PRESCRIPTION 2.

Delay in asserting the complainant’s rights, the complainant

Chapter 1: General Provisions
1106. By Prescription:
A. One acquires ownership and other real rights through the lapse of
time in the manner and under the conditions laid down by law
B. Rights and actions are lost
 Sinaon vs. Sorongon: implied trust is subject to prescription;
prescription is rightly regarded as a statute of repose
 Morales vs. CFI of Misamis Occidental: prescription was not allowed
to apply to obtain ownership over a particular property due to the fact
that the statutory period was not complied with
 Two kinds of Prescription:
1. