves a
contract is the decree of court and the right should be
exercised judicially. Professor Balane says this is wrong.
However, the ratio of the case said that the
communication must be a notarial notice.
As to Cause or Origin: P C M
(1) Potestative
 fulfillment of condition is based on the will of a party in an obli (creditor only)
 A condition suspensive in nature and which depends upon the sole will of
one of the contracting parties.
 In a potestative condition, the fulfillment of the condition depends upon the
will of a party to the obligation.
 If the condition depends upon the will of the creditor, then the obligation is
valid. In this case, there is a vinculum juris. The creditor can compel the
debtor to perform the obligation.
 Example: I will give you my pomelo plantation if you establish permanent
residence in Davao. (This is a suspensive condition dependent on the sole will
of the creditor. It becomes pure and demandable at once.)
 Article 1182 prohibits a suspensive potestative condition dependent on the
will of the debtor. The entire obligation is void.
 Example: I will sell you my car if I want to.
 Why does it annul the entire obligation? Because there is no juridical tie.
Remember, an obligation is one which has to be performed regardless of the
will of the debtor. There is no element of compulsion. In the example above,
the creditor can never compel, can never have a cause of action.
 In reciprocal obligations, the law only talks about the first prestation, the
reciprocal prestation is not taken into consideration.
 More Examples:
 Potestative on the part of the debtor, If suspensive - the obligation is void.
Even if the condition is fulfilled, the obligation is not demandable. Both
condition and obligation is void.
o Example: D is to give C P50,000 if D goes to Baguio. I’ll give you
P10,000 if I like
 Potestative on the part of the debtor, If resolutory – the obligation is valid.
o Example: D is to allow the use of his car by C until D returns from
Baguio.
 Potestative on the part of the creditor - the obligation is valid whether the
condition is suspensive or resolutory.
o Examples:
o 1.) D is to give C P 50,000 if C goes to Baguio.
o 2.) D is to allow the use of his car by C until C returns from Baguio.
o 3.) I will give you P10,000 if you like
Kinds of Potestative Conditions
rd
external act of a 3 party.
 Simple Potestative - presupposes not only a manifestation of will
but also the realization of an external act of a 3rd party.
 Purely Potestative - if it depends solely and exclusively upon the will of
the debtor, it is void for the debtor cannot fulfill an obligation arising
from his own choice. But it is valid if it depends on the will of the creditor.
(2) Casual
 based on the will of 3rd person or chance
 In a casual condition, the fulfillment of the condition depends upon chance
and/or upon the will of a 3rd person and not on the will of a party.
 A condition that depends upon chance or upon the will of a third person.

o Example: I will give you my house if the Philippines renounces its
foreign debt in 5 years. (Dependent solely on the will of a third person
or on chance).
 Condition 2: When the fulfillment of the condition does not depend on the
will of the obligor (debtor), but that on a third person who can in no way be
compelled to carry it out, and it is found by the court that the obligor(debtor)
has done all in his power to comply with his obligation, his part of the
contract is deemed complied with and he has a right to demand performance
of the contract by the other party.
(3) Mixed
 mix of will or 3rd person or chance, pwede na will of debtor ang mix
 In a mixed condition, the fulfillment of the condition depends partly upon
the will of a party to the obligation and partly upon chance and/or the will of
a 3rd person.
 A condition that depends partly upon the will of one of the parties and partly
upon chance or upon the will of a third person
 When the condition depends not only upon the will of the debtor, but also
upon chance or will of the others, the obligation is valid.
 Example 1: I will give you my house if you marry him within 3 years. (The
condition here is a mixed condition. In this case, the condition of marriage
depends partly on the creditor, a party to the obligation, and partly on a 3rd
person.)
 Example 2: Where X, building contractor, obliges himself in favor of Y, owner,
to repair at X’s expense, any damage to the building taking place after an
earthquake if found by a panel of arbitrators that construction defects
contributed in any way to the damage. Both conditions must take place in
order that X’s obligation will arise.
Doctrine of Constructive Compliance
 The condition shall be deemed fulfilled when the obligor voluntarily prevents
its fulfillment (Article 1186).
 The principle underlying constructive fulfillment of conditions is that a party
to a contract may not be excused from performing his promise by the
nonoccurrence of an event which he himself prevented.
 Requisites:
1. Intent of the debtor to prevent fulfillment of the obligation
Where the act of the debtor, however, although voluntary, did not
have for its purpose the prevention of the fulfillment of the condition,
it will not fall under the doctrine of constructive compliance.
2. Actual prevention of compliance
The doctrine of constructive compliance applies to potestative and
mixed conditions.
As to Possibility: P I
(1) Possible
 A condition is possible when it is capable of realization according to nature,
law, public policy or good customs.
(2) Impossible
 A condition is impossible when it is not capable of realization according to
nature, law, public policy or good customs.
 The effect of an impossible condition is to annul the obligation (Article 1183).
The effect of an impossible condition regarding donations and succession is
different.
 In donations and succession, an impossible condition is simply disregarded.
The distinction can be explained by the fact that Article 1183 refers to
onerous obligation whereas donations and succession are gratuitous.
 However, if the obligation is divisible and that part of the obligation is not
unaffected by the impossible condition, then the obligation is valid (Article
1183).
 Justice Paras distinguishes as follows:
1. Positive condition to do something impossible
 Void condition and obligation
 Example: I will give you 500 if you kill X.
2. Negative condition not to do something impossible
 Disregard the condition, the obligation is valid
 Example: I will give you 500 if you jump over the moon.
Disregard the condition, but the obligation which is to
give 500 is still valid.
3. Negative condition not to do something illegal
 Valid condition and obligation
 Example: I will give you 500 if you do not sell drugs.
The condition (not to sell drugs) and the obligation to give
500 are valid. If you sell drugs, then you will not receive
500.
 General Rule (GR): If the obligation is divisible, the impossible
conditions shall annul the obligation which depends upon them.
 Exceptions (XPNs):
o a. Pre-existing obligation
o b. Divisible Obligation
o c. Negative Impossible Things
o d. Testamentary deposition
o
Two kinds of impossible conditions
They are:
(1) Physically impossible conditions. — when they, in the nature of
things, cannot exist or cannot be done; and
Example: I’ll give you P10,000 if you will make a dead man alive
(2) Legally impossible conditions. — when they are contrary to law, morals,
good customs, public order, or public policy.
Example: “I will give you P10,000.00 if you kill Pedro.”
As to Mode: P N
(1) Positive (with performance)
 A condition is positive when the condition involves the performance of an
act.
 Example: D is to give P50,000 if C will marry X on or before June 30, 2016.
The obligation will be extinguished on July 1, 2016 if C has not yet
married X as of June 30, 2016.
If X dies on June 1, 2016 before C has married her, then the
obligation is extinguished on such date because there is no more
doubt that the marriage will not take place
(2) Negative (non-performance)
 A condition is negative when the condition involves the non-performance of
an act.
 Example: D is to give C P50,000 if C will not marry X on or before June
30, 2016. The obligation becomes effective on July 1, 2016 if C has not yet
married X as of June 30,2016.
If X dies on June 1, 2016 before C has married her, then the
obligation becomes effective on such date because there is no more
doubt that the marriage will not take place.
As to Divisibility: D I
(1) Divisible
 A condition is divisible when the condition is susceptible of partial
realization.
 A divisible obligation is one the object of which, in its delivery or
performance, is capable of partial fulfillment.
 Example 1: A agreed to pay B Php4,000 in two equal monthly installments
for his debt. Here, the obligation of A is divisible because it is capable of
partial performance.
 Example 2: D agreed to pay C P2,000.00 in four equal monthly installments.
The obligation of D is divisible because it is capable of partial performance.
(2) Indivisible
 A condition is indivisible when the condition is not susceptible of partial
realization.
 An obligation is presumed indivisible where there is only one creditor and
only one debtor
 Example 1: D will pay C on a certain date the full amount of P2,000.00, the
obligation is indivisible although money is physically divisible because the
intention of the parties is that the obligation must be fulfilled at one time and
as a whole (not partially).
Principle of Indivisibility of Conditions
The indivisibility of the condition passes to the heirs of the debtor: hence,
some heirs cannot demand partial performance of the obligation by offering
to fulfill part of the condition corresponding to them.
Exceptions: The condition may be divisible:
a. By nature of the condition
b. By stipulation
c. By law
As to Number or Plurality: C A
(1) Conjunctive
 A condition is conjunctive when there are several conditions, all of
which must be realized.
 Example: A could agree to oil B's deck, wax B's car, and wash B's
windows. These are three separate obligations which all must be
rendered in order to satisfy the contract.
These are three separate obligations which all must be rendered in
order to satisfy the contract. If Party A only oiled the deck and washed
the windows, Party B could enforce the contract to demand that the
car be waxed because it is a conjunctive obligation. Because these
obligations are linked, Party B could also move to enforce the contract
and demand satisfaction of all terms if it became evident that Party A
was not going to fulfill one of the obligations.
(2) Alternative
 A condition is alternative when there are several conditions, only one
of which must be realized.
 An obligation is alternative when an obligor is bound to render only
one of two or more items of performance.
 Example 1: A agrees to give B, upon a sufficient consideration, a
horse, or one hundred dollars. Usually, when an obligation is
alternative, the choice of the item of performance belongs to the
obligor unless it has been expressly or impliedly granted to
the obligee.
 Example 2: D borrowed from C P10,000. It was agreed that D could
comply with his obligation by giving C P10,000, or a color television
set, or by painting the house of C.
As to Form: E I
(1) Express
 A condition is express when the condition is stated expressly.
 Expressed conditions differ from implied conditions because of the fact that
expressed conditions are the conditions which have to be mentioned or
specified in an agreement or contract of sale prepared between both the
buyer and seller.
(2) Implied
 A condition is implied when the condition is tacit (unstated).
 Implied conditions are those conditions which even when not expressed in
words or written in the contract are considered to be warranted by the law
to be present in the sales contract.
(c) T E R M
(Articles 1193-1198)
 A term is a length of time which, exerting an influence on an obligation as a
consequence of juridical acts, suspends its demandability or determines its
extinguishment.
 A term is a future and certain event (i.e. death)
 REQUISITES — A period must be —
1. Future — It must refer to the future.
2. Certain — It must be certain (sure to come) but can be extended. (If
eliminated subsequently by mutual agreement, the obligation
becomes pure and immediately demandable).
3. Possible — It must be physical and legally possible, otherwise the
obligation is void.
 When the debtor binds himself to pay when his means permit him to do so,
the obligation is one with a term (Article 1180).
o Although Article 1180 looks like a condition dependent on the sole will
of the debtor, the law treats it as a term.
 If prepayment is made without the debtor being aware that the period had
not yet arrived, then the thing and the fruits can be recovered (Article 1195).
If prepayment is made and the debtor was aware that the period had not
yet arrived, then the debtor waives the benefit of the term.
o Example: An obligation was entered on May 1, 2002 between A and B.
The obligation is to be performed on October 1, 2002. A delivers on
September 1, 2002 by mistake to B. A discovers his mistake and tells B
to return the object and the fruits delivered. Article 1195 does not
answer who is entitled to the fruits which have been produced in the
meantime (May 1, 2002 to October 1, 2002). According to the Spanish
Code, the debtor (A) can only fruits.
Views
 1. The debtor is entitled to the fruits produced in the meantime
(Tolentino)
This is because delivery is not required until October 1.
(referring to the example above)
 2. The creditor is entitled to the fruits since the obligation is
demandable only when the period arrives
This is because the obligation is already existing although
it is not yet demandable. (referring to the example above)
 Professor Balane believes that the fruits belong to the debtor.
Why would Article 1195 allow the debtor to recover the fruits if
he should still give them back after the term comes.
Instances when the Fruits Cannot be Recovered
 i. When the obligation is reciprocal and there has been
prepayment of both sides
 ii. When the obligation is a loan and the debtor is bound to pay
interest
 iii. When the period is exclusively for the creditor’s benefit
 iv. When the debtor is aware of the period and pays anyway
waiver
 The presumption is that the period is for the benefit of both the debtor and
the creditor (Article 1196). The effect of this presumption is that the creditor
cannot demand payment before the period arrives nor can the debtor
demand the creditor to accept payment before the period arrives.
o Example: A issues a promissory note to B demandable on October
15. A cannot insist on prepayment nor can B insist that he be paid
on September.
 If the period is for the benefit of the creditor only, the creditor can demand
performance at any time, but the debtor cannot compel him to accept
payment before the period expires.
 If the period is for the benefit of the debtor only, the debtor can he may
oppose a premature demand for payment, but may validly pay at any time
before the period expires.
o When the obligation is worded such that payment it to be made
“within 6 months”, the period is for the benefit of the debtor.
o When the obligation is worded such that payment is to be made
“on or before”, the period is for the benefit of the debtor.
 The debtor shall lose every right to make use of the period:
1. When after the obligation has been contracted, the debtor becomes
insolvent unless he gives a guaranty or security for the debt (Article
1198 (1))
The insolvency here need not be judicial. It can be actual insolvency.
2. When he does not furnish to the creditor the guaranties or securities
which he has promised (Article 1198 (2))
3. When by his own acts he has impaired the said guaranties or securities
after their establishment, and when through a fortuitous event hey
disappear, unless he immediately gives new ones equally satisfactory
(Article 1198 (3))
4. When the debtor violates any undertaking, in consideration of which
the creditor agreed (Article 1198 (4))
5. When the debtor attempts to abscond (Article 1198 (5))
6. When the creditor is deceived on the substance or quality of the thing
pledged, the creditor may either claim another thing in its stead or
demand immediate payment of the principal obligation (Article 2109)
Types of Terms (Periods):
As to effect: S R
(1) Suspensive (ex die)
 The period is suspensive when the obligation becomes demandable only
upon the arrival of the period.
 Example 1: “I will pay you 30 days from today.” (or on Jan. 1 next year, or at
the end of this month.) Here, what is suspended is not the obligation itself
(or right acquired) but merely its demandability.
 Example 2: “I will support you from the time your father dies.” Here, the
uncertainty consists not in whether the day (death) will come or not, but only
in the exact date or time of its taking place.
 Example 3: “I will pay you when my means permit me to do so.” This is
considered by law as an obligation with a period.
(2) Resolutory (in diem)
 The period is resolutory when the obligation must terminate upon the arrival
of the period.
 Example 1: “I will give you P1,000.00 a month until the end of the year.”
 Example 2: “I will support you until you die.”
As to sources: L V J
(1) Legal
 A period is legal when it is granted by law.
(2) Voluntary
 A period is voluntary when it is stipulated by the parties.
(3) Judicial
 A period is judicial when it is fixed by the courts.
 If the obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended, the courts may
fix the duration thereof (Article 1197, 1st ¶).
 Examples when the Court will fix a period:
1. When the debtor binds himself to pay when his means permit him to
do so
2. When the debtor binds himself to pay “as soon as possible” or when
he binds himself to pay “little by little”
3. When the debtor shall pay “as soon as I have money” or when he binds
himself “to pay in partial payments”
4. When the duration of the lease is left with the will of the lessee but
not when the duration is left to the will of the lessor.
 2 steps involved in an action for fixing a period:
1. The court should determine that the obligation does not fix a period
but it can be inferred that a period is intended due to the
circumstances OR the period is dependent on debtor’s will.
2. Court shall decide what period was probably contemplated by the
parties.
 Court should make an educated guess.
 Court should not fix a period which it thinks is fair or
reasonable but rather the period which was probably
contemplated by the parties.
 Generally, you cannot ask for specific performance because fixing a period
contemplates something in the future, hence to ask for specific performance
would be illogical.
 Instances When Court May Fix a Period:
1. Article 1197, ¶1 If the obligation does not fix a period, but from its
nature and the circumstances it can be inferred that a period was
intended, the courts may fix the duration thereof.
Exemptions:
a. Articles 1682 and 1687, 1st sentence
Art. 1682. The lease of a piece of rural land, when
its duration has not been fixed, is understood to
have been for all the time necessary for the
gathering of the fruits which the whole estate
leased may yield in one year, or which it may yield
once, although two or more years have to elapse for
the purpose.
Art. 1687, 1st sentence. If the period for the lease
has not been fixed, it is understood to be from year
to year, if the rent agreed upon is annual; from
month to month, if it is monthly; from week to
week, if the rent is weekly; and from day to day, if
the rent is to be paid daily.
b. Pacto de retro sales (Article 1606)
Art. 1606. The right referred to in article 1601, in
the absence of an express agreement, shall last four
years from the date of the contract.
Should there be an agreement, the period cannot
exceed ten years. However, the vendor may still
exercise the right to repurchase within thirty days
from the time final judgment was rendered in a civil
action on the basis that the contract was a true sale
with right to repurchase.
c. Contract of services for an indefinite period
 Court cannot fix a period or else it would
amount to involuntary servitude.
2. Article 1197, ¶2
Art. 1197, ¶2. The courts shall also fix the duration of the period
when it depends upon the will of the debtor.
3. Article 1191, ¶3
Art. 1191, ¶3. The court shall decree the rescission claimed,
unless there be just cause authorizing the fixing of a period.
4. Article 1687, 2nd, 3rd and 4th sentences
Art. 1687, 2nd, 3rd and 4th sentences. However, even though a
monthly rent is paid, and no period for the lease has been set,
the courts may fix a longer term for the lease after the lessee
has occupied the premises for over one year. If the rent is
weekly, the courts may likewise determine a longer period after
the lessee has been in possession for over six months. In case of
daily rent, the courts may also fix a longer period after the lessee
has stayed in the place for over one month.
5. Article 1180
Art. 1180. When the debtor binds himself to pay when his
means permit him to do so, the obligation shall be deemed to
be one with a period, subject to the provisions of Article 1197.
As to Express or Tacit: E T
(1) Express
 A period is express when the period is specifically stated.
(2) Tacit
 A period is tacit when a person undertakes to do some work which can be
done only during a particular season.
As to Original or Grace: O G
(1.) Original
(2) Grace
 A grace period is an extension fixed by the parties or by the court.
 Example: If a consumer has a mortgage with a due date on the fifth of every
month—and the contract has provided a five-day grace period—the payment
can be received as late as the 10th of the month without the borrower
incurring any penalties. This is an example of a loan grace period in a
mortgage loan.
As to Definite or Indefinite: D I
(1) Definite
 A period is definite when it refers to a fixed known date or time.
(2) Indefinite
 A period is indefinite when it refers to an event which will necessarily happen,
but the date of its happening is unknown (i.e. death)
 Example: I will support and give you P1,000 every month until you die.
Kind 2: According to Plurality of Object
(Articles 1199-1206)
(a) Alternative
 An obligation is alternative when several objects or prestations are due,
but the payment or performance of 1 of them would be sufficient.
 Example 1: A promises to deliver either 500 kgs of rice or 1000 liters of
gas.
o The obligation is alternative. The debtor cannot perform the
obligation by giving 250 kgs of rice and 500 liters of gas unless the
creditor agrees. In which case there is a novation.
 Example 2: A college binds itself to admit a student to a course leading to
either: AB in English or BSEd Major in English
The college must completely perform one of these.
 General Rule: The right of choice belongs to the debtor.
 Exceptions:
o When it is expressly granted to the creditor
o When it is agreed upon by the parties that a 3rd person shall make
the choice
 The act of making the choice is called concentration. Once the choice has
been made, then the obligation is concentrated in 1 object.
 Whoever has the right of choice must communicate it to the other party
(Article 1201). The creditor has to communicate his choice to the debtor
so that the debtor will know. On the other hand, in Ong Guan vs. Century
Insurance, the Supreme Court said that the purpose for notice to the
creditor is to give the creditor the opportunity to express his consent or
to impugn the election made by the debtor. Professor Balane does not
agree with this statement since the creditor does not have the right to
impugn, otherwise, the obligation would not be an alternative obligation.
A better reason according to Professor Balane is to give the creditor time
to prepare.
 Example 3: The choice is either to give diamond ring or a Mercedes Benz.
The debtor should notify the creditor so the creditor can either rent a
safety deposit box or prepare a garage. However, according to Professor
Balane, the best reason is because once the choice is communicated, the
obligation ceases to be alternative. The risk of loss belongs to the creditor
now.
Choice Belongs to the Debtor
1. When through fortuitous event or through the debtor’s acts, there is only
1 prestation left, the obligation ceases to be alternative (Article 1202).
2. When the choice of the debtor is limited through the creditor’s own acts,
then the debtor has the remedy of resolution (Article 1191) plus damages
(Article 1203)
3. When all the things are lost due to the debtor’s fault, the creditor can sue
for damages (Article 1204)
4. When some things are lost due to the debtor’s fault but there are still some
things remaining, then the debtor can choose from what’s left
5. When all the things are lost due to a fortuitous event, the obligation is
extinguished
6. When all but 1 of the things are lost due to a fortuitous event and the last
object is lost through the debtor’s fault, then the creditor can sue for damage
7. When all but 1 of the things are lost through the debtor’s own acts and
the last object is lost through a fortuitous event, the obligation is
extinguished
Choice Belongs to the Creditor (Article 1205)
1. When 1 or some of the objects are lost through fortuitous events, then the
creditor chooses from the remainder
2. When 1 or some of the objects are lost due to the debtor’s fault, the
creditor may choose from the remainder or get the value of any of the
objects lost plus damages in either case
3. When all of the things are lost due to the debtor’s fault, the creditor can
get the value of any of the objects lost plus damages
4. When some are lost through the debtor’s fault, the creditor chooses from
the remainder
5. When all the objects are lost due to a fortuitous event, then the obligation
is extinguished
6. When all the objects are lost due to the creditor’s fault, the obligation is
extinguished
(b) Facultative
 An obligation is facultative when only 1 object or prestation has been agreed
upon by the parties to the obligation, but the debtor may deliver or render
another in substitution.
 Facultative obligations bear a resemblance to alternative obligations
particularly when the choice in an alternative obligation is with the debtor.
 In a facultative obligation, the right of choice is always with the debtor.
 In an alternative obligation, if 1 of the prestations is impossible, then there
are other choices. In a facultative obligation, if the principal obligation is
impossible, then everything is annulled.
 In theory, it is easy to distinguish a facultative obligation from an alternative
obligation. In practice, it is difficult to do so since most of the time, the words
are ambiguous.
 Example: I promise to deliver my Honda Accord, but I reserve my right to
substitute this with my Gold Rolex.
In this case, it is not very clear whether the obligation is alternative or
facultative. According to Professor Balane, the rule is that one must look at
the circumstances of the obligation. If it is impossible to determine which
one, then the doubt should be resolved in the favor of an alternative
obligation since its effects are less radical.
Kind 3: According to Plurality of Subject
(Articles 1207-1222)
(1) Single
 An obligation is single when there is only 1 debtor and 1 creditor.
(2) Joint
 An obligation is joint when each of the debtor is liable only for a proportional
part of the debt, and each creditor is entitled only to a partial part of the
credit.
 A joint obligation is also called mancomunada, pro rata, mancomunada
simple.
 General Rule: The obligation is joint since joint obligations are less onerous.
 Exceptions:
o i. Agreement of the parties
o ii. Law (i.e. tort feasors are solidarily liable)
o iii. Nature of the obligation
 According to many commentators, this is superfluous since a solidary
obligation arises because of law.
 Essential Nature: There are as many obligations as there are creditors
multiplied by as many debtors.
Types of Joint Obligations:
(a) Active joint
 In active joint, there are multiple creditors.
 Example: A, B, and C are creditors, and X is the debtor. If the obligation is
joint, there are 3 obligations – X’s obligation to A, X’s obligation to B, and X’s
obligation to C.
 The demand of 1 creditor on 1 debtor will not constitute a demand on the
others.
 The prescription of 1 of the debts will not affect the other debts.
(b) Passive joint
 In passive joint, there are multiple debtors.
 Example: X, Y, and Z are debtor, and A is the creditor. If the obligation is joint,
there are 3 obligations – X’s obligation to A, Y’s obligation to A, and Z’s
obligation to A.
 The demand of 1 creditor on 1 debtor will not constitute a demand on the
others.
 The prescription of 1 of the debts will not affect the other debts.
 The insolvency of 1 of the debtors will not affect the burden of the other
debtors.
(c) Mixed joint
 In mixed joint, there are multiple creditors and debtors.
 Example: X, Y, and Z are debtors, and A, B, and C are the creditors. If the
obligation is joint, there are 9 obligations – X’s obligation to A, X’s obligation
to B, X’s obligation to C, Y’s obligation A, Y’s obligation to B, Y’s obligation to
C, Z’s obligation to A, Z’s obligation to B, and Z’s obligation to C.
(3) Solidary
 An obligation is solidary when any of the debtors can be held liable for the
entire obligation, and any of the creditors is entitled to demand the entire
obligation.
 A solidary obligation is also called joint and several, joint and individual, and
in solidum.
 Example: If a promissory says, “I promise to pay,” and it is signed by K, B, and
M, then the obligation is solidary.
 An obligation is solidary when:
o i. The parties so agree
o ii. When the law so provides (i.e. tort feasors are solidarily liable)
o iii. When nature of the obligation requires the obligation to be solidary
 According to many commentators, this is superfluous since a solidary
obligation arises because of law.
Types of Solidary Obligations:
(a) Active solidary
 In active solidary, there are multiple creditors.
 Characteristics of Active Solidary:
o A credit once paid is shared equally among the creditors unless a
different intention appears.
o The debtor may pay any of the creditors, but if any demand, judicial or
extrajudicial is made on him, he must pay only to the one demanding
payment (Article 1214).
o Article 1214 can be open to abuse. For example, if A writes Y
demanding the performance of the obligation and A takes no further
action, B and C cannot demand from Y. This is open to collusion.
o Example: Suppose A, B, and C are creditors of X. A demands the
payment of the loan worth P9,000. X instead pays to B. The payment
to B will be treated as a payment to a 3rd person. Therefore, X must
still pay A the amount of the loan minus the share of B. So, X has to
pay P6,000 to A.
(b) Passive solidary
 In passive solidary, there are multiple debtors.
 Characteristics of Passive Solidary:
Each debtor may be required to pay the entire obligation but after payment,
he can recover from his co-debtors their respective shares.
 Example on one solidary debtor being obliged or sued to perform the entire
obligation: A, B, and C are solidary debtors who are obliged to deliver 30
sacks of rice to D. A may be compelled by D to deliver the 30 sacks of rice.
 Example 2:

(c) Mixed solidary
 In mixed solidary, there are multiple debtors and creditors.
 Characteristics of Mixed Solidary:
o A credit once paid is shared equally among the creditors unless a
different intention appears.
o The debtor may pay any of the creditors, but if any demand, judicial or
extrajudicial, is made on him, he must pay only to the one demanding
payment (Article 1214).
o According to Professor Balane, Article 1214 is problematic.
o For example, X owes A, B and C. B makes an extrajudicial demand on
X. X cannot pay A or C anymore. The problem is when B does not follow
up the demand, it can keep the obligation in suspension indefinitely.
 The rule in the Spanish Code was that the debtor cannot pay the
other non-demanding solidary creditors only if one of the
solidary creditor makes a judicial demand.
o Suppose the debtor upon whom the demand is made pays a creditor
who did not make a demand. The payment is considered a payment to
a third person. Therefore the debtor can still be made to pay by the
one who made the demand on him.
o Example: X owes A and B. B demanded from X. X pays A. X must still
pay B P6000. But the payment to the demanding creditor can be
reduced by the share of the paid creditor. The debtor can still recover
from the paid creditor (unjust enrichment).
o Suppose A and B are creditors while X and Y are debtors. A demands
from Y. Now, X pays B. The payment of X to B extinguishes the entire
solidary obligation. X is not bound by the demand by A on Y. There is
no violation of Article 1214.
 Each debtor may be required to pay the entire obligation but after payment,
he can recover from his codebtors their respective shares.
Is there a conflict between Article 1212 and Article 1215ª?
Article 1212 provides that each of the solidary creditors may do whatever may be
useful to the others, but not anything which may be prejudicial to the latter. But
Article 1215 allows novation, compensation, confusion or remission on the part of
the solidary creditor. Why? According to Professor Balane, this is absurd.
One way of reconciling is that under Article 1215, any creditor can remit or condone
the obligation. But because the obligation is extinguished, the condoning creditor
must be liable for the other creditor’s share. Here, there is no prejudice.
However, another problem arises if the condoning creditor later on becomes
insolvent.
Art. 1219. The remission made by the creditor of the share which affects one of the
solidary debtors does not release the latter from his responsibility towards the
codebtors, in case the debt had been totally paid by anyone of them before the
remission was effected.
 A is the creditor of W, X, Y, and Z.
W, X, Y, and Z owe A P6,000.
The obligation is solidary. A remits Y’s share – P1,500. A can go after X for
only P4,500. The remission benefits X initially since X only has to pay P4,500
instead of 6,000. However, X can only recover P3,000 from W and Z.
 A is the creditor of W, X, Y, and Z.
W, X, Y, and Z owe A P6,000.
The obligation is solidary. A remits Y’s share – P1,500. A can go after Y for the
balance since Y is still a solidary debtor for the balance. Otherwise, the effect
of remission would be extended. However, Y can recover P4,500 from W, X,
and Z.
 A is the creditor of W, X, Y, and Z.
W, X, Y, and Z owe A P6,000.
The obligation is solidary. A remits Y’s share – P1,500. Z becomes insolvent.
A sues W for the balance of P4,500.
Art. 1217 must be applied. Thus, the insolvency of Z is shouldered by W, X,
and Y. So, W can recover P2,000 from X and P500 from Y instead of collecting
P3,000. W has to shoulder P500 as a loss due to Z’s insolvency.
3 Kinds of Defenses:
(a) Real defenses
 These are defenses derived from the nature of the obligation.
 A real defense is a total defense. It benefits all the debtors.
(b) Personal defenses
 Personal defenses may either be total or partial defenses.
 An example of a total personal defense is if the consent of the debtors were
all diminished.
 An example of a partial defense is that a certain amount not yet due. It is
partial since there may be amounts which are already due. Thus, the debtor
has to pay for those amounts which are due.
(c) Defenses which are personal to the other co-debtors
 The debtor can only avail himself of these defenses only with regard to the
part of the debt which his co-debtors are responsible for.
 These defenses are partial.
 The debtor sued can invoke all three kinds of defenses. The difference is
whether such defense would result in total or partial exculpation.
Kind 4: According to Performance
(Articles 1223-1225)
 Divisible and indivisible obligations have nothing to do with the object of the
prestation. A common misconception is if the object of the prestation is
divisible, then the obligation is also divisible.
(a) Divisible
 An obligation is divisible when it is susceptible to partial performance.
(b) Indivisible
 An obligation is indivisible when it cannot be validly performed in parts.
 General Rule: Obligations are indivisible.
 Exceptions:
o i. When the parties provide otherwise (Articles 1225, 3rd ¶, 1248Æ)
o ii. When the nature of the obligation necessarily entails the
performance of the obligation in parts
 Example: Hiring a security guard to guard from 8pm to 2am
daily for 6 months. This obligation cannot be performed
indivisibly. You can’t compress time.
 When the obligation has for its object the execution of a certain
number of days of work, the accomplishment of work by
metrical units, or analogous things, which by their nature are
susceptible of partial performance, it shall be divisible (Article
1225, 2nd ¶)
 Exception to the Exception:
o However, even though the object or service may be
physically divisible, an obligation is indivisible if:
o 1. So provided by law; or
o 2. Intended by the parties.
o iii. When the law provides otherwise.
 There are provisions on payment which provide that
performance may be divisible.
 Divisibility of the object does not mean that the obligation is also divisible.
But indivisibility of the object necessarily means an indivisible obligation.
 The test of divisibility of an obligation is whether or not it is susceptible of
partial performance.
o For example, if X is supposed to deliver 1000 kilos of sugar, this does
not mean that X can deliver the sugar in installments.
Kind 5: According to Sanction for Breach
(Articles 1226-1230)
(a) No penal clause
(b) With penal cause
 A penal clause is an accessory undertaking to assume greater liability in case
of breach (SSS vs. Moonwalk).
 Penal clauses are governed by Articles 2226-2228Å, then provisions on
liquidated damages since a penal clause is the same as liquidated damages
(Lambert vs. Fox).
 Penal clauses may be reduced by the courts if unconscionable.
2 Functions of a Penal Clause:
(SSS vs. Moonwalk)
(a) To provide liquidated damages
 The creditor can demand liquidated damages without having to prove actual
damages.
 The only limitation that the courts will reduce the liquidated damages if the
same is scandalously unconscionable.
(b) To strengthen the coercive force of the obligation by the threat of greater
responsibility in case of breach
 Stipulates a penalty which is greater than one without a penal clause. Thus,
Robes-Francisco states that 4% interest is not a penal clause.
2 Characteristics of a Penal Clause:
(a) Subsidiary or alternative (Article 1227)
 General Rule: Upon breach of the obligation, the creditor has to choose
whether to demand the principal or the penalty.
 Exception: The principal obligation and the penalty can be demanded when
the penal clause is joint or cumulative. This occurs when it is the creditor has
been clearly granted such right (Article 1227, 2nd sentence), either expressly
or impliedly. The implied right must be one ascertainable from the nature of
the obligation. An example is in the construction industry where the
contractor must pay the penalty if the work is completed after the stipulated
time frame but must also finish the agreed construction.
(b) Exclusive (Article 1226)
 General Rule: The penalty clause takes the place of other damages (that’s
why in imposing a penalty clause, make sure that the penalty is stiff).
 Exception: Both the penalty and actual damages may be recovered in the
following:
o 1. Express stipulation
o 2. Refusal by the debtor to pay the penalty
o 3. The debtor is guilty of fraud (malice) in the performance of the
obligation.
 Example: In Pamintuan vs. CA, the Supreme Court said that the excess of
damages absorbs the penalty. Professor Balane said that this is a wrong
application. You can demand both the excess and the penalty.
ART. 1179. (Pure Obligations)
Every obligation whose performance does not depend upon a future or uncertain
event, or upon a past event unknown to the parties, is demandable at once.
Every obligation which contains a resolutory condition shall also be demandable,
without prejudice to the effects of the happening of the event.
What is Pure Obligation
A pure obligation is one which is not subject to any condition and no specific date
is mentioned for its fulfillment and is, therefore, immediately demandable.
 Defined negatively but takes no account of terms
 Art 1179 states that a pure obligation is one that is not conditional
 Pure obligation is one that subject neither to a condition or a term
Example 1:
D obliges to pay C P10,000.00. The obligation is immediately demandable if
there is no condition and no date is mentioned for its fulfi llment. Of course,
if the loan has just been contracted by D, a period must have been intended
by the parties for performance (see Floriano vs. Delgado, 11 Phil. 154 [1908].)
but the duration thereof will depend upon the nature of the obligation and
the circumstances. (Art. 1197.)
A distinction must be made between the immediate demandability of a pure
obligation and its fulfi llment by the obligor who may be granted by the court
a reasonable period for performance. The period remains pure even where
such period is fixed by the court.
Example 2:
D promises to pay C P26,900.00 upon receipt by D of his share from the
estate of X or “upon demand of C.” The obligation of D is immediately due
and demandable, for C may rely on the wording “upon demand.”
Essence of Pure Obligations
The essential, identifying
demandability.
feature of a pure obligation is its immediate
What is Conditional Obligation
A conditional obligation is one whose consequences are subject in one way or
another to the fulfi llment of a condition.
Condition = a future or uncertain event, or a past event unknown to the
parties, on which the performance of an obligation depends
Characteristics of a condition
(1) Future and uncertain
 In order to constitute an event a condition, it is not enough that it be
future; it must also be uncertain.
 The first paragraph of Article 1179 obviously uses the disjunctive or
between “future” and “uncertain” to distinguish pure obligation from
both the conditional obligation and one with a period. Be that as it
may, the word “or” should be “and”.
o If it is FUTURE BUT CERTAIN, it is a term.
o If it is UNCERTAIN BUT NOT FUTURE, time travels in a reverse
direction.
(2) Past but unknown
 A condition may refer to a past event unknown to the parties. (infra.) If it
refers to a future event, both its very occurrence and the time of such
occurrence must be uncertain; otherwise, it is not a condition.
 A condition must not be impossible. (see Art. 1183.)
Two principal kinds of condition
(1) Suspensive condition
 (condition precedent or condition antecedent) or one the fulfi llment of which
will give rise to an obligation (or right).
 Gives rise to the obligation
 In other words, the demandability of the obligation is suspended until the
happening of a future and uncertain event which constitutes the condition.
o a. Actually, the birth, perfection or effectivity of the contract subject
to a condition can take place only if and when the condition happens
or is fulfi lled. If the suspensive condition does not take place, the
parties would stand as if the conditional obligation had never existed.
o b. It must appear that the performance of an act or the happening of
an event was intended by the parties as a suspensive condition,
otherwise, its non-fulfi llment will not prevent the perfection of a
contract.
o c. There can be no rescission (see Art. 1191.) of an obligation that is
still non-existent, the suspensive condition not having been fulfilled.
Example 1: Acknowledgment signed by one of the debtors of a document is
conditioned upon the same being signed by all the debtors.
By agreement of C and D, the separate debts of the brothers A, B, and C to D were
liquidated and consolidated into only one obligation in a promissory note signed by
C who acknowledged his indebtedness. D signed the note on condition that C would
obtain the signatures of A and B thereby creating a joint obligation against the
three. C never secured their signatures until his death.
In an action against A and B by D to recover their respective shares in the
indebtedness, A and B contended that since their signatures were not affi xed to
the document, D was bound to acknowledge it as a credit only against C who signed
it.
Is D bound to acknowledge the document as a credit only against C?
No. The contract contained reciprocal obligations (see Art.1169, last par.) which
were to be fulfi lled by each of the signers, that is, on the part of C to secure
signatures of A and B to the instrument, and covering their indebtedness to him.
Until C obtained the signatures of A and B, D was not in any way bound to
acknowledge it as anything more than an executory contract containing a condition
precedent which was to be performed by C before D’s obligation was due. Mere
continued silence on his part could signify nothing until the signatures of A and B
had been secured.
Example 2: Sale of vessel is conditioned upon proof that seller is, in fact, owner of
property.
S, owner, and B, purchaser, agreed upon the sale of a vessel provided that the title
papers to the same were in proper form. The title was in the name of another and
S promised to perfect his title to the vessel. Before compliance by S with the
condition exacted by B, and while the vessel was in S’s possession, it sank due to a
severe storm.
Is B under obligation to pay the price of the vessel?
No. The sale of the vessel was not perfected, because of the non-compliance by S
of a condition precedent to its perfection, to wit: the production of the proper
papers showing that he was, in fact, the owner of the vessel in question.
Consequently, the loss of the vessel must be borne by S, the owner, and not by B
who only intended to purchase it and was unable to do so because of failure of S
to comply with the said condition. Article 1262 is not applicable.
(2) Resolutory condition
 (condition subsequent) or one the fulfillment of which will extinguish an
obligation (or right) already existing
 The fulfillment of the resolutory condition results in the extinguishments of
rights arising out of the obligation.
 If the resolutory condition is fulfilled, the obligation is treated as if it did not
exist. Thus, each party is bound to return to the other whatever he has
received, so that they may be returned to their original condition before the
creation of the obligation (Article 1190).
 Resolution (Article 1191) is found on the conditional obligations because if
there is a breach, the breach is a resolutory condition which extinguishes the
obligation.
 Article 1191 uses the term “rescission”. The better term is “resolution”. The
term rescission is also found in Article 1381©, rescissible contracts.
o Resolution is different from rescission. Resolution is based on the
nonfulfillment of the obligation.
o Rescission is based one economic prejudice.
o Furthermore, the character of resolution is principal and retaliatory
while the character of rescission is subsidiary. This means that in
resolution there is no need to show that there is no other remedy. In
rescission, the plaintiff must show that there is no other recourse.
 The right of resolution applies to reciprocal obligations.
o Elements of Reciprocal Obligations:
1. 2 prestations arising from the same source
2. Each prestation is designed to be the counterpart of the other
Example: a contract of sale
 Summary of Rulings on Resolution
1. The right to resolve is in inherent in reciprocal obligations.
2. The breach of the obligation must be substantial. Proof of
substantial breach is a prerequisite for resolution.
3. The right of resolution can be exercised extrajudicially and will take
effect upon communication to the defaulting party. This notice of
resolution is necessary.
4. The exercise of this right can be the subject of judicial review.
5. Upon resolution, there must be mutual restitution of the object and
its fruits
 The parties are returned to their original situation – status
quo ante.
6. If the aggrieved party has not performed the prestation and resolves
extrajudicially, then all the aggrieved party has to do is to refuse to
perform his prestation.
7. If the aggrieved party has performed the prestation, the aggrieved
party can demand recovery. If the defaulting party refuses to return it,
the aggrieved party must go to court in order to recover.
 In Ilingan vs.CA (September 26, 2001) case, there was an
obiter dictum that the operative act that resolves a
contract is the decree of court and the right should be
exercised judicially. Professor Balane says this is wrong.
However, the ratio of the case said that the communication must be a
notarial notice.
Example 1: Donation subject to resolutory condition transfers title but revocable
for non-compliance with condition.
R donated to T (Province of Tarlac) a parcel of land subject to the condition that it
was to be used for the erection of a central school and a public park, the work to
commence within the period of six (6) months from the date of the ratification by
the parties of the deed of donation. The donation was accepted by T and title to
the property was transferred to it. Subsequently, R sold the land to C.
C claimed that since the condition imposed was not complied with, there was no
donation.
Is the condition suspensive or subsequent?
It is a condition subsequent. The characteristic of a condition precedent is that the
acquisition of right is not effected while said condition is not complied with or is
not deemed complied with. Meanwhile, nothing is acquired and there is only an
expectancy of right. Consequently, when a condition is imposed, the compliance of
which cannot be effected except when the right is deemed acquired, such condition
cannot be deemed a condition precedent.
In the present case, the condition could not be complied with except after giving
effect to the donation. The donee could not do any work on the donated land if the
donation had not really been effected because it would be an invasion of another’s
title, for the land would have continued to belong to the donor so long as the
condition imposed was not complied with. The non-compliance with the condition
is, however, a sufficient cause for revocation.
Example 2: Vendor seeks rescission of sale for violation by vendee of restriction
imposed in contract of sale between vendor and previous owner (fi rst vendor).
The contract of sale of three (3) lots between S (PHHC) and B provided that only
construction exclusively for “residential purposes” shall be built on the property,
terms thereof to be binding upon the successors and assignees of the respective
parties. Subsequently, B sold two (2) lots to Meralco which established a substation within the property.
Because of the “severe noise” from the sub-station, B filed a complaint for the
rescission of the sale.
Has B the right of action against Meralco for violation of the restriction imposed in
the contract between S and B?
No. It is S which has the right of action against any assignee of B. S cannot rescind
the contract between B and Meralco because it was not a party to it. S’s redress
would be to directly “seek cancellation of the title of Meralco, and to repossess the
property” as provided in its contract with B.
Distinctions between suspensive and resolutory conditions
Both bear an influence on the existence of the obligation, but in diametrically
opposed manner.
(1) If the suspensive condition is fulfi lled, the obligation arises, while if it
is the resolutory condition that is fulfi lled, the obligation is
extinguished;
(2) If the fi rst does not take place, the tie of law (juridical or legal tie) does
not appear, while if it is the other, the tie of law is consolidated; and
(3) Until the fi rst takes place, the existence of the obligation is a mere
hope, while in the second, its effects fl ow, but over it, hovers the
possibility of termination.
Note—A distinction must be made between a condition imposed on the perfection
of a contract and that imposed on the performance of an obligation. Failure to
comply with the fi rst condition results in the failure of a contract, while failure to
comply with the second (e.g., condition that the seller shall eject the squatters on
the property sold within a certain period), only gives the other party the option
either to refuse to proceed with the sale or to waive the condition.
When obligation demandable at once
An obligation is demandable at once —
(1) when it is pure (Art. 1179, par. 1.);
(2) when it is subject to a resolutory condition (Ibid., par. 2.); or
(3) when it is subject to a resolutory period (Art. 1193, par. 2.)
Other Modes of Classifying Conditions
(1) Depends on the will of the party interested
 Depends on the will of the party interested in the juridical relation, on
chance, or partly upon the will of a third person or upon chance
Potestative
 In a potestative condition, the fulfillment of the condition depends upon the
will of a party to the obligation.
 If the condition depends upon the will of the creditor, then the obligation is
valid. In this case, there is a vinculum juris. The creditor can compel the
debtor to perform the obligation.
 Example: I will give you my pomelo plantation if you establish permanent
residence in Davao. (This is a suspensive condition dependent on the sole will
of the creditor. It becomes pure and demandable at once.)
 Article 1182 prohibits a suspensive potestative condition dependent on the
will of the debtor. The entire obligation is void.
 Example: I will sell you my car if I want to.
 Why does it annul the entire obligation? Because there is no juridical tie.
Remember, an obligation is one which has to be performed regardless of the
will of the debtor. There is no element of compulsion. In the example above,
the creditor can never compel, can never have a cause of action.
 In reciprocal obligations, the law only talks about the first prestation, the
reciprocal prestation is not taken into consideration.
Casual
 In a casual condition, the fulfillment of the condition depends upon chance
and/or upon the will of a 3rd person and not on the will of a party.
 Condition 1: If the suspensive condition depends upon chance or upon the
will of a third person, the obligation subject to it is valid.
o Example: I will give you my house if the Philippines renounces its
foreign debt in 5 years. (Dependent solely on the will of a third person
or on chance).
 Condition 2: When the fulfi llment of the condition does not depend on the
will of the obligor, but that on a third person who can in no way be compelled
to carry it out, and it is found by the court that the obligor has done all in his
power to comply with his obligation, his part of the contract is deemed
complied with and he has a right to demand performance of the contract by
the other party.
Mixed
 In a mixed condition, the fulfillment of the condition depends partly upon
the will of a party to the obligation and partly upon chance and/or the will of
a 3rd person.
 When the condition depends not only upon the will of the debtor, but also
upon chance or will of the others, the obligation is valid.
 Example 1: I will give you my house if you marry him within 3 years. (The
condition here is a mixed condition. In this case, the condition of marriage
depends partly on the creditor, a party to the obligation, and partly on a 3rd
person.)
 Example 2: Where X, building contractor, obliges himself in favor of Y, owner,
to repair at X’s expense, any damage to the building taking place after an
earthquake if found by a panel of arbitrators that construction defects
contributed in any way to the damage. Both conditions must take place in
order that X’s obligation will arise.
Doctrine of Constructive Compliance
 The condition shall be deemed fulfilled when the obligor voluntarily prevents
its fulfillment (Article 1186).
 The principle underlying constructive fulfillment of conditions is that a party
to a contract may not be excused from performing his promise by the
nonoccurrence of an event which he himself prevented.
 Requisites:
1. Intent of the debtor to prevent fulfillment of the obligation
Where the act of the debtor, however, although voluntary, did not
have for its purpose the prevention of the fulfillment of the condition,
it will not fall under the doctrine of constructive compliance.
2. Actual prevention of compliance
The doctrine of constructive compliance applies to potestative and
mixed conditions.
(2) By its nature, agreement, or law
 It is capable of being complied in parts
Divisible
 A condition is divisible when the condition is susceptible of partial
realization.
Indivisible
 A condition is indivisible when the condition is not susceptible of partial
realization.
(3) Being several
 All or only one should be complied with
Joint
Alternative
(4) Whether In an act or inaction
Positive
 A condition is positive when the condition involves the performance of an
act.
Negative
 A condition is negative when the condition involves the non-performance of
an act.
(5) Whether expressly provided for or implied
Express
 A condition is express when the condition is stated expressly.
Implied
 A condition is implied when the condition is tacit.
(6) Whether capable of fulfillent or impossible to fulfill
Possible
 A condition is possible when it is capable of realization according to nature,
law, public policy or good customs.
Impossible
 A condition is impossible when it is not capable of realization according to
nature, law, public policy or good customs.
 The effect of an impossible condition is to annul the obligation (Article 1183).
The effect of an impossible condition regarding donations and succession is
different.
 In donations and succession, an impossible condition is simply disregarded.
The distinction can be explained by the fact that Article 1183 refers to
onerous obligation whereas donations and succession are gratuitous.
 However, if the obligation is divisible and that part of the obligation is not
unaffected by the impossible condition, then the obligation is valid (Article
1183).
 Justice Paras distinguishes as follows:
2. Positive condition to do something impossible
 Void condition and obligation
2. Negative condition not to do something impossible
 Disregard the condition, the obligation is valid
3. Negative condition not to do something illegal
 Valid condition and obligation
(7) Conjuctive and Alternative
Conjuctive
 A condition is conjunctive when there are several conditions, all of
which must be realized.
Alternative
 A condition is alternative when there are several conditions, only one
of which must be realized.
Past event unknown to the parties
 A condition really refers only to an uncertain and future event. A past event
cannot be said to be a condition since the demandability of an obligation
subject to a condition depends upon whether the event will happen or will
not happen.
 What is really contemplated by the law is the knowledge to be acquired in
the future of a past event which at the moment is unknownnto the parties
interested, for it is only in that sense that the event can bendeemed
uncertain. This knowledge determines whether the obligation will arise or
not.
 Example: S is the owner of a parcel of land which is being claimed by X. Last
week, the Supreme Court has rendered a fi nal decision upholding the right
of S. However, S has not yet received the notice that he had won the case.
Now, S obliged himself to sell the land to B for a defi nite price, should he
win the case against X.
Under the facts, S would be bound to sell the land to B upon receipt of the
notice that he had won the case against X.
Art 1180 (Term/Period)
When the debtor binds himself to pay when his means permit him to do so, the
obligation shall be deemed to be one with a period, subject to the provisions of
Article 1197.
“When His Means Permit Him To Do So”
 It is possible and defensible to categorize the obligation as one dependent
on the sole will of the debtor and therefore void under Art 1182

When Payment Should Be Made
Proper Place of Article
Where duration of period depends upon the will of debtor
A period is a future and certain event upon the arrival of which the obligation
subject to it either arises or is extinguished.
(1) The debtor promises to pay when his means permit him to do so.
The obligation shall be deemed to be one with a period. In this case, what depends
upon the debtor’s will is not whether he should pay ornot for indeed he binds
himself to pay. What is left only to his will is the duration of the period. If the debtor
and the creditor cannot agree as to the specifi c time for payment, the court shall
fi x the same on the application of either party.
(2) Other cases
As when the debtor binds himself to pay:







Little by little
As sson as possible
From time to time
As soon as I have the money
At any time I have the money
In partial payments
Whan I am in a position to pay
Art. 1181
In conditional obligations, the acquisition of rights, as well as the extinguishment
or loss of those already acquired, shall depend upon the happening of the event
which constitutes the condition.
Two principal kinds of condition
(1) Suspensive condition
 (condition precedent or condition antecedent) or one the fulfi llment of which
will give rise to an obligation (or right).
 Gives rise to the obligation
 In other words, the demandability of the obligation is suspended until the
happening of a future and uncertain event which constitutes the condition.
o a. Actually, the birth, perfection or effectivity of the contract subject
to a condition can take place only if and when the condition happens
or is fulfi lled. If the suspensive condition does not take place, the
parties would stand as if the conditional obligation had never existed.
o b. It must appear that the performance of an act or the happening of
an event was intended by the parties as a suspensive condition,
otherwise, its non-fulfi llment will not prevent the perfection of a
contract.
o c. There can be no rescission (see Art. 1191.) of an obligation that is
still non-existent, the suspensive condition not having been fulfilled.
Example 1: Acknowledgment signed by one of the debtors of a document is
conditioned upon the same being signed by all the debtors.
By agreement of C and D, the separate debts of the brothers A, B, and C to D were
liquidated and consolidated into only one obligation in a promissory note signed by
C who acknowledged his indebtedness. D signed the note on condition that C would
obtain the signatures of A and B thereby creating a joint obligation against the
three. C never secured their signatures until his death.
In an action against A and B by D to recover their respective shares in the
indebtedness, A and B contended that since their signatures were not affi xed to
the document, D was bound to acknowledge it as a credit only against C who signed
it.
Is D bound to acknowledge the document as a credit only against C?
No. The contract contained reciprocal obligations (see Art.1169, last par.) which
were to be fulfi lled by each of the signers, that is, on the part of C to secure
signatures of A and B to the instrument, and covering their indebtedness to him.
Until C obtained the signatures of A and B, D was not in any way bound to
acknowledge it as anything more than an executory contract containing a condition
precedent which was to be performed by C before D’s obligation was due. Mere
continued silence on his part could signify nothing until the signatures of A and B
had been secured.
Example 2: Sale of vessel is conditioned upon proof that seller is, in fact, owner of
property.
S, owner, and B, purchaser, agreed upon the sale of a vessel provided that the title
papers to the same were in proper form. The title was in the name of another and
S promised to perfect his title to the vessel. Before compliance by S with the
condition exacted by B, and while the vessel was in S’s possession, it sank due to a
severe storm.
Is B under obligation to pay the price of the vessel?
No. The sale of the vessel was not perfected, because of the non-compliance by S
of a condition precedent to its perfection, to wit: the production of the proper
papers showing that he was, in fact, the owner of the vessel in question.
Consequently, the loss of the vessel must be borne by S, the owner, and not by B
who only intended to purchase it and was unable to do so because of failure of S
to comply with the said condition. Article 1262 is not applicable.
(2) Resolutory condition
 (condition subsequent) or one the fulfillment of which will extinguish an
obligation (or right) already existing
 Extinguishes an obligation
Example 1: Donation subject to resolutory condition transfers title but revocable
for non-compliance with condition.
R donated to T (Province of Tarlac) a parcel of land subject to the condition that it
was to be used for the erection of a central school and a public park, the work to
commence within the period of six (6) months from the date of the ratification by
the parties of the deed of donation. The donation was accepted by T and title to
the property was transferred to it. Subsequently, R sold the land to C.
C claimed that since the condition imposed was not complied with, there was no
donation.
Is the condition suspensive or subsequent?
It is a condition subsequent. The characteristic of a condition precedent is that the
acquisition of right is not effected while said condition is not complied with or is
not deemed complied with. Meanwhile, nothing is acquired and there is only an
expectancy of right. Consequently, when a condition is imposed, the compliance of
which cannot be effected except when the right is deemed acquired, such condition
cannot be deemed a condition precedent.
In the present case, the condition could not be complied with except after giving
effect to the donation. The donee could not do any work on the donated land if the
donation had not really been effected because it would be an invasion of another’s
title, for the land would have continued to belong to the donor so long as the
condition imposed was not complied with. The non-compliance with the condition
is, however, a sufficient cause for revocation.
Example 2: Vendor seeks rescission of sale for violation by vendee of restriction
imposed in contract of sale between vendor and previous owner (fi rst vendor).
The contract of sale of three (3) lots between S (PHHC) and B provided that only
construction exclusively for “residential purposes” shall be built on the property,
terms thereof to be binding upon the successors and assignees of the respective
parties. Subsequently, B sold two (2) lots to Meralco which established a substation within the property.
Because of the “severe noise” from the sub-station, B filed a complaint for the
rescission of the sale.
Has B the right of action against Meralco for violation of the restriction imposed in
the contract between S and B?
No. It is S which has the right of action against any assignee of B. S cannot rescind
the contract between B and Meralco because it was not a party to it. S’s redress
would be to directly “seek cancellation of the title of Meralco, and to repossess the
property” as provided in its contract with B.
Effect of happening of condition
This article reiterates the distinction between a suspensive (or antecedent)
condition and a resolutory (or subsequent) condition.
(1) Acquisition of rights.
 In obligations subject to a suspensive condition, the acquisition of rights by
the creditor depends upon the happening of the event which constitutes the
condition.
 What characterizes this kind of obligation is the fact of its efficacy or
obligatory force (as distinguished from its demandability) is subordinated to
the happening of a future and uncertain event; so that if the suspensive
condition does not take place, the parties would stand as if the conditional
obligation had never existed or before the suspensive condition has taken
place, what is acquired by the creditor is a mere hope or expectancy of
acquiring a right.
 Example 1: The surrender of the sweepstakes ticket is a condition precedent
to the payment of the prize.
 Example 2: Where the loans of X from Y were supposed to become due only
at the time Y receives from Z the proceeds of the approved fi nancing
scheme, and Z refused to make releases, the condition for the loan did not
happen and X is not, therefore, liable to Y.
Examples:
Right of owner to receive payment for use of his vessel is conditioned upon
contract for lighterage being awarded to lessee by the government.
X bound itself to pay a certain amount daily for the use of Y’s lorchas during the
period that they should be in X’s possession and control, subject to the condition
that X would succeed in securing the entire contract for lighterage from the
Government. Said contract embraced two services: emergency and regular. X was
able to secure only the emergency service, the regular service having been awarded
to another.
After using the lorchas, X immediately notifi ed Y and tendered payment
corresponding to the days the lorchas were in use pursuant to said emergency
service. The payment was refused by Y.
Is X liable for the days he did not use the lorchas while they were in his control?
No. The obligation assumed by X was a conditional one. Since he was able to secure
only a part of the lighterage services, his obligation to pay for all the days he had
the lorchas in his control did not arise.
(2) Loss of rights already acquired.
In obligations subject to a resolutory condition, the happening of the event which
constitutes the condition produces the extinguishment or loss of rights already
acquired.
Examples:
(1) S sold to B a parcel of land subject to S’s right of repurchase. The ownership
already acquired by B under the contract shall be extinguished or lost should S
exercise his right of repurchase.
(2) A lease contract expressly stipulates that R, lessor, may terminate the lease in
case his children shall need the leased premises. Here, the happening of the
condition depends upon the will of a third person —R’s children.
(3) Non-fulfi llment of a mere incidental stipulation in a contract of sale.
S agreed to sell a parcel of land to B. Under the contract, B was given a certain
period within which to arrange and complete the papers relating to the
property. S refused to proceed with the sale in view of the failure of B to
complete the title papers. B brought action for specifi c performance.
Is the agreement on the part of B to complete the title papers a condition
subsequent?
No, and, therefore, its non-fulfi llment did not resolve the obligation of S to
sell. It is a mere incidental stipulation which the parties saw fit to include in
their agreement.
(4) Right of possession of land shall terminate if any of owner’s grandchildren
decides to build house on property.
X, owner of a residential lot, executed an agreement with Y under which X
shall reap the fruits of the riceland of Y while Y shall have the right to build
his house on the lot of X, subject to the condition that if any of the
grandchildren of X decides to build his or her house on the lot, Y shall be
obliged to return the same. Under the agreement, X and Y are prohibited to
encumber or alienate their respective properties without the consent of the
other.
C, a grandchild of X, now seeks to recover the property, claiming that he
needs the same for the construction of his house thereon.
Is C entitled to recover the lot?
Yes. The mutual agreement between X and Y — each party enjoying
“material possession” of the other’s property — is subject to a resolutory
condition the happening of which has the effect of terminating the right of
possession and use. The agreement indicates that there is no intention on
the part of the parties to convey ownership of their respective properties.
Effect of non-compliance with resolutory condition.
Where a contract is subject to a resolutory condition, non-compliance with or nonfulfillment of the condition resolves the contract by force of law without need of
judicial intervention.
Example: Sale to be deemed cancelled upon failure to construct house on land sold
within a certain period.
PHHC (People’s Homesite and Housing Corp.), a government instrumentality, sold
a lot to B subject to the resolutory condition that B “shall construct a residential
house on the lot within a period of one (1) year from the signing of the contract,
non-compliance with which shall result in the contract being deemed annulled and
cancelled.” B failed to comply with the condition of the contract.
What is the effect of B’s non-compliance with the resolutory condition of building
a house?
The contract is resolved by operation of law. B acquires no vested right to the lot
which reverts to PHHC. PHHC, however, may waive the effects of said resolutory
condition.
ART. 1182.
When the fulfillment of the condition depends upon the sole will of the debtor,
the conditional obligation shall be void. If it depends upon chance or upon the
will of a third person, the obligation shall take effect in conformity with the
provisions of this Code.
Potestative, Casual, Mixed
(1) Potestative
o In a potestative condition, the fulfillment of the condition depends upon the
will of a party to the obligation.
o If the condition depends upon the will of the creditor, then the obligation is
valid. In this case, there is a vinculum juris. The creditor can compel the
debtor to perform the obligation.
o Example: I will give you my pomelo plantation if you establish permanent
residence in Davao. (This is a suspensive condition dependent on the sole will
of the creditor. It becomes pure and demandable at once.)
o Article 1182 prohibits a suspensive potestative condition dependent on the
will of the debtor. The entire obligation is void.
o Example: I will sell you my car if I want to.
o Why does it annul the entire obligation? Because there is no juridical tie.
Remember, an obligation is one which has to be performed regardless of the
will of the debtor. There is no element of compulsion. In the example above,
the creditor can never compel, can never have a cause of action.
(2) Casual
 In a casual condition, the fulfillment of the condition depends upon chance
and/or upon the will of a 3rd person and not on the will of a party.
 Example: I will give you my house if the Philippines renounces its foreign
debt in 5 years. (Dependent solely on the will of a third person or on chance).
(3) Mixed
 In a mixed condition, the fulfillment of the condition depends partly upon
the will of a party to the obligation and partly upon chance and/or the will of
a 3rd person.
 When the condition depends not only upon the will of the debtor, but also
upon chance or will of the others, the obligation is valid.
 Example: I will give you my house if you marry him within 3 years. (The
condition here is a mixed condition. In this case, the condition of marriage
depends partly on the creditor, a party to the obligation, and partly on a 3rd
person.)
Doctrine of Constructive Compliance
 The condition shall be deemed fulfilled when the obligor voluntarily prevents
its fulfillment (Article 1186).
 The principle underlying constructive fulfillment of conditions is that a party
to a contract may not be excused from performing his promise by the
nonoccurrence of an event which he himself prevented.
 Requisites:
1. Intent of the debtor to prevent fulfillment of the obligation
Where the act of the debtor, however, although voluntary, did not
have for its purpose the prevention of the fulfillment of the condition,
it will not fall under the doctrine of constructive compliance.
2. Actual prevention of compliance
The doctrine of constructive compliance applies to potestative and
mixed conditions.
Obligation Interdicted or Declared Void by Article
This article declares void an obligation which is dependent upon a condition which
is dependent upon a condition that is:
(a) suspensive
(b) potestative
(c) dependent on the sole will of the debtor
A. Reason for Nullity
 Vinculum juris
o The identifying and essential element of an obligation
o Gives the obligation its binding force
o Without it, the obligation is illusory and is just an obligation that does
not bind.
B.
1. An obligation with a condition that is suspensive and dependent on the sole
will of the creditor is valid. A promissory note payable on demand, for
instance, is dependent on the sole will of the creditor and is demandable at
once.
2. An obligation with a suspensive condition that is casual is likewise valid.
3. An obligation with a condition that is mixed (dependent partly on the will of
the creditor and partly on chance or the will of a third person) is also valid.
4. An obligation with a condition that is resolutory and dependent solely on the
will of the debtor is valid.
Classifications of conditions
Conditions may be classifi ed as follows:
p(1) As to effect.
(a) Suspensive. — the happening of which gives rise to the obligation; and
(b) Resolutory. — the happening of which extinguishes the obligation.
(2) As to form.
(a) Express. — the condition is clearly stated; and
(b) Implied. — the condition is merely inferred.
(3) As to possibility.
(a) Possible. — the condition is capable of fulfillment, legally and physically;
and
(b) Impossible. — the condition is not capable of fulfi llment, legally or
physically.
(4) As to cause or origin.
(a) Potestative. — the condition depends upon the will of one of the
contracting parties;
(b) Casual. — the condition depends upon chance or upon the will of a third
person; and
(c) Mixed. — the condition depends partly upon chance and partly upon the
will of a third person.
(5) As to mode.
(a) Positive. — the condition consists in the performance of an act; and
b) Negative. — the condition consists in the omission of an act.
(6) As to number.
(a) Conjunctive. — there are several conditions and all must be fulfi lled; and
(b) Disjunctive. — there are several conditions and only one or some of them
must be fulflled.
(7) As to divisibility.
(a) Divisible. — the condition is susceptible of partial performance; and
(b) Indivisible. — the condition is not susceptible of partial performance.
Where suspensive condition depends upon the will of creditor.
If the condition depends exclusively upon the will of the creditor, the obligation is
valid.
Example:
“I will pay you my indebtedness upon your demand.”
The obligation does not become illusory. Normally, the creditor is
interested in the fulfi llment of the obligation because it is for his benefi t.
It is up to him whether to enforce his right or not.
ART. 1183. (Impossible Conditions)
Impossible conditions, those contrary to good customs or public policy and those
prohibited by law shall annul the obligation which depends upon them. If the
obligation is divisible, that part thereof which is not affected by the impossible or
unlawful condition shall be valid.
The condition not to do an impossible thing shall be considered as not having
been agreed upon.
*This article refers to suspensive conditions
Two kinds of impossible conditions
(1) Physically impossible conditions. — when they, in the nature of things,
cannot exist or cannot be done; and
(2) Legally impossible conditions. — when they are contrary to law, morals,
good customs, public order, or public policy.
Effect of Impossible Conditions
Balane:
De Leon:
(1) Conditional obligation void. — Impossible conditions annul the obligation
which depends upon them.4 Both the obligation and the condition are void. The
reason behind the law is that the obligor knows his obligation cannot be fulfi lled.
He has no intention to comply with his obligation.
In conditional testamentary dispositions and in simple and remuneratory
donations, the rule is different.
(2) Conditional obligation valid. — If the condition is negative, that is, not to do an
impossible thing, it is disregarded and the obligation is rendered pure and valid.
(par. 2.) Actually, the condition is always fulfi lled when it is not to do an impossible
thing so that it is the same as if there were no condition. The negative condition
may be not to
give an impossible thing.
(3) Only the affected obligation void. — If the obligation is divisible, the part
thereof not affected by the impossible condition shall be valid.
Example:
“I will give you P10,000.00 if you sell my land, and a car, if you kill
Pedro.”
The obligation to give P10,000.00 is valid but the obligation to give a
car is void because it is dependent upon an impossible condition.
(4) Only the condition void. — If the obligation is a pre-existing obligation, and,
therefore, does not depend upon the fulfi llment of the condition which is
impossible, for its existence, only the condition is
void.
Example:
D incurred an obligation in the amount of P10,000.00 in favor of C. If
C later agreed to kill X before D pays him, the condition “to kill X” is
void but not the pre-existing obligation of D “to pay C.”
Determination of Time of Impossibility
Impossible Condition in Divisible Obligations
Suspensive Conditions Not to Do Impossible or Illegal Thing
Negative Suspensive Conditions
Art. 1184 (Suspensive Conditions)
The condition that some event happen at a determinate time shall extinguish the
obligation as soon as the time expires or if it has become indubitable that the
event will not take place.
*This article refers to suspensive (positive) conditions.
Suspensive (Positive) Condition
The above article refers to a positive (suspensive) condition — the happening of an
event at a determinate time. The obligation isextinguished:
(1) as soon as the time expires without the event taking place; or
(2) as soon as it has become indubitable that the event will not take place
although the time specifi ed has not yet expired.
Example:
X obliges himself to give Y P10,000.00 if Y will marry W before Y
reaches the age of 23.
(a) X is liable if Y marries W before he reaches the age of 23.
(b) X is not liable if Y marries W at the age of 23 or after he reaches the age
of 23. In this case, the time specifi ed, before reaching the age of 23, has
expired without the condition (marrying W) being fulfi lled. The obligation is
extinguished as soon as Y becomes 23 years old.
(c) If Y dies at the age of 22 without having married W, the obligation is
extinguished because it has become indubitable that the condition will not
take place. In this case, the obligation of X is deemed extinguished from the
death of Y, although the time specifi ed (before reaching the age of 23) has
not yet expired.
Faulty Wording
Rule If No Time Has Been Fixed
Rule if Condition Resolutory
Art. 1185.
The condition that some event will not happen ata determinate time shall render
the obligation effective from the moment the time indicated has elapsed, or if it
has become evident that the event cannot occur.
If no time has been fixed, the condition shall be deemed fulfilled at such time as
may have probably been contemplated, bearing in mind the nature of the
obligation.
Art. 1186.
The condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment.
Art. 1187.
The effects of a conditional obligation to give, once the condition has been fulfilled,
shall retroact to the day of the constitution of the obligation. Nevertheless, when
the obligation imposes reciprocal prestations upon the parties, the fruits and
interests during the pendency of the condition shall be deemed to have been
mutually compensated. If the obligation is unilateral, the debtor shall appropriate
the fruits and interests received, unless from the nature and circumstances of the
obligation it should be inferred that the intention of the person constituting the
same was different.
In obligations to do and not to do, the courts shall determine, in each case, the
retroactive effect of the condition that has been complied with.
Art. 1188.
The creditor may, before the fulfillment of the condition, bring the appropriate
actions for the preservation of his right.
The debtor may recover what during the same time he has paid by mistake in case
of a suspensive condition.
Art. 1189.
When the conditions have been imposed with the intention of suspending the
efficacy of an obligation to give, the following rules shall be observed in case of the
improvement, loss or deterioration of the thing during the pendency of the
condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall be
extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay
damages; it is understood that the thing is lost when it perishes, or goes out of
commerce, or disappears in such a way that its existence is unknown or it cannot
be recovered;
(3) When the thing deteriorates without the fault of the debtor,the impairment is
to be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may choose
between the rescission of the obligation and its fulfillment, with indemnity for
damages in either case;
(5) If the thing is improved by its nature, or by time, the improvement shall inure
to the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no other right than
that granted to the usufructuary.
Art. 1190.
When the conditions have for their purpose theextinguishment of an obligation to
give, the parties, upon the fulfillment of said conditions, shall return to each other
what they have received.
In case of the loss, deterioration or improvement of the thing, the provisions which,
with respect to the debtor, are laid down in the preceding article shall be applied
to the party who is bound to return.
As for the obligations to do and not to do, the provisions of the second paragraph
of article 1187 shall be observed as regards the effect of the extinguishment of the
obligation.
Art. 1191.
The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period. This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance with articles 1385 and
1388 and the Mortgage Law.
Art. 1192.
In case both parties have committed a breach of the obligation, 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.
TERM
Art. 1193.
Obligations for whose fulfillment a day certain has been fixed, shall be demandable
only when that day comes. Obligations with a resolutory period take effect at once,
but terminate upon arrival of the day certain.
A day certain is understood to be that which must necessarily come, although it
may not be known when. If the uncertainty consists in whether the day will come
or not, the obligation is conditional, and it shall be regulated by the rules of the
preceding Section.
Art. 1194.
In case of loss, deterioration or improvement of the thing before the arrival of the
day certain, the rules in article 1189 shall be observed.
Art. 1195.
Anything paid or delivered before the arrival of the period, the obligor being
unaware of the period or believing that the obligation has become due and
demandable, may be recovered, with the fruits and interests.
Art. 1196.
Whenever in an obligation a period is designated, it is presumed to have been
established for the benefit of both the creditor and the debtor, unless from the
tenor of the same or other circumstances it should appear that the period has been
established in favor of one or of the other.
Art. 1197.
If the obligation does not fix a period, but from its nature and the circumstances it
can be inferred that a period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will
of the debtor.
In every case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once fixed by the
courts, the period cannot be changed by them.
Art. 1198.
The debtor shall lose every right to make use of the period:
(1) When after the obligation has been contracted, he becomes insolvent, unless
he gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the guarantiesor securities which he
has promised;
(3) When by his own acts he has impaired said guaranties or securities after their
establishment, and when through a fortuitous event they disappear, unless he
immediately gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in consideration of which the
creditor agreed to the period;
(5) When the debtor attempts to abscond.
KIND 2: ACCORDING TO PLURALITY OF OBJECT
Art. 1199.
A person alternatively bound by different prestations shall completely perform one
of them. The creditor cannot be compelled to receive part of one and part of the
other undertaking.
Art. 1200.
The right of choice belongs to the debtor, unless it has been expressly granted to
the creditor. The debtor shall have no right to choose those prestations which are
impossible, unlawful or which could not have been the object of the obligation.
Art. 1201.
The choice shall produce no effect except from the time it has been communicated.
Art. 1202.
The debtor shall lose the right of choice when among the prestations whereby he
is alternatively bound, only one is practicable.
Art. 1203.
If through the creditor's acts the debtor cannot make a choice according to the
terms of the obligation, the lattermay rescind the contract with damages.
Art. 1204.
The creditor shall have a right to indemnity for damages when, through the fault of
the debtor, all the things which are alternatively the object of the obligation have
been lost, or the compliance of the obligation has become impossible.
The indemnity shall be fixed taking as a basis the value of the last thing which
disappeared, or that of the service which last became impossible.
Damages other than the value of the last thing or service may also be awarded.
Art. 1205.
When the choice has been expressly given to the creditor, the obligation shall cease
to be alternative from the day when the selection has been communicated to the
debtor. Until then the responsibility of the debtor shall be governed by the
following rules:
(1) If one of the things is lost through a fortuitous event, he shall perform the
obligation by delivering that which the creditor should choose from among the
remainder, or that which remains if only one subsists;
(2) If the loss of one of the things occurs through the fault of the debtor, the creditor
may claim any of those subsisting, or the price of that which, through the fault of
the former, has disappeared, with a right to damages;
(3) If all the things are lost through the fault of the debtor, the choice by the creditor
shall fall upon the price of any one of them, also with indemnity for damages.
The same rules shall be applied to obligations to do or not to do in case one, some
or all of the prestations should become impossible.
Art. 1206.
When only one prestation has been agreed upon, but the obligor may render
another in substitution, the obligation is called facultative. The loss or deterioration
of the thing intended as a substitute, through the negligence of the obligor, does
not render him liable. But once the substitution has been made, the obligor is liable
for the loss of the substitute on account of his delay, negligence or fraud.
KIND 3: ACCORDING TO PLURALITY OF SUBJECT
Art. 1207.
The concurrence of two or more creditors or of two or more debtors in one and the
same obligation does not imply that each one of the former has a right to demand,
or that each one of the latter is bound to render, entire compliance with the
prestation. There is a solidary lia bility only when the obligation expressly so states,
or when the law or the nature of the obligation requires solidarity.
Art. 1208.
If from the law, or the nature or the wording of the obligations to which the
preceding article refers the contrary does not appear, the credit or debt shall be
presumed to be divided into as many shares as there are creditors or debtors, the
credits or debts being considered distinct from one another, subject to the
Rules of Court governing the multiplicity of suits.
Art. 1209.
If the division is impossible, the right of the Ncreditors may be prejudiced only by
their collective acts, and the debt can be enforced only by proceeding against all
the debtors. If one of the latter should be insolvent, the others shall not be liable
for his share.
Art. 1210.
The indivisibility of an obligation does not necessarily give rise to solidarity. Nor
does solidarity of itself imply indivisibility.
Art. 1211.
Solidarity may exist although the creditors and the debtors may not be bound in
the same manner and by the same periods and conditions.
Art. 1212.
Each one of the solidary creditors may do whatever may be useful to the others,
but not anything which may be prejudicial to the latter.
Art. 1213.
A solidary creditor cannot assign his rights without the consent of the others.
Art. 1214.
The debtor may pay any one of the solidary creditors; but if any demand, judicial
or extrajudicial, has been made by one of them, payment should be made to him.
Art. 1215.
Novation, compensation, confusion or remission of the debt, made by any of the
solidary creditors or with any of the solidary debtors, shall extinguish the
obligation, without prejudice to the provisions of article 1219.
The creditor who may have executed any of these acts, as well as he who collects
the debt, shall be liable to the others for the share in the obligation corresponding
to them.
Art. 1216.
The creditor may proceed against any one of the solidary debtors or some or all of
them simultaneously. The demand made against one of them shall not be an
obstacle to those which may subsequently be directed against the others, so long
as the debt has not been fully collected.
Art. 1217.
Payment made by one of the solidary debtorsextinguishes the obligation. If two or
more solidary debtors offer to pay, the creditor may choose which offer to accept.
He who made the payment may claim from his co-debtors only the share which
corresponds to each, with the interest for the payment already made. If the
payment is made before the debt is due, no interest for the intervening period may
be demanded.
When one of the solidary debtors cannot, because of his insolvency, reimburse his
share to the debtor paying the obligation, such share shall be borne by all his codebtors, in proportion to the debt of each.
Art. 1218.
Payment by a solidary debtor shall not entitle him to reimbursement from his codebtors if such payment is made after the obligation has prescribed or become
illegal.
Art. 1219.
The remission made by the creditor of the share which affects one of the solidary
debtors does not release the latter from his responsibility towards the co-debtors,
in case the debt had been totally paid by anyone of them before the remission was
effected.
Art. 1220.
The remission of the whole obligation, obtained by one of the solidary debtors,
does not entitle him to reimbursement from his co-debtors.
Art. 1221.
If the thing has been lost or if the prestation has become impossible without the
fault of the solidary debtors, the obligation shall be extinguished.
If there was fault on the part of any one of them, all shall be responsible to the
creditor, for the price and the payment of damages and interest, without prejudice
to their action against the guilty or negligent debtor.
If through a fortuitous event, the thing is lost or the performance has become
impossible after one of the solidary debtors has incurred in delay through the
judicial or extrajudicial demand upon him by the creditor, the provisions of the
preceding paragraph shall apply.
Art. 1222.
A solidary debtor may, in actions filed by the creditor, avail himself of all defenses
which are derived from the nature of the obligation and of those which are personal
to him, or pertain to his own share. With respect to those which personally belong
to the others, he may avail himself thereof only as regards that part of the debt for
which the latter are responsible.
KIND 4: ACCORDING TO PERFORMANCE
Art. 1223.
The divisibility or indivisibility of the things that are the object of obligations in
which there is only one debtor and only one creditor does not alter or modify the
provisions of Chapter 2 of this Title.
Art. 1224.
A joint indivisible obligation gives rise to indemnity for damages from the time
anyone of the debtors does not comply with his undertaking. The debtors who may
have been ready to fulfill their promises shall not contribute to the indemnity
beyond the corresponding portion of the price of the thing or of the value of the
service in which the obligation consists.
Art. 1225.
For the purposes of the preceding articles, obligations to give definite things and
those which are not susceptible of partial performance shall be deemed to be
indivisible.
When the obligation has for its object the execution of a certain number of days of
work, the accomplishment of work by metrical units, or analogous things which by
their nature are susceptible of partial performance, it shall be divisible.
However, even though the object or service may be physically divisible, an
obligation is indivisible if so provided by law or intended by the parties.
In obligations not to do, divisibility or indivisibility shall be determined by the
character of the prestation in each particular case.
KIND 5: ACCORDING TO SANCTION FOR BREACH
Art. 1226.
In obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance, if there is no
stipulation to the contrary. Nevertheless, damages shall be paid if the obligor
refuses to pay the penalty or is guilty of fraud in the fulfillment of theobligation.
The penalty may be enforced only when it is demandable in accordance with the
provisions of this Code.
Art. 1227.
The debtor cannot exempt himself from the performance of the obligation by
paying the penalty, save in the case where this right has been expressly reserved
for him. Neither can the creditor demand the fulfillment of the obligation and the
satisfaction of the penalty at the same time, unless this right has been clearly
granted him. However, if after the creditor has decided to require the fulfillment of
the obligation, the performance thereof should become impossible without his
fault, the penalty may be enforced.
Art. 1228.
Proof of actual damages suffered by the creditor is not necessary in order that the
penalty may be demanded.
Art. 1229.
The judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable.
Art. 1230.
The nullity of the penal clause does not carry with it that of the principal obligation.
The nullity of the principal obligation carries with it that of the penal clause.
CHAPTER 4
EXTINGUISHMENT OF OBLIGATIONS
Art. 1231.
Obligations are extinguished:
(1) By payment or performance:
(2) By the loss of the thing due:
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as annulment, rescission,
fulfillment of a resolutory condition, and prescription, are governed elsewhere in
this Code.
(1) PAYMENT OR PERFORMANCE (Articles 1232 – 1251)
Art. 1232. Payment means not only the delivery of money but also the
performance, in any other manner, of an obligation.
Art. 1233. A debt shall not be understood to have been paid unless the thing or
service in which the obligation consists has been completely delivered or rendered,
as the case may be.
Art. 1234. If the obligation has been substantially performed in good faith, the
obligor may recover as though there had been a strict and complete fulfillment,
less damages suffered by the obligee.
Art. 1235. When the obligee accepts the performance, knowing its incompleteness
or irregularity, and without expressing any protest or objection, the obligation is
deemed fully complied with.
Art. 1236. The creditor is not bound to accept payment or performance by a third
person who has no interest in the fulfillment of the obligation, unless there is a
stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except
that if he paid without the knowledge or against the will of the debtor, he can
recover only insofar as the payment has been beneficial to the debtor.
Art. 1237. Whoever pays on behalf of the debtor without the knowledge or against
the will of the latter, cannot compel the creditor to subrogate him in his rights, such
as those arising from a mortgage, guaranty, or penalty.
Art. 1238. Payment made by a third person who does not intend to be reimbursed
by the debtor is deemed to be a donation, which requires the debtor's consent. But
the payment is in any case valid as to the creditor who has accepted it.
Art. 1239. In obligations to give, payment made by one who does not have the free
disposal of the thing due and capacity to alienate it shall not be valid, without
prejudice to the provisions of article 1427 under the Title on "Natural Obligations."
Art. 1240. Payment shall be made to the person in whose favor the obligation has
been constituted, or his successor in interest, or any person authorized to receive
it.
Art. 1241. Payment to a person who is incapacitated to administer his property shall
be valid if he has kept the thing delivered, or insofar as the payment has been
beneficial to him.
Payment made to a third person shall also be valid insofar as it has redounded to
the benefit of the creditor. Such benefit to the creditor need not be proved in the
following cases:
(1) If after the payment, the third person acquires the creditor's rights;
(2) If the creditor ratifies the payment to the third person;
(3) If by the creditor's conduct, the debtor has been led to believe that the third
person had authority to receive the payment.
Art. 1242. Payment made in good faith to any person in possession of the credit
shall release the debtor.
Art. 1243. Payment made to the creditor by the debtor after the latter has been
judicially ordered to retain the debt shall not be valid.
Art. 1244. The debtor of a thing cannot compel the creditor to receive a different
one, although the latter may be of the same value as, or more valuable than that
which is due.
In obligations to do or not to do, an act or forbearance cannot be substituted by
another act or forbearance against the obligee's will.
Art. 1245. Dation in payment, whereby property is alienated to the creditor in
satisfaction of a debt in money, shall be governed by the law of sales.
Art. 1246. When the obligation consists in the delivery of an indeterminate or
generic thing, whose quality and circumstances have not been stated, the creditor
cannot demand a thing of superior quality. Neither can the debtor deliver a thing
of inferior quality. The purpose of the obligation and other circumstances shall be
taken into consideration.
Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by
the payment shall be for the account of the debtor. With regard to judicial costs,
the Rules of Court shall govern.
Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot
be compelled partially to receive the prestations in which the obligation consists.
Neither may the debtor be required to make partial payments.
However, when the debt is in part liquidated and in part unliquidated, the creditor
may demand and the debtor may effect the payment of the former without waiting
for the liquidation of the latter.
Art. 1249. The payment of debts in money shall be made in the currency stipulated,
and if it is not possible to deliver such currency, then in the currency which is legal
tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have
been cashed, or when through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in the
abeyance.
Art. 1250. In case an extraordinary inflation or deflation of the currency stipulated
should supervene, the value of the currency at the time of the establishment of the
obligation shall be the basis of payment, unless there is an agreement to the
contrary.
Art. 1251. Payment shall be made in the place designated in the obligation.
There being no express stipulation and if the undertaking is to deliver a determinate
thing, the payment shall be made wherever the thing might be at the moment the
obligation was constituted.
In any other case the place of payment shall be the domicile of the debtor.
If the debtor changes his domicile in bad faith or after he has incurred in delay, the
additional expenses shall be borne by him. These provisions are without prejudice
to venue under the Rules of Court.
 Like obligee and creditor, payment and performance are twin terms.
Payment refers to obligations to give while performance refers to obligations
to do.
 Payment and performance is the paradigmatic mode. When obligations are
entered into, the parties expect payment or performance. All other modes
of extinguishing obligations are abnormal modes.
 Requisites of Payment
As to prestation:
(1) Identity
 Identity means that the very prestation must be performed.
 Example: if the obligation is to give a car, one cannot fulfill the obligation pay
giving a house.
 If the prestation is specific, the debtor must give or deliver the specific thing
which was agreed upon (Article 1244Ä).
 If the prestation is generic, the creditor cannot demand a thing of superior
quality. However, the debtor cannot give a thing of inferior quality (Article
1246Ã).
 The payment of debts in money shall be made in the currency stipulated, and
if it not possible to deliver such currency, then in the currency which is legal
tender in the Philippines (Article 1249À, 1st ¶).
 R.A. No. 529 has been repealed by R.A. No. 8183 which allows payment in
different currency. However, in the absence of an agreement, payment shall
be made in P.
 Negotiable papers and other commercial documents can be refused by the
creditor unless there is stipulation to the contrary.
 If the negotiable papers and other commercial documents are accepted by
the creditor, it has only a provisional effect.
 There is payment only in the following (Article 1249À, 2nd ¶).
1. When they have been honored and cashed; or
2. When through the fault of the creditor, they have been impaired
 In the case of NAMARCO, the check must be the check of another person,
not a party, before there will be impairment.
 EXAMPLE: A gave B a check as payment for a loan. B did not encash the check
as a result of which, the check became stale. There is no impairment here. B
can still ask A for payment of the loan.
However, if B endorsed a check made by A to C as payment for a loan and C
did not encash the check which became stale, then C can no longer ask B to
pay him again.
 In the case of Pacific Timber, the Supreme Court said that a certified check
or a manager’s check is considered as good as cash. But newer cases say that
such instruments are not considered legal tender and thus, the creditor can
refuse to accept.
 EXAMPLE: A gives B a manager’s check and bank closes for a bank holiday.
 Article 1250* was applied only during the Japanese occupation.
 Exceptions to the Requirement of Identity
1. Dacion en pago (Article 1245)
 Art. 1245. Dation in payment, whereby property is
alienated to the creditor in satisfaction of a debt in
money, shall be governed by the law of sales.
2. Novation
(2) Integrity
 Identity means that the entire prestation must be performed – completeness
(Article 1233§)
 Exceptions to Integrity:
1. Substantial compliance in good faith (Article 1234)
Art. 1234. If the obligation has been substantially performed in
good faith, the obligor may recover as though there had been a
strict and complete fulfillment, less damages suffered by the
obligee.
2. Waiver (Article 1235)
Art. 1235. When the obligee accepts the performance, knowing
its incompleteness or irregularity, and without expressing any
protest or objection, the obligation is deemed fully complied
with.
3. In application of payments if the debts are equally onerous (Article
1254, 2nd ¶)
Art. 1254, 2nd ¶. If the debts due are of the same nature and
burden, the payment shall be applied to all of them
proportionately.
(3) Indivisibility
 Indivisibility means that the obligor must perform the prestation in one act
and not in installments (Article 1248). The creditor can validly refuse if the
performance is not in one act.
 Exceptions to Indivisibility (Cases when the law allows installment
performance):
1. In case of express stipulation (Article 1248)
Art. 1248. Unless there is an express stipulation to that effect,
the creditor cannot be compelled partially to receive the
prestations in which the obligation consists. Neither may the
debtor be required to make partial payments.
However, when the debt is in part liquidated and in part
unliquidated, the creditor may demand and the debtor may
effect the payment of the former without waiting for the
liquidation of the latter.
2. In prestations which necessarily entail partial performance (Article
1225, 2nd ¶)
Art. 1225, 2nd ¶. When the obligation has for its object the
execution of a certain number of days of work, the
accomplishment of work by metrical units, or analogous things
which by their nature are susceptible of partial performance, it
shall be divisible.
3. If the debt is liquidated in part and unliquidated in part (Article
1248)
Art. 1248. Unless there is an express stipulation to that effect,
the creditor cannot be compelled partially to receive the
prestations in which the obligation consists. Neither may the
debtor be required to make partial payments.
However, when the debt is in part liquidated and in part
unliquidated, the creditor may demand and the debtor may
effect the payment of the former without waiting for the
liquidation of the latter.
4. In joint divisible obligations (Article 1208)
Art. 1208. If from the law, or the nature or the wording of the
obligations to which the preceding article refers the contrary
does not appear, the credit or debt shall be presumed to be
divided into as many shares as there are creditors or debtors,
the credits or debts being considered distinct from one another,
subject to the Rules of Court governing the multiplicity of suits.
5. In solidary obligations when the debtors are bound under different
terms and conditions (Article 1211)
Art. 1211. Solidarity may exist although the creditors and the
debtors may not be bound in the same manner and by the same
periods and conditions.
6. In compensation where there is a balance left (Article 1290)
Art. 1290. When all the requisites mentioned in article 1279 are
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 of the compensation.
7. If the work is to be delivered partially, the price or compensation for
each part having been fixed (Article 1720)
Art. 1720. The price or compensation shall be paid at the time
and place of delivery of the work, unless there is a stipulation to
the contrary.
If the work is to be delivered partially, the price or
compensation for each part having been fixed, the sum shall be
paid at the time and place of delivery,in the absence if
stipulation.
8. In case of several guarantors who demand the right of division
(Article 2065)
Art. 2065. Should there be several guarantors of only one debtor
and for the same debt, the obligation to answer for the same is
divided among all. The creditor cannot claim from the
guarantors except the shares which they are respectively bound
to pay, unless solidarity has been expressly stipulated.
The benefit of division against the coguarantors ceases in the
same cases and for the same reasons as the benefit of excussion
against the principal debtor.
9. In case of impossibility or extreme difficult of a single performance
For example, A is obligated to deliver 1 million bags of cement.
Under the circumstances, this may be extremely difficult.
As to the parties:
(1) Payor, Obligor, Debtor
 Who may be the Payor
1. Without the consent of the creditor:
a. The debtor himself
b. The debtor’s heirs or assigns
c. The debtor’s agent
d. Anyone interested in the fulfillment of the obligation (e.g.
guarantor)
2. With the consent of the creditor
 Anyone can pay if the creditor consents
 Effect of Payment by a 3rd Person
1. Payment was with the Debtor’s Consent
General Rule:
The payor steps into the shoes of the creditor and becomes
entitled not only to recover what he has paid, but also to
exercise all the rights which the creditor could have exercised –
subrogation (Articles 1236, 1237¨)
There is no extinguishment of the obligation but a change in the
active subject.
Exception: No subrogation if intended to be a donation (Article
1238©).
2. Payment was without the Debtor’s Consent
The 3rd person may demand repayment to the extent that the
debtor has benefited (Article 1236, 2nd¶¨).
(2) Payee, Obligee, Creditor
 Who may be the Payee
1. The creditor himself (Articles 1240, 1626ª)
2. The creditor’s successor or transferee (Article 1240)
3. The creditor’s agent (Article 1240)
4. Any third person subject to the following conditions:
a. Provided it redounded to the creditor’s benefit and only to
the extent of such benefit (Article 1241Æ, 2nd par)
b. If it falls under Article 1241 ¶2 (1), (2) and (3), the benefit is
total.
5. Anyone in possession of the credit (Article 1242Å)
6. In all these 5 instances, it is required that the debt should not be
garnished (Article 1242). If there is payment despite garnishment,
then there is no payment.
As to the time and place of performance:
(1) When Payment Should be Made
 Payment should be made when it is due.
 Even if the payment is due, the General Rule is that demand is still necessary.
 Article 1169Ä provides the instances when demand is not necessary
1. When the obligation or the law expressly so declares
2. Time is the controlling motive for the establishment of the contract
3. Demand would be useless
(2) Where Payment Should be Made:
 Primary Rule: Agreement of the parties
 Secondary Rule: Place where the thing was at the time the obligation was
constituted if the obligation is to deliver a determinate thing
 Tertiary Rule: Debtor’s domicile (not residence)
4 Special Forms Of Payment:
a. Dacion en pago (Article 1245)
Art. 1245. Dation in payment, whereby property is alienated to the creditor
in satisfaction of a debt in money, shall be governed by the law of sales.
 Dacion en pago is the act of extinguishing the obligation by the substitution
of payment. It is the delivery and transmission of ownership of a thing by the
debtor to the creditor as an accepted performance/payment of an
obligation.
 By agreement of the parties, the prestation is changed.
 Dacion en pago is a special form of payment since it does not comply with
the requisite of identity.
 Other terms for dacion en pago include dation in payment, dation en
paiement and datio in solutum.
 Dacion en pago is governed by the law on sales (Article 1245).
 There are 2 ways of looking at dacion en pago. The traditional way is to view
dacion en pago as a sale.
Example: A owes B P100,000. A has no cash when the loan falls due but he
offers the car if B wants it. B accepts.
Here, the debt is in money but payment is in something else.
 According to the old traditional concept, it is like a sale because P100,000
seemed to be the purchase price and the car is the object.
 However, the modern view is to look at dacion en pago as a novation.
 Castan has another view of dacion en pago. He believes that it is neither a
sale nor a novation but a special form of payment. It is a species/variation of
payment implying an onerous transaction similar to but not equal to a sale.
It is not novation since there is no new obligation.
 Dacion en pago will take place only if the parties consent.
 Dacion en pago extinguishes the obligation up to the value of the thing
delivered unless the parties agree that the entire obligation is extinguished
(Lopez vs. CA).
b. Application of payments (Articles 1252-1254)
Art. 1252. He who has various debts of the same kind in favor of one and the same
creditor, may declare at the time of making the payment, to which of them the
same must be applied. Unless the parties so stipulate, or when the application of
payment is made by the party for whose benefit the term has been constituted,
application shall not be made as to debts which are not yet due.
If the debtor accepts from the creditor a receipt in which an application of the
payment is made, the former cannot complain of the same, unless there is a cause
for invalidating the contract.
Art. 1253. If the debt produces interest, payment of the principal shall not be
deemed to have been made until the interests have been covered.
Art. 1254. When the payment cannot be applied in accordance with the preceding
rules, or if application can not be inferred from other circumstances, the debt which
is most onerous to the debtor, among those due, shall be deemed to have been
satisfied. If the debts due are of the same nature and burden, the payment shall be
applied to all of them proportionately.
 Application payment is the designation of the debt which is being paid by a
debtor who has several obligations of the same kind in favor of the creditor
to whom payment is made.
 The situation in application of payments is that a debtor owes his creditor.
There are several debts due, but the debtor cannot pay all of the debts due.
 Example: A owes B P2000, P3000 and P10,000. A gives B P15,000. There is
no application of payment here because it is equal to the total amount due.
 The creditor can always not accept application of payments since the
creditor cannot be compelled to accept partial performance of the
obligation. However, this may not be wise since the debtor may have other
creditors.
 The rules on application of payment solve the problem of distributing the
payment which is less than the total obligation.
 RULES IN APPLICATION OF PAYMENT
o 1st Rule: Apply in accordance with the agreement
o 2nd Rule: If there is no agreement, the debtor has the right to apply
o 3rd Rule: If the debtor does not choose, the creditor can choose.
o 4th Rule: Apply to the most onerous debt (Article 1254, ¶1)
 Rules to Determine Which is the More Onerous Obligation
1. An interest bearing obligation is more onerous
than a non-interest bearing obligation.
2. An older debt is more onerous than a recent debt
3. An obligation where the party is bound as a
principal is more onerous than an obligation is
bound as a surety
4. An obligation which is secured is more onerous
than an obligation which is unsecured
5. An obligation with a penal clause is more onerous
than an obligation without a penal clause
o 5th Rule: If equally onerous, apply proportionately (Article 1254, ¶2)
c. Payment by cession (Article 1255)
Art. 1255. The debtor may cede or assign his property to his creditors in
payment of his debts. This cession, unless there is stipulation to the contrary,
shall only release the debtor from responsibility for the net proceeds of the
thing assigned. The agreements which, on the effect of the cession, are made
between the debtor and his creditors shall be governed by special laws.
 The situation is contemplated here is that the debtor has several creditors
and several debts. He turns over property to his creditors who are given the
authority to sell the property and to apply the proceeds to his debt.
 In payment by cession, property is turned over by the debtor to the creditors
who acquire the right to sell it and divide the net proceeds among
themselves.
 In payment by cession, the creditors do not own the property to be sold. The
creditors only have the power to sell.
 The net proceeds of the sale will be distributed according to the agreement.
 Payment by cession is a special form of payment because there is no
completeness of performance – integrity. In most cases, there will be a
balance due.
 Payment by Cession Distinguished from Dacion en Pago
o In dacion en pago, there is a transfer of ownership from the debtor to
the creditor. In payment by cesion, there is no transfer of ownership.
The creditors simply acquire the right to sell the properties of the
debtor and apply the proceeds of the sale to the satisfaction of their
credit.
o Payment by cession does not generally terminate all debts due since
normally there is still a balance due. The balance will continue to be
due unless the parties agree otherwise. Usually, the termination is
only to the extent of the net proceeds. The extinguishment of the
obligation is pro tanto.
 Payment by cession must be distinguished from insolvency.
o 2 Kinds of Insolvency
1. Extrajudicial or Voluntary
o In extrajudicial insolvency, if there is a balance left,
the debtor must still pay.
o However, the debtor may limit which properties
will be sold by the creditors since the agreement is
contractual.
2. Judicial
o In judicial insolvency, the obligation is totally
extinguished even if there’s still a balance.
o In judicial insolvency, every property which is not
exempt from attachment or execution is made
available for sale.
d. Tender of payment and consignation (Article 1256-1261)
Art. 1256. If the creditor to whom tender of payment has been made refuses
without just cause to accept it, the debtor shall be released from responsibility by
the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases:
(1) When the creditor is absent or unknown, or does not appear at the place
of payment;
(2) When he is incapacitated to receive the payment at the time it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost.
Art. 1257. In order that the consignation of the thing due may release the obligor,
it must first be announced to the persons interested in the fulfillment of the
obligation.
The consignation shall be ineffectual if it is not made strictly in consonance with
the provisions which regulate payment.
Art. 1258. Consignation shall be made by depositing the things due at the disposal
of judicial authority, before whom the tender of payment shall be proved, in a
propercase, and the announcement of the consignation in other cases.
The consignation having been made, the interested parties shall also be notified
thereof.
Art. 1259. The expenses of consignation, when properly made, shall be charged
against the creditor.
Art. 1260. Once the consignation has been duly made, the debtor may ask the judge
to order the cancellation of the obligation.
Before the creditor has accepted the consignation, or before a judicial declaration
that the consignation has been properly made, the debtor may withdraw the thing
or the sum deposited, allowing the obligation to remain in force.
Art. 1261. If, the consignation having been made, the creditor should authorize the
debtor to withdraw the same, he shall lose every preference which he may have
over the thing. The co-debtors, guarantors and sureties shall be released.
 Consignation is the act of depositing the thing due w/ the court or judicial
authorities whenever the creditor cannot accept or refuses to accept
payment and it generally requires a prior tender of payment.
 It is defined in the case of Soco vs. Militante as a deposit of the object of the
prestation in a competent court in accordance with the rules prescribed by






law, after tender of payment was refused or circumstances which render
payment impossible or inadvisable.
According to Professor Balane, the title of the subsection is wrong. It should
have been consignation only because that is the special mode of payment
and not the tender of payment.
Tender of payment is a manifestation made by the debtor of his willingness,
readiness and ability to pay.
It is a special mode of payment because payment is made not to the creditor
but to the court.
Consignation is an option on the part of the debtor because consignation
assumes that the creditor was in mora accipiendi when the creditor without
just cause, refuses to accept payment. Of course, if the creditor without just
cause refuses to accept payment, the debtor may just delay payment.
But something still hangs above his head. He is therefore, given the option
to consign.
Requisites:
o That there was a debt due
o That the consignation of the obligation had been made because of
some legal cause, either because
1. Tender of payment was unjustly refused by the creditor or
2. There is no need for tender of payment due to circumstances
which make tender of payment impossible or inadvisable
Circumstances Which Make Tender of Payment
Unnecessary (Article 1256)
a. The creditor was absent or unknown, or does not
appear at the place of payment
b. The creditor was incapacitated to receive the payment
at the time it was due
Payment made to an incapacitated persom does
not count except to the extent that the
incapacitated person is benefited.
c. The creditor, without just cause refuses to give a
receipt
According to Professor Balane, this is wrong. This is
not a special case wherein you don’t need tender of
payment. This presupposes that there has been a
prior tender of payment.
d. Several persons claimed to be entitled to receive the
amount due
The debtor
consignation
should
file
interpleader
with
e. The title of the obligation has been lost
3. That previous notice of the consignation had been given to
the person interested in the performance of the obligation
(Article 1257)
4. That the amount due was placed at the disposal of the court
(consignation proper)
5. That after the consignation had been made the person
interested was notified thereof (second notice.)
Failure of any of these requirements is enough ground to
render a consignation ineffective.
(2) LOSS OF THE THING DUE (Articles 1262-1269)
Art. 1262. An obligation which consists in the delivery of a determinate thing shall
be extinguished if it should be lost or destroyed without the fault of the debtor,
and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous events, the loss
of the thing does not extinguish the obligation, and he shall be responsible for
damages. The same rule applies when the nature of the obligation requires the
assumption of risk.
Art. 1263. In an obligation to deliver a generic thing, the loss or destruction of
anything of the same kind does not extinguish the obligation.
Art. 1264. The courts shall determine whether, under the circumstances, the partial
loss of the object of the obligation is so important as to extinguish the obligation.
Art. 1265. Whenever the thing is lost in the possession of the debtor, it shall be
presumed that the loss was due to his fault, unless there is proof to the contrary,
and without prejudice to the provisions of article 1165. This presumption does not
apply in case of earthquake, flood, storm, or other natural calamity.
Art. 1266. The debtor in obligations to do shall also be released when the prestation
becomes legally or physically impossible without the fault of the obligor.
Art. 1268. When the debt of a thing certain and determinate proceeds from a
criminal offense, the debtor shall not be exempted from the payment of its price,
whatever may be the cause for the loss, unless the thing having been offered by
him to the person who should receive it, the latter refused without justification to
accept it.
Art. 1269. The obligation having been extinguished by the loss of the thing, the
creditor shall have all the rights of action which the debtor may have against third
persons by reason of the loss.
 Loss of the thing here is not to be taken in the strict legal meaning of “loss”.
Loss can be applied in an obligation to give a determinate thing (Article
1262), in an obligation to give a generic thing (Article 1263) and in an
obligation to do (Article 1266).
 The term loss embraces all causes which may render impossible the
performance of the prestations – impossibility of performance.
 A thing is lost when it perishes, or goes out of commerce, or disappears in
such a way that its existence is unknown, or it cannot be recovered.
 When the debt of a thing certain and determinate proceeds from a criminal
offense, the debtor shall not be exempted from the payment of its price,
whatever may be the cause for the loss, unless the thing having been offered
by him to the person who should receive it, the latter refused without
justification to accept it (Article 1268).
Kinds Of Impossibility According To Time
(1.) Original Impossibility
If the impossibility had already existed when the contrac was made, then the result
is not extinguishments but inefficacy of the obligation under Articles 1348 and
1493Ã. The contract is void.
(2.) Supervening Impossibility
 The impossibility of performance must be subsequent to the execution of the
contract in order to extinguish the obligation.
o Change in Circumstances
o Rebus sic stantibus literally means “things as they stand.” It is short for
clausula rebus sic stantibus – agreement of things as they stand. Also
called Riesgo imprevisible (Spanish), Theorie d’imprevision (French)
and Verschuvinden des Grundgeschäftes (German).
Art. 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole
or in part.
 In Roman law, no matter how difficult the obligation is, it has to be
performed or else the obligor may be liable for damages (pacta sunt
servanda). In Medieval times, although agreements should be complied with,
in certain extreme circumstances, the debtor can be released because of the
difficulty in performance.
 This is a principle of international law which holds that when 2 states enter
into a treaty, they enter taking into account the circumstances at the time it
was entered into and should the circumstances change as to make the
fulfillment of the treaty very difficult, one may ask for a termination of the
treaty. This principle of international law has spilled over into Civil law.
 The underlying philosophy here is that when parties enter into an
agreement, the parties contemplate existing circumstances. When things
supervene, the parties may be discharged because they did not contemplate
such difficult circumstances.
 This doctrine is also called the doctrine of extreme difficulty and frustration
of commercial object or enterprise.
 The attitude of the courts on this doctrine is very strict.
 This principle has always been strictly applied. To give it a liberal application
is to undermine the binding force of an obligation. Every obligation is
difficult. The performance must be extremely difficult in order for rebus sic
stantibus to apply.
(Requisites)
1. The event or change could not have been foreseen at the time of
the execution of the contract
2. The event or change makes the performance extremely difficult but
not impossible
3. The event must not be due to an act of either party
4. The contract is for a future prestation.
 If the contract is of immediate fulfillment, the gross inequality of the
reciprocal prestation may involve lesion or want of cause.
Obligation to Give
a. Obligation to give a determinate thing
 The happening of a fortuitous event in itself does not necessarily extinguish
an obligation to deliver a determinate thing. An obligation consisting in the
delivery of a specified thing, shall be extinguished when the said thing is lost
or destroyed without the fault of the obligor and before he is in default.
 Whenever the thing is lost in the possession of the debtor, it shall be
presumed that the loss was due to his fault, unless there is proof to the
contrary, and without prejudice to the provisions of Article 1165. This
presumption does not applying case of earthquake, flood, storm or other
natural calamity (Article 1265)
b. Obligation to give a generic thing
 The happening of a fortuitous event does not extinguish the obligation to
deliver a generic thing Genus nunquam perit – “genus never perishes.” This
is the general rule. Sometimes, though, the entire genus perishes because it
becomes illegal.
 What is not covered by this rule is an obligation to deliver a limited generic.
 Example: I promise to deliver to you one of my Amorsolos (I have 4). This is
not generic because I only have four but not specific because I did not specify
which one. This is governed by Article 1262. In this case, the obligation may
be extinguished by the loss of all the things through fortuitous event.
Obligation to do
 The debtor in obligations to do shall also be released when the prestation
becomes legally or physically impossible without the fault of the obligor
(Article 1266).
 The impossibility here must be supervening. If it is original, then the contract
is void.
Kinds of Impossibility According to Nature
(1) Objective Impossibility
In objective impossibility, the act cannot be done by anyone. The effect of objective
impossibility is to extinguish the obligation.
(2) Subjective Impossibility
 In subjective impossibility, the obligation becomes impossible only w/
respect to the obligor. There are 3 views as to the effect of a subjective
impossibility:
1. The obligation is not extinguished. The obligor should ask another
to do the obligation.
2. The obligation is extinguished.
3. A third view distinguishes one prestation which is very personal
and one which are not personal such that subjective impossibility
is a cause for extinguishes a very personal obligation but not an
obligation which is not very personal.
 Effect of Loss on Creditor’s Rights
o The obligation having been extinguished by the loss of the thing, the
creditor shall have all the rights of action which the debtor may have
against the third person by reason of the loss.
o A common example of this is insurance.
(3) CONDONATION OR REMISSION OF THE DUE
Art. 1270. Condonation or remission is essentially gratuitous, and requires the
acceptance by the obligor. It may be made expressly or impliedly.
One and the other kind shall be subject to the rules which govern inofficious
donations. Express condonation shall, furthermore, comply with the forms of
donation.
Art. 1271. The delivery of a private document evidencing a credit, made voluntarily
by the creditor to the debtor, implies the renunciation of the action which the
former had against the latter.
If in order to nullify this waiver it should be claimed to be inofficious, the debtor
and his heirs may uphold it by proving that the delivery of the document was made
in virtue of payment of the debt.
Art. 1272. Whenever the private document in which the debt appears is found in
the possession of the debtor, it shall be presumed that the creditor delivered it
voluntarily, unless the contrary is proved.
Art. 1273. The renunciation of the principal debt shall extinguish the accessory
obligations; but the waiver of the latter shall leave the former in force.
Art. 1274. It is presumed that the accessory obligation of pledge has been remitted
when the thing pledged, after its delivery to the creditor, is found in the possession
of the debtor, or of a third person who owns the thing.
 Condonation or remission is an act of liberality by virtue of which, without
receiving any equivalent, the creditor renounces enforcement of an
obligation which is extinguished in whole or in part.
Requisites
a. The debt must be existing
You can remit a debt even before it is due.
Example: I owe A P1M. I promised to pay on July 31, 2002 with
interest. On May 31, A condones the obligation. The obligation
is existing but not yet due but it can be condoned.
b. The renunciation must be gratuitous
If renunciation is for a consideration, the mode of
extinguishment may be something else. It may be novation,
compromise or dacion en pago for example.
c. There must be acceptance by the debtor
d. The parties must have capacity
 The creditor must have capacity to give away.
 The debtor must have capacity to accept.
Form
a. If the renunciation is express, then it is a donation.
The form of donation must be observed. If the condonation
involves movables, apply Article 748À. If it involves immovables,
apply Article 749À.
b. If the renunciation is implied, then it is tantamount to a waiver.
 There is no prescribed form in a waiver (Article 6*). For
example, the creditor can just refuse to collect the debt.
 According to Professor Balane, Articles 1271 and 1272§
refer to a kind of implied renunciation when the creditor
divests himself of the proof credit.
 The delivery of a private document, evidencing a
credit, made voluntarily by the creditor to the
debtor, implies the renunciation of the action
which the former had against the latter.
 If in order to nullify this waiver it should be claimed to be
inofficious, the debtor and his heirs may uphold it by
providing that the delivery of the document was made in
virtue of payment of the debt (Article 1271).
o Article 1271 has no application to public
documents because there is always a copy in the
archives which can be used to prove the credit.
Private document refers to the original in order for
Article 1271 to apply.
o By delivering the private document, the creditor
deprives himself of proof.
o The second paragraph of Article 1271 implies that
the voluntary return of the title of credit is
presumed to be by reason of remission and not by
reason of the payment of debt. According to
Professor Balane, this is anomalous. This provision
is absurd and immoral in that it authorizes the
debtor and his heirs to prove that they paid the
debt, when the provision itself assumes that there
has been a remission, which is gratuitous.
 Whenever the private document in which the debt
appears is found in the possession of the debtor, it shall
be presumed that the creditor delivered it voluntarily,
unless the contrary is proved (Article 1272).
 2 Presumptions
o If a private document is found in the possession of the
debtor, then it is presumed that the creditor
voluntarily delivered it to him
o Since the creditor voluntarily delivered the private
document, then there is a presumption of remission
Ways
a. By will
b. By agreement
Effect of Partial Remission
 The renunciation of the principal debt shall extinguish the accessory
obligations; but the waiver of the latter shall leave the former in force (Article
1273).
 Example: Loan secured by a mortgage. If I condone the loan, I condone the
mortgage. But if I condone the mortgage, I do not condone the loan which
merely becomes unsecured.
 The obligation of the guarantor is extinguished at the same time as that of
the debtor, and for the same causes as all other obligations (Article 2076).
 The guarantors, even though they be solidary, are released from their
obligation whenever by some act of the creditor they cannot be subrogated
to the rights, mortgages, and preferences of the latter (Article 2080).
 It is presumed that the accessory obligation of pledge has been remitted
when the thing pledged, after its delivery to the creditor, is found in the
possession of the debtor, or of a third person who owns the thing (Article
1274).
o According to Professor Balane, the accessory obligation of pledge is
extinguished because pledge is a possessory lien. The presumption in
this case is that the pledgee has surrendered the thing pledged to the
pledgor. However, this is not a conclusive presumption according to
Article 2110, ¶2.
o This presumption is not applicable in a mortgage since there is no
possessory lien.
 In addition to the requisites prescribed in article 2085, it is necessary, in
order to constitute the contract of pledge, that the thing pledged be placed
in the possession of the creditor, or of a third person by common agreement
(Article 2093)
 The debtor cannot ask for the return of the thing pledged against the will of
the creditor, unless and until he has paid the debt and its interest, with
expenses in a proper case (Article 2105).
(4.) CONFUSION OR MERGER OF RIGHTS
Art. 1275. The obligation is extinguished from the time the characters of creditor
and debtor are merged in the same person.
Art. 1276. Merger which takes place in the person of the principal debtor or creditor
benefits the guarantors. Confusion which takes place in the person of any of the
latter does not extinguish the obligation.
Art. 1277. Confusion does not extinguish a joint obligation except as regards the
share corresponding to the creditor or debtor in whom the two characters concur.
Confusion defined
 Confusion is the meeting in one person of the qualities of the creditor and
debtor with respect to the same obligation.
 Confusion or merger of rights extinguishes the obligation because the
creditor becomes his own debtor. Therefore, how can the creditor sue
himself.
Requisites of Confusion
a. It must take place between the creditor and the principal debtor (Article 1276)
Example: A borrowed P 1M from B with C as guarantor. If C acquires the right
to collect the P 1M, there is no confusion since C is neither a principal debtor
or creditor. The effect is that the guaranty is extinguished. The principal
obligation remains.
b. The very same obligation must be involved (Article 1275)
Usual Causes of Confusion
a. Succession (compulsory, testate, intestate)
b. Donation
c. Negotiation of a negotiable instrument
 Confusion can overlap with remission or payment.
 Example of confusion overlapping with remission: X owes O P100,000. O
bequeath to X that credit. And then she died. In this case, there is
extinguishment both by merger. But in this case, merger could overlap with
remission.
 Example of confusion overlapping with payment: A makes a promissory
note and endorses it to B. B endorsed it to C. C to D. D endorsed it back to A.
(5) COMPENSATION
Art. 1278. Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other.
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor.
Art. 1280. Notwithstanding the provisions of the preceding article, the guarantor
may set up compensation as regards what the creditor may owe the principal
debtor.
Art. 1281. Compensation may be total or partial. When the two debts are of the
same amount, there is a total compensation.
Art. 1282. The parties may agree upon the compensation of debts which are not
yet due.
Art. 1283. If one of the parties to a suit over an obligation has a claim for damages
against the other, the former may set it off by proving his right to said damages and
the amount thereof.
Art. 1284. When one or both debts are rescissible or voidable, they may be
compensated against each other before they are judicially rescinded or avoided.
Art. 1285. The debtor who has consented to the assignment of rights made by a
creditor in favor of a third person, cannot set up against the assignee the
compensation which would pertain to him against the assignor, unless the assignor
was notified by the debtor at the time he gave his consent, that he reserved his
right to the compensation.
If the creditor communicated the cession to him but the debtor did not consent
thereto, the latter may set up the compensation of debts previous to the cession,
but not of subsequent ones.
If the assignment is made without the knowledge of the debtor, he may set up the
compensation of all credits prior to the same and also later ones until he had
knowledge of the assignment.
Art. 1286. Compensation takes place by operation of law, even though the debts
may be payable at different places, but there shall be an indemnity for expenses of
exchange or transportation to the place of payment.
Art. 1287. Compensation shall not be proper when one of the debts arises from a
depositum or from the obligations of a depositary or of a bailee in commodatum.
Neither can compensation be set up against a creditor who has a claim for support
due by gratuitous title, without prejudice to the provisions of paragraph 2 of article
301.
Art. 1288. Neither shall there be compensation if one of the debts consists in civil
liability arising from a penal offense.
Art. 1289. If a person should have against him several debts which are susceptible
of compensation, the rules on the application of payments shall apply to the order
of the compensation.
Art. 1290. When all the requisites mentioned in article 1279 are 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 of the
compensation.
Compensation Defined
 Compensation is a mode of extinguishing, to the concurrent amount, the
obligations of those persons who in their own right are reciprocally debtors
and creditors of each other.
 Perhaps, next to payment, compensation is the most common mode of
extinguishing an obligation.
Compensation vs Confusion
 In compensation, there are 2 parties and 2 debts
 whereas in confusion, there are 2 debts and only 1 party.
Kinds of Compensation
(1) Legal (Article 1279)
Legal compensation takes place automatically by operation of law once all the
requisites under Article 1279 are present.
Requisites
 The parties must be mutually debtors and creditors of each other in their
own right and as principals.
o There can be no compensation if 1 party occupies only a
representative capacity (i.e. agent). Likewise, there can be no
compensation if in one obligation, a party is a principal obligor and in
another obligation, he is a guarantor.
 The things due must be fungible
o Article 1279 uses the word “consumable”. This is wrong. The proper
terminology is “fungible” which refers to things of the same kind which
in payment can be substituted for another.
 The 2 debts must be due
 The 2 debts must be liquidated and demandable
o Demandable means that the debts are enforceable in court, there
being no apparent defenses inherent in them. The obligations must be
civil obligations, excluding those that are purely natural. Before a
judicial decree of rescission or annulment, a rescissible or voidable
debt is valid and demandable; hence, it can be compensated.
o A debt is liquidated when its existence and amount are determined.
And a debt is considered liquidated, not only when it is expressed
already in definite figures w/c do not require verification, but also
when the determination of the exact amount depends only on a
simple arithmetical operation.
 Neither of the debts must not be garnished
 Compensation must not be prohibited by law
o Articles 1287, 1288 and 1794¨ are examples of when legal
compensation is not allowed.
o Legal compensation is not allowed when there is conventional or
facultative compensation.
Effect of Legal Compensation
 If a person should have against him several debts which are susceptible of
compensation, the rules on the application of payments shall apply to the
order of the compensation (Article 1289)
 When all the requisites mentioned in article 1279 are 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 of
the compensation (Article 1290)
(2) Facultative (Articles 1287, 1288)
 Facultative compensation takes place when compensation is claimable by
only one of the parties but not of the other.
 Compensation shall not be proper when one of the debt arises from a
depositum or from the obligations of a depositary or of a bailee in
commodatum.
 Neither can compensation be set up against a creditor who has a claim for
support due by gratuitous title, without prejudice to the provisions of
paragraph 2 of article 301 (Article1287)
o The prohibition of compensation when one of the debts arises from a
depositum or commodatum is based on justice.
o A deposit is made or a commodatum is given on the basis of
confidence in the depositary or the borrower. It is therefore, a matter
of morality, that the depositary or the borrower should in fact perform
his obligation; otherwise, the trust or confidence of the depositor or
lender would be violated.
o With respect to future support, to allow its extinguishments by
compensation would defeat its exemption from attachment and
execution (Article 205, Family Code) and may expose the recipient to
misery and starvation. However, support in arrears can be
compensated.
o The depositary cannot set up compensation w/ respect to the things
deposited to him. But the depositor can set up the compensation.
o Example: A is a warehouseman. B deposits 1000 quedans of rice with
A. B also owes A 1000 kilos of rice. A cannot claim compensation but
B can set up compensation.
 Neither shall there be compensation if one of the debts consists in civil
liability arising from a penal offense (Article 1288)
o If 1 of the debts consists in civil liability arising from a penal offense,
compensation would be improper and inadvisable because the
satisfaction of such obligation is imperative.
o The person who has the civil liability arising from the crime cannot set
up compensation. However, the offended party is entitled to set up
compensation.
(3) Conventional or Contractual (Article 1282)
 Contractual or conventional compensation takes place when parties agree to
set-off even if the requisites of legal compensation are not present.
 The parties may agree upon the compensation of debt which are not yet due.
 The parties may compensate by agreement any obligations, in w/c the
objective requisites provided for legal compensation are not present.
(4) Judicial (Article 1283)
 Judicial compensation is compensation decreed by the court in a case where
there is a counterclaim.
 If one of the parties to a suit over an obligation has a claim for damages
against the other, the former may set it off by proving his right to said
damages and the amount thereof.
Effect of Assignment (Article 1285)
It depends:
a. If the assignment is with the debtor’s (B’s) consent
Debtor cannot set up compensation at all unless the right is reserved.
b. If the assignment is with the debtor’s (B’s) knowledge but without consent
The debtor can set up compensation with a credit already existing at the time
of the assignment.
c. If the assignment is without the debtor’s (B’s) knowledge
Debtor can set up as compensation any credit existing at the time he
acquired knowledge even if it arose after the actual assignment.
(6) NOVATION
Art. 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor.
Art. 1292. In order that an obligation may be extinguished by another which
substitute the same, it is imperative that it be so declared in unequivocal terms, or
that the old and the new obligations be on every point incompatible with each
other.
Art. 1293. Novation which consists in substituting a new debtor in the place of the
original one, may be made even without the knowledge or against the will of the
latter, but not without the consent of the creditor. Payment by the new debtor
gives him the rights mentioned in articles 1236 and 1237. (Expromission)
Art. 1294. If the substitution is without the knowledge or against the will of the
debtor, the new debtor's insolvency or non- fulfillment of the obligations shall not
give rise to any liability on the part of the original debtor.
Art. 1295. The insolvency of the new debtor, who has been proposed by the original
debtor and accepted by the creditor, shall not revive the action of the latter against
the original obligor, except when said insolvency was already existing and of public
knowledge, or known to the debtor, when the delegated his debt. (Delegacion)
Art. 1296. When the principal obligation is extinguished in consequence of a
novation, accessory obligations may subsist only insofar as they may benefit third
persons who did not give their consent.
Art. 1297. If the new obligation is void, the original one shall subsist, unless the
parties intended that the former relation should be extinguished in any event.
Art. 1298. The novation is void if the original obligation was void, except when
annulment may be claimed only by the debtor or when ratification validates acts
which are voidable.
Art. 1299. If the original obligation was subject to a suspensive or resolutory
condition, the new obligation shall be under the same condition, unless it is
otherwise stipulated.
Art. 1300. Subrogation of a third person in the rights of the creditor is either legal
or conventional. The former is not presumed, except in cases expressly mentioned
in this Code; the latter must be clearly established in order that it may take effect.
Art. 1301. Conventional subrogation of a third person requires the consent of the
original parties and of the third person.
Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without the
debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with the
express or tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a person interested in
the fulfillment of the obligation pays, without prejudice to the effects of
confusion as to the latter's share.
Art. 1303. Subrogation transfers to the persons subrogated the credit with all the
rights thereto appertaining, either against the debtor or against third person, be
they guarantors or possessors of mortgages, subject to stipulation in a conventional
subrogation.
Art. 1304. A creditor, to whom partial payment has been made, may exercise his
right for the remainder, and he shall be preferred to the person who has been
subrogated in his place in virtue of the partial payment of the same credit.
Novation defined
 Novation is the extinguishment of an obligation by the substitution or change
of the obligation by a subsequent one which extinguishes or modifies the
first, either by changing the object of principal conditions, or by substituting
the person of the debtor, or by subrogating a third person in the rights of the
creditor.
 Novation is the most unusual mode of extinguishing an obligation. It is the
only mode whereby an obligation is extinguished and a new obligation is
created to take its place. The other modes of extinguishing an obligation are
absolute in the sense that the extinguishment of the obligation is total.
Novation, on the other hand, is a relative mode of extinguishing an
obligation.
 A compromise is a form of novation. The difference is that a compromise has
some judicial participation. The effect of compromise is the same as
novation.
Classification of Novation
(1) Subjective or Personal Novation – change of one of the subjects
a. Active subjective
 This a change of creditor.
 This is also known as subrogation.
2 Kinds of Subrogation:
1. Legal (Article 1302)
 It is presumed that there is legal subrogation:
a. When a creditor pays another creditor who is preferred, even
without the debtor's knowledge;
b. When a third person, not interested in the obligation, pays with the
express or tacit approval of the debtor
c. When, even without the knowledge of the debtor, a person
interested in the fulfillment of the obligation pays, without prejudice
to the effects of confusion as to the latter's share;
2. Conventional (Article 1301)
 Conventional subrogation of a third person requires the consent of the original
parties and of the third person (Article 1301)
Effect of Subrogation
1. A creditor, to whom partial payment has been made, may exercise his right for the
remainder, and he shall be preferred to the person who has been subrogated in his
place in virtue of the partial payment of the same credit (Article 1304)
2. Subrogation transfers to the person subrogated the credit with all the rights thereto
appertaining, either against the debtor or against third persons, be they guarantors or
possessors of mortgages, subject to stipulation in a conventional subrogation (Article
1303)
b. Passive subjective
 This is a change of debtor.
Types of Passive Subjective:
1. Expromission (Article 1293)
 In expromission the changing of the debtor is not upon the old debtor's
initiative. It could be upon the initiative of the creditor or of the new debtor.
 This requires the consent of the creditor since the changing of the debtor
may prejudice him. This requires the consent of the new debtor since he is
the one who will pay.
 The consent of the old debtor is not required.
 The intent of the parties must be to release the old debtor. The release of
the old debtor is absolute even if it turns out that the new debtor is insolvent.
 Cases of expromission are quite rare.
2. Delegacion (Article 1295)
 In delegacion the change is at the debtor’s initiative.
 The consent of the old debtor (delegante), the new debtor (delegado), and the
creditor (delegatario) are all required.
 The intent of the parties must be to release the old debtor. However, release of the
old debtor is not absolute. He may be held liable
a. If the new debtor was already insolvent at the time of the delegacion; and
b. Such insolvency was either known to the old debtor or of public
knowledge
(2). Objective or Real Novation
 In objective novation there is a change in the object or in the principal
conditions.
 Novation by a change in the principal conditions is the most problematic kind
of novation because one has to determine whether or not the change in the
conditions is principal or merely incidental.
 If the amount of debt is increased, Castan thinks that there is a novation while
Caguioa thinks there is no novation. Professor Balane thinks that Castan is
correct. The old obligation is merged with the new.
 If the amount of the debt is decreased, according the SC in Sandico vs.
Piguing, there is no novation. One can look at the decrease of the amount as
a partial remission.
 In Millar vs. CA, there is no novation if the terms of the payment are changed.
In this case, there was a change from lump sum to installment payments.
 In Fua vs. Yap, not only was the amount reduced, mode of payment was
changed from single payment to installment. Finally, a mortgage was
constituted. The SC said in Fua vs. Yap that there was a novation. Therefore,
a mere change in the amount or mode of payment if taken singly is not a
novation. But taken together, there is a novation.
 In Inchausti vs. Yulo, the SC said that the mere extension of time is not a
novation for the period does affects only the performance and not the
creation of an obligation. In another case, the SC said that the shortening of
the period is a novation.
(3) Mixed Novation
 Mixed is a combination of both subjective and objective novation.
Requisites of Novation
a. There must be a previous valid obligation
 The novation is void if the original obligation was void, except when
annulment may be claimed only by the debtor, or when ratification validates
acts which are voidable (Article 1298)
b. There must be an agreement of the parties to create the new obligation
 If the original obligation was subject to a suspensive or resolutory condition,
the new obligation shall be under the same condition, unless it is otherwise
stipulated (Article 1299)
c. There must be an extinguishments of the old obligation
 Professor Balane considers this as an effect rather than a requisite of
novation.
 In order that an obligation may be extinguished by another which substitute
the same, it is imperative that it be so declared in unequivocal terms, or that
the old and the new obligations be on every point incompatible with each
other (Article 1292)
d. The new obligation must be valid
 If the new obligation is void, the original one shall subsist, unless the parties
intended that the former relation should be extinguished in any event
(Article 1297)
Effect of Novation
 Accessory obligations may subsist only insofar as they may benefit third
persons who did not give their consent, e.g., stipulation pour autrui
 General Rule: In a novation, the accessory obligation is extinguished.
 Exception: In an active subjective novation, the guarantors, pledgors,
mortgagors are not released
 Under Article 1303, accessory obligations are not extinguished. So there is a
conflict? How do you resolve? According to commentators, Article 1303 is an
exception to Article 1296.
 B owes K P1 M. M is a guarantor of B. B is substituted by U. B is released. M
is also released under Article 1296. M is released since he guarantees B’s
performance and not B’s. B might have a good credit standing but U may not.
M might be prejudiced if he has to guarantee U’s performance.
 If there is a change in the creditor under Article 1303, the guarantor is not
released since it doesn’t make a difference. What the guarantor guarantees
is the integrity of the debtor.
(7) Annulment
(8) Rescission
(9) Fulfillment of a Resolutory Condition
(10) Prescription
(11) Death in Certain Instances
(12) Death Extinguishes Obligations
For example, death extinguishes obligations which are purely personal (i.e.
obligations in marriage, obligation to support, obligations in a partnership, etc.)
(13) Renunciation by the Creditor (Article 6)
 The creditor waives the obligation.
 The renunciation need not be in any specific form.
 Renunciation and remission are 2 different things. A renunciation is a refusal
by the creditor to enforce his claim with the intention of waiving it. A
remission is in the nature of a donation.
(14) Compromise
(15) Arrival of a Resolutory Term
(16) Mutual Dissent or Desistance (Saura vs. DBP)
(17) Unilateral Withdrawal
General Rule: Unilateral withdrawals are not allowed.
Exception: Partnership
(18) Change of Civil Status
 For example, if the marriage is annulled, certain obligations are extinguished,
like the obligations to live together and to support one another.
(19) Rebus Sic Stantibus (Article 1267)
(20) Want of Interest
Example: A owns a peking duck restaurant with a secret recipe for preparing peking
duck. A disclosed the secret recipe to B, his cook. B is then prohibited in his
employment contract to work in another restaurant within 5 years from leaving A’s
restaurant. Two years after B left, A closes his restaurant and opens a hardware
store. B can now work in a restaurant.
(21) Judicial Insolvency
The effect of judicial insolvency is that all unpaid debts are written off for good.
Thus, even if the debtor has improved his financial situation because of judicial
insolvency, there is no need for the debtor to pay his unpaid debts.
2 CONTRACTS
A. General Provisions
1. DEFINITION
Art. 1305. A contract is a meeting of the minds between 2 persons whereby one
binds himself with respect to the other to give something or to render some service.
 Professor Balane thinks that the definition in Article 1305 is inaccurate. The
term “persons” should be submitted by the term “parties”. Also, contracts
may be multilateral; there can be more than 2 parties involved (i.e.
partnership).
2. CHARACTERISTICS OF CONTRACTS
Obligatory force, Mutuality, Relativity, Autonomy of Will
(a.) Obligatory force
Art. 1315
Art. 1315. Contracts are perfected (creation; there is now a contract) by mere
consent, and from that moment the parties are bound not only to the fulfillment
of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law.
General Rule
Contracts are perfected by mere consent – the principle of consensuality (Article
1315)
Exception Obligatory Force
 Real contracts, such as deposit, pledge, and commodatum are not perfected
until the delivery of the object of the obligation (Article 1316)
 or form in solemn contracts: they are not valid just because
 enforceable contract – put in writing; if there is no writing then you cannot
go to court
THIS IS THE REASON WHY: Obligations arising from contracts have the force of
law between the parties and should be complied with in good faith (Article 1159)
Art. 1314
Art. 1314. Any third person who induces another to violate his contract shall be
liable for damages to the other contracting party.
 It is not clear whether Article 1314 is a tortious liability or a contractual
liability. Professor Balane considers it as only a tortious liability so it is not
violative of the rule on relativity of contracts.
 Article 1314 is really a quasi-delict.
Requisites of Liability
i. Existence of a valid contract
ii. Knowledge by the 3rd person of the existence of the contract
iii. Interference by the 3rd person in the contractual relation without legal
justification
(b.) Mutuality
Art. 1308.
The contract must bind both contracting parties; its validity or compliance cannot
be left to the will of one of them.
Art. 1309.
The determination of the performance may be left to a third person, whose
decision shall not be binding until it has been made known to both contracting
parties.
Art. 1310.
The determination shall not be obligatory if it is evidently inequitable. In such case,
the courts shall decide what is equitable under the circumstances.
 An example of a determination made by a 3rd person (Article 1309) is the
fixing of the price by the 3rd person.
 The contract may be revoked if there is mutual dissent.
Example of Mutuality:
Nowhere is the operation of the principle of mutuality better seen than in bilateral
contracts, i.e. those in which the contracting parties have reciprocal obligations,
like sale. In such contracts, each of the parties is bound to perform his own
prestation: neither of them can, at his mere option, validly refuse to perform what
is incumbent upon him. Such refusal or failure would constitute contractual breach.
(c.) Relativity
Art. 1311, ¶1.
Contracts take effect only between the parties, their assigns and heirs, except in
case where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law. The heir is
not liable beyond the value of the property he received from the decedent.
General Rule Relativity
The contract is binding only upon the parties and their successors (Article 1311).
However, if the contract is purely personal (intuitu personae), then the contract
will not bind assigns and heirs.
NOT TRANSMISISBLE: partnership, marital rights and obligations
Exception Relativity
3 parties are affected by the contract in the following instances and can take
appropriate action
i. Accion pauliana
Art. 1177.
The creditors, after having pursued the property in possession of the debtor to
satisfy their claims, may exercise all the rights and bring all the actions of the
latter for the same purpose, save those which are inherent in his person; they
may also impugn the acts which the debtor may have done to defraud them.
 A rescissory action involving a contract in fraud of creditors
Art. 1313.
Creditors are protected in cases of contracts intended to defraud them.
ii. Accion directa
 A direct (not subrogatory) action by the creditor against his debtor’s
debtor, a remedy which gives the creditor the prerogative to act in his own
name, such as the actions of the lessor against the sublessee (Article
1652♥), the laborer of an independent contractor against the owner
(Article 1729♠), the principal against the subagent (Article 1893∅), and the
vendor-a-retro against the transferee of the vendee (Article 1608⊕ ).
iii. Article 1312
Art. 1312. In contracts creating real rights, third persons who come into
possession of the object of the contract are bound thereby, subject to the
provisions of the Mortgage Law and the Land Registration Laws.
iv. Stipulation pour autrui – stipulation in favor of a 3rd person
Art. 1311, ¶2.
If a contract should contain some stipulation in favor of a third person, he may
demand its fulfillment provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or interest of a person is not
sufficient. The contracting parties must have clearly and deliberately conferred a
favor upon a third person.
Requisites
1. There must be a stipulation in favor of a 3rd person
2. That stipulation in favor of a 3rd person should be a part and not the whole of
the contract
3. A clear and deliberate intent to confer a benefit on a 3rd person and not merely
incidental
 In the case of Mandarin Villa vs. CA, the credit card holder was held to have
a right to sue under the contract between the establishment and the bank.
The Supreme Court said that it’s a stipulation pour autrui to confer benefit
on the customer to purchase on credit.
 However, Professor Balane believes that it is debatable whether an
agreement between a credit card company and establishment is a clear and
deliberate conferment of benefit on a third party. He would have concurred
with the decision in Mandarin Villa if the basis was quasi-delict.
4. That the favorable stipulation should not be conditioned or compensated by any
kind of obligation whatever
5. Neither of the contracting parties bears the legal representation of authorization
of the 3rd parties
 If the 3rd parties is represented, then the principles of agency apply.
6. The 3rd person must have communicated his acceptance to the obligor before
its revocation
v. Article 1314
Art. 1314. Any third person who induces another to violate his contract shall be
liable for damages to the other contracting party. (n)
(d.) Autonomy of will
Art. 1306.
The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy.
From book:
Manresa refers to this as the very essence of contracts and an attribute of human
freedom.
The general rule from ancient times, therefore, is that the parties are free to
stipulate on whatever they wish. As long as the parties have freely and deliberately
entered into an agreement, a vinculum juris is created and the parties are bound
to comply with the terms of their agreement. The law will, as a general rule, not
afford them any relief just because their agreement turns out to be ill-advised or
the prestation proves difficult or burdensome.
Two aspects of Autonomy of Will:
The principle of contractual freedom or autonomy of will has two aspects:
(1) the freedom to decide whether or not one should enter into a contractual
relationship at all, and
(2) the freedom to stipulate upon whatever terms the parties may wish and agree
upon.
(1) the freedom to decide whether or not one should enter into a contractual
relationship at all, and
General Rule:
the right to decide whether to contract or not. A person cannot be coerced
to enter into a contract; conversely one cannot be coerced to refrain from
contracting.
Exceptions:
1. There are two instances in the said article when the parties are compelled to
enter into a contract of lease:
 in case the improvement introduced is something sown, and
 in case the improvement is a building or a planting but the value of the
"land is considerably greater than such improvement. In both these
instances there is a mandatory lease contract provided by Article 448.
2. Another exception is the exercise by the State of the power of eminent domain.
This is an exception in the sense that a mandatory contract of sale is entered into
by the property owner with the State.
(2) the freedom to stipulate upon whatever terms the parties may wish and agree
upon.
The second aspect of contractual freedom is the right to stipulate on whatever
terms the parties may wish to agree upon.
From Google:
The principle of autonomy of will is basic in contract law. Through it, the parties can
freely regulate their interests and create the legal relationships that contracting
parties deem appropriate. However, it cannot be said that a contract is valid simply
because it represents the will of the parties.
3. ELEMENTS OF A CONTRACT
(a.) Essential Elements C-O-C
Art. 1318.
There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
 The essential elements are those without which there can be no contract.
These elements are, in turn, subdivided into common (communes), special
(especiales), and extraordinary (especialisimos).
 The common elements are those which are present in all contracts, such
as consent, object certain, and cause.
 The special elements are present only in certain contracts, such as delivery
in real contracts or form in solemn ones.
 The extraordinary elements are those which are peculiar to a specific
contract (i.e. price in sales).
Examples from Renz:
Special Examples:
 Contract of Lease - price. Without price, the contract would not be of
lease, but of commodatum, or something else
 Contract of Agency to sell land - should be written, otherwise void
Extraordinary Example:
 Insurance contract - insurable interest, extraordinary because it is insurable
interest that puts into application the provisions of the Insurance Code.
Without insurable interest, it's not an insurance contract but a mere wager
only.
i. Consent
1. Consent in General
Definition of Consent
Art. 1319, 1st sentence. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract.
 From the book:
o The concurrence must be on the object and the cause of the
prospective contract. That is the bare minimum; but the parties may
agree to include additional matters as necessary for a meeting of
minds before the contract is deemed by them perfected, as for
instance, terms of payment, mode of delivery, governing law, etc.
Elements of Consent P-C-I-E-C
(1) plurality of subjects
(2) capacity
(3) intelligent and free will
(4) express or tacit manifestation of the will and
(5) conformity of the internal will and its manifestation
Effect of want or lack of consent
 "As one of the essential elements, consent when wanting makes the contract
non-existent."
 Articles 1327 to 1344 (infra) lay down provisions regulating contracts in
which consent is absent, wanting, or defective. These articles, taken together
with Articles 1390 to 1402 denominate and consider such contracts, not as
void, but as voidable.
 It seems clear, therefore, that want of consent does not make a contract
void, but only voidable.
a. Plurality of subjects
 There must be at least 2 parties to every contract and their capacity and
consent are essential to the existence.
 The number of parties, however, should not be confused with the number of
persons.
 A single person can represent 2 parties and one party can be composed of 2
or more persons.
b. Capacity
 The legal capacity of the parties is an essential element for the existence of
the contract.
 It is an indispensable condition for the existence of consent because there is
no effective consent in law without the capacity to give such consent.
 Because of this connection of cause and effect between the capacity and
consent, the law does not expressly enumerate the former as a separate
requisite for the validity of contracts.
 Legal consent presupposes capacity.
 Includes legal capacity, juridical capacity, and capacity to act
c. Intelligent and free will
From Book:
 Intelligent: made with sufficient understanding
 Free will: made with no restraint on its exercise
 Third element: SPONTANEITY but this element can be subsumed under
intelligence
From Google:
 The intellect is the human capacity to cognize. The will is the human
motivational capacity; it is the capacity that moves us to do what we do. The
will depends upon the intellect to identify what alternatives for action are
possible and desirable.
 Free will is the ability to choose with or without coercion, sensibly or nonsensibly, logically or illogically, intelligently or stupidly or a combination of all
the above. Free will is randomness embedded in our consciousness.
d. Express or tacit manifestation of the will
 From the book:
o could be complied with by means of any verbal exchange between the
parties that manifested their intent to enter into an agreement
e. Conformity of the internal will and its manifestation
 From Google:
o The guarantee for conformity with the contract represents the legal
means by which a seller or a producer is liable to the consumer for any
lack of correspondence between what the consumer legitimately
expected from the product bought and what was actually received.
2. Offer
 An offer is a unilateral proposition which 1 party makes to the other for the
celebration of a contract
Art. 1321. The person making the offer may fix the time, place, and manner
of acceptance, all of which must be complied with.
Requisites of Offer D-C-I
Definite, Complete, Intentional
a. Definite
 The offer must be definite, so that upon acceptance, an agreement can be
reached on the whole contract.
 From Google:
o the offer must be definite, so that upon acceptance an agreement can
be reached on the whole contract.
o The offer must be distinguished from mere communications indicating
that a party is disposed to enter into a certain contract or inviting the
other to make an offer.
o The offer must be certain and definite so that the liability (or rights) of
the parties may be exactly fixed because it is necessary that the
acceptance be identical with the offer to create a contract without any
further act on the part of the offeror.
b. Complete
 The offer must be complete, indicating with sufficient clearness the kind of
contract intended and definitely stating the essential conditions of the
proposed contract as well as the non-essential ones desired by the offeror.
 Thus, in a contract of sale, the offer must specify the object and the price.
c. Intentional
 An offer without seriousness, made in such manner that the other party
would not fail to notice such lack of seriousness, is absolutely without
juridical effects and cannot give rise to a contract (i.e. must not be made in
jest, or a prank).
 From Google:
o But if by reason of the form or the circumstances surrounding it or
because of the fault of the offeror, the offeree is induced to take it
seriously, it becomes necessary to determine whether the real
intention or the manifested intention should prevail.
o In our code, there is no provision on the matter but applying general
principles, the rule is acceptable in our law and the act must be held
void, although the other party who has been led to believe it to be
serious and intentional should be indemnified for the damages he may
suffer thereby.
o An offer made in jest or in anger, or while emotionally upset or in other
ways indicating that the same was not seriously intended is not a valid
offer.
o But lack of serious intent to enter into a contract where such a
condition was not apparent to the offeree who honestly believed that
the offer was seriously intended, does not invalidate the offer.
Other causes for extinguishment of offer
1 . Death, civil interdiction, insanity, or insolvency of either the offeror or the
offeree before the perfection of consent;
2 . Rejection by the offeree;
3. Lapse of the period stated in the offer without acceptance being communicated
by the offeree to the offerer;
4. Qualified or conditional acceptance (since such will constitute a counter-offer);
5. Communication by the offerer to the offeree of the revocation or withdrawal of
his offer before acquiring knowledge of the offeree's acceptance [NOTE: This is
possible only if there is no binding contract of option]; and
6. Loss of the thing constituting the object of the prestation before the perfection
of consent.
3. Acceptance
 From book (page 577):
o There is no specific form prescribed for acceptance.
o Thus, it may be express, or implied from acts of the offeree from which
his acceptance may necessarily be inferred. But whether express or
implied, the acceptance is effective only if communicated to the
offeror, in line with the cognition theory.
o The acceptance of an offer must be made known to the offeror. Unless
the offerer knows of the acceptance, there is no meeting of the minds
of the parties, no real concurrence of offer and acceptance.
o The contract is perfected only from the time an acceptance of an offer
is made known to the offerer.
Requisites of Acceptance
i. Unequivocal
 From Google: an offer must be accepted exactly with no modifications. The
offeror is the master of one's own offer.
 unambiguous
ii. Unconditional or absolute
 From Google: If you describe something as unconditional, you mean
that the person doing or giving it does not require anything to be done by
other people in exchange.
 If the acceptance is qualified, then that is a counter-offer (Article 1319, 3rd
sentence).
o From Google:
 Qualified Acceptance: In contract law, an assent to an offer that
is either conditional or partial and alters the offer by changing
the time, amount, mode, or place of payment.
 An amplified acceptance may or may not be an acceptance of the original
offer. It depends on the circumstances.
o From Google:
 Amplified Acceptance: Under certain circumstances, a mere
amplification on the offer must not be understood as an
acceptance of the original offer, plus a new offer which is
contained in the amplification.
 The intent of the offeree, however, controls.
o From book:
 An acceptance that expands the coverage of the offer may
either constitute an acceptance of the original offer and an offer
covering the additional part or a counter-offer replacing the
original offer. In a case such as this, the intent of the parties
must prevail.
Example: A offers to sell 1000 kilos of cement. B says he wants to buy 2000
kilos of cement. Is the 1000 kilos accepted? It depends. If buyer wants a block
sale, that is, only 2000 kilos and nothing less, then it is a counter-offer.
Manifestation of Acceptance
Art. 1320. An acceptance may be express or implied.
 Silence is ambiguous. Silence in itself is neither acceptance nor rejection. Can
it mean acceptance? One must look at the circumstances.
Examples: A and B own stalls which sell rice. C delivers 1000 kilos of
rice to A every Sunday. If A is not there, C just leaves it with A’s
assistant. C tries to do business with B. B is not there though. C leaves
rice with B’s assistant. B does not call C. Both A and B are silent. A
accepted the rice because of the arrangement. If A did not want to
accept the rice, then A should have called. B’s silence is not
acceptance.
Effect of Silence
 From the book:
o [He who keeps silent is deemed to agree] applies only if, under the
circumstances, there is a duty or necessity for the offeree to
communicate his rejection of the offer. Otherwise, silence cannot be
interpreted as consent.
o In a case, for instance, where an offer is made where the parties have
had no prior transactions or negotiations, the offeree's failure to
respond to the offer, either positively or negatively, cannot be
construed as consent, and cannot give rise to a contract.
Cognition Theory
Article 1319, 2nd ¶. Acceptance made by letter of telegram does not bind the
offerer except from the time it came to his knowledge.
 This is known as the Cognition Theory. Commercial law uses the Theory of
Manifestation.
o Cognition Theory: The contract is perfected from the moment the
acceptance comes to the knowledge of the offeror. (This is the theory
followed by the New Civil Code.)
 Offer and acceptance takes effect only from the time knowledge is acquired
by the person to whom it is directed. If during intervening time, the offer or
acceptance is extinguished by death/insanity, such offer or acceptance has
no more effect.
Example: Offeror gave offer on March 1. The offer reached the offeree
on March 5. From the point of view of the offeror, offer is counted
from March 5. He can still countermand before March 5.
 If the parties are face to face, then there is no problem since there is no time
gap.
 The problem arises when there is a time gap. Under Article 1319, there is
perfection of the contract when there is knowledge of the other party’s
acceptance. This has serious consequences.
 Example 1. The offer was made in Davao on February 1. The offer was sent
through mail which is received in Manila on February 5. On the same day,
the offer is accepted. Mail is sent to Davao on February 5 signifying
acceptance. On February 8, the party in Manila becomes insane. On February
13, the mail reaches Davao. According to Professor Balane, under Article
1323, there is no contract since there was no contractual capacity.
 Example 2. The offer was made in Bacolod on March 1. It was received in
Quezon City on March 3. On March 4, the offeree sends his acceptance. On
March 5, the offeror countermands offer. Now, both acceptance and
countermand of offer are in the mail. Whichever reaches the destination first
will be counted.
Theory of Manifestation
Under the theory of cognition, the acceptance is considered to effectively bind the
offeror only from the time it came to his knowledge.
Under the theory of manifestation, the contract is perfected at the moment when
the acceptance is declared or made by the offeree.
From Tiu:
Knowledge may be actual or constructive — The knowledge may be actual or
constructive (as when the letter of acceptance has been received in the house of
the offerer by a person possessed of reasonable discernment). If actual knowledge
be required, proof of this would be almost impossible, for even when the letter
containing the answer has been opened and read, the offerer can always claim, in
some cases truthfully, that while he was reading the same, his mind was elsewhere,
and he did not actually know the contents of said answer.
Time, Place, and Manner of Acceptance
From book (page 587):
The offeror has the right to determine the specifics of the offer: not only its terms,
but also the duration, the time and the manner of acceptance of the offer. If,
however, there is a contract of option, the terms of the contract shall govern.
Offers Through Agents
Art. 1322. An offer made through an agent is accepted from the time acceptance
is communicated to him.
Effect of Death, Insanity
Art. 1323. An offer becomes ineffective upon the death, civil interdiction, insanity
or insolvency of either party before acceptance is conveyed.
Withdrawal of the Offer
Art. 1324. When the offeror has allowed the offeree a certain period to accept, the
offer may be withdrawn at any time before acceptance by communicating such
withdrawal, except when the option is founded upon consideration, something
paid or promised.
 Article 1324 is related to Article 1479, ¶2⊗ . They actually say the same
thing.
 S offers to sell a car to B for P300,000. B needs to think about it, and so B
asks for 30 days and pays S P5,000.
The payment of P5,000 is a distinct consideration from the price of the car.
This distinct consideration of P5,000 is payment for the 30 days. B is paying
for time.
From the book: Distinct Consideration means a separate payment
which is not part of the purchase price or of the consideration for the
contract which the offeror is offering to enter into with the offeree.
The option contract is separate from the contract of sale. S cannot sell the
car to anybody else within that 30-day period.
From the book: Option Contract is one necessarily involving the choice
granted to another for a distinct or separate consideration as to
whether or not to purchase (or to sell) a determinate thing at a
predetermined price.
It can also be: A preparatory contract in which one party grants to
another for a fixed period and at a determined price the privilege to
buy or sell.
If S sells the car to someone else within the 30-day period, he is guilty of
contractual breach. But B can buy the car before the end of the 30-day period
and such will be a valid sale.
 S offers to sell a car to B for P300,000. B needs to think about it, and so B
asks for 30 days. B does not pay S for time, but S promises to give B 30 days.
In this case there is no option contract.
However, in Sanchez vs. Rigos, the Supreme Court said that even if there was
no option contract, S must still communicate the withdrawal of the offer to
B. If S does not communicate his withdrawal, that is tantamount to a
continuing offer.
Professor Balane does not agree with this. According to him, if there is no
valid option contract, there should be no continuing offer. According to
Professor Balane, the Supreme Court should have explained that.
 S offers to sell a car to B for P300,000. B needs to think about it, and so B
asks for 30 days and pays P5,000 to S. B decides to buy the car within 30 days.
The car is not sold to anybody else. S does not want to sell the car to B. B can
sue S for specific performance – compel S to sell him the car.
 S offers to sell a car to B for P300,000. B needs to think about it, and so B
asks for 30 days and pays P5,000 to S. B decides to buy the car within 30 days.
Before B is able to buy the car, S sells the car to X. B can sue S for damages.
B cannot sue for specific performance since the car has been sold to an
innocent purchaser.
Right of First Refusal vs Option Contract
 A right of first refusal is different from an option contract.
o A right of first refusal is the right to have first opportunity to purchase
or the right to meet any other offer. The right of first refusal is not
covered by the Civil Code.
o On the other hand, an option contact limits the promissor’s power to
revoke an offer
 A right of first refusal is a statement by a person to another that if the former
decides to sell the object, the latter will have the first offer. Here, the object
is determinable. But the exercise of the right to buy is conditioned on the
seller’s decision to sell on terms which are not yet certain.
 Offeror may grant an option contract — this is a preparatory contract in
which the offeror grants to the offeree, for a fixed period and under specified
conditions, the power to decide whether or not to enter into a principal
contract.
 According to Equatorial vs. Mayfair, the requirement of separate
consideration is not applicable in a right of first refusal. According to
Professor Balane, this is peculiar since an option contract is more firm and
yet it requires the payment of separate consideration but a right of first
refusal does not.
o From Google: The existence of consideration distinguishes a contract
from a gift. A gift is a voluntary and gratuitous transfer of property
from one person to another, without something of value promised in
return. Failure to follow through on a promise to make a gift is not
enforceable as a breach of contract because there is no consideration
for the promise.
 However, in Litonjua vs. CA, the Supreme Court said that in a right of first
refusal, the consideration for the loan or mortgage is already a part of the
consideration for the right of first refusal.
 In Ang Yu vs. CA, the SC said that an action for specific performance will not
lie against the promissor. However, a complaint under Article 19 for damages
may be filed if the actions of the promissor are whimsical.
In Equatorial vs. Mayfair the right of first refusal was violated when the
vendor sold the object to another person. The SC in Equatorial vs. Mayfair
said that an action for specific performance may be filed. Equatorial vs.
Mayfair is totally inconsistent with Ang Yu vs. CA.
 The Supreme Court has held (Equatorial vs. Mayfair, Parañaque Kings vs.
CA, Litonjua vs. CA, PUP vs. CA) that the right of first refusal is enforceable
by an action for specific performance. And that the actual vendee may be
required to sell the property to the holder of the right of first refusal at the
price which he bought it.
 However, in a recent case, Rosencorr vs. CA (March 8, 2001), the Supreme
Court has held that the right of first refusal need not be written to be
unenforceable since it is not included in the Statute of Frauds. Also, if the
vendee is in good faith, he may not be compelled by specific performance
since he relied on a title which is clean. The remedy is to go after the vendor.
o Statute of Frauds: need not to be in writing
 In a right of first refusal, there is no definite offer since the vendor has the
option of deciding not to sell the object. Also, in a right of first refusal, there
is no need for a separate consideration.
 In an option contract, there is a definite offer. According to Professor Balane,
the right of first refusal is inferior to an option contract since there is no
definite offer. Professor Balane does not understand why an action for
specific performance is allowed in violations of rights of first refusal but not
in the case of option contracts when the object is sold to another person.
Why is the SC giving greater legal effect to a right of first refusal which is
more tentative? Also, where the SC get these rules since the right of first
refusal is not covered by the Civil Code.
Advertisements
Art. 1325. Unless it appears otherwise, business advertisements of things for sale
are not definite offers, but mere invitations to make an offer.
 From the book (page 615):
o Advertisements are, by definition, public notices. Generally
public notices of things for sale, such as those found in print,
visual, audio, or social media, contain only the barest of details,
which are hardly sufficient to constitute an offer contemplated
in this Section. Consequently, this article treats such
advertisements as mere invitations to make an offer, or as
preludes to negotiations between the party publishing the
advertisement and an interested party. Typical examples of
such advertisements are notices of things for sale in the
classified ads of newspapers.
o However, if - exceptionally - the advertisement contains data
which are definite, then such advertisement will constitute an
offer.
Art. 1326. Advertisements for bidders are simply invitations to make proposals, and
the advertiser is not bound to accept the highest or lowest bidder, unless the
contrary appears.
 Most advertisements are simply invitations to make an offer and are not
offers in themselves since not all the necessary terms can fit in the
advertisement.
 Even if the ad had all the necessary terms, it’s still an invitation to make offer
since there is no definite person to whom the offer is being made (public
offer).
From the book (page 615):
 General Rule:
o The general rule in this article is that the advertiser is not bound to
accept either the highest or the lowest bidder, as the case may be. Like
any other offeree, the advertiser may accept or reject any offer.
 Exceptions:
o (1) when the contrary appears, such as when the advertiser binds
himself to accept the highest (or the lowest) bid
o (2) when a law requires the advertiser to accept the highest (or the
lowest) bid. It should be borne in mind, moreover, that this right
should not be exercised arbitrarily or capriciously, so as to constitute
abuse of right
Simulated Contracts
Art. 1345. Simulation of a contract may be absolute or relative. The former takes
place when the parties do not intend to be bound at all; the latter, when the parties
conceal their true agreement.
Art. 1346. An absolutely simulated or fictitious contract is void. A relative
simulation, when it does not prejudice a third person and is not intended for any
purpose contrary to law, morals, good customs, public order or public policy binds
the parties to their real agreement.
Simulation defined
From the book (page 644)
Simulation is the declaration of a fictitious will, deliberately made by
agreement of the parties, in order to produce, for the purpose of deception,
the appearance of a juridical act which does not exist or is different from that
which was really executed.
i. Absolutely Simulated (contrato simulado)
 From the book (page 645):
o "In absolute simulation, there is a colorable contract but it has no
substance as the parties have no intention to be bound by it. The main
characteristic of an absolute simulation is that the apparent contract
is not really desired or intended to produce legal effect or in any way
alter the juridical situation of the parties."
 From the book (page 646):
o An absolutely simulated contract is void because there is no consent,
nor subject matter, nor cause. Hence, none of the requisites of a
contract are present. (Art. 1409[2]).
 Absolute simulation of a contract takes place when the parties do not intent
to be bound at all (Article 1345).
 For example, X pretends to sell his car to avoid tax liability. However, X has
no real intention to sell the car.
 An absolutely simulated or fictitious contract is void (Article 1346)
ii. Relatively Simulated (contrato disimulado)
 From the book (page 645):
o A relatively simulated contract is one that is disguised under the
appearance of another contract. In relative simulation, the parties
genuinely intend to enter into a contract but, for some reason, conceal
the true nature of the intended contract by giving it the semblance of
another agreement.
 From the book (page 646):
o Art. 1346 provides that a relatively simulated contract binds the
parties to their real agreement. A relatively simulated contract, in
other words, will be adjudged and treated according to its real, not its
ostensible, nature. If the real agreement is in conformity with law, it
shall be effective.
 Relative simulation of a contract takes place when the parties conceal their
true agreement (Article 1345).
 In a relatively simulated contract, the parties enter into a contract but
disguise it as another.
 For example, X has many creditors, and they are going after X’s car. X cannot
donate his car to Y since the creditors will just resort to accion pauliana. So,
X antedates a contract of sale, selling his car to Y, except that X’s intention is
to donate his car to Y.
 A relatively simulated contract, when it does not prejudice a 3rd person and
is not intended for any purpose contrary to law, morals, good customs, public
order or public policy binds the parties to their real agreement (Article 1346).
 The law will apply the rules of the true contract and not the ostensible
contract. Thus, if an ostensible contract of sale is really a contract of
donation, the rules on donation shall apply. The form governing the contract
will be that which is laid down for donations, not for sales.
Absolute and relative simulation distinguished
The essential difference therefore, between an absolutely simulated contract and
one that is relatively simulated is that, in the former, there is no intent whatsoever
to enter into an agreement, whereas, in the latter, there is an intent to enter into
an agreement but the parties conceal it under the guise of another transaction.
Pari Delicto Rule
Under the pari delicto doctrine, the parties to a controversy are equally culpable or
guilty, they shall have no action against each other, and it shall leave the parties
where it finds them.
For example, if two parties complain to a judge of the non-performance of a
contract by the other, the judge could refuse to provide a remedy to either of them
because of in pari delicto: a finding that they were equally at fault in causing the
contract's breach.
ii. Object
Art. 1347. All things which are not outside the commerce of men, including future
things, may be the object of a contract. All rights which are not intransmissible may
also be the object of contracts. No contract may be entered into upon future
inheritance except in cases expressly authorized by law. All services which are not
contrary to law, morals, good customs, public order or public policy may likewise
be the object of a contract.
Art. 1348. Impossible things or services cannot be the object of contracts.
Art. 1349. The object of every contract must be determinate as to its kind. The fact
that the quantity is not determinate shall not be an obstacle to the existence of the
contract, provided it is possible to determine the same, without the need of a new
contract between the parties.
 From the book (page 649)
o The object/ subject-matter of the contract is the quid (what) of the
agreement.
o It constitutes one of the three essential elements of every contract.
Without an object, a contract cannot exist and, hence, is void.
 The object of the contract is the prestation. Thus, it is always the conduct
which is to be observed. It is not a concrete object like a car. In a contract of
sale, the object is the delivery of the object and not the object itself.
o From the book (page 650):
In a contract of sale, for instance, the object of the contractual
obligation is the delivery by the vendor of the thing sold (the
prestation) and the object of the prestation is the thing sold.
 The provisions on object however blur the distinction between the object of
the contract, the prestation, and the object of the prestation. According to
Professor Balane, these provisions are not fatal though.
Requisites of Object
1. The object must be within the commerce of man
2. The object is either already existing or in potency (capable of existing) (Article
1347)
3. The object must licit, or not be contrary to law, morals, good customs, public
policy or public order (Article 1347)
4. The object must be possible (Article 1348)
5. The object must be determinate as to its kind and determinable as to its quantity
(Article 1349)
6. The object must be transmissible
1. The object must be within the commerce of man
 From the book (page 546)
o Manresa writes: "The object of the contract must be, in accordance
with the law, in actual existence or at least possible, licit, transmissible,
and having some utility, in view of the fact that it should be within the
commerce of man".
 What are things outside the commerce of man?
o TOLENTINO — All kinds of things and interests whose alienation or
free exchange is restricted by law or stipulation, which party cannot
modify at will. It comprehends things who are —
a. Not susceptible of appropriation or of private ownership.
Such as — sidewalks, public plazas public bridges, lands
of the public domain, the right to present one’s candidacy
for a public office, services which imply an absolute
submission by those who render them (slavery or
perpetual servitude), public offices,
b. Not transmissible
o All rights which are not intransmissible may be the object of contracts.
But strictly political rights or strictly personal rights cannot be the
subject of a contract. Such as — personal rights, parental authority,
the right to vote
 Example of outside commerce of men:
o Among them are the political rights conferred upon citizens, including,
but not limited to, one's right to vote, the right to present one's
candidacy to the people and to be voted to public office.
o Public roads and other properties for public use are outside the
commerce of man and may not be the subject of lease or other
contracts.
o Property belonging to the public domain, or those owned by the State
such as forest or timber land or mineral land, is outside the commerce
of man. It cannot be titled and any title which may be issued is void.
o The moon
 When does a thing goes out of commerce meaning?
o The thing is lost when it perishes or goes out of commerce or
disappears in such a way that its existence is unknown or it cannot be
recovered.
2. It is either already existing or in potency (capable of existing) (Article 1347)
 Within the commerce of man means that the object is capable of
appropriation and transmission.
 From Manresa:
o "The object of the contract must be, in accordance with the law, in
actual existence or at least possible, licit, transmissible, and having
some utility, in view of the fact that it should be within the commerce
of man".
 When does a thing goes out of commerce meaning?
o The thing is lost when it perishes or goes out of commerce or
disappears in such a way that its existence is unknown or it cannot be
recovered.
 The term “in potency” means that the object will come into existence in the
future.
 Generally in reciprocal contracts particularly sales, the sale of future things
is allowed. For example, it is possible to sell the future harvest of a farm. The
coming into being of the future thing is a suspensive condition.
o From the book: Exceptions to the rule that future things may be the
objects of contracts are Donations and Contracts over Future
Inheritance
o Future property (in relation to donations) is "anything which the donor
cannot dispose of at the time of the donation."
 The donor cannot donate future property, which refers to
anything he/she cannot dispose of at such time.
 Emptio rei speratae is a conditional sale. There is a suspensive condition. If
the future thing does not come into existence, then there is no contract of
sale.
 Emptio spei is the sale of a hope. Even if the future thing does not
materialize, the buyer must pay since the buyer is taking a chance. (i.e. sale
of lotto ticket). Hope is a present thing.
 Some future things are not allowed to be objects of the prestation. The law
does not allow contracts on future inheritance.
3. The object must licit, or not be contrary to law, morals, good customs, public
policy or public order (Article 1347)
 From the book (page 654):
o The law referred to here (which the object should not contravene)
need not be a penal statute. It is sufficient that the law be mandatory
or prohibitory.
4. The object must be possible (Article 1348)
 If the object is impossible, then the contract is void for lack of cause.
 Article 1348 does not talk of supervening impossibility which is a mode of
extinguishments.
 Impossibility under Article 1348 must be actual and contemporaneous with
the making of the contract.
 From the book:
o For impossibility to be a cause for nullity, the impossibility should exist
at the time of the perfection of the contract (ab origine).
o If the impossibility is a supervening one, i.e. arising after the contract's
perfection, it will be a case of loss or impossibility of performance,
which will extinguish a valid and existing obligation. The applicable
provisions will be Articles 1262 to 1269.
 From the book:
o Absolute impossibility: the contract cannot be performed at all;
renders the contract void; When nobody can perform it. This nullifies
the contract all the time.
o Relative impossibility: it cannot be performed by the debtor/ obligor;
produces that effect only if it is permanent; When due to special
conditions or qualifications of the debtor, it cannot be performed. This
nullifies the contract only if it it is permanent and NOT temporary
5. The object must be determinate as to its kind and determinable as to its quantity
(Article 1349)
 The object need not be individualized. It must be determinate as to its kind
or species.
 The quantity of the object may be indeterminate, so long as the right of the
creditor is not rendered illusory.
 From the book (page 655)
o Determinate as to kind: If the contract does not specify what the
object is (i.e. the kind or species of the object), the contract is void.
(Art. 1409, par. 6)
Example: X, for value, binds himself to deliver to Y "ten kilos of
something."
o At least determinable as to quantity: If not specifically predetermined, the quantity of the object must be capable of
determination without need of a new agreement between the parties.
Example: X sells to Y one-half of the next harvest from his mango
plantation.
At the time of the· contract, the quantity of the harvest 1s still
unknown, but subsequently such amount will become known without
the parties having to enter into a new contract.
6. The object must be transmissible
 This is actually a redundancy since this is already in the requisite of being
within the commerce of man.
 From the book: This requisite is actually superfluous because it is subsumed
under the first. A thing that is within the commerce of man is, for that reason,
transmissible.
iii. Cause
Art. 1350. In onerous contracts the cause is understood to be, for each contracting
party, the prestation or promise of a thing or service by the other; in remuneratory
ones, the service or benefit which is remunerated; and in contracts of pure
beneficence, the mere liberality of the benefactor.
Art. 1351. The particular motives of the parties in entering into a contract are
different from the cause thereof.
Art. 1352. Contracts without cause, or with unlawful cause, produce no effect
whatever. The cause is unlawful if it is contrary to law, morals, good customs, public
order or public policy.
Art. 1353. The statement of a false cause in contracts shall render them void, if it
should not be proved that they were founded upon another cause which is true
and lawful.
Art. 1354. Although the cause is not stated in the contract, it is presumed that it
exists and is lawful, unless the debtor proves the contrary.
Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not
invalidate a contract, unless there has been fraud, mistake or undue influence.
What is lesion?
 In the civil law this term is used to signify the injury suffered, in consequence
of inequality of situation, by one who does not receive a full equivalent for
what he gives in a commutative contract.
Effect of lesion
 1. Lesion in itself does not affect the cause of the contract, nor does it ipso
facto invalidate the contract.
 2. If, however, lesion is the result of vitiated consent, the contract will be
voidable on account of the vitiation of the consent.
 3. In certain cases, lesion can render a contract or judicial transaction
rescissible, as in cases falling under Article 1381, pars. 1 and 2; and Article
1088.
 4. For a discussion of lesion, vide comments under Article 1381.
 The cause of a contract is the “why of the contract,” the immediate and most
proximate purpose of the contract, the essential reason which impels the
contracting parties to enter into it and which explains and justifies the
creation of the obligation through such contract.
 From the book (page 656):
o The cause answers the question Why is it owed?
 The cause is different from consideration. Consideration in the AngloAmerican sense must always be valuable or capable of pecuniary estimation.
Cause, on the other hand, need not be material at all, and may consist in a
moral satisfaction for the promissor.
 From the book (page 656)
o cause may be understood to be the proximate or immediate or
essential purpose of the contract.
o the why of the contract, the essential reason which moves the
contracting parties to enter into the contract
o In the modern civil law, cause may be understood to be the proximate
or immediate or essential purpose of the contract.
Requisites of Cause
1. It must exist
2.It must be true
 A false cause is inexistent, and the contract would then be void for absence
of cause.
 If a false cause is stated in the contract, the agreement will be valid only if
there is a genuine cause supporting the contract.
3. It must be licit
 As with object, the lawfulness or liceity of the cause means that it should not
contravene law, morals, good customs, public order, or public policy.
 Cause is different from motive. Cause is the proximate why while motive is
the ultimate why.
o For example, A wants to sell his house for P60 M because A is moving
to Canada. B is willing to buy the house for P60 M. In this case, the
cause for A is the P60 M while the cause for B is the house. A’s motive
is to dispose of the house which he does not need since A is going to
Canada.
 Like failure of or lack of object, the failure of cause has an effect on the
contract. If there is no cause or the cause is illegal, then the contract is void.
This is unlike the lack of consent. When consent is lacking, the contract is not
void. The contract is merely voidable.
Presumption of existence and liceity of cause:
The cause, even if unstated in the contract, 1s presumed to be existing, genuine,
and lawful. This is, of course, without prejudice to special requirements of form in
certain cases, such as the Statute of Frauds.
Exceptions to this rule are:
1. Article 1353,. where the existence and liceity of the cause will have to be proved
if the stated cause is shown to be false
2. Contracts of option where a consideration distinct from the price is required.
General Rule
Failure of motive as a General Rule does not affect the contract.
Exception
Motive affects the contract when
1. The motive becomes a suspensive condition; or
2. The realization of the motive is the cause for the contract and there is an
intervening serious mistake of fact
 In onerous contracts, the cause is the prestation or promise of a thing or
service by the other party.
o It has been held that, as a mortgage is an accessory contract, its cause
or consideration is the very cause or consideration of the principal
contract, from which it receives its life, and without which it cannot
exist as an independent contract (China Bank vs. Lichauco).
 In remuneratory contracts, the cause is the service or benefit which is
remunerated.
o A remuneratory contract is one where a party gives something to
another because of some service or benefit given or rendered by the
latter to the former, where such service or benefit was not due as a
legal obligation.
 In gratuitous contracts, the cause is the mere liberality of the benefactor.
o Delivery – for real contracts
o Form – for formal contracts
Cause vs Object
 Object: The object/ subject-matter of the contract is the quid (what) of the
agreement. It constitutes one of the three essential elements of every
contract. Without an object, a contract cannot exist and, hence, is void.
 Cause: The cause of a contract is the “why of the contract,” the immediate
and most proximate purpose of the contract, the essential reason which
impels the contracting parties to enter into it and which explains and justifies
the creation of the obligation through such contract.
 From the book (page 657)
 In remuneratory contracts, the cause is the service or benefit that is
remunerated, while the object is the thing given to the one who rendered
the service or bestowed the benefit.
o From Google: Remuneratory Contracts is one where a party gives
something to another because of some service or benefit given or
rendered by the latter to the former. Note that such service or benefit
is not due to legal obligations.
Example: Karl gave Dane 1 live Carabao, in consideration of the latter’s
act in saving the former’s cows in times of typhoon .
 In gratuitous contracts, the cause is liberality, while the object is the thing
donated.
o From Google: Gratuitous contracts are essentially agreements to give
donations. Generosity or liberality is the cause of such contracts.
 In onerous contracts, however, there is an overlap, at least in part, between
cause and object, since for one of the contracting parties, the cause and the
object of the contract will be the same. As provided by Article 1350, in
onerous contracts, the cause is, for each contracting party, the prestation of
the other party. Thus, in a contract of sale, in which X sells his car to Y for a
specified price, the cause for Y (the vendee) is the delivery of the car, but the
object of the contract is also the car (or, more precisely, its delivery).
o From Google: In onerous contracts, something is given or promised as
a consideration for the engagement or gift, or some service, interest,
or condition is imposed on what is given or promised, although
unequal to it in value.
Cause vs Consideration
 From the book (page 657): The proper civil law term is cause (causa), current
since Roman law times. Our Code, however, tends to use the civil law cause
and the common law consideration inter-changeably.
 Commentators point out that, strictly speaking, the two terms do not
coincide perfectly.
 The term cause is broader than consideration since the former does not
require something material. Thus, liberality in gratuitous contracts is an
adequate cause but may present a problem if categorized as a consideration.
Cause vs Motive
 From the book (page 658): If the cause is the proximate and immediate
reason for entering into the contract, motive is the ultimate and final reason
therefor.
 From the book (page 660): Motive is the condition of mind which incites to
action, but includes also the inference as to the existence of such condition,
from an external fact of produce such a condition.
 Furthermore, cause is objective: it is determined by law; motive on the other
hand, is subjective: it differs from person to person and depends on the
context and circumstances in which the contracting party finds himself.
 Failure of cause renders the contract void, but failure of motive has no effect
on the validity and efficacy of the contract. In the example given above,
shoud the vendor, for any reason, decide not to migrate or be unable to do
so, the contract of sale remains valid.
General Rule
Failure of motive as a General Rule does not affect the contract.
Exceptions
From the book (page 658): By way of exception, there are instances when the
motive may affect the validity of the contract:
1. When the realization of the motive is made a condition precedent of the
contract and said motive fails to materialize
2. When the motive gives rise to a mistake amounting to vitiation of consent
(b) Natural Elements
 The natural elements are those which are derived from the nature of the
contract and ordinarily accompany the same. They are presumed by law,
although they can be excluded by the contracting parties if they so desire.
 From Tiu:
o — those found in certain contracts, and presumed to exist, unless the
contrary has been stipulated. It exists as part of the contract even if
the parties do not provide for them, because the law, as suppletory to
the contract, creates them. Such as — warranty against eviction and
against hidden defects in the contract of sale
i. Right to resolve (Article 1191) – in reciprocal contracts
ii. Warranties in sales contracts – in sales contracts
(c) Accidental Elements
 The accidental elements are those which exist only when the parties
expressly provide for them for the purpose of limiting or modifying the
normal effects of the contract (i.e. conditions, terms, modes)
 From Tiu:
o These are the various particular stipulations that may be agreed upon
by the contracting parties in a contract. They are called accidental,
because they may be present or absent, depending upon whether or
not the parties have agreed upon them. They cannot exist without
being stipulated. Such as — the stipulation to pay credit; the
stipulation to pay interest; the designation of the particular place for
delivery or payment.
4. STAGES OF A CONTRACT
a. Preparation, conception, or generation, which is the period of negotiation and
bargaining, ending at the moment of agreement of the parties
 From Tiu:
o Here, the parties are progressing with their negotiations; they have
not yet arrived at any definite agreement, although there may have
been a preliminary offer and bargaining.
b. Perfection or birth of the contract, which is the moment when the parties come
to agree on the terms of the contract
 From Tiu:
o Here, the parties have at long last came to a definite agreement, the
elements of definite subject matter and valid cause have been
accepted by mutual consent.
General Rule
Contracts are perfected by mere consent – the principle of consensuality
(Article 1315)
Exception
Real contracts, such as deposit, pledge, and commodatum are not perfected
until the delivery of the object of the obligation (Article 1316)
Solemn contracts, such as form
c. Consummation or death, which is the fulfillment or performance of the terms
agreed upon
 From Tiu:
o Here, the terms of the contract are performed, and the contract may
be said to have been fully executed.
5. CLASSIFICATION OF CONTRACTS
a. According to Degree of Dependence
Preparatory, Principal, Accessory
i. Preparatory
A preparatory contract is one which has for its object the establishment of a
condition in law which is necessary as a preliminary step towards the celebration
of another subsequent contract (i.e. partnership, agency).
From Tiu: — where the parties do not consider the contract as an end by itself, but
as a means through which future transaction or contracts may be made
ii. Principal
A principal contract is one which can subsist independently from other contracts
and whose purpose can be fulfilled by themselves (i.e. sales, lease).
From Tiu: — where the contract may stand alone by itself
iii. Accessory
An accessory contract is one which can exist only as a consequence of, or in relation
with, another prior contract (i.e. pledge, mortgage).
From Tiu: — this depends for its existence upon another contract such as — a real
estate mortgage as an accessory contract to a loan
b. According to Perfection
Consensual, Real, Formal or solemn
i. Consensual
A consensual contract is one which is perfected by mere agreement of the parties
(i.e. sales, lease).
ii. Real
A real contract is one which requires not only the consent of the parties for their
perfection, but also the delivery of the object by 1 party to the other (i.e.
commodatum, deposit, pledge).
From Tiu:
iii. Formal or solemn
— those where special formalities are essential before the contract may be
perfected, such as — donation of real property requires for its validity a public
instrument
c. According to their Form
Common or Informal, Special or Formal
i. Common or informal
An informal contract is one which does not require some particular form (i.e. loan,
lease).
ii. Special or formal
A formal contract is one which requires some particular form (i.e. donation, chattel
mortgage).
d. According to Purpose
i. Transfer of ownership (i.e. sale)
ii. Conveyance of use (i.e. commodatum)
iii. Rendition of service (i.e. agency)
e. According to Subject Matter
i. Things (i.e. sale, deposit, pledge)
ii. Services (i.e. agency, lease of services)
‣Such as — agency, lease of services, a contract of common carriage, a contract of
carriage (simple carriage)
From Tiu:
iii. Contracts involving rights or credits (provided these are transmissible)
‣Such as — contract of usufruct, or assignment of credits
f. According to the Nature of the Obligation
Bilateral, Unilateral
i. Bilateral
A bilateral contract is one which gives rise to reciprocal obligations for both parties
(i.e. sale, lease).
ii. Unilateral
A unilateral contract is one which gives rise to an obligation for only 1 of the parties
(i.e. commodatum, gratuitous deposit).
g. According to Cause
Onerous, Gratuitous
i. Onerous
An onerous contract is one in which each of the parties aspires to procure for
himself a benefit through the giving of an equivalent or compensation (i.e. sale).
From Tiu: Onerous — where there is an interchange of equivalent valuable
consideration
ii. Gratuitous
A gratuitous contract is one in which one of the parties proposes to give to the
other a benefit without any equivalent or compensation (i.e. commodatum).
From Tiu: Gratuitous or lucrative — this is free, thus one party receives no
equivalent prestation except a feeling that one has been generous or liberal, such
as donation and commodatum
h. According to Risk
Commutative, Aleatory
i. Commutative
A commutative contract is one in which each of the parties acquires an equivalent
of his prestation and such equivalent is pecuniarily appreciable and already
determined from the moment of the celebration of the contract (i.e. lease).
From Tiu: — where the parties contemplate a real fulfillment; therefore, equivalent
values are given, such as — sale, lease
ii. Aleatory
An aleatory contract is one in which each of the parties has to his account the
acquisition of an equivalent prestation , but such equivalent, although pecuniarily
appreciable, is not yet determined, at the moment of the celebration of the
contract, since it depends upon the happening of an uncertain event, thus charging
the parties with the risk of loss or gain (i.e. insurance).
From Tiu: — where the fulfillment is dependent upon chance; thus the values vary
because of the risk or chance, such as — insurance contract
i. According to Name
i. Nominate
A nominate contract is one which has a name and is regulated by special provisions
of law (i.e. sale, lease) , Such as — commodatum, partnership, sale, agency, deposit
ii. Innominate
Art. 1307. Innominate contracts shall be regulated by the stipulations of the parties,
by the provisions of Titles I and II of this Book, by the rules governing the most
analogous nominate contracts, and by the customs of the place.
 An innominate contract is one that does not have a name and is not
regulated by special provisions of law.
 A contract is not void just because it has no name. It is not a requisite for
validity. A contract may have no name but it can be valid provided it has all
the elements of a contract and all the restrictions are respected.
 Such as —“do ut des,” meaning “I give that you may give”
4 Classes of Innominate Contracts
o do ut des (“I give that you give”)
o do ut facias (“I give that you do”)
o facio ut des (“I do that you give”)
o facio ut facias (“I do that you do”)
VICES OF CONSENT
The Causes Vitiating Consent
 Page 622:
 The causes or factors vitiating contractual consent are laid down in these
articles.
 These vitiating factors are: incapacity, violence, intimidation, undue
influence, fraud, and mistake.
 These factors, in fact, vitiate consent not only in contracts but in all juridical
acts or transactions, such as marriage and wills. For this reason, some
modem Codes, like the German Civil Code (BGB) include and regulate these
in the General or Preliminary Title. The Philippine Code follows the structural
design of the Spanish Codigo Civil, including the latter's structural flaws.
Ratio or Basis of Vitiation of Consent:
(1). For consent to be effective, it must be:
a. Intelligent i.e. made with sufficient understanding, and
b. Free - i.e. made with no restraint on its exercise.
 a third element - spontaneity - was given. However, that element can be
subsumed under intelligence, since the case mentions fraud as a cause
vitiating spontaneity]
(2) Factors Vitiating Intelligence/Freedom:
a. The following causes vitiate intelligence:
i. incapacity (Arts. 1327-1329)
ii. mistake (Arts. 1331 / 1333 / 1334 / 1343
iii. fraud -Arts. 1338-1339
b. The following vitiate freedom:
a) violence - Art. 1335
b) intimidation - Art. 1335
c) undue influence - Art. 1337
Effect of Vitiated Consent
1. If the consent of one of the parties is vitiated - The contract is voidable [Arts.
1390-1402]
2. If the consent of both parties is vitiated – The contract is unenforceable. [Arts.
1403(3) 1407).
Vitiation of Intelligence
a. Incapacity
i. Minority: Article 1327
ii. Insanity: Article 1327
iii. Deaf-mutism coupled with illiteracy (Art. 1327).
iv. Intoxication / Hypnotic Spell (Art. 1328)
v. Special disqualifications:
 referred to by Manresa as legal disqualifications
 found in various parts of the Code and in different statutes
 generally based not on the inability of the party to give
intelligent consent, but on some policy consideration for which
the law deprives an otherwise sufficiently capacitated person of
the ability to enter into specific contracts.
 Examples:
 Art. 1490 - contracts of sale between husband and wife
(subject to the exceptions specified in the said article);
 Art. 87 [Family Code) donations between husband and
wife or between partners in a non-marital union.
 Art. 34 [Penal Code] inter vivas dispositions of property
by a person under a sentence of civil interdiction.
 Arts. 1491 and 1492 - purchase of property, under
specified circumstances, by persons occupying positions
of trust or confidence.
 Instances of such special disqualifications are numerous. The
contracts entered into in contravention of these prohibitions
are defective, i.e. rescissible, voidable, unenforceable, or void,
as the case may be.
b. Mistake
c. Fraud
Vitiation of Freedom (Duress)
a. violence or force,
b. intimidation, and
c. undue influence
 These three factors share the common element of depriving the person of
the free exercise of his will. They are often collectively referred to as duress.
 In the Roman law, violence and intimidation were jointly denominated as
metus (fear) because that is the common result they produce.
From Reviewer with Book
Voidable or Annullable Contracts
 A voidable contract is a contract in which all of the essential elements for
validity are present, but the element of consent is vitiated either by lack of
legal capacity of 1 of the contracting parties or by mistake, violence,
intimidation, undue influence, or fraud.
 Voidable contracts are binding unless they are annulled by a proper action
court. They are susceptible to confirmation.
o There is a difference between confirmation and ratification.
Confirmation is the process of curing the defect of a voidable contract.
Ratification is the process of curing contracts which are defective
because they were entered into without authority.
 The following contracts are voidable or annullable, even though there may
have been no damage to the contracting parties.
(1) Those where one of the parties is incapable of giving consent to a contract
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud
(1) Those where one of the parties is incapable of giving consent to a contract
The following cannot give consent to a contract (Article 1327):
Unemancipated minors, Insane or demented persons, Deaf mutes who do not
know how to write
a. Unemancipated minors
 Where necessaries are sold and delivered to a minor or other person without
capacity to act, he must pay a reasonable price therefore. Necessaries
include everything that is indispensable for sustenance, dwelling, clothing,
and medical attendance
 Contracts effected by minors who have already passed the age of puberty
and adolescence and are near the adult age, when they pretend to have
already reached the age of majority, while in fact they have not, are valid,
and cannot be permitted afterwards to excuse themselves from compliance
with obligations assumed by them or seek their annulment. This is in
consonance with the rules of estoppel. (Mercado vs. Espiritu).
 However in Braganza v, De Villa, the SC said that the misrepresentation of an
incapacitated person does not estop him from denying that he was of age,
or from asserting that he was under age, at the time he entered into the
contract. According to Professor Balane, this view is very logical. If the minor
is too young to enter into contracts, he is too young to be estopped.
From Tiu:
 These are persons under 18 years of age.
 The contracts that are entered by a minor is voidable
 EXCEPT — in the following cases the contract is rendered valid despite the
defect—
o a. Upon reaching the age of majority, they ratify the same.
o b. They were entered into thru a guardian, and the court having
jurisdiction had approved the same.
o c. They were contracts where the minor misrepresented his age, and
pretended to be one of major age and is, thus, in estoppel. (Marcelo
v. Espiritu)
 It is, however, essential here that the other party must have
been misled. (Bambalan v. Maramba)
o d. Where necessaries are those sold and delivered to a minor or other
person without capacity to act, he must pay a reasonable price
therefor. (Thus, the contract here is valid) (Art. 1489)
 Necessaries include everything that is indispensable for
sustenance, dwelling, clothing, and medical attendance.
b. Insane or demented persons
Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed
to in a state of drunkenness or during a hypnotic spell are voidable.
Art. 1329. The incapacity declared in article 1327 is subject to the modifications
determined by law, and is understood to be without prejudice to special
disqualifications established in the laws.
From Tiu:
 EXCEPT — If they acted during a lucid interval (Art. 1328)
 It is not necessary that there be a previous judicial declaration of mental
incapacity in order that a contract entered into by a mentally defective
person may be annulled. It is enough that the insanity existed at the time the
contract was made. In the case of lunatics, it is possible that there are lucid
intervals, and a contract executed during such lucid interval is valid.
 The mere fact that a person, days after the execution of a contract, was
declared mentally incapacitated by a competent court, does NOT
automatically mean that she was incapacitated at the time of the execution
of the contract. The burden of proving such incapacity at the time of
execution rests upon he who alleges it, if no sufficient proof to this effect is
presented, his capacity will be presumed.
c. Deaf mutes who do not know how to write
 From Tiu:
o PARAS — If they know how to read, but do not know how to write, it
is submitted that the contract is valid, for then they are capable of
understanding, and therefore capacitated to give consent.
o TOLENTINO — Being a deaf-mute is NOT by itself alone a
disqualification for giving consent. The law refers to the deaf-mute
who does not know how to write. But the old doctrine that a deafmute was presumed to be an idiot no longer prevails, and such persons
are now held capable of entering into contracts if shown to have
sufficient mental capacity.
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud
Art. 1330. A contract where consent is given through mistake, violence,
intimidation, undue influence or fraud is voidable.
a. INCAPACITY (not mentioned in reviewer enumeration)
Minority, Insanity, Deaf-mutism coupled with illiteracy, Intoxication or Hypnotic
Spell, Special Disqualifications
i. Minority
 Page 324
 Article 1327. The following cannot give consent to a contract: (1)
Unemancipated minors; (2) Insane or demented persons, and deaf-mutes
who do not know how to write
 Art. 234 of the Family Code, as amended by RA 6809, sets the age of majority
at 18.
 The effect of attainment of the age of majority on contractual capacity can
be gleaned from Art. 236 of the same Code.
o "Art. 236. Emancipation for any cause shall terminate parental
authority over the person and property of the child who shall then be
qualified and responsible for all acts of civil life, save the exceptions
established by existing laws in special cases. x x x"
 Contracts entered into by minors of tender age:
o By "minors of tender age" here is meant those minors who are so far
below the age of majority that they possess neither partial capacity
nor semblance of capacity to give consent, as for example, a child
below seven. Is it logical - or fair - to consider contracts entered into
by such minors as merely voidable?
o Renz’ answer: Yes. Because if contracts entered into by minors are
void, then they will not learn to be cautious with their dealings when
they become of age. Declaring contracts entered into by minors as
voidable educates them about the value of money, while at the same
time provide sufficient protection because they can later on be
declared void should the transactions entered into prove themselves
exorbitant.
From Tiu:
 These are persons under 18 years of age.
 The contracts that are entered by a minor is voidable
 EXCEPT — in the following cases the contract is rendered valid despite the
defect—
o a. Upon reaching the age of majority, they ratify the same.
o b. They were entered into thru a guardian, and the court having
jurisdiction had approved the same.
o c. They were contracts where the minor misrepresented his age, and
pretended to be one of major age and is, thus, in estoppel. (Marcelo
v. Espiritu)
 It is, however, essential here that the other party must have
been misled. (Bambalan v. Maramba)
o d. Where necessaries are those sold and delivered to a minor or other
person without capacity to act, he must pay a reasonable price
therefor. (Thus, the contract here is valid) (Art. 1489)
 Necessaries include everything that is indispensable for
sustenance, dwelling, clothing, and medical attendance.
ii. Insanity
 Page 324
 Insanity as a ground for vitiating consent is essentially a legal issue. A person
is insane within the context of contractual law if the extent of the mental
disorder is such as to deprive him of the discretion and understanding
required for contractual consent.
 the help of medical science, particularly psychiatry, may frequently be
necessary to shed light on the extent and effect of the state of insanity of the
contracting party.
 The term "insane or demented persons" used in Art. 1327 will include states
of imbecility, idiocy, schizophrenia, and various other medical or
psychological terms indicating mental disorder or abberancy, or deviancy.
 The law is not primarily concerned with the cause, but with the effect. If the
person, because of his mental condition, is not capable of giving intelligent
consent to a contract, he is legally insane for contractual purposes.
 As in all juridical transactions, it is the mental state of the party at the time
the contract is entered into that is material.
 Antecedent or subsequent insanity does not affect the validity of a contract
entered into at a time that the party is of sound mind. Thus, if an insane
person enjoys a lucid interval, a contract entered into during such a period
cannot be set aside on the ground of unsoundness of mind. To this effect is
the provision of the first sentence of Art. 1328.
o Article 1328. Contracts entered into during a lucid interval are valid.
Contracts agreed to in a state of drunkenness or during a hypnotic
spell are voidable.
From Tiu:
 EXCEPT — If they acted during a lucid interval (Art. 1328)
 It is not necessary that there be a previous judicial declaration of mental
incapacity in order that a contract entered into by a mentally defective
person may be annulled. It is enough that the insanity existed at the time the
contract was made. In the case of lunatics, it is possible that there are lucid
intervals, and a contract executed during such lucid interval is valid.
 There mere fact that a person, days after the execution of a contract, was
declared mentally incapacitated by a competent court, does NOT
automatically mean that she was incapacitated at the time of the execution
of the contract. The burden of proving such incapacity at the time of
execution rests upon he who alleges it, if no sufficient proof to this effect is
presented, his capacity will be presumed.
iii. Deaf-mutism coupled with illiteracy (Art. 1327).
 It will be noted that deaf-mutism is not in itself an incapacitating factor. What
incapacitates from contractual capacity is deaf-mutism coupled with
inability to write.
 There is no mental or psychological aberration involved here, but the law
considers an illiterate deaf-mute to be so seriously handicapped that he can
be an easy prey to exploitation or deception by unscrupulous parties.
Consequently, it is for his protection that the law withholds from him
contractual capacity.
 Such a person may, consequently, enter into a contract only with the
assistance of a duly appointed guardian.
 From Tiu:
o PARAS — If they know how to read, but do not know how to write, it
is submitted that the contract is valid, for then they are capable of
understanding, and therefore capacitated to give consent.
o TOLENTINO — Being a deaf-mute is NOT by itself alone a
disqualification for giving consent. The law refers to the deaf-mute
who does not know how to write. But the old doctrine that a deafmute was presumed too be an idiot no longer previails, and such
persons are now held capable of entering into contracts if shown to
have sufficient mental capacity.
iv. Intoxication / Hypnotic Spell (Art. 1328)
 Intoxication and hypnotic spell are factors that admit of degrees or stages.
 Being under the influence of alcohol or hypnosis does not necessarily
incapacitate a person from entering in to a contract. One becomes
incapacitated only when the extent of the influence renders him unable to
make an intelligent choice.
 The rule regarding intoxication and hypnotic spells applies as well to the
intake of any other substance (like drugs or hallucinogens) when the
substance produces in the person the effect of disabling him from the
intelligent exercise of his mental faculties.
 From Tiu:
o TOLENTINO —This ground courts the use of intoxicants such as alcohol
and drugs. The mere use of alcohol and drugs does not incapacitate a
person to give consent, it must be at such a degree as to obscure
completely the faculties and almost extinguish the consciousness of
acts of the person giving such consent to be a sufficient ground for
annulment.
v. Special Disqualifications
 referred to by Manresa as legal disqualifications
 found in various parts of the Code and in different statutes
 generally based not on the inability of the party to give intelligent consent,
but on some policy consideration for which the law deprives an otherwise
sufficiently capacitated person of the ability to enter into specific contracts.
 Examples:
o Art. 1490 - contracts of sale between husband and wife (subject to the
exceptions specified in the said article); As a general rule, the husband
and wife cannot sell to each other (Art. 1490) nor can they donate to
each other. Violations are considered VOID contracts.
o Art. 87 [Family Code) donations between husband and wife or
between partners in a non-marital union.
o Art. 34 [Penal Code] inter vivas dispositions of property by a person
under a sentence of civil interdiction.
o Arts. 1491 and 1492 - purchase of property, under specified
circumstances, by persons occupying positions of trust or confidence.
 Instances of such special disqualifications are numerous. The
contracts entered into in contravention of these prohibitions
are defective, i.e. rescissible, voidable, unenforceable, or void,
as the case may be.
a. MISTAKE
Art. 1331. In order that mistake may invalidate consent, it should refer to the
substance of the thing which is the object of the contract, or to those conditions
which have principally moved one or both parties to enter into the contract .
Mistake as to the identity or qualification of one of the parties will vitiate consent
only when such identity or qualifications have been the principal cause of the
contract.
A simple mistake of account shall give rise to its correction.
Art. 1332. When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained
to the former.
Art. 1333. There is no mistake if the party alleging it knew the doubt, contingency
or risk affecting the object of the contract.
Art. 1334. Mutual error as to the legal effect of an agreement when the real
purpose of the parties is frustrated, may vitiate consent.
Art. 1342. Misrepresentation by a third person does not vitiate consent, unless
such misrepresentation has created substantial mistake and the same is mutual.
Art. 1343. Misrepresentation made in good faith is not fraudulent but may
constitute error.
- Mistake Definition
 It is a false belief about something.
 a mistake is an erroneous belief, at contracting, that certain facts are true.
It can be argued as a defense, and if raised successfully can lead to the
agreement in question being found void ab initio or voidable, or alternatively
an equitable remedy may be provided by the courts.
- Requisites of Mistake
a. The error must be substantial regarding any of the following
i. The object of the contract
ii. The conditions which principally moved or induced one of the parties
(error in quality or in quantity)
iii. Identity or qualifications (error in personae), but only if such was the
principal cause of the contract
b. The error must be excusable (not caused by negligence)
c. The error must be a mistake of fact, and not of law
From Tiu:
a. The error must be substantial regarding any of the following
i. The object of the contract
 Such as — A person signed a contract of sale thinking it was only a contract
of loan.
ii. The conditions which principally moved or induced one of the parties (error in
quality or in quantity)
 Such as — Error in knowledge about the true boundaries of a parcel of land
offered for sale; A person buys a fountain pen thinking it to be made of solid
gold when as a matter of fact, it is merely gold- plated; A person buys a CD
record thinking it to be Stateside, but it turns out to be merely a local
imitation, a pirated one; A person desiring to buy land consisting of 100
hectares discovers that the land has only 60 hectares.
iii. Identity or qualifications (error in personae), but only if such was the principal
cause of the contract
 This vitiates consent only when such identity or qualifications have been the
principal cause of the contract.
 Such as — Hiring of a pre-bar reviewer, a particular singer for a concert,
contracts involving partnership, agency, deposit — since these require trust
and confidence
b. The error must be excusable (not caused by negligence)
 The error does not vitiate consent if the party in error was negligent, or if
having had an opportunity to ascertain the truth, he did not do so.
c. The error must be a mistake of fact, and not of law
 The error must be one of fact, not of law. This is because ignorance of the
law does not excuse anyone from compliance therewith
 EXCEPT — Mutual error as to the legal effect of an agreement when the real
purpose of the parties is frustrated, may vitiate consent (Art. 1334)
 Example — A and B entered into a contract, which they intended should
result in a co-ownership between them, but which turned out later to be a
mortgage, as a result of their mutual error as to the legal effect of the
agreement. Here the contract is voidable.
- Mistakes that do NOT vitiate consent
a. Mistake is not substantial
b. Mistake is inexcusable and negligent
c. Mistake is one of law (Except in Art. 1334)
Article 1334. Mutual error as to the legal effect of an agreement when the
real purpose of the parties is frustrated, may vitiate consent.
d. Mistake as to personal motive
(Example — a boy buys an engagement ring in the false belief that his girl
loves him.)
e. Mistake in accounting or computation caused for example by wrong arithmetical
computation, would ordinarily give rise merely to correction, and not annulment
of the contract.
f. If the party alleging it knew the doubt, contingency or risk affecting the object of
the contract (Art. 1333) — It is to be assumed here that the party was willing to
take the risk. This is particularly true in contracts which are evidently aleatory in
nature.
Aleatory: “Aleatory” means that something is dependent on an uncertain
event, a chance occurrence. Aleatory is used primarily as a descriptive term
for insurance contracts. An aleatory contract is a contract where
performance of the promise is dependent on the occurrence of a fortuitous
event.
(Example — A bought a fountain pen which was represented as possibly
being able to write even underwater. A also knew that the pen’s ability was
questionable, and yet A bought said pen. Here, A cannot allege mistake since
he knew beforehand of the doubt, risk, or contingency affecting the object of
the contract.)
- Why mistake vitiates consent
 From book (page 627):
o Mistake or error vitiates consent because it deprives the contracting
party of proper understanding regarding either the object or the cause
of the contract.
o Manresa: In this context, no material distinction between ignorance,
which is the absence of comprehension of a thing and error, which is
a mistaken notion of a thing. In both cases there is a failure or lack of
knowledge regarding a thing.
- What mistake should refer to:
(Book) In order to constitute the kind of mistake that will vitiate consent, it should
cover any of the following matters:
 The substance of the thing
 The principal conditions of the contract





Mistake as to person
Mistake of law
When Party is illiterate or unfamiliar with language of agreement
Effect of knowledge of doubt or uncertainty
misinterpretation bona fide, mistake in relation to fraud
i. The substance of the thing
 This kind of mistake refers to the very object of the contract.
 Example: An illustration of this is an instance where the parties enter into a
contract over a watch either or both of them believe to be a Rolex when it is
in fact a cheap imitation timepiece purchased from one of the stalls of a night
market.
ii. The principal conditions of the contract
 Since the condition is one which was a principal moving factor for one or
both parties to enter in to the contract, the faiure of such condition will
constitute mistake.
 There will be no mistake within the purview of Art. 1331, if the condition is
merely incidental or non-essential.
o Article 1331. In order that mistake may invalidate consent, it should
refer to the substance of the thing which is the object of the contract,
or to those conditions which have principally moved one or both parties
to enter into the contract.
Mistake as to the identity or qualifications of one of the parties will
vitiate consent only when such identity or qualifications have been the
principal cause of the contract. A simple mistake of account shall give
rise to its correction.
 It is not always easy, nor always immediately apparent, to determine
accurately whether a certain condition is principal or incidental.
 Example: Conditions, such as the color of the thing purchased, the kind of
paper of which the pages of the book are made, the tiles used in the
bathroom of a house, the shape of the watch, and other similar details, may,
in most cases, be incidental, but under some circumstances, be principal.
 TEST: The test or criterion for determination will be the intent of the parties,
as derived from the relevant or attendant circumstances. These
circumstances may include their agreement, their preliminary negotiations,
the purpose of the contract, and so forth.
iii. Mistake as to person
 The mistake as to identity or qualifications referred to here will vitiate
consent only when the identity or qualifications of the party constitute the
principal cause or consideration for the contract.
 Example 1: An obvious example would be a contract for a piece of work for
the making of a dining set. The qualifications of the workman are essential
and constitute the principal consideration, for the contract's performance. If
the person contracted to do the job turns out, not to be a furniture maker,
but a plumber, there is an obvious mistake with a vitiating effect.
 Example 2: a contract for the painting of a portrait will require the special
skills of portraiture .
 Nationality, skin color, religious affiliation, civil status, ethnic or linguistic
affiliation are generally not principal, or even relevant, qualifications. But
such factors may, conceivably, in some circumstances, be determinative. A
person wishing to be tutored in Ilocano for example may prefer a person of
Ilocano ethnicity to be his tutor.
iv. Mistake of law:
Art. 3 lays down the well-known and oft-quoted rule that ignorance of the law
excuses no one from compliance therewith.
 Persons are therefore presumed to know the law and should comply with it.
Art. 1334 recognizes vitiation of consent, however, in an instance involving a
mistake of law.
For the application of the article, the following requisites must be present:
 The mistake must refer to the legal effect of the agreement;
 It must be mutual; and
 It must have the effect of frustrating the real purpose of the parties.
Unilateral mistake of law
 The traditional - and more widely held - position is that, since ignorance of
the law excuses no one, mistake of law, whether unilateral, or mutual (when
not falling within the situation mentioned in No. 2, supra) does not vitiate
consent. The reason for this view is that everyone is presumed to know the
law and is supposed to be able to apply and interpret it correctly.
 There is, however, a school of thought which holds that a mistake of law, if
material to the contract, vitiates consent and prevents a valid contract from
arising.
 The sense of the principle laid down in Article 3 (Ignorance of the law
excuses no one from compliance therewith):
o whether aware or unaware of the legal precepts, a person is bound to
compliance and has to bear the consequences of infraction or
violation.
o It does not necessarily mean that consent given with a
misapprehension of the law is considered valid and effective consent
for purposes of contractual transactions.
o Art. 3 should not be viewed with such remorseless rigidity. In fact, the
Code has shown some flexibility in granting the benefits of good faith
to a person acting by mistake on a doubtful or difficult question of law.
v. When Party is illiterate or unfamiliar with language of agreement (Art.1332)
Requisites of Art 1332:
1. one of the parties to the contract is illiterate or unfamiliar with the language in
which the contract is written; and
2. mistake (or fraud) is alleged by said party.
 The effect of the presence of these requisites is to place the burden of proof
on the other party to show that the handicapped party entered into the
contract with adequate understanding. This the other party can do by
showing that the terms and stipulations of the agreement were duly
explained to the handicapped party.
 This article is in conformity with the mandate of Art. 24 for the protection of
disadvantaged parties.
o Article 24. In all contractual, property or other relations, when one of
the parties is at a disadvantage on account of his moral dependence,
ignorance, indigence, mental weakness, tender age or other handicap,
the courts must be vigilant for his protection.
vi. Effect of knowledge of doubt or uncertainty (Art. 1333)
 If a party was aware of a doubt, contingency, or risk involved in the contract,
the possibility of mistake is precluded, because there would then be no
misapprehension. The agreement, in effect, becomes a contract of hazard
(an aleatory contract) governed by Art. 2010, or one subject to a suspensive
condition.
vii. Misrepresentation bona fide (Art. 1343)
 Misrepresentation without any intent to deceive (as when made through
negligence or an inaccurate knowledge of the facts) will preclude fraud but
could induce mistake on the part of the other party. But for mistake to exist
so as to vitiate consent, it must involve any of the things enumerated in Art.
1331.
viii. Mistake in relation to fraud
 Although mistake does not necessarily involve fraud or deceit, the effect of
these two factors is the same, mainly, to deprive the party of intelligent
consent.
 In this sense, mistake is broader than fraud, and subsumes it.
b. VIOLENCE
Art. 1335, 1st ¶. There is violence when in order to wrest consent, serious or
irresistible force is employed.
 Tiu: Violence refers to physical coercion; intimidation, to moral coercion.
 Violence shall annul the obligation, although it may been employed by a 3rd
person who did not take part in the contract (Article 1336).
 A contract entered into without genuine consent (i.e. with sufficient
intelligence and freedom) is defective, whether the defect of consent arises
from a mistaken apprehension of the law or a correct one.
 From the book (page 637)
o Violence and intimidation both induce fear. They differ in that violence
is an external force, whereas intimidation is internal, psychological or
moral force.
o Violence consists in physical force exerted by an external cause or
agent.
 Example — If a person signs a contract only because a gun is pointed at him,
this is intimidation because he is afraid he would be killed. But if he signs
because his left hand is being twisted painfully, this is violence or force.
- Requisites of Violence:
i. Irresistible physical force is employed
ii. The force is the determining cause for giving consent
 the said force must be the direct and determining cause in obtaining
consent
 Tiu: NOTE — Even if a third person exercised the violence or
intimidation, the contract may be annulled. This is because the
consent is still vitiated
- Effect If Perpetrated by Third Persons
 Violence or intimidation, even if employed by a person who is neither
a contracting party nor an agent or representative of a contracting
party, makes the contract voidable.
 The source of the violence or intimidation is immaterial, if the effect is
to deprive the contracting party of freedom, then consent is vitiated
and the contract is defective.
c. INTIMIDATION
Art. 1335, 2nd ¶. There is intimidation when one of the contracting parties is
compelled by a reasonable and well-grounded fear of an imminent and grave evil
upon his person or property, or upon the person or property of his spouse,
descendants or ascendants, to give his consent.
 From the book (page 638):
o Intimidation consists in moral or psychological force. As pointed
out by Manresa, the force involve in intimidation is more
directly internal, because, although an external agent gives rise
to it, the fear induced by the external agent is the direct cause
of the vitiation.
- Requisites of Intimidation:
 The threat must be the determining cause for giving consent
 The threatened act is unjust and unlawful
 The threat is real and serious
 The threat produces a well-grounded fear that the person making it can
and will inflict harm
i. The threat must be the determining cause for giving consent
ii. The threatened act is unjust and unlawful
 A threat to enforce one’s claim through competent authority, if the claim is
just or legal, does not vitiate consent (Article 1335, 4th ¶).
 The threat to enforce a right, should not be aimed at a result which is
contrary to law or morals, or which is unjust and contrary to good faith.
Although it is lawful to exercise rights, it is not always lawful to use them for
purposes different from those for which they were created.
 Thus, although it is lawful to report crimes, the threat to report it may be
illicit if the purpose is not to cooperate in the discovery and prosecution of
the crime, but to obtain some prestation from the culprit which otherwise
could not be obtained and which does not constitute indemnity for damages
for the crime committed.
 Thus, the rule is, generally, a threat to do something lawful does not
constitute intimidation.
 Example 1: If you don’t marry my daughter, I’ll report you to the IBP. This is
not unlawful because the person did commit immorality. Sometimes,
though, it may constitute intimidation.
 Example 2: A saw B commit murder. A threatened B that he will report him
to the police unless B gives A his house. This is intimidation because there is
no connection between the crime and the contract.
 From Book (page 628)
o General Rule: It can be taken as a general rule that the threat consists
in the doing of an act that is unlawful, or criminal, or wrongful, as, for
instance, when the party whose consent is sought to be obtained is
threatened with murder (either of himself or of members of his
family), or arson (the burning of his property), or some similar crime.
o It is possible, however, for the threat to be unjust and wrongful even
if the threatened act is in itself lawful.
o Example: supposing X has knowledge or some evidence of a crime
committed by Y, and X, taking advantage of this incriminating evidence
or information, attempts to compel Y to enter into a contract (which Y
would not otherwise enterinto), threatening to report the crime to the
authorities if Y refuses, the threat in this instance would be a vitiating
factor, making the contract voidable. The threat of reporting the
crime, though in itself lawful, would, under the circumstances, be
unjustified because of the wrongful advantage that the threatening
party sought to take.
iii. The threat is real and serious
 For example the threat must be to kill you or burn your house and not merely
to pinch you.
iv. The threat produces a well-grounded fear that the person making it can and will
inflict harm
 To determine the degree of intimidation, the age, sex, and condition of the
person shall be borne in mind (Article 1335, 3rd ¶).
 For example, a 75year old man who is bed ridden and says that he will kill
you does not produce a wellgrounded fear.
 Intimidation shall annul the obligation, although it may have been employed
by a 3rd person who did not take part in the contract (Article 1336).
 Tiu: Whether the fear is reasonable and well-grounded or not depends upon
many circumstances, including the age, condition, and sex of the person
concerned.
d. UNDUE INFLUENCE
Art. 1337. There is undue influence when a person takes improper advantage of his
power over the will of another, depriving the latter of a reasonable freedom of
choice. The following circumstances shall be considered: the confidentiality, family,
spiritual and other relations between the parties, or the fact that the person alleged
to have been unduly influenced was suffering from mental weakness, or was
ignorant or in financial distress.
 From book (page 639)
o Undue influence - a vitiating factor not found in the Spanish Code bears a resemblance to intimidation, but is more subtle, and, in some
respects, more insidious:
1. Undue influence generally presupposes a preexisting power
which the perpetrator has over the will of the passive subject,
while intimidation presupposes no such antecedent power.
2. Undue influence, furthermore, does not necessarily involve
something wrongful either in the threatened act or in the threat
itself, as intimidation does. Undue influence involves the
exercise of moral suasion or authority or an appeal to emotional
ties or bonds of affection.
3 . The extent of the restriction on the freedom of the will by
undue influence may not be as radical as that exercised by
intimidation. Nevertheless, the undue influence must be strong
enough to deprive the victim of that degree of volition required
for contractual freedom.
 Of all the factors vitiating freedom, undue influence is the most subjective.
 The two variables are:
o (1) the ascendancy of the active subject, and
o (2) the emotional or psychological vulnerability of the passive subject.
What constitutes undue influence for one person in a given situation
may not be undue influence for another person in another situation.
 TEST: Ultimately, the test 1s whether the contracting party concerned was
deprived of the basic freedom of choice needed for the contract.
 In undue influence, there is moral coercion.
- Requisites
From Tiu:
a. Improper advantage
b. Power over the will of another
c. Deprivation of the latter’s will of a reasonable freedom of choice
Place explanation on each
- Circumstances to be Considered
a. Confidential, family, spiritual, and other relations between the parties
b. Mental weakness
c. Ignorance
d. Financial distress
- Is "undue influence" a tautologous term?
 Tautologous: needless repetition of an idea, statement, or word.
 The term undue influence raises the question: Is there such a thing as due
influence?
 Influence in contract law may, in fact, be due or undue. It is due (perhaps the
better term is non-determinative) if it does not vitiate or undermine consent.
Otherwise, it is undue.
 Example: Obvious examples of "due" influence are the numberless
advertisements, in all forms of media, that bombard the hapless public to
induce them to buy this or that product.
- Effect If Perpetrated by Third Persons
 The Code is silent on the effect of undue influence employed by a third
person on one of the contracting parties. Since the provision on undue
influence (Art. 1337) is new, it is possible that the silence of the Code is
merely an oversight.
 Perhaps the provisions of the old Article 1268 reproduced in our Code as
Article 1336) should have been amended so as to include undue influence in
addition to violence and intimidation as a vitiating factor even if perpetrated
by a third person.
 Tolentino: by analogy, undue influence employed by a third person, should
be considered as having the same effect on the contract as violence or
intimidation perpetrated by a third person.
- Contracts of adhesion
 They are valid
 Only one party makes or prepares the terms or something like that, example
dili ka maka hangyo sa price sa airplane tickets
 Public policy will protect the other party in case of onerous conditions
e. FRAUD
Art. 1332. When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained
to the former.
Art. 1338. There is fraud when, through insidious words or machinations of one of
the contracting parties, the other is induced to enter into a contract which, without
them, he would not have agreed to.
 This fraud is known as deceit or dolo causante. This is different from dolo
incidente which means fraud on things which would not prevent you from
entering into a contract but may hold the other liable for damages.
- Fraud Defined
From book (page 633):
 The fraud here referred to is deceit which deprives the party of intelligent
consent.
 Art. 1338 itself defines fraud (deceit) as a factor vitiating intelligence in
consent.
 Senator Tolentino citing French commentary: "Fraud is every kind of
deception, whether in the form of insidious machinations, manipulations,
concealments,or misrepresentations, for the purpose of leading another
party into error, and thus execute a particular act.
 Tiu: It must have a determining influence on the consent of the victim Error
of one party is produced by the bad faith of the other contracting party, it
presupposes an illicit act.
- Test
From Tiu:
 There is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which,
without them, he would not have agreed to. (Art. 1338)
 BUT — Failure to disclose facts, when there is a duty to reveal them, as when
the parties are bound by confidential relations, constitutes fraud.
- Requisites of Fraud:
i. Fraud is employed by 1 party on the other (Articles 1342, 1344)
ii. The other party was induced to enter into the contract (Article 1338)
iii. The fraud must be serious (Article 1344)
iv. There is damage or injury caused
(Place explanation if possible)
- Fraud that vitiates consent:
 Book (Page 634): Not all kinds of fraud (deceit) vitiate consent. In this regard,
there are three kinds or degrees of fraud:
o i. do lo causante (Art. 1344, par. 1)
o ii. dolo incidental (Art. 1344, par. 2)
o iii. dolus bonus (Art. 1340)
i. Do lo causante (Art. 1344, par 1)
 causal fraud
 Only dolo causante (serious or efficient fraud) vitiates contractual consent.
 Elements:
o a) it must have been employed by one party on the other (Art. 1342);
o b) it must have induced the other party to enter into the contract (Art.
1338);
o c) it must have been serious (Art. 1344);
o d) it should have caused damage or injury.
 The third element, though given in Art. 1344, is in fact superfluous because
it is subsumed in the second element. The test is: if the fraud was the
efficient factor in the giving of consent, then it is serious fraud. Otherwise, it
is either incidental or harmless, because consent would have been given
anyway.
 Tiu: Here, were it not for the fraud, the other party would not have
consented. (This is the fraud referred to in Art. 1338). The effect is that the
contract is voidable
 Tiu: Requisites of Dolo causante:
o a. The fraud must be material and serious, that is, it really induced the
consent. (Art. 1344)
o b. The fraud must have been employed by only one of the contracting
parties, because if both committed fraud, the contract would remain
valid. (Art. 1344)
o c. There must be a deliberate intent to deceive or to induce; therefore,
misrepresentation in GOOD FAITH is not fraud. (Art. 1343)
o d. The other party must have relied on the untrue statement, and must
himself not be guilty of negligence in ascertaining the truth.
 Tiu: Examples:
A wanted to have himself insured, but because he was afraid he could
not pass the medical examination, he had another person examined in
his place. Here the contract of insurance is voidable
o Concealment by the applicant for insurance that he had suffered from
a number of ailment, including incipient pulmonary tuberculosis, and
of the name of the hospital and of the physician who had treated him.
o Misrepresentation by the vendor of the boundaries of his land by
showing valuable properties not really included in his title.
o Misrepresentation of law.
ii. Do lo incidental (Art. 1344, par 2)
Article 1344. In order that fraud may make a contract voidable, it should be serious
and should not have been employed by both contracting parties. Incidental fraud
only obliges the person employing it to pay damages.
 Dalo incidental (incidental fraud) is that kind of deceit which does not play
a decisive role in inducing consent.
 The determination of whether the dolo is causante (serious or grave) or
incidental is often a question of fact dependent on the particular
circumstances of the case: the resolution of the question always depends on
whether the deceit employed was the cause of the consent or not.
 In cases of dolo incidental, although consent is not vitiated and the contract
remains valid, there is a liability for damages. A basic precept of the law is
that fraud or bad faith should be punished.
 Tiu: Here, even without the fraud the parties would have agreed just the
same, hence the fraud was only incidental in causing consent. Very likely
though, different terms would have been agreed upon. The effect is that the
contract is still valid, but there can be an action for damages.
iii. Dolus bonus (Art. 1340)
Article 1340. The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent.
 This oxymoron (literally, good fraud) refers to dealer's talk, the kind of
exaggerations in advertisement the public is familiar with.
o Oxymoron: a figure of speech in which apparently contradictory terms
appear in conjunction
 The ads, jingles, come-ans, and sales-talk spewed out by the advertising
industry has become such a familiar feature of modern culture that none but
the most naïve take any of them seriously. As Tolentino so well puts it, if
anyone believes these advertisements, buys the product, and finds to his rue
that it did not come up to expectations, he has only his stupidity to blame.
 The ancient principle still governs in this regard: Caveat emptor: Buyer
beware.
 Example: Everyone who has had to sit through commercials in TV programs,
showing a girl with hair as soft as silk after using a certain brand of shampoo,
knows what dolus bonus is and he (or she) has no reason to complain if
his/her hair remains as wiry as the spines of a porcupine.
 But once the dealer's talk goes beyond innocent conventional exaggeration
and later enters the realm of bad faith, then deceit (either causante or
incidental may set in.)
- Expression of opinion (Art. 1341)
 Article 1341. A mere expression of an opinion does not signify fraud, unless
made by an expert and the other party has relied on the former's special
knowledge. (n)
 The mere expression of an opinion, either by one of the parties or by a third
person does not in itself constitute fraud, whether the opinion subsequently
turns out to be accurate or not.
 Such expression will, however, be fraudulent if accompanied by deceit and
induces consent. Then it becomes dolo causante.
- Non-disclosure (Art. 1339)
 Article 1339. Failure to disclose facts, when there is a duty to reveal them,
as when the parties are bound by confidential relations, constitutes fraud.
 Non-disclosure of facts constitutes fraud if the following requisites are
present:
o a) the undisclosed fact or facts are material to the contract;
o b} there is a duty to reveal the same; and
o c} the non-disclosure is accompanied or motivated by deceit.
 Such non-disclosure, if these circumstances are present, constitutes dolo
causante.
- Misrepresentation bonafide (Art. 1343)
 Article 1343. Misrepresentation made in good faith is not fraudulent but may
constitute error.
 Misrepresentation bona fide cannot be fraudulent because good faith
excludes deceit. But it does not exclude the possibility of mistake. Vide
comments on this point under the heading of Mistake.
- The following are NOT fraud in themselves:
a. The usual exaggerations in trade, when the other party had an opportunity to
know the facts (Art. 1340)
b. A mere expression of an opinion (Art. 1341)
EXCEPT — when made by an expert and the other party has relied on the
former's special knowledge (Art. 1341)
c. Misrepresentation by a third person (Art. 1342)
EXCEPT — when such misrepresentation has created substantial mistake and
the same is mutual. (Art. 1342)
BUT — In this case, the contract may be annulled, not principally on the
ground of fraud, but on the ground of error or mistake.
NOTE — Distinguish this from the fact that force or intimidation by a third
person already makes the contract voidable
d. Misrepresentation made in good faith (Art. 1343)
BUT — It may be considered as mistake (Art. 1343)
- Effect If Perpetrated by Third Persons
 Page 641
 Fraud vitiates consent only if employed by one contracting party on the
other. Fraud by a third person, who is neither an agent nor a representative
of a contracting party, is not a vitiating factor.
 While violence or intimidation by a third person on a contracting party has
the effect of vitiating consent, fraud by a third party does not.
 Conceivably, the reason for the difference is that the victim of violence or
intimidation is helpless and powerless to resist or avoid these two kinds of
duress.
 In cases of fraud by a third party, however, there are measures that a
contracting party may take to avoid being defrauded: he could, for instance,
take such steps as a reasonably prudent person might take to verify whether
the third person is acting on behalf of the other party or to check the
accuracy of the statements or representations being made.
 Fraud is subtler than duress; it is also, as a general rule, easier to resist.
Meaning of third person
 A third person is one who acts without the authority (express or tacit) or
consent of a contracting party. Otherwise, the law will treat the fraud as if
employed by the contracting party himself.
Liability of third party for damages
 Although the third party's fraud does not affect the validity and binding force
of the contract, he will be liable in damages to the party victimized by his
deception.
Effect if third person's fraud induces mistake on the part of both parties
 If the fraud perpetrated by the third person causes mutual substantial error,
the contract becomes voidable on the ground of mistake.
Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when
the parties are bound by confidential relations, constitutes fraud.
Art. 1340. The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent.
Art. 1341. A mere expression of an opinion does not signify fraud, unless made by
an expert and the other party has relied on the former’s special knowledge.
Art. 1342. Misrepresentation by a 3rd person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual.
Art. 1343. Misrepresentation made in good faith is not fraudulent but may
constitute error.
Art. 1344. In order that fraud may make a contract voidable, it should be serious
and should not have been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages.
 If a 3rd person should commit violence or intimidation on1 of the contracting
parties and this vitiates the contracting party’s consent, then the contract
may be annulled (Article 1336). By analogy, if a 3rd person should exert
undue influence on 1 of the contracting parties and this vitiates the consent
of the contracting party, then the contract may be annulled. However, if the
3rd party commits fraud, damages is the only remedy unless the fraud
committed by the 3rd person has created a mutual substantial mistake
(Article 1342).
FORM OF CONTRACTS
Art. 1356. Contracts shall be obligatory, in whatever form they may have been
entered into, provided all the essential requisites for their validity are present.
However, when the law requires that a contract be in some form in order that it
may be valid or enforceable, or that a contract be proved in a certain way, that
requirement is absolute and indispensable. In such cases, the right of the parties
stated in the following article cannot be exercised.
Art. 1357. If the law requires a document or other special form, as in the acts and
contracts enumerated in the following article, the contracting parties may compel
each other to observe that form, once the contract has been perfected. This right
may be exercised simultaneously with the action upon the contract.
Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property; sales of
real property or of an interest therein a governed by articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those of the
conjugal partnership of gains;
(3) The power to administer property, or any other power which has for its object
an act appearing or which should appear in a public document, or should prejudice
a third person;
(4) The cession of actions or rights proceeding from an act appearing in a public
document. All other contracts where the amount involved exceeds five hundred
pesos must appear in writing, even a private one. But sales of goods, chattels or
things in action are governed by articles, 1403, No. 2 and 1405.
General Rule
There is no need for a specific form, but there must still be some manifestation of
consent.
Exception
When the written form is required
1. For validity
 If it not written, the same is void.
 Examples are donations (Articles 748, 749), antichresis (Article 2134),
interest in a loan (Article 1956), sale of land by an agent (Article 1874),
contribution of immovables in a partnership (Article1773)
 From book (page 665):
o These formal contracts are vestiges of the rigorous formalism of the
classical Roman law. Non-compliance with the prescribed form makes
these contracts void.
o Examples of such contracts are:
 (a) donations - Arts. 748-749;
 (b) contracts of partnership in which immovable property is
contributed - Art. 1773;
 (c) sales of land through an agent - Art. 1874;
 (d) stipulations on interest - Art. 1956;
2. For enforceability
 The contract is unenforceable if it is not written.
a. An agreement that by its terms is not to be performed within a year
from the making thereof (Article 1403 (a))
b. A special promise to answer for the debt, default or miscarriage of
another (Article 1403 (b))
c. An agreement made in consideration of marriage, other than a
mutual promise to marry (Article 1403 (c))
d. An agreement for the sale of goods, chattels or things in action, at
a price not less than P500, unless the buyer accepts and receives part
of such goods and chattels, or the evidence, or some of them, of such
things in action, or pay at the time some part of the purchase money;
but when a sale is made by auction and entry is made by the
auctioneer in his sales book, at the time of sale, of the amount and
kind of property sold, terms of sale, price, names of the purchasers
and person on whose account the sale is made, it is a sufficient
memorandum (Article 1403 (d))
e. An agreement of lease for a period of more than 1 year, or the sale
of real property or of an interest therein (Article 1403 (e))
f. A representation as to the credit of a 3rd person (Article 1403 (f))
g. No express trusts concerning an immovable or any interest therein
may be proved by parol evidence (Article 1443)
 From book (665)
o These are the contracts covered by the Statute of Frauds.
o Without the required writing, the contract, though not void, is
defective for being unenforceable.
3. For registrability
(Those which are required to be in a public document, not for validity nor for
enforceability, but for effectivity against third persons or for registration.)
 The following must appear in a public instrument:
a. Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property; sales of real property or of an interest therein
governed by Articles 1403 (2) and 1405
b. The cession, repudiation or renunciation of hereditary rights or of
those of the conjugal partnership of gains
c. The power to administer property, or any other power which has for
its object an act appearing or which should appear in a public
document, or should prejudice a 3rd person
d. The cession of actions or rights proceeding from an act appearing in
a public document
 Contracts enumerated in Article 1358 are valid as between the contracting
parties even when they have not been reduced to public or private writings.
 Except in certain cases where public instruments and registration are
required for the validity of the contract itself, the legalization of a contract
by means of a public writing and its entry in the register are not essential
solemnities or requisites for the validity of the contract as between the
contracting parties but are required for the purposes of making it effective
as against 3rd person.
 Article 1357 gives the contracting parties the coercive power to reciprocally
compel the execution of the formalities required by law, as soon as the
requisites for the validity of the contracts are present.
From Book
 (page 666) It must be emphasized that, for contracts falling under II (1)
and (2), supra, the prescribed form is absolute and indispensable, either
for validity or for enforceability.
 2 . Furthermore, in neither case can the parties compel each other
through a judicial process to execute the required form. This is so because
such a suit assumes that the contract is binding and enforceable. Such an
assumption, however, is completely baseless and inexistent because the
contract is either void or unenforceable.
Art. 1357. If the law requires a document or other special form, as in the acts and
contracts enumerated in the following article, the contracting parties may compel
each other to observe that form, once the contract has been perfected. This right
may be exercised simultaneously with the action upon the contract. (1279a)
Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property; sales of
real property or of an interest therein are governed by Articles 1403 No. 2, and
1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those of the
conjugal partnership of gains;
(3) The power to administer property, or any other power which has for its object
an act appearing or which should appear in a public document, or should prejudice
a third person;
(4) The cession of actions or rights proceeding from an act appearing in a public
document. All other contracts where the amount involved exceeds five hundred
pesos must appear in writing, even a private one. But sales of goods, chattels or
things in action are governed by Articles, 1403, No. 2 and 1405. (1280a)
Nature of requirement of writing
 The contracts falling under Article 1358 should be contained in a public
document (or, in the case of the last paragraph of the article, should be in
writing, even a private one).
 The requirement of a document in these cases, however, is neither for
validity nor for enforceability. These contracts are valid, binding, and
enforceable even without the public document. The writing required is for
the purpose of registration, or of facilitating proof of the contract, or of
affecting third persons.
 Absence of the document does not, as already pointed out, affect the binding
force of the agreement. Indeed, the parties may compel each other, through
a proper court action, to execute the document.
 It should be noted that if the agreement is one falling under the Statute of
Frauds - as those mentioned in Article 1358(1) and the last paragraph of said
article regarding sales of personalty at a price of at least Five Hundred Pesos
- it must be in writing to be enforceable.
REFORMATION OF INSTRUMENTS
Art. 1359. When, there having been a meeting of the minds of the parties to a
contract, their true intention is not expressed in the instrument purporting to
embody the agreement, by reason of mistake, fraud, inequitable conduct or
accident, one of the parties may ask for the reformation of the instrument to the
end that such true intention may be expressed. If mistake, fraud, inequitable
conduct, or accident has prevented a meeting of the minds of the parties, the
proper remedy is not reformation of the instrument but annulment of the contract.
Art. 1360. The principles of the general law on the reformation of instruments are
hereby adopted insofar as they are not in conflict with the provisions of this Code.
Art. 1361. When a mutual mistake of the parties causes the failure of the
instrument to disclose their real agreement, said instrument may be reformed.
Art. 1362. If one party was mistaken and the other acted fraudulently or inequitably
in such a way that the instrument does not show their true intention, the former
may ask for the reformation of the instrument.
Art. 1363. When one party was mistaken and the other knew or believed that the
instrument did not state their real agreement, but concealed that fact from the
former, the instrument may be reformed.
Art. 1364. When through the ignorance, lack of skill, negligence or bad faith on the
part of the person drafting the instrument or of the clerk or typist, the instrument
does not express the true intention of the parties, the courts may order that the
instrument be reformed.
Art. 1365. If two parties agree upon the mortgage or pledge of real or personal
property, but the instrument states that the property is sold absolutely or with a
right of repurchase, reformation of the instrument is proper.
Art. 1366. There shall be no reformation in the following cases: (1) Simple
donations inter vivos wherein no condition is imposed; (2) Wills; (3) When the real
agreement is void.
Art. 1367. When one of the parties has brought an action to enforce the
instrument, he cannot subsequently ask for its reformation.
Art. 1368. Reformation may be ordered at the instance of either party or his
successors in interest, if the mistake was mutual; otherwise, upon petition of the
injured party, or his heirs and assigns.
Art. 1369. The procedure for the reformation of instrument shall be governed by
rules of court to be promulgated by the Supreme Court.
 Once the minds of the contracting parties meet, a valid contract exists,
whether the agreement is reduced to writing or not. There are instances
however, where in reducing their agreements to writing, the true intention
of the contracting parties are not correctly expressed in the document, either
by reason of mistake, fraud, inequitable conduct or accident. It is in such
cases that reformation of instruments is proper. The action for such relief
rests on the theory that the parties came to an understanding, but in
reducing it to writing, through mutual mistake, fraud or some other reason,
some provision was omitted or mistakenly inserted, and the action to change
the instrument so as to make it conform to the contract agreed upon.
Reformation vs from Annulment
 The action for reformation of instruments presupposes that there is a valid
existing contract between the parties, and only the document or instrument
which was drawn up and signed by them does not correctly express the
terms of their agreement. On the other hand, if the minds of the parties did
not meet, or if the consent of either one was vitiated by violence or
intimidation or mistake or fraud, so that no real and valid contract was made,
the action is for annulment.
 Annulment involves a complete nullification of the contract while
reformation gives life to it upon certain corrections.
Operation and Effect of Reformation
 Upon reformation of an instrument, the general rule is that it relates back to,
and takes effect from the time of its original execution, especially as between
the parties.
Requisites of Reformation
1. There must have been a meeting of the minds upon the contract
2. The instrument or document evidencing the contract does not express the true
agreement between the parties
3. The failure of the instrument to express the agreement must be due to mistake,
fraud, inequitable conduct or accident
Requisites of Reformation from the book (p 670):
 There must be an existing valid contract; i.e. there must have been a genuine
meeting of minds between the parties;
 The contract must have been reduced to writing;
 The document failed to reflect the true intent of the parties;
 The failure must have been caused by mistake, fraud, inequitable conduct,
accident, or relative simulation.
o In Veluz v. Veluz, 24 SCRA 559 [1968], the Court explained:
"Reformation of instrument presupposes a valid existing contract in
which there had been a meeting of the minds of the parties but the
instrument drawn up and signed by them does not correctly express
the terms of their agreement."
o The relief by way of reformation must be supported by clear and
satisfactory proof, and more than a mere preponderance.
Requisites of Mistake
a. That the mistake is one of fact
 Whenever an instrument is drawn with the intention of carrying an
agreement previously made, but which, due to mistake or
inadvertence of the draftsman or clerk, does not carry out the
intention of the parties, but violates it, there is a ground to correct the
mistake by reforming the instrument.
b. That it was common to both parties
 A written instrument may be reformed where there is a mistake on 1
side and fraud or inequitable conduct on the other, as where 1 party
to an instrument has made a mistake and the other knows it and
conceals the truth from him.
 The mistake of 1 party must refer to the contents of the instrument
and not the subject mater or the principal conditions of the
agreement. In the latter case, an action for annulment is the proper
remedy.
 If 2 parties agree upon the mortgage or pledge of real property or
personal property, but the instrument states that the property is sold
absolutely or with a right of repurchase, reformation is proper.
c. The proof of mutual mistake must be clear and convincing
Limitations of Reformation
1. Reformation is not proper in the following cases:
a. Simple donations inter vivos wherein no condition is imposed:
The reason why deeds of donation cannot be reformed is that donations are formal
contracts. Form is essential for their validity. If not executed in the proper form,
the donation is void and there is nothing to reform.
b. Wills
Wills are not contracts and hence do not fall within the ambit of these articles. Wills
are formal documents and are absolutely void if not in the form provided by law
c. When the real agreement is void
When .the real agreement is void, there is no legal justification for reformation
because there is in law no contract between the parties. A void contract, even if
contained in a document reflective of the intent of the parties, remains void.
2. Who may ask for reformation
a. If the mistake is mutual
 Reformation may be ordered at the instance of either party or his
successors in interest
b. If the mistake is not mutual
 Reformation may be ordered upon petition of the injured party or his
heirs and assigns
3. Effect of enforcing an action
 When one of the parties has brought an action to enforce the
instrument, he cannot subsequently ask for its reformation.
From the Book
Source of provisions or reformation of instruments
 These eleven provisions on reformation of instruments are among the new
subjects introduced in the new Code.
 The rules and prescriptions embodied in these articles are taken from the
principles of equity in common law.
Definition
 Reformation of instrument is that remedy in equity by means of which a
written instrument is made or construed so as to express or conform to the
real intention of the parties when some error or mistake has been
committed.
Rationale
 The Report of the Code Commission explains the rationale of reformation:
"Equity orders the reformation of an instrument in order that the true
intention of the contracting parties may be expressed.
 “The courts do not attempt to make another contract for the parties. The
rationale of the doctrine is that it would be unjust and inequitable to allow
the enforecement of a written instrument which does not reflect or disclose
the real meeting of the minds of the parties. The rigor of the legalistic rule
that a written instrucment should be the final and inflexible criterion and
measure of the rights and obligations of the contracting parties is thus
tempered, to forestall the effects of mistake, fraud, inequitable conduct or
accident." (Bentir v. Leanda (supra) and National Irrigation Administration v.
Gamot)
Procedure for Reformation
The procedure for seeking reformation of a contract is given in Rule 63 of the Rules
of Court.
Rule 63
Declaratory Relief and Similar Remedies
Section 1. Who may file petition. — Any person interested under a deed, will,
contract or other written instrument, or whose rights are affected by a statute,
executive order or regulation, ordinance, or any other governmental regulation
may, before breach or violation thereof bring an action in the appropriate Regional
Trial Court to determine any question of construction or validity arising, and for a
declaration of his rights or duties, thereunder. (Bar Matter No. 803, 17 February
1998)
An action for the reformation of an instrument, to quiet title to real property or
remove clouds therefrom, or to consolidate ownership under Article 1607 of the
Civil Code, may be brought under this Rule. (1a, R64)
Section 2. Parties. — All persons who have or claim any interest which would be
affected by the declaration shall be made parties; and no declaration shall, except
as otherwise provided in these Rules, prejudice the rights of persons not parties to
the action. (2a, R64)
Section 3. Notice on Solicitor General. — In any action which involves the validity
of a statute, executive order or regulation, or any other governmental regulation,
the Solicitor General shall be notified by the party assailing the same and shall be
entitled to be heard upon such question. (3a, R64)
Section 4. Local government ordinances. — In any action involving the validity of a
local government ordinance, the corresponding prosecutor or attorney of the local
governmental unit involved shall be similarly notified and entitled to be heard. If
such ordinance is alleged to be unconstitutional, the Solicitor General shall also be
notified and entitled to be heard. (4a, R64)
Section 5. Court action discretionary. — Except in actions falling under the second
paragraph of section 1 of this Rule, the court, motu proprio or upon motion, may
refuse to exercise the power to declare rights and to construe instruments in any
case where a decision would not terminate the uncertainty or controversy which
gave rise to the action, or in any case where the declaration or construction is not
necessary and proper under the circumstances. (5a, R64)
Section 6. Conversion into ordinary action. — If before the final termination of the
case, a breach or violation of an instrument or a statute, executive order or
regulation, ordinance, or any other governmental regulation should take place, the
action may thereupon be converted into an ordinary action, and the parties shall
be allowed to file such pleadings as may be necessary or proper. (6a, R64)
Specific Instances Where Reformation Allowed
This chapter provides for five specific instances where reformation of instruments
may be proper, viz: Articles 1361, 1362, 1363, 1364 and 1365 .
Article 1361. When a mutual mistake of the parties causes the failure of the
instrument to disclose their real agreement, said instrument may be
reformed.
Article 1362. If one party was mistaken and the other acted fraudulently or
inequitably in such a way that the instrument does not show their true
intention, the former may ask for the reformation of the instrument.
Article 1363. When one party was mistaken and the other knew or believed
that the instrument did not state their real agreement, but concealed that
fact from the former, the instrument may be reformed.
Article 1364. When through the ignorance, lack of skill, negligence or bad
faith on the part of the person drafting the instrument or of the clerk or
typist, the instrument does not express the true intention of the parties, the
courts may order that the instrument be reformed.
Article 1365. If two parties agree upon the mortgage or pledge of real or
personal property, but the instrument states that the property is sold
absolutely or with a right of repurchase, reformation of the instrument is
proper.
Principles governing reformation
Art. 1360. The principles of the general law on the reformation of instruments are
hereby adopted insofar as they are not in conflict with the provisions of this Code.
 This article a dopts the principles of general law in resolving cases on
reformation of instruments, without indicating where those principles are to
be found.
 In at least two similar references - in the provisions governing quieting of title
and trusts - where the Code also refers to the principles of general law [ Vide
Arts 480 and 1442]. The Report of the Code Commission identifies "American
law" as the source of the principles of general law. This reference may leave
something to be desired, since it lacks specificity.
 As JBL Reyes remarked: "This is another of those vague references that
abound in the [Code]. Such indefiniteness amounts to a delegation of power
to the courts to determine what the law is, since no standards are set to
enable one to determine which law is meant."
Mutual mistake
Art. 1361. When a mutual mistake of the parties causes the failure of the
instrument to disclose their real agreement, said instrument may be reformed.
 This is the first of the specific instances where reformation may be allowed.
Nature of mistake
 The mistake must be mutual and it must refer not to the agreement itself but
to the manner the true agreement is reflected or expressed m the
instrument.
 If the mistake affects the very agreement between the parties, it could
render the contract voidable if it refers to the matters referred to in Article
1331 (supra).
Fraud or Inequitable Conduct which Causes Mistake
Art. 1362. If one party was mistaken and the other acted fraudulently or inequitably
in such a way that the instrument does not show their true intention, the former
may ask for the reformation of the instrument.
1. The situation contemplated in this article is one where one of the parties
was mistaken and the other acted fraudulently or inequitably-the fraud or
inequitable conduct of the latter may have brought about the mistake of the
former or may have been just a co-existent, not a causative, circumstance.
2. As in the case of the preceding article, the mistake of one of the parties
must not refer to the agreement itself but to the manner in which the
agreement is reflected in the instrument. Mistake as to the agreement itself
could vitiate consent.
Art. 1363. When one party was mistaken and the other knew or believed that the
instrument did not state their real agreement, but concealed that fact from the
former, the instrument may be reformed.
 In the situation covered by this. article, the fraud of one party consists merely
in his failure to disclose to the other party the failure of the instrument to
reflect the true agreement. It is fraud of a passive nature. The party mistaken
may demand the appropriate reformation of the instrument.
Art. 1364. When through the ignorance, lack of kill negligence or bad faith on the
part of the person drafting the instrument or of the clerk or typist, the instrument
does not express the true intention of the parties, the courts may order that the
instrument be reformed.
 This article refers to mistakes or inaccuracies in the document which are
caused by the clerk or draftsman due to a variety of causes.
 The remedy of reformation at the instance of either or both contracting
parties is obvious.
Art. 1365. If two parties agree upon the mortgage or pledge of real or personal
property, but the instrument states that the property is sold absolutely or with a
right of repurchase, reformation of the instrument is proper.
 This is the last of the five specific instances where reformation is allowed.
 Here, again, the need and right of reformation are obvious, since the
instrument neither reflects nor conforms to the true agreement.
When reformation not allowed
Art. 1366. There shall be no reformation in the following cases: (1) Simple
donations inter vivos wherein no condition is imposed; (2) Wills; (3) When the real
agreement is void.
a. Simple donations
 This refers to all gratuitous donations (simple, remu!leratory! and . modal [as
to the part that is granted gratuitously]).
 The reason why deeds of donation cannot be reformed is that donations are
formal contracts. Form is essential for their validity. If not executed in the
proper form, the donation is void and there is nothing to reform.
 Needless to say, onerous donations do not fall under this paragraph.
Onerous donations are not donations but onerous contracts. Thus the
document embodying them can, in proper cases, be reformed.
b. Wills
 First of all, wills are not contracts and hence do not fall within the ambit of
these articles.
 Secondly, wills are formal documents and are absolutely void if not in the
form provided by law (Arts. 805 and 806 for attested wills and 810 for
holographic wills).
c. Void agreements
 When the real agreement is void, there is no legal justification for
reformation because there is in law no contract between the parties. A void
contract, even if contained in a document reflective of the intent of the
parties, remains void.
Art. 1367. When one of the parties has brought an action to enforce the
instrument, he cannot subsequently ask for its reformation.
 Basis of article:
o he rule laid down in this article is leased on estoppel. When a
contracting party sues on the document, he is admitting in effect the
document’s Curacy and faithfulness. To allow him to seek reformation
is equivalent to allowing him to take inconsistent positions.
Transmissibility of action for reformation
Art. 1368. Reformation may be ordered at the instance of either party or his
successors in interest, if the mistake was mutual; otherwise, upon petition of the
injured party, or his heirs and assigns.
 The right of action for reformation may be exercised by the party prejudiced
or, if the mistake as to the accuracy of the document is mutual, by either
party.
 This right is transmissible to the party's heirs and successors-in-interest
unless the contract is intuitu personae, in which case the contract and all
rights arising thereunder are extinguished by the death of the party.
Procedural rules for actions for reformation
Art. 1369. The procedure for the reformation of instrument shall be governed by
rules of court to be promulgated by the Supreme Court.
 As pointed out under Art: 1359, the governing provisions for actions for
reformation are found in Rule 63 of the Rules of Court.
INTERPRETATION OF CONTRACTS
 Where the parties have reduced their contract into writing, the contents of
the writing constitutes the sole repository of the terms of the agreement
between the parties. Whatever is not found in the writing must be
understood as waived and abandoned. Generally, therefore, there can be no
evidence of the terms of the contract other than the contents of the writing,
unless it is alleged and proved that the intention of the parties is otherwise
Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention
of the contracting parties, the literal meaning of its stipulations shall control. If the
words appear to be contrary to the evident intention of the parties, the latter shall
prevail over the former.
 When the terms of the agreement are so clear and explicit that they do not
justify an attempt to read into it any alleged intention of the parties, the
terms are to be understood literally just as they appear on the face of the
contract.
 When the true intent and agreement of the parties is established, it must be
given effect and prevail over the bare words of the written agreement.
Art. 1371. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.
Art. 1372. However general the terms of a contract may be, they shall not be
understood to comprehend things that are distinct and cases that are different
from those upon which the parties intended to agree.
Art. 1373. If some stipulation of any contract should admit of several meanings, it
shall be understood as bearing that import which is most adequate to render it
effectual.
Art. 1374. The various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them taken
jointly.
 Where the instrument is susceptible of 2 interpretations, 1 which will make
it invalid and illegal, and another which will make it valid and legal, the latter
interpretation should be adopted.
 In the construction of an instrument where there are several provisions or
particulars, such a construction is, if possible, to be adopted as will give effect
to all.
Art. 1375. Words which may have different significations shall be understood in
that which is most in keeping with the nature and object of the contract.
Art. 1376. The usage or custom of the place shall be borne in mind in the
interpretation of the ambiguities of a contract, and shall fill the omission of
stipulations which are ordinarily established.
 When there is doubt as to the meaning of any particular language, it should
be determined by a consideration of the general scope and purpose of the
instrument in which it occurs.
 An instrument may be construed according to usage in order to determine
its true character.
Art. 1377. The interpretation of obscure words or stipulations in a contract shall
not favor the party who caused the obscurity.
 The party who draws up a contract in which obscure terms or clauses appear,
is the one responsible for the obscurity or ambiguity; they must therefore be
construed against him.
Art. 1378. When it is absolutely impossible to settle doubts by the rules established
in the preceding articles, and the doubts refer to incidental circumstances of a
gratuitous contract, the least transmission of rights and interests shall prevail. If the
contract is onerous, the doubt shall be settled in favor of the greatest reciprocity
of interests. If the doubts are cast upon the principal object of the contract in such
a way that it cannot be known what may have been the intention or will of the
parties, the contract shall be null and void.
Art. 1379. The principles of interpretation stated in Rule 123℘ of the Rules of Court
shall likewise be observed in the construction of contracts.
Rule 130, Rules of Court
Sec. 10. Interpretation of a writing according to its legal meaning. — The language
of a writing is to be interpreted according to the legal meaning it bears in the place
of its execution, unless the parties intended otherwise.
Sec. 11. Instrument construed so as to give effect to all provisions. — In the
construction of an instrument where there are several provisions or particulars.
such a construction is, if possible, to be adopted as will give effect to all.
Sec. 12. Interpretation according to intention; general and particular provisions.
— In the construction of an instrument, the intention of the parties is to be
pursued; and when a general and a particular provision are inconsistent, the latter
is paramount to the former. So a particular intent will control a general one that is
inconsistent with it.
 When a general and a particular provision are inconsistent, the particular
provision will control.
Sec. 13. Interpretation according to circumstances. — For the proper construction
of an instrument, the circumstances under which it was made, including the
situation of the subject thereof and of the parties to it, may be shown, so that the
judge may be placed in the position of those whose language he is to interpret.
Sec. 14. Peculiar signification of terms. — The terms of a writing are presumed to
have been used in their primary and general acceptation, but evidence is admissible
to show that they have a local, technical, or otherwise peculiar signification, and
were so used and understood in the particular instance, in which case the
agreement must be construed accordingly.
Sec. 15. Written words control printed. — When an instrument consists partly of
written words and partly of a printed form, and the two are inconsistent, the
former controls the latter.
Sec. 16. Experts and interpreters to be used in explaining certain writings. —
When the characters in which an instrument is written are difficult to be
deciphered, or the language is not understood by the court, the evidence of
persons skilled in deciphering the characters, or who understand the language, is
admissible to declare the characters or the meaning of the language.
Sec. 17. Of two constructions, which preferred. — When the terms of an
agreement have been intended in a different sense by the different parties to it,
that sense is to prevail against either party in which he supposed the other
understood it, and when different constructions of a provision are otherwise
equally proper, that is to be taken which is the most favorable to the party in whose
favor the provision was made.
Sec. 18. Construction in favor of natural right. — When an instrument is equally
susceptible of two interpretations, one is favor of natural right and the other
against it, the former is to be adopted.
Sec. 19. Interpretation according to usage. — An instrument may be construed
according to usage, in order to determine its true character.
From the book
Art. 1370
Rules for interpretation and construction of contracts
Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention
of the contracting parties, the literal meaning of its stipulations shall control.
If the words appear to be contrary to the evident intention or the parties, the latter
shall prevail over the former.
a. Articles 1370 to 1379 lay down rules for the application, interpretation, and
construction of contracts.
b. These rules also apply to the interpretation of statutes and of wills. (Vide Arts.
788, 790, 791, and 792).
c. These rules are also found in Rule 130, Sections 1 o to 1 g of the Rules of Court.
Par. 1 of Art. 1370 - lnterpetation according to literal sense of words
 Common sense and experience tell us that words used in the contract should
be understood in their literal, ordinary and grammatical sense, because such
sense is presumably what the parties intended.
 As held in Republic v. Castellvi, "Intent is to be deduced from the language
employed by the parties, and the terms of the contract, when unambiguous,
as in the instant case, are conclusive in the absence of averment and proof
of mistake or fraud - the question being not what the intention was, but what
is expressed in the language used."
 To the same effect are the provisions of Rule 130, Sections 10 and 14.
o "Sec. 10. Interpretation of a writing according to its legal meaning.-The
language of a writing is to be interpreted according to the legal
meaning it bears in the place of its execution, unless the parties
intended otherwise.
o Sec. 14. Peculiar signification of terms.-The terms of a writing are
presumed to have been used in their primary and general acceptation,
but evidence is admissible to show that they have a local technical, or
otherwise peculiar signification, and were so used and understood in
the particular instance, in which case the agreement must be
construed accordingly."
o In the law on wills, Article 790 lays down a similar rule.
Par. 2 of Art. 1370 - Conflict between words and intent
 The controlling norm is always the intent of the parties. The words of the
contract are presumed to give expression to that intent. (Index animi sermo
est: The words are indicators of intent).
 This presumption is overthrown if there is a variance between words and
intent. In such a case, intent prevails.
Art. 1371
Contemporaneous and subsequent acts as guides to interpretation.
Art. 1371. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.
A. The basic rule always is to determine and give effect to the intent of the
parties. For this, it is helpful to take into account the acts of the parties at the
time of the contract and subsequent thereto, as such acts relate to the
contract. Such acts are indicators of intent. (Lim Yhi Luya v. CA, 99 SCRA 668
[1980]); Republic v. Castellvi, 58 SCRA 336 [1974]).
B. Rule 130, Sec. 13 of the Rules of Court lays down a similar rule:
"Sec. 13. Interpretation according to circumstances. - For the proper
construction of an instrument, the circumstances under which it was made,
including the situation of the subject thereof and of the parties to it, may be
shown, so that the judge may be placed in the position of those whose
language he is to interpret."
Art. 1372
Interpretation of general terms
Art. 1372. However general the terms of a contract may be, they shall not be
understood to comprehend things that are distinct and cases that are different
from those upon which the parties intended to agree. (1283)
Maxim
 The maxim is: Generalia verba sunt generaliter intellegenda: General terms
are to be understood in a general sense.
 This is the general rule. The normative and controlling factor, however, is the
intent of the parties. The interpretation and application even of general or
inclusive terms cannot go beyond the intent of the parties.
Art. 1373
Art. 1373. If some stipulation of any contract should admit of several meanings, it
shall be understood as bearing that import which is most adequate to render it
effectual.
 Derivation: "Art. 1284. If any stipulation of a contract should be susceptible
of different meanings, it shall be uNderstood in the sense most adequate to
give it effect.
Art. 1374
Art. 1374. The various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them taken
jointly. (1285)
 Derivation: "Art. 1285. The stipulations of a contract should be interpreted
in relation to one another, and those that are doubtful given the meaning
which may appear from a consideration of all of them together."
Presumption of Validity and Principle of Integral Concordance
a. Public policy favors the validity of contracts and in case of doubt presumes such
validity. This is in conformity with the principle of contractual freedom.
 Thus, in case where the contractual terms or stipulations are capable of more
than one interpretation - one that will make it valid and operative, and
another that will result in nullity - that which gives the contract validity will
be adopted.
 This is in accordance with the maxim: Ut res magis valeat quam pereat That
the thing may be valid rather than be nullified.
b. Another aspect of the policy favoring validity is the principle that a contract
should be interpreted integrally or holistically, that is to say all parts of the contract
should be, if possible, interpreted in such a way that all the parts fit together,
without conflict or inconsistency. Otherwise, the result would be, at best, partial
invalidity.
Similar expressions of these rules are found in
a. Rule 130, Sec. 11
 "Sec. 11. Instrument construed so as to give effect to all provisions.- In the
construction of an instrument, where there are several provisions or
particulars, such a construction is, if possible, to be adopted as will give effect
to all."
b. Articles 788 and 791
 This is regarding testamentary interpretation.
 "Art. 788. If a testamentary disposition admits of different interpretations,
in case of doubt, that interpretation by which the disposition is to be
operative shall be preferred."
 "Art. 791. The words of a will are to receive. an interpretation which will give
to every expression some effect, rather than one which will render any of the
expressions inoperative; and of two modes of interpreting a will, that is to
be preferred which will prevent intestacy."
Art. 1375
Art. 1375. Words which may have different significations shall be understood in
that which is most in keeping with the nature and object of the contract. (1286)
Derivation: "Art. 1286. Words which have different meanings shall be understood
in that which may be most in accord with the nature and object of the contract."
 This article refers to words used in the contract which may have more than
one meaning. Thus, the words themselves may cause some ambiguity,
uncertainty, or confusion.
 In order to clarify such ambiguity, uncertainty or confusion and thus discover
the true intent of the parties, it is logical that the words should be
interpreted and understood in that sense most conformable to the nature
and purpose of the contract.
 Example: If, in a contract of lease, the parties stipulate that any increase in
the area leased shall "be for the benefit of the lessee", the word benefit is
ambiguous. If the area is increased due to accretion, in what does the
lessee's "benefit" consist? The logical and rational interpretation of the word
is that the lessee shall have the right to use a nd enjoy the additional area as
lessee, not as owner. That interpretation is in keeping with the nature of the
lease contract .
Art. 1376
Art. 1376. The usage or custom of the place shall be borne in mind in the
interpretation of the ambiguities of a contract, and shall fill the omission of
stipulations which are ordinarily established. ( 1287)
Derivation: "Art. 1287. The uses or customs of the country shall be taken into
consideration in construing ambiguous provisions in contracts, and shall be used to
supply the omission of stipulations which are usually included."
Usage and Custom as Aids to Interpretation
1. The usages and customs - whether general or local - form part of the mindset and presuppositions of the parties when they enter into an agreement.
It can thus be fairly presumed that, in the absence of any contrary stipulation
in the contract, they intended their agreement to be conformable to these
customs and usages. Should there be any ambiguity in the contractual
stipulations, those usages and customs may therefore be resorted to for
clarification.
2. In the old Code, the role of custom as a means to resolve obscurity or
ambiguity was expressly provided. Article 6 of the old Code provided:
o 1. Ignorance of the law does not excuse from compliance thereof.
Error in law shall only have the effects provided in the law.
o 2. The voluntary exclusion of applicable law and the waiver of any
rights acknowledged therein shall only be valid when they do not
contradict the public interest or public policy or cause a detriment to
third parties.
o 3. Acts contrary to mandatory and prohibitive rules shall be null and
void by operation of law save where such rules should provide for a
different effect in the event of violation.
o 4. Acts performed pursuant to the text of a legal rule, which pursue a
result forbidden by the legal system or contrary thereto shall be
considered to be in fraud of the law and shall not prevent the due
application of the rule which they purported to avoid.
3. The present Code continues to recognize custom as a relevant factor, albeit
indirectly:
o "Art. 11. public order countenanced." Customs which are contrary to
law, or public policy shall not be countenanced.”
o "Art. 12. A custom must be proved as a fact, according to the rules of
evidence."
4. Rule 130, Sec. 19 of the Rules of Court lays down essentially the same rule
contained in this article.
Art. 1377
Art. 1377. The interpretation of obscure words or stipulations in a contract shall
not favor the party who caused the obscurity. (1288)
Derivation: "Art. 1288. Obscure terms of a contract shall not be so construed as to
favor the party who occasioned the obscurity.
 The rationale of this rule is the equitable principle that no one should be
allowed to profit from his wrongful conduct: Nemo commodum potest de
iniuria propria sua. No one can benefit from his own wrong.
 A party who causes an ambiguity in the contact, as, for instance, the party
who drafted the agreement, cannot profit from that ambiguity; on the
contrary, such ambiguity should be resolved against him and in favor of the
other party.
Art. 1378
Art 1378. When it is absolutely impossible to settle doubts by the rules established
in the preceding articles and the doubts refer to incidental circumstances of a
gratuitous contract, the least transmission of rights and interests shall prevail. If the
contract is onerous, the doubt shall be settled in favor of the greatest reciprocity
of interests. If the doubts are cast upon the principal object of the contract in such
a way that it cannot be known what may have been the intention or will of the
parties, the contract shall be null and void.
Effect of Irresoluble Doubt
The purpose of the foregoing rules on interpretation is to dispel any doubt or
ambiguity as to the intent of the parties. The contract is law as between the parties
and their intent must prevail. If, however, there exists a doubt as to such intent
which proves incapable of resolution, the provisions of this article shall apply.
a. If the doubt refers to incidental circumstances of the agreement:
 If the contract is gratuitous, the contract shall be interpreted in favor of the
least transmission of rights. Since the grantor receives nothing in return for
his act, it is better to err on the side of less than . of greater transmission and
thus minimize the diminution of the grantor's patrimony. An example of such
a contract is donation.
 If the contract is onerous - The resolution of the doubt should be in favor of
the greatest reciprocity between the parties. This is fully in accordance with
the nature of onerous contracts, which involve an exchange of values.

b. If the doubt refers to the principal circumstances
 such as object: the contract is void. Such a contract would fall under Article
1409, par. 6, infra.
Art. 1379
Art. 1379. The principles of interpretation stated in Rule 123 of the Rules of Court
shall likewise be observed in the construction of contracts. (n)
Derivation: This is a new provision.
 The present rules on interpretation of documents - many of which have been
quoted and reproduced above - are found in Rule 130 of the Rules of Court.
DEFECTIVE CONTRACTS
(PAGE 688 IN THE BOOK)
The Four Defective Contracts:
1. Rescissible [Arts. 1380- 1389)
 one that has caused a particular economic damage to one of the parties or
to a third person and may consequently be set aside even if intrinsically valid.
2. Voidable [Arts. 1390-1402]
 one in which the consent of one of the parties is defective, either on account
of want of capacity, or of the vitiation of said consent; it is effective unless
judicially set aside.
3. Unenforceable [Arts. 1403-1408]
 one that, for lack of authority, or of writing, or for incompetence of both
parties, cannot be given effect unless properly ratified.
4. Void or Inexistent [Arts. 1409-1422]
 one which is an absolute nullity and produces no effect, as if it had never
been executed or entered into and is incapable of ratification.
The remaining chapters deal with defective contracts. The Civil Code made major
and important improvements on this topic. Unlike the Spanish Code, the defective
contracts were ambiguous and had unclear classifications. They were simply void
or voidable. Here, in our present code, there are for types of defective contracts,
from the serious to less serious, in the following order:
 However, our Code still has some imperfections. As pointed out by Tolentino,
there must be a “relatively void” contract. For example, in an assignment of
lease without authority, this is void as to third parties, but valid as between
the parties
 There have been several cases decided by our Supreme Court wherein a
chattel mortgage over real property was declared void as to third parties but
valid as between the parties.
 Whatever imperfections the Code has, it still is better than other codes on
this topic.
 From book (page 692)
o has been criticized by some commentators, not without reason.
o It must be admitted that there is a certain looseness in the use of the
term Defective Contracts to refer to all the four contracts under
consideration.
o Strictly speaking, only the voidable and the unenforceable contracts
are defective, i.e., they are the only contracts that suffer from an
intrinsic defect.
 The rescissible contracts contain all the elements of contracts
and are therefore intrinsically in conformity with contract law.
The defect - if it be one - of a rescissible contract is extrinsic, in
the sense that it causes economic damage or prejudice to a third
person or to one of the parties, resulting in the need to set it
aside in whole or in part.
 As for the void contracts, they cannot be referred to as contracts
at all, since they are legally inexistent and therefore can neither
be ratified nor cured of their nullity.
 the voidable and the unenforceable are truly defective and are
capable of being cleansed of their defect and acquiring the
status of a valid contract.
o They all fall outside the ambit of valid contracts, and yet each of them
(in various manners) produce legal consequences.
o There seems to be no other term by which they can be generally
distinguished from valid contracts than the term by which they are
collectively classified by the Code Commission Report.
Relatively Ineffective Contract
 Senator Tolentino observes that the classification in the new Code does not
include the relatively ineffective contracts.
 These are contracts which are ineffective only with respect to certain parties,
but are effective as to other persons.
 Examples:
o (1) an assignment of the lease by the lessee without the consent of the
lessor is ineffective only as regards the lessor;
o (2) the transfer of a debt by the debtor to another, without the
consent of the creditor, is ineffective as to the creditor;
o (3) the payment by a debtor to his creditor after the credit has been
garnished or attached by a third person, is ineffective as to the latter.
Relatively Ineffective vs Voidable
 Page 694
o A relatively ineffective contract is distinguished from the voidable
contract in that its ineffectiveness, with respect to the party
concerned, is produced ipso Jure, while a voidable contract does not
become inoperative unless an action to annul it is instituted and
allowed.
Relatively Ineffective vs Void
 Page 694
o It differs from the void or inexistent contract, in that the
ineffectiveness of the void contract is absolute, because it cannot be
ratified, while the relatively ineffective contract can be made
completely effective by the consent of the person as to whom it is
ineffective, or by the cessation of the impediment which prevents its
complete effectiveness.
RESCISSIBLE CONTRACTS
Page 690: All the essential requisites of a contract exist and the contract is valid,
but by reason of injury or damage to third persons, such as creditors, the contract
may be rescinded.
Page 693: The rescissible contracts contain all the elements of contracts and are
therefore intrinsically in conformity with contract law. The defect - if it be one - of
a rescissible contract is extrinsic, in the sense that it causes economic damage or
prejudice to a third person or to one of the parties, resulting in the need to set it
aside in whole or in part.
Art. 1380. Contracts validly agreed upon may be rescinded in the cases established
by law.
Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom
they represent suffer lesion by more than one fourth of the value of the
things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the
lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any
other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered into
by the defendant without the knowledge and approval of the litigants or of
competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission.
Art. 1382. Payments made in a state of insolvency for obligations to whose
fulfillment the debtor could not be compelled at the time they were effected, are
also rescissible.
Art. 1383. The action for rescission is subsidiary; it cannot be instituted except
when the party suffering damage has no other legal means to obtain reparation for
the same.
Art. 1384. Rescission shall be only to the extent necessary to cover the damages
caused.
Art. 1385. Rescission creates the obligation to return the things which were the
object of the contract, together with their fruits, and the price with its interest;
consequently, it can be carried out only when he who demands rescission can
return whatever he may be obliged to restore. Neither shall rescission take place
when the things which are the object of the contract are legally in the possession
of third persons who did not act in bad faith. In this case, indemnity for damages
may be demanded from the person causing the loss.
Art. 1386. Rescission referred to in Nos. 1 and 2 of article 1381 shall not take place
with respect to contracts approved by the courts.
Art. 1387. All contracts by virtue of which the debtor alienates property by
gratuitous title are presumed to have been entered into in fraud of creditors, when
the donor did not reserve sufficient property to pay all debts contracted before the
donation. Alienations by onerous title are also presumed fraudulent when made by
persons against whom some judgment has been issued. The decision or attachment
need not refer to the property alienated, and need not have been obtained by the
party seeking the rescission.
In addition to these presumptions, the design to defraud creditors may be proved
in any other manner recognized by the law of evidence.
Art. 1388. Whoever acquires in bad faith the things alienated in fraud of creditors,
shall indemnify the latter for damages suffered by them on account of the
alienation, whenever, due to any cause, it should be impossible for him to return
them. If there are two or more alienations, the first acquirer shall be liable first, and
so on successively.
Art. 1389. The action to claim rescission must be commenced within four years. For
persons under guardianship and for absentees, the period of four years shall not
begin until the termination of the former's incapacity, or until the domicile of the
latter is known.
 This is not be to confused with resolution, discussed in Article 1191. This
chapter on rescissible contracts is the proper rescissible. According to
Scaevola, rescission is a process designated to render inefficacious a contract
validly entered into and normally binding, by reason of external conditions,
causing an economic prejudice to a party or to his creditors.
 A rescissible contract is a contract which is valid because it contains all the
essential requisites prescribed by law, but which is defective because of
injury or damage to either of the contracting parties or to 3rd persons, as a
consequence of which it may be rescinded by means of a proper action for
rescission.
Rescisssion defined
 Rescission is a remedy granted by law to the contracting parties, and even to
3rd persons, to secure the reparation of damages caused to them by a
contract, even if the same should be valid, by means of the restoration of
things to their condition prior to the celebration of the contract.
 Another definition: "Rescission is a process or remedy designated to render
inefficious a contract validly entered into and normally binding, by reason of
external conditions, causing an economic prejudice to a party or his
creditors." (page 696)
Requisites of Rescission
a. The contact must be a rescissible contract under Article 1381 or Article 1382
The following contracts are rescissible:
i. Those entered into by guardians whenever whom they represent suffer lesion by
more than ¼ of the value of things which are the object thereof (Article 1381 (1))
 Rescission shall not take place with respect to contracts approved by the
court (Article 1386).
 As a rule, when a guardian enters into a contract involving the disposition of
the ward’s property, the guardian must secure the approval of the
guardianship court. A guardian is only authorized to manage the estate of
the ward. A guardian has no power to dispose of any portion of the estate
without approval of the court. If more than acts of mere administration are
involved, judicial approval is necessary.
 In case of sale, mortgage, or other encumbrance of any portion of the estate
which does not have judicial approval is an unenforceable contract (Article
1403 (1)).
 Therefore, Article 1381 (1) is limited to contracts which constitute mere acts
of administration (i.e. the purchase of equipment for the cultivation of lands,
purchase of materials for repair of buildings, etc.).
 Lesion is very difficult to apply in practice.
 For example, A is the agent of B. B owns land worth P10 M. A sells the land
for P7 M. From the facts, the lesion suffered by B is 30%. In practice, are you
sure that P10 M is the fair market value of the land. What if the situation is
urgent and that property must be disposed of right away?
 Another example, A is the agent of B. B owns land worth P10 M. C wants to
buy the land. C is willing to pay P 7 M – lump sum payment. D is willing to
pay P 10 M but on installments.
ii. Those agreed upon in representation of absentees, if the absentee suffers lesion
by more than ¼ of the value of things which are the object thereof (Article 1381 (2))
 Rescission shall not take place with respect to contracts approved by the
court (Article 1386).
 As a rule, when the legal representative of an absentee enters into a contract
involving the disposition of the absentee’s property, he must secure the
approval of the court. A legal representative is only authorized to manage
the estate of the absentee. He has no power to dispose of any portion of the





estate without approval of the court. If more than acts of mere
administration are involved, judicial approval is necessary.
In case of sale, mortgage, or other encumbrance of any portion of the estate
which does not have judicial approval is an unenforceable contract (Article
1403 (1)).
Therefore, Article 1381 (2) is limited to contracts which constitute mere acts
of administration (i.e. the purchase of equipment for the cultivation of lands,
purchase of materials for repair of buildings, etc.).
Lesion is very difficult to apply in practice.
For example, A is the agent of B. B owns land worth P10 M. A sells the land
for P7 M. From the facts, the lesion suffered by B is 30%. In practice, are you
sure that P10 M is the fair market value of the land. What if the situation is
urgent and that property must be disposed of right away?
Another example, A is the agent of B. B owns land worth P10 M. C wants to
buy the land. C is willing to pay P 7 M – lump sum payment. D is willing to
pay P 10 M but on installments.
iii. Those undertaken in fraud of creditors when the creditors cannot in any other
manner collect the claims due them (Article 1381 (3))
 This is an exception to the principle of relativity of contracts.
 Creditors, after having pursued the property in possession of the debtor to
satisfy their claims may exercise all the rights and bring all the actions of the
latter for the same purpose, save those which are inherent in his person;
they may also impugn the acts which the debtor may have done to defraud
them (Article 1177).
 Creditors are protected in cases of contracts intended to defraud them
(Article 1313).
 In determining whether or not a certain conveyance is fraudulent, the
question in every case is whether the conveyance was a bona fide
transaction or trick and contrivance to defeat creditors, or whether it
conserves to the debtor a special right.
 All contracts by virtue of which the debtor alienates property by gratuitous
title are presumed to have been entered into in order to defraud creditors,
when the donor did not reserve sufficient property to pay all debts
contracted before the donation (Article 1387, 1st ¶).
 Alienations by onerous title are also presumed fraudulent when made by
persons against whom some judgment has been rendered in any instance or
some writ of attachment has been issued. The decision or attachment need
not refer to the property alienated, and need not have been obtained by the
party seeking the rescission (Article 1387, 2nd ¶).
Badges of Fraud (these are assumed with fraudulent intent)
1. The fact that the consideration of the conveyance is inadequate
 What is inadequate? Jurisprudence: they look at it at a case to case
basis
2. A transfer made by a debtor after suit has begun and while it is pending against
him
 You don’t have to wait for judgment
 Transfer = for money or for pure liberality; property changes hands
3. A sale upon credit by an insolvent debtor
 Why would you sell something at a very low price unless you want to
get rid of it immediately
4. Evidence of large indebtedness or complete insolvency
 You are insolvent but you allow installment payments; suspicious
 You don’t have to be declared insolvent by the courts
5. The transfer of all or nearly all of his property by a debtor, especially when he is
insolvent or greatly embarrassed financially
6. The fact that the transfer is made between father and son when there are
present any of the above circumstances
 Father and son = parent and child
 There is a sale between parent and child and property is sold at an
inadequate price
7. The failure of the vendee to take exclusive possession of all the property
 Why is this suspicious? They will pretend it is a bona fide contract of sale.
Example: there is a sale of land and they pretend there is a contract of sale
which was sold 5 years ago.
 When people buy something they want to get hold of it right away
 The only reason why you are still in possession is because it is a relatively
simulated contract
iv. Those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent
judicial authority (Article 1381 (4))
 Article 1381 (4) refers to a contract executed by the defendant in a suit
involving the ownership or possession of a thing, when such contract is made
without the knowledge and approval of the plaintiff or court.
 As in the case of a contract in fraud of creditors, the remedy of rescission in
this case is given to a 3rd person who is not a party to the contract. The
purpose is to protect the plaintiff.
v. All other contracts specially declared by law to be the subject of rescission (Article
1381 (5))
 The following provision in sales are examples of rescissible contracts
declared by law – Arts 1526, 1534, 1538, 1539, 1540, 1556, 1560, 1567, 1659.
 Payments made in a state of insolvency for obligations to whose fulfillment
the debtor could not be compelled at the time they were effected (Article
1382)
b. The person asking for rescission must have no other legal means to obtain
reparation for the damages suffered by him (Article 1383)
c. The person demanding rescission must be able to return whatever he may be
obliged to restore if rescission is granted (Article 1385, 1 st par)
 This requisite is only applicable if the one who suffers the lesion is a party to
the contract.
 This requisite does not apply when a defrauded creditor resorts to accion
pauliana.
d. The things which are the object of the contract must not have passed legally to
the possession of a 3rd person acting in good faith (Article 1385, 2nd ¶)
 Whoever acquires in bad faith the things alienated in fraud of creditors, shall
indemnify the latter for damages suffered by them on account of the
alienation, whenever, due to any cause, it should be impossible for him to
return them (Article 1388,1st ¶).
 If there are 2 or more alienations, the 1st acquirer shall be liable 1st, and so
on successively (Article 1388, 2nd ¶).
e. The action for rescission must be brought within the prescriptive period of 4
years (Article 1389)
From the book:
Rescission in Art 1380 vs Rescission in Art 1191
 Rescission in Art. 1191 is premised on breach while rescission in Art. 1380 is
based on economic damage or prejudice.
 Rescission in Art. 1191 is primary remedy, while rescission in Art. 1380 is
subsidiary.
Basis of Rescission
 By nature and definition, rescission in this chapter presupposes economic
damage or prejudice, either to one of the parties or to a third person. (page
696)
Extent of Rescission
Because the basis of rescission is economic damage, its extent will only be as much
as is necessary to make good the damage suffered by the injured party. Since the
contract is intrinsically valid, it remains effective insofar as no economic damage
has been caused. (page 697)
The Rescissible Contracts:
These two articles enumerate the contracts that are rescissible.
a. Art. 1381 , pars. 1 and 2
 The contracts referred to in these two paragraphs:
o one by a guardian on behalf of his ward
o and the other, by a representative on behalf of an absentee - share the
common feature of lesion in excess of one-fourth of the value of the
subject matter of the contract.
Lesion defined
 Lesion is economic injury suffered, as a consequence of inequality, by one
who does not receive the full equivalent of what he gives in a commutative
contract.
 Jurisprudence has referred to lesion as economic prejudice or pecuniary
damage
Extent of lesion
 For the contract to be rescissible, it is not enough that there be lesion. The
lesion must exceed one-fourth of the thing's value.
History of lesion and criticism of the concept
 Page 700
 Modern doctrine does not regard favorably the rule of economic prejudice
(lesion) being a ground of rescission, considering that goods do not have a
fixed true value because value is always variable and fluctuating, being a
function of supply and demand. The modern codes tend to view lesion of
certain proportions (1 / 4 , 1/2, etc.) as merely raising a presumption of
undue influence, that vitiates consent and renders the contract voidable
(under Art. 1337 of the new Code), whenever the lesion is coupled with
exploitation of one party by the other.
Scope of operation of Pars. 1 and 2
 If the contract is one which requires court approval, these paragraphs will
not be applicable.
 If the contract, however, does not need prior judicial approval, it will be
rescissible if it results in lesion in the proportion specified in these two
paragraphs.
o Such contracts are those which involve personal property of the ward
or absentee
When lesion should be determinable
In order to fall within these provisions regarding lesion, the amount or extent of
such lesion must at least be determinable at the time of the transaction. Thus, the
contract will not be rescissible if the lesion is caused by supervening events which
could not be reasonably foreseen.
Who can demand rescission
The ward or absentee himself is the proper party to demand the rescission, within
the period specified in Article 1389.
b. Art. 1381, par. 3
Accion pauliana
 This kind of contract - rescissible for being in fraud of creditors - has already
been discussed under Article 1177.
o Article 1177. The creditors, after having pursued the property in
possession of the debtor to satisfy their claims, may exercise all the
rights and bring all the actions of the latter for the same purpose, save
those which are inherent in his person; they may also impugn the acts
which the debtor may have done to defraud them. (1111)
 The remedy granted to the defrauded or prejudiced creditor
 This rescissory right given to prejudiced creditors is really part of the
comprehensive right given to unpaid creditors to exhaust the property and
assets of their debtors in order to obtain satisfaction for their claims.
Requisites of accion pauliana
1. The plaintiff asking for rescission has a credit prior to the alienation, although
demandable later;
 The credit must have arisen before the alienation. This is only logical:
subsequent creditors cannot be prejudiced by prior alienation made by the
debtor.
 Thus if a person disposes of property, either onerously or gratuitously, on a
certain date and sometime after that date, he incurs a debt in favor of
another person, the creditor has no right to demand the rescission of that
prior alienation by his debtor because when the debt was incurred the
debtor no longer had the property in question in his patrimony.
 debtor is liable to his creditor with present and future property, not with past
ones
 For rescission to lie, the credit must exist before the alienation, but it need
not be due at the time of alienation. However, the credit must be due at the
time of the filing of the acci6n pauliana itself.
2. The debtor has made a subsequent contract conveying a patrimonial benefit to
a third person;
 As already pointed out, the alienation must take place after the debt was
incurred.
3. The creditor has no other legal remedy to satisfy his claim;
 The accion pauliana is subsidiary. It is a last recourse remedy, available only
after the creditor has exhausted all the property of the debtor that is not
exempt from execution. The burden of proof that the debtor has no available
resources in his patrimony lies on the creditor.
4. The act being impugned is fraudulent;
5. The third person who received the property conveyed, if it is by onerous title,
has been an accomplice in the fraud.
 For 4 and 5, for fraud to exist, the debtor must be aware that the alienation
will cause prejudice to the creditor by depriving the latter of the means to
obtain full satisfaction for his credit. Such awareness, even if falling short of
strict malice , is sufficient to constitute fraud.
Special Cases Of Rescission Provided By Law
Article 1526. Subject to the provisions of this Title, notwithstanding that the
ownership in the goods may have passed to the buyer, the unpaid seller of goods,
as such, has:
(1) A lien on the goods or right to retain them for the price while he is
in possession of them;
(2) In case of the insolvency of the buyer, a right of stopping the goods
in transit after he has parted with the possession of them;
(3) A right of resale as limited by this Title;
(4) A right to rescind the sale as likewise limited by this Title.
Where the ownership in the goods has not passed to the buyer, the
unpaid seller has, in addition to his other remedies a right of
withholding delivery similar to and coextensive with his rights of lien
and stoppage in transit where the ownership has passed to the buyer.
(n)
Article 1534. An unpaid seller having the right of lien or having stopped the goods
in transit, may rescind the transfer of title and resume the ownership in the goods,
where he expressly reserved the right to do so in case the buyer should make
default, or where the buyer has been in default in the payment of the price for an
unreasonable time. The seller shall not thereafter be liable to the buyer upon the
contract of sale, but may recover from the buyer damages for any loss occasioned
by the breach of the contract.
The transfer of title shall not be held to have been rescinded by an unpaid seller
until he has manifested by notice to the buyer or by some other overt act an
intention to rescind. It is not necessary that such overt act should be communicated
to the buyer, but the giving or failure to give notice to the buyer of the intention to
rescind shall be relevant in any issue involving the question whether the buyer had
been in default for an unreasonable time before the right of rescission was
asserted. (n)
Article 1539. The obligation to deliver the thing sold includes that of placing in the
control of the vendee all that is mentioned in the contract, in conformity with the
following rules:
If the sale of real estate should be made with a statement of its area, at the rate of
a certain price for a unit of measure or number, the vendor shall be obliged to
deliver to the vendee, if the latter should demand it, all that may have been stated
in the contract; but, should this be not possible, the vendee may choose between
a proportional reduction of the price and the rescission of the contract, provided
that, in the latter case, the lack in the area be not less than one-tenth of that stated.
The same shall be done, even when the area is the same, if any part of the
immovable is not of the quality specified in the contract.
The rescission, in this case, shall only take place at the will of the vendee, when the
inferior value of the thing sold exceeds onetenth of the price agreed upon.
Nevertheless, if the vendee would not have bought the immovable had he known
of its smaller area of inferior quality, he may rescind the sale. (1469a)
…continuation of examples on page 711
Extent of rescission
 Rescission is not only subsidiary; it is also pro tanto, i.e. it will extend only to
whatever is necessary to make good the damage.
 This rule is in accord with the nature and effect of rescissible contracts. Such
contracts, as already pointed out, are intrinsically valid and are legally
objectionable only because they cause economic damage, and then only to
the extent of that economic damage.
Mutual Restitution
 Rescission creates the duty of mutual restitution. The parties have to return
what they received by virtue of the contract that has been rescinded.
 The extent of the mutual restitution of course depends on the extent of the
rescission. It may be total or partial.
Mutual restitution not applicable to some rescissible contracts
 The duty of mutual restitution, for obvious reasons, cannot apply to
rescissible contracts where the damage is suffered by a third party, since
such third party received nothing under the contract and therefore has
nothing to return by virtue of its rescission.
 Thus, contracts falling under pars. 3 and 4 of Art. 1381 and those transactions
referred to in Art. 1382 are not governed by the rule of mutual restitution.
o Article 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the
wards whom they represent suffer lesion by more than onefourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the
latter suffer the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter
cannot in any other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and
approval of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to
rescission. (1291a)
o Article 1382. Payments made in a state of insolvency for obligations to
whose fulfillment the debtor could not be compelled at the time they
were effected, are also rescissible. (1292)
VOIDABLE CONTRACTS
Page 690: These contracts are binding, unless they are annulled by a proper action
in court. They are susceptible of ratification.
Art. 1390. The following contracts are voidable or annullable, even though there
may have been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud. These contracts are binding, unless they are annulled by a
proper action in court. They are susceptible of ratification.
Art. 1391. The action for annulment shall be brought within four years.
This period shall begin:
In cases of intimidation, violence or undue influence, from the time the defect of
the consent ceases.
In case of mistake or fraud, from the time of the discovery of the same. And when
the action refers to contracts entered into by minors or other incapacitated
persons, from the time the guardianship ceases.
Art. 1392. Ratification extinguishes the action to annul a voidable contract.
Art. 1393. Ratification may be effected expressly or tacitly. It is understood that
there is a tacit ratification if, with knowledge of the reason which renders the
contract voidable and such reason having ceased, the person who has a right to
invoke it should execute an act which necessarily implies an intention to waive his
right.
Art. 1394. Ratification may be effected by the guardian of the incapacitated person.
Art. 1395. Ratification does not require the conformity of the contracting party who
has no right to bring the action for annulment.
Art. 1396. Ratification cleanses the contract from all its defects from the moment
it was constituted.
Art. 1397. The action for the annulment of contracts may be instituted by all who
are thereby obliged principally or subsidiarily. However, persons who are capable
cannot allege the incapacity of those with whom they contracted; nor can those
who exerted intimidation, violence, or undue influence, or employed fraud, or
caused mistake base their action upon these flaws of the contract.
Art. 1398. An obligation having been annulled, the contracting parties shall restore
to each other the things which have been the subject matter of the contract, with
their fruits, and the price with its interest, except in cases provided by law. In
obligations to render service, the value thereof shall be the basis for damages.
Art. 1399. When the defect of the contract consists in the incapacity of one of the
parties, the incapacitated person is not obliged to make any restitution except
insofar as he has been benefited by the thing or price received by him.
Art. 1400. Whenever the person obliged by the decree of annulment to return the
thing can not do so because it has been lost through his fault, he shall return the
fruits received and the value of the thing at the time of the loss, with interest from
the same date.
Art. 1401. The action for annulment of contracts shall be extinguished when the
thing which is the object thereof is lost through the fraud or fault of the person who
has a right to institute the proceedings. If the right of action is based upon the
incapacity of any one of the contracting parties, the loss of the thing shall not be
an obstacle to the success of the action, unless said loss took place through the
fraud or fault of the plaintiff.
Art. 1402. As long as one of the contracting parties does not restore what in virtue
of the decree of annulment he is bound to return, the other cannot be compelled
to comply with what is incumbent upon him.
 A voidable contract is a contract in which all of the essential elements for
validity are present, but the element of consent is vitiated either by lack of
legal capacity of 1 of the contracting parties or by mistake, violence,
intimidation, undue influence, or fraud.
 Voidable contracts are binding unless they are annulled by a proper action
court. They are susceptible to confirmation.
o There is a difference between confirmation and ratification.
Confirmation is the process of curing the defect of a voidable contract.
Ratification is the process of curing contracts which are defective
because they were entered into without authority.
 The following contracts are voidable or annullable, even though there may
have been no damage to the contracting parties
a. Those where one of the parties is incapable of giving consent to a contract
The following cannot give consent to a contract (Article 1327):
i. Unemancipated minors
 Where necessaries are sold and delivered to a minor or other person without
capacity to act, he must pay a reasonable price therefore. Necessaries
include everything that is indispensable for sustenance, dwelling, clothing,
and medical attendance.
 Contracts effected by minors who have already passed the age of puberty
and adolescence and are near the adult age, when they pretend to have
already reached the age of majority, while in fact they have not, are valid,
and cannot be permitted afterwards to excuse themselves from compliance
with obligations assumed by them or seek their annulment. This is in
consonance with the rules of estoppel. (Mercado vs. Espiritu).
 However in Braganza v, De Villa, the SC said that the misrepresentation of an
incapacitate person does not estop him from denying that he was of age, or
from asserting that he was under age, at the time he entered into the
contract. According to Professor Balane, this view is very logical. If the minor
is too young to enter into contracts, he is too young to be estopped.
ii. Insane or demented persons, and deaf mutes who do not know how to write
Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed
to in a state of drunkenness or during a hypnotic spell are voidable.
Art. 1329. The incapacity declared in article 1327 is subject to the modifications
determined by law, and is understood to be without prejudice to special
disqualifications established in the laws.
b. Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud
Art. 1330. A contract where consent is given through mistake, violence,
intimidation, undue influence or fraud is voidable.
i. Mistake
Art. 1331. In order that mistake may invalidate consent, it should refer to the
substance of the thing which is the object of the contract, or to those conditions
which have principally moved one or both parties to enter into the contract .
Mistake as to the identity or qualification of one of the parties will vitiate consent
only when such identity or qualifications have been the principal cause of the
contract. A simple mistake of account shall give rise to its correction.
Art. 1332. When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained
to the former.
Art. 1333. There is no mistake if the party alleging it knew the doubt, contingency
or risk affecting the object of the contract.
Art. 1334. Mutual error as to the legal effect of an agreement when the real
purpose of the parties is frustrated, may vitiate consent.
Art. 1342. Misrepresentation by a third person does not vitiate consent, unless
such misrepresentation has created substantial mistake and the same is mutual.
Art. 1343. Misrepresentation made in good faith is not fraudulent but may
constitute error.
ii. Violence
Art. 1335, 1st ¶. There is violence when in order to wrest consent, serious or
irresistible force is employed.
 Violence shall annul the obligation, although it may been employed by a 3rd
person who did not take part in the contract (Article 1336).
Requisites of Violence
 1. Irresistible physical force is employed
 2. The force is the determining cause for giving consent
iii. Intimidation
Art. 1335, 2nd ¶. There is intimidation when one of the contracting parties is
compelled by a reasonable and well-grounded fear of an imminent and grave evil
upon his person or property, or upon the person or property of his spouse,
descendants or ascendants, to give his consent.
Requisites of Intimidation
1. The threat must be the determining cause for giving consent
2. The threatened act is unjust and unlawful
 A threat to enforce one’s claim through competent authority, if the claim is
just or legal, does not vitiate consent (Article 1335, 4th ¶).
 The threat to enforce a right, should not be aimed at a result which is
contrary to law or morals, or which is unjust and contrary to good faith.
Although it is lawful to exercise rights, it is not always lawful to use them for
purposes different from those for which they were created. Thus, although
it is lawful to report crimes, the threat to report it may be illicit if the purpose
is not to cooperate in the discovery and prosecution of the crime, but to
obtain some prestation from the culprit which otherwise could not be
obtained and which does not constitute indemnity for damages for the crime
committed.
 Thus, the rule is, generally, a threat to do something lawful does not
constitute intimidation.
 Example: If you don’t marry my daughter, I’ll report you to the IBP. This is
not unlawful because the person did commit immorality. Sometimes,
though, it may constitute intimidation.
 Example: A saw B commit murder. A threatened B that he will report him to
the police unless B gives A his house. This is intimidation because there is no
connection between the crime and the contract.
3. The threat is real and serious
 For example the threat must be to kill you or burn your house and not merely
to pinch you.
4. The threat produces a well-grounded fear that the person making it can and will
inflict harm
 To determine the degree of intimidation, the age, sex, and condition of the
person shall be borne in mind (Article 1335, 3rd ¶).
 For example, a 75year old man who is bed ridden and says that he will kill
you does not produce a wellgrounded fear.
 Intimidation shall annul the obligation, although it may have been employed
by a 3rd person who did not take part in the contract (Article 1336).
iv. Undue influence
Art. 1337. There is undue influence when a person takes improper advantage of his
power over the will of another, depriving the latter of a reasonable freedom of
choice. The following circumstances shall be considered: the confidentiality, family,
spiritual and other relations between the parties, or the fact that the person alleged
to have been unduly influenced was suffering from mental weakness, or was
ignorant or in financial distress.
v. Fraud
Art. 1332. When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained
to the former.
Art. 1338. There is fraud when, through insidious words or machinations of one of
the contracting parties, the other is induced to enter into a contract which, without
them, he would not have agreed to.
 This is known as deceit or dolo causante. This is different from dolo incidente
which means fraud on things which would not prevent you from entering
into a contract but may hold the other liable for damages.
Requisites of Fraud
1. Fraud is employed by 1 party on the other (Articles 1342, 1344)
2. The other party was induced to enter into the contract (Article 1338)
3. The fraud must be serious (Article 1344)
4. There is damage or injury caused
Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when
the parties are bound by confidential relations, constitutes fraud.
Art. 1340. The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent.
Art. 1341. A mere expression of an opinion does not signify fraud, unless made by
an expert and the other party has relied on the former’s special knowledge.
Art. 1342. Misrepresentation by a 3rd person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual.
Art. 1343. Misrepresentation made in good faith is not fraudulent but may
constitute error.
Art. 1344. In order that fraud may make a contract voidable, it should be serious
and should not have been employed by both contracting parties. Incidental fraud
only obliges the person employing it to pay damages.
 If a 3rd person should commit violence or intimidation on 1 of the
contracting parties and this vitiates the contracting party’s consent, then the
contract may be annulled (Article 1336). By analogy, if a 3rd person should
exert undue influence on 1 of the contracting parties and this vitiates the
consent of the contracting party, then the contract may be annulled.
However, if the 3rd party commits fraud, damages is the only remedy unless
the fraud committed by the 3rd person has created a mutual substantial
mistake (Article 1342).
Rules Regarding Voidable Contracts
a. Voidable contracts are effective unless set aside (Article 1390).
b. The validity of a voidable contract can only be assailed in a suit for that purpose
(i.e. complaint or counterclaim).
 The action for annulment of contracts may be instituted by all who are
thereby obliged principally or subsidiarily. However, persons who are
capable cannot allege the incapacity of those with whom they contracted;
nor can those who exerted intimidation, violence, or undue influence, or
employed fraud, or caused ,mistake base their action upon these flaws of the
contract (Article 1397).
 The action for annulment shall be brought within 4 years. This period shall
begin
o Intimidation – from the time the defect of the consent ceases
o Violence – from the time the defect of the consent ceases
o Undue influence – from the time the defect of the consent ceases
o Mistake – from the time of the discovery of the mistake
o Fraud – from the time of the discovery of the fraud
 The 4 year prescription period to annul contracts entered into by minors or
other incapacitated persons shall begin from the time the guardianship
ceases (Article 1391, 4th ¶).
 An obligation having been annulled, the contracting parties shall restore to
each other the things which have been the subject matter of the contract,
with their fruits, and the price with its interest, except in cases provided by
law (Article 1398, 1st ¶).
o In obligations to render service, the value thereof shall be the basis for
damages (Article 1398, 2nd ¶).
o When the defect of the contract consists in the incapacity of 1 of the
parties, the incapacitated person is not obliged to make any restitution
except insofar as he has been benefited by the thing or price received
by him (Article 1399).
What if the Thing to Be Returned is Lost:
i. Loss due to Fault of Defendant
 Defendant has to pay the plaintiff
o 1. Value of the thing loss
o 2. Fruits if any
o 3. Interest
ii. Loss due to a Fortuitous Event or due to a 3rd party
 Defendant has to pay the plaintiff
o 1. Value of the thing loss
o 2. Fruits if any
iii. Loss due to Fault or Fraud of Plaintiff
 The plaintiff loses the right to annul (Article 1401).
 There is fault on the part of the plaintiff once the plaintiff regains capacity.
iv. Loss without Fault on the Plaintiff’s Part
 Commentators have a difference of opinion
o 1. The right to annul is extinguished unless the plaintiff offers to pay
the value of the object at the time of loss
o 2. The plaintiff is entitled to annul without having to pay anything.
 As long as 1 of the contracting parties does not restore what in virtue of the
decree of annulment he is bound to return, the other cannot be compelled
to comply with what is incumbent upon him (Article 1402).
The action for annulment will not prosper in the following:
i. If the contract has been confirmed (Article 1392)
ii. If the action to annul has prescribed (Article 1391)
iii. When the thing which is the object of the contract is lost through the fault or
fraud of the person who has a right to institute the proceedings (Article 1401, 1st
¶)
iv. Estoppel
c. Voidable contracts can be confirmed
 Confirmation extinguishes the action to annul a voidable contract (Article
1392).
 Confirmation is the proper term for curing the defect of a voidable contract.
 Confirmation cleanses the contract from all its defects from the moment it
was constituted (Article 1396).
Requisites of Confirmation:
1. That the contract is a voidable or annullable contract
2. That the ratification is made with knowledge of the cause for nullity
3. That at the time the ratification is made, the cause of nullity has already ceased
to exist
 Confirmation may be effected expressly or tacitly. It is understood that there
is tacit confirmation if, with knowledge of the reason which renders the
contract voidable and such reason having ceased, the person who has a right
to invoke it should execute an act which necessarily implies an intention to
waive his right (Article 1393).
d. Voidable contracts can be confirmed only by the party whose consent was
vitiated
 Confirmation does not require the conformity of the contracting party who
has no right to bring the action for annulment (Article 1395).
 Confirmation may be effected by the guardian of the incapacitated person
(Article 1394).
From the book:
Voidable contracts
 Unlike rescissible contracts, whose defect is merely extrinsic, these contracts
suffer from an intrinsic defect - that of vitiated consent on the part of one of
the parties.
Characteristics of Voidable Contracts
1. They are effective unless judicially set aside (Art. 1390).
2. They can be assailed only in a proper action for the purpose (either by means of
a complaint or counterclaim). They cannot be attacked collaterally (Arts. 1390 and
1397)
3. They can be ratified or confirmed and thus be cured of their defect (Arts. 1392
to 1396).
4 . They can be assailed only by the party whose consent was defective, not by the
party who was competent. [Art. 1397]
Two Categories of Voidable Contracts
1. Those in which one of the parties is incapacitated to give consent;
a. minors
b. insane or demented persons
c. Deaf-mutes who do not know how to write
2 . Those in which consent is vitiated by violence, intimidation, undue influence,
fraud , or mistake.
Prescriptive period for action to annul
The prescriptive period of four years is computed from the time of the cessation of
the cause of the defect of the contract. Thus –
1.Where the consent is vitiated by violence, intimidation, or undue influence - from
the time the vitiating factor ceases;
2. Where consent is vitiated by mistake or fraud - from the time the mistaken or
defrauded party discovers the operative cause of the vitiation
3. Where consent is vitiated by minority or other incapacity - that is the time the
guardianship (since that is the time the incapacitated party acquired or recovers
capacity).
3.a. Where there is no guardianship - If the minor or incapacitated party is
not under guardianship, the prescriptive period commences to run from the
time contractual capacity is attained or recovered.
Art. 1392.
Art. 1392. Ratification extinguishes the action to annul a voidable contract
Curing the defect of a voidable contract – Confirmation
 The word ratification is the term used by our Code to refer to the mode of
curing the defect of voidable contracts. The Spanish Code, however, uses the
term confirmation (confirmation).
Confirmation
 refers to the mode or process of curing the defect of a voidable contract
 the act or means by which an obligation or contract which suffers from the
vice of curable nullity is rendered efficacious.
Requisites of Confirmation
1. The contract is voidable under Article 1390.
2. The confirmation (ratification) is made consciously and deliberately (with
knowledge of the defect).
3. It must have been made after the cessation of the cause of voidability.
4. It must be made by the party whose consent was defective or vitiated, or in
proper cases, by his guardian.
Effects of Confirmation (Ratification)
Ratification is both curative and retroactive.
A. Curative:
 Being curative, it converts the contract from a voidable one to a valid one.
 If the confirmation (ratification) takes place during the pendency of an action
to annul, the action is tolled and the cause of action extinguished. Once
confirmed, it is cleansed of its defect (Art. 1396) and any action for
annulment will be barred.
B. Retroactive
 The transformation of the status of the contract from voidable to valid is
retroactive to the moment of the perfection of the contract (Art. 1396).
Forms of Confirmation (Ratification)
Ratification (confirmation) may be expres or tacit.
A. Express
 This includes any statement or declaration by the party entitled to claim
annulment that he is accepting or adopting the contract.
 Express confirmation (ratification) may be written or oral.
B. Implied
 This can include any act, conduct, or behavior of the party entitled to annul,
from which an intention to abide by or accept the contract may be
reasonably gleaned or inferred.
 An obvious example of tacit confirmation (ratification) is performance whether total or partial - by the party whose consent was vitiated.
Ratification by guardian
 refers to cases where the contracting party was incapacitated, e.g. a minor
or an insane person
 during the period of incapacity, the incapaciatted’s party’s guardian –
assuming that he has one – may exercise the right of conformation
(ratification) in his behalf
Party to whom right to ratify belongs
A. Only the party who has the right to have the voidable contract judicially set aside
can confirm (ratify) it. This party is the one whose consent was defective.
B. Under Article 1397, only the party whose consent was vitiated can sue for
annulment. The party who is competent is not entitled to have the contract set
aside . The basis for this rule is estoppel. Hence, as far as the competent party is
concerned, the contract 1 is binding and effective. There is nothing for him to ~
ratify. An act of ratification (confirmation) made by ~ the party whose consent is
vitiated therefore does not need the other party's consent.
Retroactivity of confirmation (Ratification)
 When a voidable contract is confirmed, it is raised to the status of a valid
contract.
 The defect is taken away, blotted out, extinguished, as if it never existed.
 The contract therefore and all the effects and consequences of validity are
deemed to arise from the moment of its perfection.
 the confirmation of the contract extinguishes the right to sue for its
annulment.
 Confirmation necessarily carries with it the waiver of the right to annul. Such
waiver, however, extends only to the ground encompassed by the
confirmation, e.g. if the minor, having attained majority, confirms the
contract, he waives the right to have it annulled on the basis of minority, but
he does not forfeit the right to sue for its annulment on the ground of fraud
or mistake.
Ratification
 refers to the mode of curing the defect of a contract entered into on behalf
of a party by one who has no authority or who has acted in excess of his
authority.
 A species of confirmation
Acknowledgment
 refers to the mode of curing a deficiency of proof, such as when an oral
contract (which should have been in writing by the parties).
 In our Code, this will apply to contracts covered by the Statute of Frauds
(Art.1403[2]).
Our Code uses the word ratification to refer to all the three modes of curing the
defects of contracts.
Art. 1397.
Art. 1397. The action for the annulment of contracts may be instituted by all who
are thereby obliged principally or subsidiarity. However, persons who are capable
cannot allege the incapacity of those with whom they contracted; nor can those
who exerted intimidation, violence, or undue influence, or employed fraud, or
caused mistake base their action upon these flaws of the contract.
Requisites for the exercise of the right to annul
"Two distinct requisites are needed for the exercise of this action, and they are
given in the two [sentences] of this article:
 the first is that the party must have an interest in the contract;
 and the second is that the victim and not the party at fault should be the
party alleging the defect
Who May Institute Action for Annulment
A. The Incapacitated Person or the party whose consent is vitiated / His successorsin-interest / Those bound principally or subsidiarily with him:
1. The incapacitated party or the party whose consent is vitiated
The incapacitated party (the minor, the insane person, et al.) may, upon the
cessation of the cause of incapacity, file the action. During the period of his
incapacity, his guardian, if any, may file the action on his behalf.
2 . The successors-in-interest of said party
The successors-in-interest of the party entitled to annul are, by virtue of the
principle of subrogation, placed in the same juridical position as their
predecessor-in-interest and therefore acquire his right to annul.
3. The subsidiaries of the party whose consent is vitiated (e .g. his sureties/
guarantors)
Said subsidiaries stand on the same footmg as the contracting party himself
and therefore have the same right to annul, unless (a) they were aware of
the defect of consent at the time of the celebration of the contract, or (b)
the guaranty or suretyship was constituted precisely to assume liability in the
event of th annulment of the obligation.
Party whose consent was not vitiated cannot annul the contract
 The right to annul belongs exclusively to the party whose consent is vitiated,
his successors-in-interest, and his subsidiaries.
 The other party, his successors-in-interest, and his subsidiaries do not have
the right to have the contract annulled because they are not aggrieved. As to
them, the contract is binding.
Art. 1398
Art. 1398. An obligation having been annulled, the contracting parties shall restore
to each other the things which have been the subject matter of the contract, with
their fruits, and the price with its interest, except in cases provided by law. In
obligations to render service, the value thereof shall be the basis for damages.
(1303a)
Mutual restitution
The annulment of the contract creates the obligation of mutual restitution, i.e. the
parties have to return to each other whatever they may have previously received
by virtue of the annulled contract.
Rationale for mutual restitution
When the contract is annulled, it is cancelled and is regarded by law as never having
existed. A logical consequence of this is that the parties should be returned to the
situation in which they were before the contract was entered into.
What must be returned
 Each party must return to the other what he received by virtue of the
contract.
 In addition, each party must return the fruits - or their value - produced by
the thing while in the possession of the party obliged to return.
 The fruits that must be returned will depend on the good or bad faith of the
party concerned. The injured party (the one who is incapacitated or whose
consent was vitiated) cannot be said to have been in bad faith but the
capacitated party may be in good faith or in bad faith. He is in good faith if
the cause of the annulment was minority or error of the other party and such
defect was unknown to him. But he is in bad faith if the cause of the
annulment was duress or fraud perpetrated by him or his agent.
 If the party obliged to return is in good faith, he has no obligation to return
the fruits accruing while the good faith lasted.
 If said party was in bad faith, he shall be obliged to return the fruits that were
actually received and could have been received.
Exception to rule of mutual restitution
 The rule of mutual restitution is qualified by the equitable rule against unjust
enrichment.
 A party may be totally or partially relieved of the duty of restitution if total
restitution should result in unjust enrichment.
Liability for damages
 If the cause of annulment is duress or fraud, the party employing it is liable
for damages.
Art. 1399
Art. 1399. When the defect of the contract consists in the incapacity of one of the
parties, the incapacitated person is not obliged to make any restitution except
insofar as he has been benefited by the thing or price received by him. ( 1304)
Extent of Incapacitated Party's Obligation to Restore
 If the cause of annulment is the incapacity of one party (e.g. a minor or an
insame person), his duty to restore extends only to the benefit, if any, that
he derived from the thing received by him by virtue of the contract.
 The rationale for this rule is that the incapacitated person is not responsible
for his acts. If he misuses, damages, destroys, or consumes the thing, his
liability will only be to the extent that he was benefitted. If no benefit
accrued to him, no liability to return arises.
Standard for measuring benefit
 The measure of the benefit is the use to which a prudent person would have
devoted the thing.
Art. 1401
Article 1401. The action for annulment of contracts shall be extinguished when the
thing which is the object thereof is lost through the fraud or fault of the person who
has a right to institute the proceedings.
If the right of action is based upon the incapacity of any one of the contracting
parties, the loss of the thing shall not be an obstacle to the success of the action,
unless said loss took place through the fraud or fault of the plaintiff. (1314a)
a. If the the thing that is lost is that which the defendant (the party with capacity)
had to return:
i. If the loss occurs through the defendant’s fault (Art. 1400)
The defendant shall be liable for:
1. the value of the thing
2. its fruits
3 . interest
4 . damages
ii. If the loss was caused by a fortuitous event:
1. If the defendant was in bad faith - he is liable to the same extent as if he were at
fault, since his bad faith makes him liable even for fortuitous events.
2. If the defendant was in good faith –
 One view (espoused by Senator Tolentino) holds that the defendant remains
liable, but only for the price of the thing and its fruits; he will not be liable for
interest.
 The other view is that the defendant 1s relieved from the liability to restore.
[The second view appears more persuasive, since, as a general rule,
fortuitous events excuse from liability (Art. 1174) and none of the exceptions
specified in that article is present.
b. If the thing that is lost is that which the plaintiff (the party whose consent was
vitiated) had to return: [Art. 1401]
i. If the loss occurs through the plaintiffs fault - The right to annul is extinguished.
NOTE: Should the ground for annulment be incapacity of one of the parties, there
can be no fault or fraud if the loss occurs during the party's incapacity since the
party has no sufficient discretion to be guilty of fault or fraud. Fault or fraud on the
part of the plaintiff is possible only in cases of duress fraud, or mistake
ii. If the loss occurs through a fortuitous event
There are two views: 745
1. (Tolentino's view). The plaintiff still has the right to annul provided he is willing
and able to return the value of the thing lost.
2. (Caguioa's view): The plaintiff retains the right to annul and to demand what he
delivered to the defendant, without any obligation to return the value of what he
himself received.
Art. 1402
Art. 1402. As long as one of the contracting parties does not restore what in virtue
of the decree of annulment he is bound to return, the other cannot be compelled
to comply with what is incumbent upon him. (1308)
Rationale of rule
 This article applies in cases where the (general) rule of mutual restitution is
applicable.
 The rationale is obvious: since the duty is mutual or reciprocal, failure or
refusal of one party to restore excuses the other from compliance with his
own obligation.
Effect of failure to restore on the decree of annulment
 The decree of annulment remains binding and effective despite the failure
to restore.
 Thus, any further consequences or effects which the annulled contract would
have produced are barred.
 Mutual restitution is a consequence of annulment (Art. 1398). The decree of
annulment, having been made, does not lose its force on account of the
failure to make restitution:
UNENFORCEABLE CONTRACTS
Page 690: Unenforceable contracts are in certain respects new. They are
unenforceable unless ratified.
Page 691: The term "unenforceable" is used, as distinguished from "voidable."
Voidable are binding unless annulled by proper action in court, while the
unenforceable cannot be sued upon or enforced unless they are ratified. As regards
the degree of defectiveness, voidable contracts are farther away from absolute
nullity than unenforceable contracts. In other words, an unenforceable contract
occupies an intermediate ground between a voidable and a void contract.
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given
no authority or legal representation, or who has acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds as set forth in this number.
In the following cases an agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum, thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a secondary evidence of its
contents:
(a) An agreement that by its terms is not to be performed within a year from
the making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of
another; (c) An agreement made in consideration of marriage, other than a
mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at a price
not less than five hundred pesos, unless the buyer accept and receive part of
such goods and chattels, or the evidences, or some of them, of such things
in action or pay at the time some part of the purchase money; but when a
sale is made by auction and entry is made by the auctioneer in his sales book,
at the time of the sale, of the amount and kind of property sold, terms of
sale, price, names of the purchasers and person on whose account the sale
is made, it is a sufficient memorandum;
(e) An agreement of the leasing for a longer period than one year, or for the
sale of real property or of an interest therein;
(f) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to a contract.
Art. 1404. Unauthorized contracts are governed by article 1317 and the principles
of agency in Title X of this Book.
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article
1403, are ratified by the failure to object to the presentation of oral evidence to
prove the same, or by the acceptance of benefit under them.
Art. 1406. When a contract is enforceable under the Statute of Frauds, and a public
document is necessary for its registration in the Registry of Deeds, the parties may
avail themselves of the right under Article 1357.
Art. 1407. In a contract where both parties are incapable of giving consent, express
or implied ratification by the parent, or guardian, as the case may be, of one of the
contracting parties shall give the contract the same effect as if only one of them
were incapacitated. If ratification is made by the parents or guardians, as the case
may be, of both contracting parties, the contract shall be validated from the
inception.
Art. 1408. Unenforceable contracts cannot be assailed by third persons.
 An unenforceable contract is a contract which cannot be enforced by a
proper action in court, unless they are ratified, because either they are
entered into without or in excess of authority or they do not comply with the
Statute of Frauds or both the contracting parties do not possess the required
legal capacity.
The following contracts are unenforceable unless they are ratified (Article 1403)
Categories:
a. Those entered into in the name of another person by 1 who has been given no
authority or legal representation, or who has acted beyond his powers
Art. 1317. No one may contract in the name of another without being authorized
by the latter, or unless he has by law a right to represent him.
A contract entered into in the name of another by one who has no authority or
legal representation, or who has acted beyond his powers, shall be unenforceable,
unless it is ratified, expressly or impliedly, by the person on whose behalf it has
been executed, before it is revoked by the other contracting party.
 When a person enters into a contract for and in the name of another, without
authority to do so, the contract does not bind the latter, unless he ratifies
the same.
 The agent, who has entered into the contract in the name of the purported
principal, but without authority from him, is liable to 3rd persons upon the
contract.
 The proper term for this case is “ratification”.
 Example: In a sale, Y claimed that he was an agent of X, even if not. The
contract cannot be enforced against X. Another example is when the agent
is authorized to lease the property but the agent instead sells the property.
The principal is not bound.
From the book (page 750):
 When a person contracts on behalf of another either in excess of the
authority given to him by such other (the principal) or without any authority
whatsoever, the contract is unenforceable, not void. This is clear not only
from this article but also from Article 1317, supra.
 Being merely unenforceable and not void, such contract is capable of
ratification.
 Two kinds of contracts are referred to here:
o those entered into by a person on behalf of another in excess of the
farmer's authority, and
o
 Article 1403 must be read together with:
o Article 1317. No one may contract in the name of another without
being authorized by the latter, or unless he has by law a right to
represent him.
A contract entered into in the name of another by one who has no
authority or legal representation, or who has acted beyond his
powers, shall be unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has been executed, before
it is revoked by the other contracting party. (1259a)
o Article 1897. The agent who acts as such is not personally liable to the
party with whom he contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving such party sufficient
notice of his powers. (1725)
o Article 1898. If the agent contracts in the name of the principal,
exceeding the scope of his authority, and the principal does not ratify
the contract, it shall be void if the party with whom the agent
contracted is aware of the limits of the powers granted by the
principal. In this case, however, the agent is liable if he undertook to
secure the principal's ratification. (n)
o Article 1910. The principal must comply with all the obligations which
the agent may have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the
principal is not bound except when he ratifies it expressly or tacitly.
(1727)
b. Those that do not comply with the Statute of Frauds
 FAVORITE IN THE BAR!!!
 This is the most famous variety.
 From the book:
o the original Statute had for its purpose the prevention of frauds in
contractual transactions and in the interpretation and performance of
contracts.
o It was based on the assumption that contracts, especially complicated
ones, if not reduced to writing, were solely dependent on human
memory, and human memory was fallible at best and devious at worst.
o the original Statute of Frauds provided that no action could be
instituted on certain kinds of contracts unless the contract was
evidenced by some written note or memorandum signed by the party
to be charged or by his duly authorized agent.
i. An agreement that by its terms is not to be performed within a year from the
making thereof
 In Babao vs. Perez, the Supreme Court interpreted the phrase “not be to
performed within a year” to mean that the obligation cannot be finished
within 1 year. Professor Balane does not agree with this interpretation.
According to Professor Balane the phrase “not to be performed within a
year” should mean that the obligation cannot begin within a year. For
practical reasons, the contract must be in writing since the parties might
forget. This rule was made to guard against fallibility (forgetfulness) of man
and fraud.
 According to Professor Balane, the Supreme Court’s interpretation is
incorrect. If the obligation cannot be finished within 1 year, the contract is
not within the Statute of Frauds because of partial performance.
ii. A special promise to answer for the debt, default or miscarriage of another
 The test as to whether a promise is within the statute has been said to lie in
the answer to the question whether the promise is an original or collateral
one. If the promise is an original one or an independent one, that is, if the
promisor becomes thereby primarily liable for the payment of the debt, the
promise is not within the statute.
 If the promise is collateral to the agreement of another and the promisor
becomes merely a surety or guarantor, the promise must be in writing.
iii. An agreement made in consideration of marriage, other than a mutual promise
to marry
 A mutual promise to marry does not fall within the Statute of Frauds since
they are not made in writing.
 Agreements made in consideration of marriage other than the mutual
promise to marry are within the Statute of Frauds.
 In Cabague vs. Auxilio, the father of the groom promised to improve his
daughter-in-law’s father’s house in consideration of the marriage. The father
of the groom made improvements on the house. The wedding did not take
place. The Supreme Court said that the father of the groom could not sue on
the oral contract which as to him is not “mutual promise to marry”. Professor
Balane disagrees with the Supreme Court. According to Professor Balane, the
father of the groom should be able to sue since there was partial
performance.
iv. An agreement for the sale of goods, chattels or things in action, at a price not
less than P500, unless the buyer accepts and receives part of such goods and
chattels, or the evidence, or some of them, of such things in action, or pay at the
time some part of the purchase money; but when a sale is made by auction and
entry is made by the auctioneer in his sales book, at the time of sale, of the amount
and kind of property sold, terms of sale, price, names of the purchasers and person
on whose account the sale is made, it is a sufficient memorandum
 The requirement of a written instrument or a memorandum for sales of
personal property for a price not less than P500, covers both tangible and
intangible personal property. It also covers the assignment of choses in
action.
 Where a contract for the sale of goods at a price not less than P500 is oral,
and there is neither partial payment or delivery, receipt, and acceptance of
the goods, the contract is unenforceable, and cannot be the basis of an
action for the recovery of the purchase price, or as the basis of an action for
damages for breach of the agreement.
 Where there is a purchase of a number of articles which taken separately
does not have a price of P500 each, but taken together, the price exceeds
P500, the operation of the statute of frauds depends upon whether there is
a single inseparable contract or a several one. If the contract is entire or
inseparable, and the total price exceeds P500, the statute applies. But if the
contract is separable, then each article is taken separately.
v. An agreement of lease for a period of more than 1 year, or the sale of real
property or of an interest therein
 As long there is a sale of real property, the sale must be in writing. There is
no minimum.
 An oral contract for a supplemental lease of real property for longer period
than 1 year is within the Statute of Frauds.
 An agreement to enter into an agreement is also within the Statute of Frauds.
vi. A representation as to the credit of a 3rd person
 A wants to borrow money from C. C does not know A. C goes to B to ask
about A’s credit standing. B says that A’s credit standing is satisfactory even
though B knows that A is insolvent. Under Article 1403, C can go after B if B’s
representation was in writing.
 Professor Balane thinks that this does not belong in the Statute of Frauds.
There is no contract between C and B. B did not bind himself to pay C. What
we have here is an unenforceable tort.
 According to Professor Balane, “a representation as to the credit of a 3rd
person” should be replaced by Article 1443. Article 1443 provides that no
express trusts concerning an immovable or any interest therein may be
proved by parol evidence.
 When the express trust concerns an immovable or an interest therein, a
writing is necessary to prove it. This writing is not required for the validity of
the trust. It is required only for purposes of proof. When the property subject
to the express trust, however is not real estate or an interest therein, then it
may be proved by any competent evidence, including parol evidence.
c. Those where both parties are incapable of giving consent to a contract
 Neither party or his representative can enforce the contract unless it has
been previously ratified. The ratification by 1 party, however, converts the
contract into a voidable contract – voidable at the option of the party who
has not ratified; the latter, therefore, can enforce the contract against the
party who has ratified. Or, instead, of enforcing the contract, the party who
has not ratified it may ask for annulment on the ground of his incapacity.
 The proper term is “acknowledgement” (and not ratification).
From the book (page 770):
 A. Where only one party is incapacitated, the contract is voidable.
o Where both parties are incapacitated, the contract is unenforceable.
 Effect of confirmation by one party:
o Confirmation by upgrades the contract voidable. one party supra to
the status of voidable. For the contract to become valid, confirmation
by both parties is necessary.
2 Principles in the Statute of Frauds
a. Parol evidence is not admissible. However, there are 2 ways of bringing it out.
2 Ways in Which Parol Evidence is Admissible
i. Failure to object by the opposing lawyer when parol evidence is used (Article
1405)
 If there is no objection, then parol evidence is admitted.
ii. Acceptance of benefits (Article 1405)
 If there has been performance on 1 side and the other side accepts, then the
Statute of Frauds is not applicable. Also, estoppel sets in so by accepting
performance, the defect is waived.
b. The Statute of Frauds applies only to executory contracts and not to those which
have been executed in whole or in part.
 “Executed” here means there has been performance in part and acceptance
by the other.
From the book:
Unenforceable vs Voidable
 The term 'unenforceable' is used, as distinguished from 'voidable'.
 The voidable are binding, unless annulled by proper action in court, while
the unenforceable cannot be sued upon or enforced unless they are ratified.
As regards the degree of defectiveness, voidable contracts are farther away
from absolute nullity than unenforceable contracts.
 In other words, an unenforceable contract occupies an intermediate ground
between a voidable and a void contract.
Art. 1403
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given
no authority or legal representation, or who has acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds as set forth in this number.
In the following cases an agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum, thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a secondary evidence of its
contents:
(a) An agreement that by its terms is not to be performed within a year from
the making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of
another; (c) An agreement made in consideration of marriage, other than a
mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at a price
not less than five hundred pesos, unless the buyer accept and receive part of
such goods and chattels, or the evidences, or some of them, of such things
in action or pay at the time some part of the purchase money; but when a
sale is made by auction and entry is made by the auctioneer in his sales book,
at the time of the sale, of the amount and kind of property sold, terms of
sale, price, names of the purchasers and person on whose account the sale
is made, it is a sufficient memorandum;
(e) An agreement of the leasing for a longer period than one year, or for the
sale of real property or of an interest therein;
(f) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to a contract.
Requirement of writing in the Statute of Frauds
(page 752)
 The Statute requires that the contracts enumerated by it should be in writing
(either a public or private document). The writing must be signed by the
party sought to be made liable under the agreement or by his duly
constituted agent or representative.
 The lack of writing does not make the agreement void or inexistent. It merely
bars suit for performance of breach. It is a defect that can be cured by
acknowledgement or ratification.
Basic Rules Underlying the Statute of Frauds
1. It does not apply to actions which are neither for violation of the contract nor for
the performance thereof.
2. It does not annul or make void agreements that fail to observe the requirement
of writing; it merely bars an action for performance or breach.
3. It applies only to executory contracts (i.e. those in which there has been no
performance at all by either party), not to contracts executed or performed in
whole or in part by either party.
 The reason for this rule is that "in executory contracts there is a wide field
for fraud because, unless they be in writing there is no palpable evidence of
the intention of the contracting parties.
 However, if the contract has been totally or partially performed, the
exclusion of parol evidence would promote fraud or bad faith, for it would
enable the defendant to keep the benefits already derived by him from the
transaction in litigation, and, at the same time, evade the obligation,
responsibilities or liabilities assumed or contracted by him thereby."
The agreements falling under the Statute:
Par. (2)(a)
 An Agreement that by its terms is not to be performed within a year from
the making thereof:
 These contracts are frequently referred to in common law as infra annum
agreements or provisions.
 There is an inherent ambiguity in the wording of this paragraph. The phrase
"not to be performed within a year from the making thereof' can be
interpreted to ref er either to contracts the performance of which, by their
terms cannot be completed within a year or to those the performance of
which cannot be begun within a year.
 There is authority for the view that the law refers to contracts which cannot
be completed within a year.
Par (2) (b)
 A special promise to answer for the debt default, or miscarriage of another:
 The contract covered by this paragraph Is, In essence, a contract of guaranty.
o "Art. 2047. By guaranty a person, called the guarantor, binds h imself
to the creditor to fulfill the obligation of the principal debtor in case
the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the
provisions of Section 4, Chapter 3, Title I of this Book shall be observed.
In such case the contract is called a suretyship."
 Oral guaranties therefore are unenforceable under this paragraph.
 The guaranty need not be for a contractual obligation. A guaranty for the
performance of an extra-contractual obligation, such as a quasi-delict is
covered as well by this paragraph.
 In order that this paragraph may apply, the original debtor must continue to
be bound. If the agreement releases the original debtor and the third person
takes his place, it becomes a novation (expromision or delegacion) under
Articles 1293 and 1295 and falls outside the scope of this paragraph.
Par. (2) (c)
 An agreement made in consideration of marriage, other than a mutual
promise to marry:
 What agreement is excluded—
o Excluded from the coverage of this paragraph are agreements
constituting mutual promises to marry.
o Breach of promise to marry, even if orally made, may be actionable,
not for specific performance, to be sure, but for damages (actual,
moral exemplary) if such breach is contrary to morals or good customs
and results in prejudice or injury.
 Agreements falling under paragraph—
o The contracts that fall within the coverage of this paragraph are those
collateral agreements which do not constitute a mutual promise to
marry but . are made in contemplation of marriage. These agreements
may be between the parties to the intended marriage, or between a
party to the intended marriage and a third person, or between third
parties.
Par. (2) (d)
 An agreement for the sale of goods, chattels or things in action, at a price not
less than five hundred pesos, unless the buyer accept and receive part of
such goods and chattels, or the evidences, or some of them, of such things
in action or pay at the time some part of the purchase money; but when a
sale is made by auction and entry is made by the auctioneer in his sales book,
at the time of the sale, of the amount and kind of property sold terms of sale,
price , names of the purchaser~ and person on whose account the sale is
made, it is a sufficient memorandum.
o This paragraph makes subject to the Statute of Frauds all sales of
personal property at a price of Five Hundred Pesos or more. The
minimum value specified in the provision was substantial when the
Code was passed in 1949. At present this value is minuscule and is
equivalent to a moderately-sized box of doughnuts. Some adjustment
is called for.
o The performance (by way of payment) must be at the time of sale in
order to remove the contract from the coverage of the Statute of
Frauds. However, a subsequent payment or performance - whether
total or partial - if accepted by the other party will constitute
ratification.
o This paragraph clearly and explicitly applies the principle that
performance takes the contract out of the coverage of the Statute.
o It is believed that, by analogy, this paragraph applies as well to
contracts of barter or exchange of personal property.
Par. (2) (e)
 An agreement for the leasing for a longer period than one year, or for the
sale of real property or of an interest therein
 What contracts are covered:
o This paragraph covers: ( 1) leases of real property for a longer period
than one year
o (2) sales of real property or an interest therein
o Contracts of barter of real property are , by analogy, covered by this
paragraph, since barter is suppletonly governed by the rules on sales.
 Effect of performance:
o As in all contracts falling under the Statute of Frauds, performance
whether unilateral or bilateral, partial or total - takes these contracts
out of the operation of the Statute.
 Value of object of contract not material:
o In par. (d), governing sales of personalty, the Statute applies only if the
price is five hundred pesos or more. In sales of realty, value or price is
immaterial.
 Sale of an interest in real property:
o The Statute governs sales of real property or an interest therein.
o An interest in real property could include either an aliquot part of the
realty, as, for instance, the pro indiviso share of a co-owner, or a right
over the realty that is less than ownership, as for instance, usufruct.
 Correlation with Article 1874:
o If the sale of a piece of land is made through an agent:
(1) the authority of the agent must be in writing - otherwise the
sale is void (Art. 1874);
(2) the sale itself must be in writing - otherwise the sale is
unenforceable (Art. 1403 [2] [e])
Par. (2) (f)
 A representation as to the credit of a third person:
 1. Unenforceable quasi-delict:
o Properly speaking, this paragraph covers, not an unenforceable
contract, but an unenforceable quasi-delict, since there is no contract
between the person making the representation and the person being
induced to extend the credit to a third person.
o What this paragraph forbids therefore is the presentation of oral
evidence in a claim for damages arising from quasi-delict.
o If the inducement carries with it the promise or undertaking to answer
for the debtor's default, that would constitute an undertaking to be a
guarantor. As such it would fall under Par. 2 [b] of this article.
 Not applicable if representation is made with fraudulent intent:
o If the representation is made fraudulently, the Statute of Frauds will
not apply, and parol evidence will be admissible to prove a claim for
damages. The Statute cannot be invoked to protect, abet, or foster
fraud.
An additional contract falling under the Statute of Frauds:
Article 1443 requires an express trust over an immovable or an interest therein to
be in writing for purposes of proof.
Hence, oral express trusts over an immovable or an interest therein are not capable
of proof. Contracts establishing such trusts - if orally made - are therefore
unenforceable and can be considered as a species of contracts falling under the
Statute of Frauds.
Art. 1404
Art. 1404. Unauthorized contracts are governed by Article 1317 and the principles
of agency in Title X of this Book.
 These unenforceable contracts - falling under Pa r. 1 of the preceding a rticle
- are those entered into on behalf of one party by a person withou t requisite
authority.
Art. 1405
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article
1403, are ratified by the failure to object to the presentation of oral evidence to
prove the same , or by the acceptance of benefits under them.
Ratification of contracts falling under the Statute of Frauds
These unenforceable contracts are ratified/ acknowledged by:
1. Failure to object to oral evidence - This failure amounts to waiver by the party,
against whom the contract is being enforced, of his right to invoke the
unenforceability of the contract.
2 . Acceptance of benefits - Acceptance of benefits under the contract constitutes
partial or total performance which removes the contract from the operation of the
Statute. [Vide comments under Par. 2 [b] of the preceding article (supra)].
Resisting a claim under an unenforceable contract may take the form of:
1. a motion to dismiss (Rule 16, Sec . 1 [i]);
2. an affirmative defense. (Rule 16, Sec. 6);
3 a timely objection to the pres entation of parol evidence .
Art. 1406.
Art. 1406. When a contract is enforceable under the Statute of Frauds, and a public
document is necessary for its registration in the Registry of Deeds, the parties may
avail themselves of the right under Article 1357.
 The contracts referred to in this article are en forceable between the parties
but are unregistrable for lack of a public document. An example is a contract
of sale of registered land wh ich is embodied merely in a private document.
Such a contract is valid and enforceable but unregistrable.
 Remedy of parties:
o Either contracting party has the right to compel the other to execute
the needed public document in order to effect the registration of the
contract in the Registry of Property.
Art. 1407.
Art. 1407. In a contract where both parties are incapable of giving consent, express
or implied ratification by the parent, or guardian, as the case may be, of one of the
contracting parties shall give the contract the same effect as if only one of them
were incapacitated. If ratification is made by the parents or guardians, as the case
may be, of both contracting parties the contract shall be validated from the
inception.
 Ratification I Confirmation by one or both parties in contracts falling under
Article 1403 (3]:
o I. The ratification or confirmation may be made by the parents /
guardians of the incapacitated or incompetent party, or by the party
himself after the cause for the incapacity or vitiation of consent has
ceased.
o II. Ratification / confirmation on both sides cures the contract of its
defect and validates it. Vide commen ts under Article 1403 [3], supra
Art. 1408
Art. 1408. Unenforceable contracts cannot be assailed by third persons.
 Right to assail unenforceable contracts:
o Unenforceable contracts cannot be attacked by strangers. Only the
party against whom they are sought to be enforced can set up the
defense or unenforceability.
o This rule is based on the same principle as that laid down in Article
1397 for voidable contracts.
VOID CONTRACTS
Page 691: There are the void or inexistent contracts. They are absolutely null and
void. These contracts cannot be ratified. Neither can the right to set up the defense
of illegality be waived.
Page 693: As for the void contracts, they cannot be referred to as contracts at all,
since they are legally inexistent and therefore can neither be ratified nor cured of
their nullity.
Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object
of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law. These contracts
cannot be ratified. Neither can the right to set up the defense of illegality be
waived.
Art. 1410. The action or defense for the declaration of the inexistence of a contract
does not prescribe.
 A void contract is an absolute nullity and produces no effect, as if it had never
been executed or entered into.
Inexistent And Void From The Beginning (Article 1409)
What makes it a void contract?
a. Those whose cause, object or purpose is contrary to law, morals. Good customs,
public order or public policy
b. Those which are absolutely simulated or fictitious
c. Those whose cause or object did not exist at the time of the transaction
 According to Professor Balane, Article 1409 (3) should not be “did not exist”.
Rather, the correct phrase should be “could not come into existence”
because there can be a contract over a future thing.
 Examples of “could not come into existence” are tangerine flying elephants
and cars running on urine.
d. Those whose object is outside the commerce of men
e. Those which contemplate an impossible service
 Here, there is no object.
f. Those where the intention of the parties relative to the principal object of the
contract cannot be ascertained
 This is similar to being void for vagueness under the Constitutional law.
g. Those expressly prohibited or declared void by law
 An example of this is sale between husband and wife, subject to exceptions.
The Supreme Court has held that contingent fees of lawyers wherein the
latter receive part of the property subject of litigation are valid, unless
unconscionable in amount.
Characteristics of Void Contracts
a. The contract produces no effect whatsoever either against or in favor of anyone
b. A judgment of nullity would be merely declaratory. There is no action for
annulment necessary as such is ipso jure.
 Even when the contract is void or inexistent, an action is necessary to declare
its inexistence, when it has already been fulfilled. Nobody can take the law
into his own hands.
 The intervention of a competent court is necessary to declare the absolute
nullity of the contract and to decree the restitution of what has been given
under it.
 The judgment of nullity will retroact to the very day when the contract was
entered into.
c. It cannot be confirmed, ratified or cured.
d. If it has been performed, the restoration of what has been given is in order,
except if pari delicto will apply.
e. The right to set the contract’s nullity cannot be waived
f. The action for nullity is imprescriptible (Article 1410)
 As between the parties to a contract, validity cannot be given to it by
estoppel if it is prohibited by law or is against public policy.
g. Any person can invoke the contract’s nullity if its juridical effects are felt as to
him
 The defense of illegality of contracts is not available to 3rd persons whose
interests are not directly affected (Article 1421).
 Pari Delicto (in equal guilt)
Art. 1411. When the nullity proceeds from the illegality of the cause or object of
the contract, and the act constitutes a criminal offense, both parties being in pari
delicto, they shall have no action against each other, and both shall be prosecuted.
Moreover, the provisions of the Penal Code relative to the disposal of effects or
instruments of a crime shall be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but the innocent
one may claim what he has given, and shall not be bound to comply with his
promise.
Art. 1412. If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither may recover
what he has given by virtue of the contract, or demand the performance of the
other's undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover what he
has given by reason of the contract, or ask for the fulfillment of what has been
promised him. The other, who is not at fault, may demand the return of what he
ha
 Articles 1411 and 1412 refer to the pari delicto rule, which literally means “in
equal kind”, or also “in equal guilt” – in pari delicto oritur actio and
sometimes “in equal guilt, the position of the defendant is stronger” – in pari
delicto potior est condicio defendentis. The position of the defendant is
stronger because the plaintiff’s claim is not really granted.
 The pari delicto rule applies only to contracts which is void for illegality of
subject matter. Thus, if the contract is void for simulation, the pari delicto
rule does not apply so a party can claim the object back through
reconveyance.
Outline:
a. If it constitutes a criminal offense
i. If both parties are in pari delicto
 No action for specific performance can prosper on either side (Article 1411,
1st ¶).
 No action for restitution can prosper on either side (Article 1411, 1st ¶).
 Example: A shabu supplier supplies shabu to the shabu dealer. If the shabu
supplier does not deliver the shabu, the dealer cannot file an action for
specific performance.
ii. If only 1 party is guilty
 No action for specific performance can prosper on either side.
 An action for restitution will be allowed only if the innocent party demands.
The guilty party is not entitled to restitution.
b. If it does not constitute a criminal offense
i. If both parties are in pari delicto
 No action for specific performance can prosper on either side (Article 1411,
1st ¶).
 No action for restitution can prosper on either side (Article 1411, 1st ¶).
ii. If only 1 party is guilty
 No action for specific performance can prosper on either side.
 An action for restitution will be allowed only if the innocent party demands.
Exceptions to Pari Delicto
a. Interest paid in excess of the interest allowed by the usury laws may be recovered
by the debtor, with interest therefrom from the date of payment (Article 1413)
b. When money is paid or property delivered for an illegal purpose, the contract
may be repudiated by 1 of the parties before the purpose has been accomplished,
or before any damage has been caused to a 3 rd person. In such case, the courts
may, if the public interest will thus be subserved, allow the party repudiating the
contract to recover the money or property (Article 1414).
c. Where 1 of the parties to an illegal contract is incapable of giving consent, the
courts, may, if the interest of justice so demands, allow recovery of money or
property delivered by the incapacitated person (Article 1415).
d. When the agreement is not illegal per se but is merely prohibited, and the
prohibition by law is designed for the protection of the plaintiff, he may, if public
policy is enhanced, recover what he has paid or delivered (Article 1416).
e. When the price of any article or commodity is determined by statute, or by
authority of law, any person paying any amount in excess of the maximum price
allowed may recover such excess (Article 1417).
f. When the law fixes, or authorizes the fixing of the maximum number of hours of
labor, and a contract is entered into whereby a laborer undertakes to work longer
than the maximum thus fixed, he may demand additional compensation for service
rendered beyond the time limit (Article 1418).
g. When the law sets or authorizes the setting of a minimum wage for laborers, and
a contract is agreed upon by which a laborer accepts a lower wage, he shall be
entitled to recover the deficiency (Article 1419).
 The above contracts are void but there is some remedy for policy
considerations. An example is the minimum wage law under Article 1419
wherein the employer and the employee freely agree to the terms of
employment below the minimum wage. Although they are in pari delicto,
you don’t follow the rules of pari delicto. There is a policy consideration of
social justice involved. This is similar to the preferential option for the poor
of churches.
Final Provisions
Art. 1420. In case of a divisible contract, if the illegal terms can be separated from
the legal ones, the latter may be enforced.
Art. 1421. The defense of illegality of contract is not available to third persons
whose interests are not directly affected.
Art. 1422. A contract which is the direct result of a previous illegal contract, is also
void and inexistent.
NATURAL OBLIGATIONS
Elements of an Obligation
(derived from the Latin “obligare”— to bind)
1. An active subject
(called the obligee or creditor)
ii. the possessor of a right;
iii. he in whose favor the obligation is constituted
iv. He has the power to demand the performance of the
obligation.
v. The active subject is always a person whether juridical or
natural.
2. A passive subject
(called the obligor or debtor)
ii. he who has the duty of giving, doing, or not doing
iii. He is the one bound to perform the obligation
iv. The passive subject must be determinate or determinable
1. Determined at the birth of the obligation
3. The object or prestation
(the subject matter of the obligation).
More specifically, it is the subject matter of an obligation and may
consist of either
iv.
Giving a thing (to deliver)
v.
Doing a certain act (to give)
vi.
Not doing a certain act
Why is prestation important? Because it is the conduct in which the debtor should
act upon.
Requisites of Object L P D P
 It must be licit (legal)
o Example: Can‘t validly enter into a contract for sexual services
 It must be possible (both in fact and law)
o Determined by the rules of experience
 It must be determinate or determinable
o Can‘t say that ―I promise to sell you something‖.
o Example of determinate: I promise to sell you my car.
o Example of determinable: I promise to sell you my Riceland
 Must have pecuniary value
o Pecuniary value means money, a negotiable instrument, a commercial
interest, or anything of value
4. The efficient cause (the vinculum or juridical tie)
— the reason why the obligation exists.
v. The law speaks of an obligation as a juridical necessity to comply
with a prestation.
vi. There is a “juridical necessity,” for non-compliance can result in
juridical or legal sanction.
vii. It is that which binds or connects the parties to the obligation.
(De Leon) In other words, it is the legal relation between the
debtor and the creditor (or obligor and obligee).
5. Causa
Causa means the why of an obligation.
 The object of an obligation answers the question ―What is owed?‖ (Quid).
 The causa answers the question ―Why is it owed?‖ (Cur).
 causa - a comprehensive term for any proceeding in a court of law whereby
an individual seeks a legal remedy;
 the reason why a party entered into a contract; essential reason which
moves the parties to enter into the contract; the immediate, direct and
proximate reason which justifies the creation of an obligation through
through the will of the contracting parties.
(NOTE: In a few cases, FORM — or the manner in which the obligation is manifested
— is also important.)
Example
A promises to paint B’s picture for B as a result of an agreement.
(Here A is the obligor; B is the obligee; the painting of B’s picture is the object or
prestation; the agreement or contract is the efficient cause.)
6. Form
Another commentators say that the 6th essential requisite is form. Form means
some manifestation of intent. In some cases the manifestation is specific such as
in the case of donations.
In some cases the manifestation is specific such as in the case of donations.
According to Professor Balane that the general rule is that there is no specific form
for a valid obligation. However, if form means that there is some external
manifestation, fine, since we are not telepathic after all. However, there should still
be no specific form.
Characteristics of Obligations
1. It represents an exclusively private interest
2. It creates ties which are by nature transitory
Because obligations are extinguished. But the period is relative – could be
seconds (e.g., buying coke) and could be years (e.g., partnership, lease)
3. It involves the power to make the juridical tie defective in case of non-fulfillment
through satisfaction of the debtor‘s property
Obligation Definition:
“An obligation is a juridical relation whereby a person (called the creditor) may
demand from another (called the debtor) the observance of a determinative
conduct (the giving, doing, or not doing), and in case of breach, may demand
satisfaction from the assets of the latter.”
Art. 1423
Art. 1423. Obligations are civil or natural. Civil obligations give a right of action to
compel their performance. Natural obligations, not being based on positive law but
on equity and natural law, do not grant a right of action to enforce their
performance, but after voluntary fulfillment by the obligor, they authorize the
retention of what has been delivered or rendered by reason thereof. Some natural
obligations are set forth in the following articles.
 This article gives the definition of a natural obligation and distinguishes it
from a civil obligation.
 A similar definition of a natural obligation: one which cannot be enforced by
action but which is binding on the party who makes it in conscience and
according to natural justice.
Natural Obligation vs Civil Obligation
 The essential distinction between a civil and a natural obligation is that the
civil is enforceable at law by means of an action for performance (specific,
substitute, or equivalent), while the natural is not enforceable at law but, if
voluntarily and knowingly performed
 Example: (i.e. with knowledge of its unenforceability a t law), the party who
performed is not entitled to demand recovery and, correspondingly, the
party who received the performance is entitled to retain what has been
delivered or performed.
 Perhaps the clearest illustration of a natural obligation is a prescribed debt.
Originally a civil obligation, the debt lapsed into the category of a natural
obligation a s soon as the Statute of Limitations set in.
Reason for Natural Obligation
 A natural obligation is one which can not be enforced by action, but which
is binding on the party who makes it, in conscience and according to natural
justice.
 to prevent undoing of what has been done through good conscience
 Example: Under the laws in force, the payee is obliged to return the amount
received by him because the payor was not legally bound to make the
payment. But the payee knows that by all considerations of right and justice
he ought to keep what has been delivered to him. He is therefore dissatisfied
over the law, which deprives him of that which in honor and fair dealing
ought to pertain to him.
Is it advisable for the State thus to give grounds to the citizens to be justly
disappointed?
To recapitulate:. because they rest upon morality and because they" are
recognized in some leading civil codes, natural obligations should again·
become part and parcel of Philippine law."
Reason for Civil Obligation
 A civil obligation is a legal tie, which gives the party, with whom it is
contracted, the right of enforcing its performance by law.
Natural Obligations in Modern Civil Law
The French Civil Code (Code Napoleon)
 Art. 1235. Any payment supposes a debt: what has been paid without being
owed is subject to restitution.
 Restitution is not allowed with respect to natural obligations which were
voluntarily discharged.
German Civil Code (BGB)
 § 814 [Knowledge that debt is not owed] Restitution of performance
rendered for the purpose of performing an obligation may not be demanded
if the person who rendered the performance knew that he was not obliged
to do so or if the performance complied with a moral duty or consideration
of decency.
Argentine Civil Code
 Article 515. Obligations are civil or merely natural. Civil obligations are those
which give a right to compel their performance. Natural obligations are those
which, being based solely upon natural law and equity, do not grant a right
of action to enforce their performance, but which, upon performance by the
debtor, authorize the retention of what has been given by reason thereof,
such are:
o 2. Obligations which arise as civil obligations, and are extinguished by
prescription.
o 3. Those derived from juridical acts, which lack the solemnities which
the law requires for them to produce civil effects; such as the
obligation to pay a legacy left by a testament in which essential
formalities have been omitted.
o 4. Those which have not been recognized in court owing to lack of
evidence, or when the suit has been lost through the error or malice
of the judge.
o 5. Those arising out of an agreement in which all the general
conditions required in the matter of contracts are present; but to
which the law has denied any right of action, for reasons of public
policy; such are gambling debts.
Basis and Rationale
 there is moral but not legal duty to perform or pay, but the person thus
performing or paying feels that in good conscience he should comply with
the undertaking which is based on moral grounds.
 Equity, morality, natural justice-these are, after all, the abiding foundations
of all positive law. A broad policy justifies a legal principle that would
encourage persons to fulfill their moral obligations.
 Under the laws in force, the payee is obliged to return the amount received
by him because the payor was not legally bound to make the payment. But
the payee knows that by all considerations of right and justice he ought to
keep what has been delivered to him. He is therefore dissatisfied over the
law, which deprives him of that which in honor and fair dealing ought to
pertain to him.
 Is it advisable for the State thus to give grounds to the citizens to be justly
disappointed?
o To recapitulate:. because they rest upon morality and because they"
are recognized in some leading civil codes, natural obligations should
again· become part and parcel of Philippine law."
FROM TIU
What does “voluntary fulfilment” mean?
It means that the debtor complied with the same even if he knew that he could not
have been le- gally forced to do so. Thus, payment through a coercive process of
the writ of execution issued at the instance and insistence of the prevailing party,
is NOT considered voluntary, and the provisions of the law on natural obligations
cannot be applied thereto. Payment thru a coercive process of the writ of execution
issued at the instance and insistence of the prevailing party, is NOT considered
voluntary and the provisions of the law on natural obligations, cannot be applied
thereto.
Example — If I pay a debt that has prescribed —
1. Not knowing it has prescribed, I can recover on the ground of undue payment.
2. Knowing it has prescribed, I cannot recover for this would be a case of a natural
obligation.
In case of partial voluntary fulfillment, can the unpaid balance be recovered?
PARAS — NO. In case of partial voluntary fulfillment, the balance cannot be
recovered, since on said balance, there has not yet been created a legal obligation.
Other examples of natural obligations
 Obligation to pay interest for use of money, even if not agreed upon in
writing. (See Arts. 1956, 1960)
 Duty to support natural or spurious children (even if not recognized
voluntarily or by judicial compulsion and even if there is a judgment denying
recognition).
 Giving of material and financial assistance to children upon their marriage.
Art. 1424.
Art. 1424. When a right to sue upon a civil obligation has lapsed by extinctive
prescription, the obligor who voluntarily performs the contract cannot recover
what he has delivered or the value of the service he has rendered.
Performance of an obligation that has prescribed:
 Prescription is one of the modes of extinguishment of obligations (Art. 1231
/ Arts. 1139-1155). Special prescriptive periods are provided for in various
articles scattered throughout the Code.
 When an obligation is extinguished by prescription, it ceases to be
enforceable at law.
 It subsists, however, as a natural obligation.
Effect of voluntary performance:
 Voluntary performance of an obligation that has prescribed - as already
pointed out is legally effective, i.e. the obligor cannot recover what has been
performed and the obligee can retain the thing delivered or performed.
 The operative word in this article is voluntarily. For performance or delivery
to be voluntary two requisites must concur:
o 1. The obligor must know that the obligation has lapsed by
prescription, and
o 2. He must perform the prestation freely, with full knowledge and
consent. The provisions of Article 939, par. 2 - regarding an order by
the testator to pay a natural obligation - are akin to this article.
 Example:
o Example — A’s debt to C has been extinguished by prescription. Yet A,
knowing of the prescription, voluntarily paid the prescribed debt. A
cannot now recover what he has paid C. Prescribed debt may indeed
give rise to new obligation. (Villaroel v. Estrada)
Art. 1425. 3rd person
Art. 1425. When without the knowledge or against the will of the debtor, a third
person pays a debt which the obligor is not legally bound to pay because the action
thereon has prescribed, but the debtor later voluntarily reimburses the third
person, the obligor cannot recover what he has paid.
 Reimbursement by the debtor of a third person who pays an obligation.
 This has the same basis as the previous article and requires the presence of
the same requisites.
FROM TIU:
 Here the third person pays —
1. Without the knowledge (of the debtor), or
2. Against the will (of the debtor)
 Example — A owes B P700,000. But the debt soon prescribes. Later C, against
the consent of A, pays B the P700,000. A here does not have to reimburse C
because he (A) has not at all been benefited by the transaction. However, A
later voluntarily reimburses C. May A cannot recover what he has given to C.
 NOTE — If payment is made with the consent of the debtor, a civil obligation
arises.
Art. 1426. Minor between 18-21
Art. 1426. When a minor between eighteen and twenty-one years of age who has
entered into a contract without the consent of the parent or guardian, after the
annulment of the contract voluntarily returns the whole thing or price received,
notwithstanding the fact he has not been benefited thereby, there is no right to
demand the thing or price thus returned.
Article no longer operative:
 The age of majority under the new Code was 21 (Art. 402).
 This article constituted a qualification to Article 1399, the law taking into
account the fact that a person between the ages of 18 and 21, though still a
minor, in general already possessed sufficient discretion to realize that
equity dictated - or at least justified - the return of what he had received by
virtue of the annulled contract. ·
 Present law, however, has lowered the age of majority to 18 (RA 6809).
Thus, at present, a person 18 years of age or over possesses contractual
capacity. Contracts entered into by him are valid.
 In view of this amendment in the age of majority, this article is now
inoperative.
Example: A, a minor, entered into a contract with a sui juris, without the consent
of his (A’s) parents. In said contract, A received a car. This car was afterwards
destroyed by a fortuitous event. Later when the contract was annulled, A returned
voluntarily the value of the car although he had not profited or benefited a single
centavo from the car. Has he now the right to demand that the price be returned?
No more.
Art. 1427
Art. 1427. When a minor between eighteen and twenty-one years of age, who has
entered into a contract without the consent of the parent or guardian, voluntarily
pays a sum of money or delivers a fungible thing in fulfillment of the obligation,
there shall be no right to recover the same from the obligee who has spent or
consumed it in good faith.
Article now inoperative:
 Like the immediately preceding article, this article has been rendered
inoperative by the lowering of the age of majority to 18.
If the object is non-consumable, does the Article apply?
 PARAS — YES, if there has been loss by fortuitous event or alienation in good
faith (this is equivalent to spending or consuming it), if the proceeds thereof
have already been spent in good faith.
Art. 1428.
Art. 1428. When, after an action to enforce a civil obligation has failed the
defendant voluntarily performs the obligation, he cannot demand the return of
what he has delivered or the payment of the value of the service he has rendered.
Rationale of article:
 This article contemplates a case where a debtor is sued for performance and
the suit fails (i.e. no performance is decreed by the court) but, despite ·the
failure of the suit, the debtor who was sued voluntarily performs anyway.
The debtor, after the voluntary performance, can demand neither the return
of what has been delivered nor the value of the prestation he has performed.
 The rationale of the rule expressed in this article is that the voluntary
performance by the debtor, despite the failure of the suit filed against him,
must have been due to the debtor's belief that he was somehow morally
bound to perform the prestation.
Example — A owes B P500,000. B brings a suit against A, but B loses the case for
insufficient evidence. No appeal is made from the decision, and the judgment
becomes final. Later, A paid B voluntarily the debt. May A now recover from B what
he (A) has paid? No.
Art. 1429. Heir
Art. 1429. When a testate or intestate heir voluntarily pays a debt of the decedent
exceeding the value of the property which he received by will or by the law of
intestacy from the estate of the deceased, the payment is valid and cannot be
rescinded by the payer.
Correlated with Article 774:
 "Art. 774. Succession is a mode of acquisition by virtue of which the property,
rights and obligations to the extent of the value of the inheritance, of a
person are transmitted through his death to another or others either by his
will or by operation of law."
 Under Philippine successional law, the heir is not liable for the unpaid
obligations of the decedent beyond the value of what the heir himself
acquires by succession from the said decedent.
o Actually, pecuniary debts left by the decedent are enforceable directly
against the estate, not against the heirs personally.
Heirs not liable for excess but payment of said excess is a natural obligation:
 Should the amount of the unpaid debts left behind by the decedent exceed
the assets of the estate, the payment of said excess cannot be enforced
against the heirs, whether compulsory, testamentary, or intestate. If,
however, the heirs, or any of them, should voluntarily pay the excess, such
payment cannot be recovered because it is deemed payment or
performance of a natural obligation.
Example — A dies, leaving an estate of P10,000,000 and debts amounting to
P15,000,000. His heir here is not expected to make up for the difference, BUT if he
does so voluntarily, then he cannot recover said difference. After all, one does have
a moral duty to see to it that the dead relative’s or friend’s obligations in life are all
carried out. Here, the heir is not really required by law to shoulder the deficit, but
since he does so voluntarily, he cannot now back out.
Art. 1430. Will is void
Art. 1430. When a will is declared void because it has not been executed in
accordance with the formalities required by law, but one of the intestate heirs,
after the settlement of the debts of the deceased, pays a legacy in compliance with
a clause in the defective will, the payment is effective and irrevocable.
Voluntary Implementation of Provisions of a Void Will
 This article contemplates a case where a testamentary disposition turns out
to be ineffective or inoperative because the will is void as to form and is, for
that reason, denied probate. Failure of a will to comply with the
requirements of form is a ground for its disallowance.
 If, however, the compulsory or intestate heirs, with knowledge of the will's
nullity, voluntarily carry out the testamentary provisions contained in the
said will, such an implementation of the provisions of the will is valid and,
once carried out, cannot be rescinded by them.
 The basis of this rule is that, although there is no legal obligation on the part
of the compulsory / intestate heirs to comply with the provisions of the
decedent's will, their voluntary act of compliance indicates their desire to
abide by the testator's wishes, as a matter of fairness and good faith. In cases
such as this, morality impels what the law does not.
Applicability to provisions instituting heirs:
 The literal provision of this article seems to apply only to legacies. However,
there is no reason to suppose that the article does not apply as well to
devises and even to dispositions giving aliquot portions of the estate (where
the person instituted is not, properly speaking, a legatee or devisee but an
heir)
Applicability to Donations:
 The rationale that underlies this article is equally applicable to donation s
inter vivos, that are void for want of the prescribed forms laid down in
Articles 748 and 749. Thus, voluntary compliance by the donor's heirs with
the defective deed of dona tion should be deemed binding and effective as
an instance of fulfillment of a natural obligation, it being understood,
however, that the heirs desiring to carry out their predecessor's wishes
voluntarily execute the appropriate document of donation in order to
regularize the transfer.
PARAS — If the will is void, the legacy would also be void and the deceased is
considered to have died without a will. This is the reason for the existence of the
Article. By analogy, all alienations defective for lack of the proper formalities may
be included under Art. 1430.
Example — In a will defective for lack of the needed legal formalities, X, a friend,
was given a legacy. The legacy is void, and the whole estate should go to the
intestate heirs. If however, the intestate heirs give X the legacy, they cannot get it
back now, provided that the debts of the deceased have been settled
ESTOPPEL
PAGE 863 PARAS BOOK
Art. 1431.
Art. 1431. Through estoppel an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or disproved as against the
person relying thereon.
Concept of Estoppel
 estoppel is a bar which precluded a person from denying or asserting
anything contrary to that which has been, in contemplation of law,
established as the truth either by acts of judicial or legislative officers, or by
his own deed or representation either express or implied.
Waiver vs Estoppel
 Supreme Court held that waiver and estoppel are frequently used as
convertible terms.
 The doctrine of waiver belongs to the family of, is of the nature of, is based
on, estoppel. The essence of waiver is estoppel, and where there is no
estoppel, there is no waiver.
 This is especially true where the waiver relied upon is constructive or implied
from the conduct of a party. Thus, when it is asserted that a “party is in
estoppel,” this is the same as saying that said party had made a waiver.]
Origin of Estoppel
 The doctrine of estoppel has its origin in equity, and is based on moral rights
and natural justice. Its applicability to any particular case depends to a very
large extent upon the special circumstances of the case.
Examples of Estoppel
 If a husband in a sworn declaration constituting a family home has stated in
said documents that he was married, naming his wife, he cannot thereafter
be heard to say that he and the girl are not married. Therefore, the family
home should be considered as conjugal property. (Montoya v. Ignacio, et al.,
L-10518, Nov. 29, 1957)
 A holder of a promissory note given because of gambling who indorses the
same to an innocent holder for value and who assures said party that the
note has no legal defect, is estopped from asserting that there had been an
illegal consideration for the note, and so, he has to pay its value. (Rodriguez
v. Martinez, 5 Phil. 67).
 A person who alleged at one time in court that he was the owner of a certain
cabaret cannot afterwards deny his ownership thereof. (Patricio v. Patricio,
78 Phil. 759).
 A person claiming for his salary was selling his interest in the stock of a
corporation to said corporation. The corporation refused to consider the sale
unless the claim for salary was omitted. So, the seller drew another contract,
this time with no mention of the salary. He cannot now claim the salary in
view of estoppel. (Herman v. Radio Corporation of the Phil., 50 Phil. 490).
 A vendee a retro who at one time recognized ownership in the subject
matter by the vendor a retro cannot now claim ownership over the same.
(Matienzo & Palileo v. CFI of Laguna, 64 Phil. 542).
 “He who prevents a thing from being done may not avail himself of the nonperformance which he himself has occasioned,” for the law says to him in
effect, ‘this is your own act, and therefore you are not damnifi ed.’ Where,
therefore, a taxpayer repeatedly requested for reinvestigation of his case
and therefore persuaded the government to postpone collection of the tax,
he cannot set up prescription of the action. (Coll. v. Suyoc Consol, L-11527,
Nov. 25, 1958).
Estoppel by laches
 Estoppel by laches (unreasonable delay in making a claim in court) does not
apply to employees in claiming overtime pay, for to allow estoppel in this
case would be to bring about a situation whereby the employee or laborer,
who cannot expressly renounce the right to extra compensation under the
law, may be compelled to accomplish the same thing by mere silence or lapse
of time, thereby frustrating by indirection the purpose of the law.
 However, laches may favor the inference that no such overtime work had
been made; or that, even if it existed, it has already been duly compensated.
 No estoppel can be invoked if the complaining party has not been misled.
Art. 1432
Art. 1432. The principles of estoppel are hereby adopted, insofar as they are not in
conflict with the provisions of this Code, the Code of Commerce, the Rules of Court
and special laws.
Suppletory Effect of the General Principles of Estoppel
 The principles of estoppel are only suppletory.
Pleading of Alleged Estoppel
If facts are alleged as constituting estoppel, they must be expressly pleaded.
Art. 1433.
Art. 1433. Estoppel may be in pais or by deed.
Kinds of Estoppel
(a) estoppel IN PAIS (equitable estoppel); this may be estoppel:
1) by conduct or by acceptance of benefits,
2) by representation or concealment,
3) by silence,
4) by omission,
5) by laches (unreasonable delay in suing).
(b) estoppel BY DEED (technical estoppel); this may be:
1) estoppel by deed proper (written instrument may also be in the form of a
bond or a mortgage). – if the written instrument is null and void, there is no
estoppel
2) estoppel by judgment as a court record (this happens when there could
have been RES JUDICATA)
[NOTE: While res judicata makes a judgment conclusive between the parties as to
things which were directly adjudged, estoppel by judgment prevents the parties
from raising questions that could have been put in issue and decided
Estoppel IN PAIS (Equitable Estoppel)
Definition
It arises when one, by his acts, representations or admissions, or by his silence
when he ought to speak out, intentionally or thru culpable negligence, induces
another to believe certain facts to exist, and such other rightfully relies and acts on
such belief, so that he will be prejudiced if the former is permitted to deny the
existence of such facts.
Estoppel vs Fraud
Estoppel should not be confused with fraud.
Firstly, estoppel exists with or without a contract; fraud presupposes an attempt to
enter into a valid agreement or contract.
Secondly, while estoppel may be raised as a defense, fraud may properly be a cause
of action, on account of the vitiated consent that it produces.
Examples of estoppel in pais:
1) If a vendee a retro agrees to accept a check in payment of the repurchase price,
he cannot afterwards allege that the check is not legal tender. He is bound by his
own act. (Gutierrez v. Carpio, 53 Phil. 334).
2) If the real owner of a house pretends to be merely a broker in the sale thereof,
he is estopped from asserting ownership over the same. (Bachrach Motor Co. v.
Kane, 61 Phil. 504).
3) If the NAMARCO has entered into a valid contract with a certain Federation for
the sale of certain goods imported by the former, it (NAMARCO) cannot question
the validity of the transaction particularly after it has received and accepted certain
benefi ts from the Federation as a result of the contract. (NAMARCO v. Tan, et al.,
L-17074, March 31, 1964).
Some Doctrines
1) Conduct because of ignorance or mistake does not result in estoppel. (Ramiro v.
Grano, 54 Phil. 744). Indeed if someone was ignorant of the truth or was mistaken,
he cannot be said to be in estoppel. (Far Eastern Surety Co. v. Court of Appeals, L12019, Oct. 16, 1958).
2) Estoppel by laches (unreasonable delay in bringing a court action, even if the
period of prescription has not yet lapsed) bars an action to create a vested right
(executory interest) but does not bar an action to protect a vested right (executed
interest). (Inton v. Quintana, 81 Phil. 97).
3) Just because a person is silent does not necessarily mean that he will be in
estoppel. There should have been a duty or obligation to speak
4) A mere promise to perform or to omit at some future time does not necessarily
result in estoppel (promissory estoppel). For this to exist, the promise must have
been relied upon, and prejudice would result unless estoppel is applied.
Equitable Defense Of Laches Elements:
a) conduct on the part of the defendant, or of one under whom he claims, giving
rise to the situation of which the complaint is made and for which the complaint
seeks a remedy;
b) delay in asserting the complainant’s rights, the complainant having had
knowledge or notice of the defendant’s conduct and having been afforded an
opportunity to institute a suit;
c) lack of knowledge or notice on the part of the defendant that the complainant
would assert the right on which he bases his suit;
d) injury or prejudice to the defendant in the event relief is accorded to the
complainant, or the suit is not held to be barred. (See also Mejia de Lucas v.
Gamponia, 53 O.G. 667; see also Miguel v. Catalino, L-23072, Nov. 29, 1968).]
Estoppel BY DEED
Definition
It is a bar which precludes a party to a deed and his privies from asserting as against
the other and his privies any right or title in derogation of the deed, or from denying
the truth of any material fact asserted in it.
Examples of estoppel by deed:
1) If several persons, each claiming ownership over certain property deposited in a
warehouse, in a written document agree it should be sold, said persons cannot later
on modify the terms of the agreement. (Cu Unjieng v. Asia Banking Corporation, 45
Phil. 769).
2) If a shipper has his goods valued at only P200, he cannot later on recover
damages for its value more than what he has declared in the bill of lading, even if
the value of the goods be worth much more, for he is in estoppel. (Friexas and Co.
v. Pacifi c Mail Steamship Co., 42 Phil. 198).
3) Purchase in one’s own name with another’s money generally gives title to the
purchaser, that is, to him who appears in the deed to have made the purchase in
his own name. (See Enriquez v. Olaguer, 25 Phil. 641 and Collector of Internal
Revenue v. Favis, et al., L-11551, May 30, 1960).
Some Doctrines
1) If the deed or instrument is null and void because the contract, let us say, is
illegal, there is NO estoppel.
2) Ordinarily, the person estopped must be capacitated. (19 Am. Jur. 604). But if a
minor is clever enough to deceive others, estoppel may result. (See Sia Suan v.
Alcantara, 47 O.G. 4561). Thus, minors who sell real estate pretending, by the
execution of a public instrument, to have reached their majority, cannot be
permitted afterwards to excuse themselves from compliance with the obligation
assumed by them or to seek their annulment. And the circumstance that after the
conveyance, they inform the vendee of their minority is of no moment, because
their misrepresentation had already estopped them from disavowing the contract.
3) If a person notarizes (and is not a party to) the instrument, he is NOT in estoppel.
Art. 1434.
Art. 1434. When a person who is not the owner of a thing sells or alienates and
delivers it, and later the seller or grantor acquires title thereto, such title passes by
operation of law to the buyer or grantee.
Sale or Alienation by Non-Owner
 Example: Jose sold in his own name Brigitte’s car to Gina. He also delivered
the car to Gina. If later on Brigitte donates the car to Jose, ownership over
the same passes to Gina, not by tradition or delivery, but by operation of law.
 In this kind of estoppel, prejudice is not essential.
 Art. 1434 applies to the sale of “after-acquired property.” This is allowed by
the law on Sales under the Civil Code.
Art. 1435.
Art. 1435. If a person in representation of another sells or alienates a thing, the
former cannot subsequently set up his own title as against the buyer or grantee.
Sale or Alienation in Representation of Another
 This is estoppel created in a representative capacity. In this kind of estoppel,
prejudice is also not essential.
 Example:
o Amalia, in representation of Romeo, sells to Juanito a car. Amalia
cannot afterwards allege that she was really the owner of the car, and
that, therefore, the sale is not valid.
Art. 1436.
Art. 1436. A lessee or a bailee is estopped from asserting title to the thing leased
or received, as against the lessor or bailor.
Estoppel on the Part of a Lessee or a Bailee
 Under the Revised Rules of Court, one of the instances of conclusive
presumptions is in the case of the tenant, who is not permitted to deny the
title of his landlord at the time of the commencement of the relation of
landlord and tenant between them.
 Ordinarily, therefore, it is enough for the landlord to prove the existence of
the lease contract, for the presumption to apply.
 Note that the law refers to a lessee or bailee (such as a depository).
 The presumption has also been applied to a donee who had accepted the
donation in due form (Franco, et al. v. Tutaan, [C.A.] 50 O.G. 4317), as well
as to a servant or agent.
When Presumption Does Not Apply
 If the alleged tenant does not admit expressly or implicitly the existence of
the lease contract (such as when the landlord did not attach or plead in his
complaint the contract of lease), the presumption does not apply.
Art. 1437.
Art. 1437. When in a contract between third persons concerning immovable
property, one of them is misled by a person with respect to the ownership or real
right over the real estate, the latter is precluded from asserting his legal title or
interest therein, provided all these requisites are present:
(1) There must be fraudulent representation or wrongful concealment of facts
known to the party estopped;
(2) The party precluded must intend that the other should act upon the facts as
misrepresented;
(3) The party misled must have been unaware of the true facts; and
(4) The party defrauded must have acted in accordance with the misrepresentation.
Estoppel Concerning Immovable Property
 To apply this Article, one should have been misled, otherwise there is no
estoppel.
 Knowledge of the true facts by the stranger prevents deception, so estoppel
cannot apply.
 On the part of the party who is to be in estoppel, should have made a
fraudulent representation or wrongful concealment of facts known to him.
Effect of Consent on the Part of the True Owner
 Acquiescence by the true owner estops him from asserting any right over the
property.
Art. 1438.
Art. 1438. One who has allowed another to assume apparent ownership of
personal property for the purpose of making any transfer of it, cannot, if he
received the sum for which a pledge has been constituted, set up his own title to
defeat the pledge of the property, made by the other to a pledgee who received
the same in good faith and for value.
Allowing Someone to Assume Apparent Ownership of Personal Property
 This is estoppel that results from acceptance of benefits (with knowledge of
the true facts).
 Example: A has a diamond ring. He allowed B to assume apparent ownership
over the ring so that B might sell the same. Instead, B pledged the ring with
C to obtain a loan. The money lent was later handed over to A. Later A attacks
the validity of the pledge claiming that under the law, the pledgee must be
the owner thereof, and since B in this case acted without authority, the
pledge is invalid. Is A allowed to do this?
ANS.: No, A is not allowed to do this. His receipt of the sum for which the
pledge was made is an implied ratification of the pledge and A is, therefore,
in estoppel.
When Estoppel Applies Even if There Be No Benefits
Even if there be NO benefits, estoppel would also apply if the “agent” was given
apparent authority, and the other party was misled into giving him credit.
Art. 1439.
Art. 1439. Estoppel is effective only as between the parties thereto or their
successors in interest.
Persons Bound by Estoppel
 Both parties are, however, bound (Andres v. Pimentel, 21 Phil. 431) such as
parties to a sale.
 Successors-in-interest (as well as privies and grantees) are bound.
 But third parties are not.
Estoppel on the Part of a Minor
Minor A minor possessed of discretion and cleverness may be bound by his own
contract, even if entered into without parental authority
Is the Government Bound by Estoppel?
 Generally, the Government is not bound by estoppel, particularly so if there
has been an erroneous application and enforcement of the law.
 Example:
o In People v. Go, et al., L-11368-69, Oct. 30, 1959, the Supreme Court
held that the fact that the clerk of the Supreme Court served notice
upon the appellant that its brief must be printed and fi led with the
Court within 45 days from receipt of notice does not and cannot confer
appellate jurisdiction upon said Court, where the appeal was taken
BEYOND the period prescribed by the Rules of Court.
o Any error made by a tax official in the assessment or computation of
taxes does NOT have the effect of relieving the taxpayer from the full
amount of liability as fixed by law. Errors of tax officers do not bind the
government or prejudice its right to the taxes or dues collectible by it
from the citizen.
o PROPRIETARY ACTS = Only the govt can do it
Applicability to Questions of Fact
The rule on estoppel applies only to questions of fact, not of law, about the truth
of which the other party is ignorant.
Estoppel by Record
 The doctrine of estoppel by record only applies as between the same parties
or their privies and cannot be used against strangers. If in two cases the
plaintiffs be different but the defendants are the same, the new plaintiffs are
neither bound by the first proceedings, nor may they take advantage of the
same.
Estoppel Cannot Validate a Void Contract
The doctrine of estoppel may not be invoked to validate a void contract. As
between parties to a contract, validity cannot be given to it by estoppel if it is
prohibited by law or is against public policy. No citizen is competent to barter away
what public policy by law seeks to preserve.
Concept of an “Agency by Estoppel”
For an “agency by estoppel” to exist, the following must be established:
1. the principal manifested a representation of the agent’s authority or knowingly
allowed the agent to assume such authority; or
2. the third person, in good faith, relied upon such representation; or
3. relying upon said representation, a third person has changed his position to his
detriment.
An agency by estoppel, which is similar to the “doctrine of apparent authority,”
requires proof of reliance upon the representations, and that, in turn, needs proof
that the representations predated the action taken in reliance.
TRUSTS
‘Trust’ Defined
(a) It is the right to the beneficial enjoyment of property, the legal title to which is
vested in another. (65 C.J. 212).
(b) It is a fiduciary relationship concerning property which obliges the person
holding it to deal with the property for the benefit of another. (Pacheco v. Arro, 85
Phil. 505). The person holding, in view of his equitable title, is allowed to exercise
certain powers belonging to the owner of the legal title.
NOTE: The word “trustee” as used in the corporation statute must be understood
in the general concept and may include the attorney prosecuting the case filed by
the Corporation.
Characteristics of a ‘Trust’
(a) It is a fiduciary relationship. (Pacheco v. Arro, 85 Phil. 505).
(b) Created by law or by agreement. (Art. 1441, Civil Code).
(c) Where the legal title is held by one, and the equitable title or beneficial title is
held by another. (65 C.J. 212).
Trust’ VS ‘Guardianship’ or ‘Executorship’
In a trust, the trustee or holder has LEGAL TITLE to the property; a guardian,
administrator, or executor does not have.
‘Trust’ VS ‘Stipulation Pour Autrui’
(a) A trust may exist because of a legal provision or because of an agreement; a
stipulation pour autrui can arise only in the case of contracts.
(b) A trust refers to specific property; a stipulation pour autrui refers to specific
property or to other things.
Co-Ownership as a ‘Trust’
A co-ownership is a form of trust, with each co-owner being a trustee for each of
the others.
Art. 1440
Art. 1440. A person who establishes a trust is called the trustor; one in whom
confidence is reposed as regards property for the benefit of another person is
known as the trustee; and the person for whose benefit the trust has been created
is referred to as the beneficiary.
Parties to a ‘Trust’
(a) trustor or settler — he establishes the trust
(b) trustee — holds the property in trust for the benefi t of another
(c) beneficiary or cestui que trust — the person for whose benefit the trust has
been created (NOTE: The trustor may at the same time be also the beneficiary.)
Elements of a ‘Trust’
(a) Parties to the trust
(b) The trust property or the trust estate or the subject matter of the trust
Art. 1441.
Art. 1441. Trusts are either express or implied. Express trusts are created by the
intention of the trustor or of the parties. Implied trusts come into being by
operation of law.
Classification of Trusts
a) Express trust
— created by the parties, or by the intention of the trustor. (Art. 1441).
b) Implied trust
— created by operation of law (“trust by operation of law”).
Kinds Of Implied Trusts:
Resulting Trust
1) Resulting trust — (also called bare or passive trust) — Here, there is an intent to
create a trust but it is not effective as an express trust.
[Example: Art. 1451, where a person who inherits property registers the same in
another’s name, whom he does not intend to have any beneficial interest therein
for he wants this for himself. (See Severino v. Severino, 44 Phil. 343; See 65 C.J.
363).]
Constructive Trust
2) Constructive trust — Here, no intention to create a trust is present, but a trust
is nevertheless created by law to prevent unjust enrichment or oppression.
[Example: If a person acquires property by mistake, he is considered by the law as
a trustee while he holds the same. (Art. 1456, Civil Code). (See Ocampo v.
Zaporteza, 53 Phil. 442).]
Art. 1442.
Art. 1442. The principles of the general law of trusts, insofar as they are not in confl
ict with this Code, the Code of Commerce, the Rules of Court and special laws are
hereby adopted
 This Article incorporates a large part of the American law on trusts, and
thereby the Philippine legal system will be amplifi ed and will be rendered
more suited to a just and equitable solution of many questions.
Suppletory Effect of the General Law of Trusts
The principles of the general law of trusts are merely suppletory. (Art. 1442).
EXPRESS TRUSTS
Art. 1443
Art. 1443. No express trusts concerning an immovable or any interest therein may
be proved by parol evidence.
Formalities Re Express Trusts
 The law says that “no express trusts concerning an immovable or any interest
therein may be proved by parol (oral) evidence.”
Therefore:
(a) the requirement that the express trust be written is only for
enforceability, not for validity between the parties. Hence, this Article may
by analogy be included under the Statute of Frauds. (See Gamboa v. Gamboa,
52 Phil. 503).
(b) By implication, for a trust over personal property an oral agreement is
valid and enforceable between the parties.
(c) Regarding third persons, the trust must be: in a public instrument and
REGISTERED in the Registry of Property, if it concerns REAL PROPERTY.
Distinguished from the Formalities of an Implied Trust
An implied trust (whether real or personal property is involved) may be proved by
oral evidence.
Art. 1444.
Art. 1444. No particular words are required for the creation of an express trust, it
being sufficient that a trust is clearly intended.
How an Express Trust Is Created
(a) By conveyance to the trustee by an act inter vivos or mortis causa (as in a will).
(b) By admission of the trustee that he holds the property, only as trustee.
Clear Intent
There must be a CLEAR INTENTION to create a trust. (Thus, no particular or
technical words are required.)
Capacity
(a) The trustor must be capacitated to convey property. [Hence, it has been held
that a minor cannot create an express or conventional trust of any kind. (Gayondato
v. Treasurer, 49 Phil. 244). However, a joint owner of a thing may be a trustor and
the other a trustee of one’s share. (Lavadi v. De Mendoza, 72 Phil. 186).]
(b) The trustee must be capacitated to hold property and to enter into contracts.
(c) The beneficiary must be capacitated to receive gratuitously from the trustor.
(Therefore, if he is incapacitated to be the trustor’s donee, heir or legatee, or
devisee, he cannot become a beneficiary of a gratuitous trust.)
Administration of the Trust
(a) The trustee must file a bond. (Sec. 5, Rule 98, Rules of Court).
(b) The trustee must make an inventory of the real and personal property in trust.
(Sec. 6[a], Rule 98, Rules of Court).
(c) The trustee must manage and dispose of the estate and faithfully discharge his
trust in relation thereto, according to law or according to the terms of the trust
instrument as long as they are legal and possible. (Sec. 6[b], Rules 98, Rules of
Court).
(d) The trustee must render a true and clear account. (Sec. 6[c], Rule 98, Rules of
Court).
(e) The trustee cannot acquire the property held in trust by prescription as long as
the trust is admitted. (If he repudiates, and this is made known to the party
involved, prescription is permitted).
Art. 1445.
Art. 1445. No trust shall fail because the trustee appointed declines the
designation, unless the contrary should appear in the instrument constituting the
trust.
Effect if Trustee Declines
 The trust ordinarily continues even if the trustee declines.
 Reason — the court will appoint a new trustee, unless otherwise provided
for in the trust instrument. (Sec. 3, Rule 98, Rules of Court). A new trustee
has to be appointed, otherwise the trust will not exist.
Art. 1446
Art. 1446. Acceptance by the beneficiary is necessary. Nevertheless, if the trust
imposes no onerous condition upon the beneficiary, his acceptance shall be
presumed, if there is no proof to the contrary.
Necessity of Acceptance by the Beneficiary
For the trust to be effective, the beneficiary must accept:
(a) expressly, (b) or impliedly, (c) or presumably.
When Acceptance Is Presumed
 If the granting of benefit is PURELY GRATUITOUS (no onerous condition), the
acceptance by the beneficiary is presumed.
 Exception: If there is proof that he really did NOT accept.
 [NOTE: Acceptance by the beneficiary of a gratuitous trust is NOT subject to
the rules for the formalities of donations. Therefore, even if real property is
involved, acceptance by the beneficiary need not be in a public instrument.
(Cristobal v. Gomez, 50 Phil. 810). Here, the court held that mere
acquiescence in the formation of the trust, and acceptance under the second
paragraph of Art. 1311)
How Express Trusts Are ENDED
(a) Mutual agreement by all the parties
(b) Expiration of the term
(c) Fulfillment of the resolutory condition
(d) Rescission or annulment (as in other contracts)
(e) Loss of subject matter of the trust (physical loss or legal impossibility)
(f) Order of the court (as when the purpose of the trust is being frustrated)
(g) Merger
(h) Accomplishment of the purpose of the trust
IMPLIED TRUSTS
 The doctrine of implied trust is founded on equity. The principle is applied in
the American legal system to numerous cases where an injustice would
result if the legal estate or title were to prevail over the equitable right of the
benefi ciary. (Com. Report, p. 60).
 Even though there has been no fraud or immorality involved, still there is a
mutual antagonism between the trustee and the beneficiary. (65 C.J. 222).
 Fair dealing demands the establishment of the relation.
Art. 1447.
Art. 1447. The enumeration of the following cases of implied trust does not exclude
others established by the general law of trust, but the limitation laid down in article
1442 shall be applicable.
Enumeration of Instances of Implied Trust
The enumeration is not exclusive. But trusts are recognized only if not in conflict
with:
(a) the Civil Code,
(b) the Code of Commerce,
(c) the Rules of Court,
(d) Special Laws.
Art. 1448.
Art. 1448. There is an implied trust when property is sold, and the legal estate is
granted to one party but the price is paid by another for the purpose of having the
beneficial interest of the property. The former is the trustee, while the latter is the
beneficiary. However, if the person to whom the title is conveyed is a child,
legitimate or illegitimate, of the one paying the price of the sale, no trust is implied
by law, it being disputably presumed that there is a gift in favor of the child.
Purchase of Property Where Title Is Not Given to Payer but to Another
(a) This is a resulting trust (because a trust is intended).
(b) Reason: One who pays for something usually does so for his own benefit. (See
Uy Aloc v. Cho Jan Jing, 19 Phil. 202).
(c) Example of the Article: A buys a piece of land from B. A pays the price so that
he (A) may have the beneficial interest in the land BUT the legal title is given to C.
C is the trustee and A is the beneficiary
Rule if Document Expresses a Different Intent
There is no implied trust if the document expresses a different intention.
Example: A paid the money for the purchase of land, but title was given to B. It was
proved that A paid because A was lending the amount to B.
Art. 1449.
Art. 1449. There is also an implied trust when a donation is made to a person but
it appears that although the legal estate is transmitted to the donee, he
nevertheless is either to have no beneficial interest or only a part thereof.
When Donee Does Not Get Full Ownership of Benefit
This is again a “resulting trust,” where the “donee” becomes the trustee of the real
beneficiary.
Example: A donated land to B. But it was agreed that B is supposed to have only
one-third of the products of said land. There is a trust here, with B as the trustee.
Art. 1450.
Art. 1450. If the price of a sale of property is loaned or paid by one person for the
benefit of another and the conveyance is made to the lender or payor to secure the
payment of the debt, a trust arises by operation of law in favor of the person to
whom the money is loaned or for whom it is paid. The latter may redeem the
property and compel a conveyance thereof to him.
Conveyance of Property so That It May Serve as Security
 This is a “constructive trust,” the reason of the law being to prevent unjust
enrichment.
 Example: Jose wants to buy a piece of land from Pedro, but Jose has no
money. So Jose asks Carlos to pay for the land. The land is then given in
Carlos’ name. This is supposed to be Carlos’ security until the debt of Jose is
paid. Here an implied trust has been created. Carlos is only a trustee, the
beneficiary being Jose. When Jose has the money, he may redeem the
property from Carlos and compel a conveyance thereof to him (Jose). The
trust here is implied, hence it exists even if in the title taken by Carlos, there
is no mention of the interest of Jose or of his right to redeem.
Trust Receipt
 The Court said: “A trust receipt, as a contract, partakes of the nature of a
conditional sale the importer becoming the absolute owner of the imported
merchandise as soon as he has paid its price; until the owner or the person
who advanced payment has been paid in full, or if the merchandise has
already been sold, the proceeds turned over to him, the ownership continues
to be vested in such person.”
 A trust receipt is a security transaction intended to aid in financing importers
and retail dealers who do not have sufficient funds or resources to finance
the importation or purchase of merchandise, and who may not be able to
acquire credit except thru utilization, as collateral, of the merchandise
imported or purchased.
Default or Failure of Entrustee to Comply with Terms of Trust Agreement:
Cancellation of Trust Not Absolutely Necessary
 In the event of default by the entrustee on his obligations under a trust
receipt agreement, it is not absolutely necessary that the entruster cancel
the trust and take possession of the goods to be able to enforce his rights
thereunder.
Art. 1451.
Art. 1451. When land passes by succession to any person and he causes the legal
title to be put in the name of another, a trust is established by implication of law
for the benefit of the true owner.
When Title to Inherited Land Is Not in Owner’s Name
 This is a “resulting trust,” for a trust is intended.
 Example: A inherited a piece of land from his father, but A caused the legal
title to be put in the name of X, a brother. Here a trust is impliedly
established, with X as trustee and A as the beneficiary.
Rule in Co-Ownership
If a co-owner or co-heir possesses certain property owned in common by him and
others, he is under the same situation as a trustee insofar as the shares of the other
co-owners are concerned.
Paraphernal Properties Registered Under the Husband’s Name
If properties inherited by a wife are registered under the husband’s name, she can
claim them as her own upon his death even if she does not refer to the situation as
a trust. Reason: Here clearly a trust was intended.
In Severino v. Severino, 44 Phil. 343, it was clearly ruled that the registration of
property in the name of one who holds in a trust character does not extinguish the
trust or destroy the rights of the beneficiary.
Title in the Name of the Surviving Husband
It was held that “as long as the surviving husband retains the property of the
conjugal estate itself, or its place, if sold, he holds it in the character of
administrator and is virtually a trustee (except with reference to his share) for those
interested in the conjugal partnership. Nor does the obtaining of a Torrens Title in
any way change the situation.”
Right of Co-heirs
The Supreme Court observed that: “One who acquires a Torrens Title in his own
name to property which he is administering for himself and his brother and sisters
as heirs from a common ancestor, and in common descent, may be compelled to
surrender to each of his co-heirs his appropriate share; and a proceeding for
partition is an appropriate remedy by which to enforce this right.”
Art. 1452.
Art. 1452. If two or more persons agree to purchase property and by common
consent the legal title is taken in the name of one of them for the benefit of all, a
trust is created by force of law in favor of the others in proportion to the interest
of each.
When Property Is in the Name of Only One of the Co-Buyers
This is a resulting trust in view of the intent to create a trust.
Presumption That Shares Are Equal
The shares or interest of co-owners are presumed to be equal.
Art. 1453.
Art. 1453. When property is conveyed to a person in reliance upon his declared
intention to hold it for, or transfer it to another or the grantor, there is an implied
trust in favor of the person whose benefit is contemplated.
When a Person Declares His Intent to Hold Property for Someone Else
(a) This is a “resulting trust” in view of the owner’s intention to create a trust.
(b) Example: Jose bought from Pedro a parcel of land and it was conveyed to him
(Jose) on Jose’s statement or declaration that he would hold it in behalf of Carlos.
Here, Jose is merely the trustee, while Carlos is the beneficiary.
(c) Suppose in the preceding example Jose asserts that he is really the owner, would
he be allowed to do this?
ANS.: No, for he would be in estoppel. (See Art. 1431, Civil Code).
(d) If a person promises to temporarily hold property and administer the same 'til
it be freed from all debts and encumbrances, he is a mere trustee and must later
on return the property. (Martinez v. Grano, 42 Phil. 35).
Art. 1454.
Art. 1454. If an absolute conveyance of property is made in order to secure the
performance of an obligation of the grantor toward the grantee, a trust by virtue
of law is established. If the fulfillment of the obligation is offered by the grantor
when it becomes due, he may demand the reconveyance of the property to him.
Absolute Conveyance Made for Security Purpose
(a) This is a “constructive trust,” the purpose of the law being to prevent unjust
enrichment to the prejudice of the true owner.
(b) Example: Marlene was indebted to Susan. For the sole purpose of guaranteeing
her debt, Marlene sold her parcel of land to Susan. Here, a trust has been created.
If Marlene pays her debt when it becomes due, Marlene may demand the resale of
the property to her.
Art. 1455.
Art. 1455. When any trustee, guardian or other person holding a fiduciary
relationship uses trust funds for the purchase of property and causes the
conveyance to be made to him or to a third person, a trust is established by
operation of law in favor of the person to whom the funds belong.
Use of Trust Funds
This is a “constructive trust” because again, the purpose is to prevent unjust
enrichment.
Applicability of Article
The Article applies to: (a) any trustee (b) guardian (c) or other person holding a
fiduciary relationship (Art. 1455) (like an agent; therefore the acquisitions of the
agent inure to the benefit of his principal)
Reasons for the Rule
(a) fiduciary or trust relations
(b) estoppel
(c) to remove the temptation to place self-interest above all other things, and at
the expense of one’s integrity and duty to another.
Art. 1456
Art. 1456. If property is acquired through mistake or fraud, the person obtaining it
is, by force of law, considered a trustee of an implied trust for the benefit of the
person from whom the property comes.
Property Acquired Thru Mistake or Fraud
(a) This is another example of a constructive trust.
(b) Example: Bella was given a car by Mina although it should have been given to
Erlinda. Bella is considered as merely the trustee of the car for the benefit of
Erlinda.
Nature of the Mistake or Fraud
(a) The mistake referred to in Art. 1456 is a mistake made by a third person, not
that made by a party to the contract. For if made by a party, no trust is created.
(Laureano v. Stevenson, 45 Phil. 252).
(b) Similarly, the fraud referred to in Art. 1456 is extra-contractual fraud and the
effects are those as mentioned in Comment No. 4. (Gemora v. Yap Tico, 52 Phil.
616).
Against Whom the Right Must Be Exercised
The right of action in an implied or constructive trust should be exercised against
the trustee, who may have caused the fraud and not against an innocent purchaser
for value. The action based on the trust should be filed within four years from the
discovery of the fraud. Of course, if the alleged fraudulent deed was recorded in
the Registry of Property, it is essential to count the four-year period from the date
of the registration inasmuch as said registration operates as a notice to the whole
world.
Query — Do Trusts Prescribe?
(a) Express trusts do NOT prescribe as long as they have not been repudiated. (Diaz
v. Garricho, L-11229, Mar. 20, 1958).
(b) The rule on implied trusts is, however, CONFUSING
How ‘Creative Trusts’ Are Created
This is by way of equity to prevent unjust enrichment, arising against one who, by
fraud, duress or abuse of confidence, obtains or holds the legal right to property
which he ought not, in equity and good conscience, to hold.
Art. 1457.
Art. 1457. An implied trust may be proved by oral evidence.
Proof of Implied Trust
(a) This Article applies whether the property is real or personal.
(b) The rule in Art. 1457 is different from that enunciated in Art. 1443 which states
that “no express trust concerning an immovable or any interest therein may be
proved by parol evidence.”
Oral Evidence for Trust Must Be Trustworthy
While an implied trust may be proved by oral evidence, still, said evidence must be
a trustworthy oral evidence, for oral evidence may be easily fabricated.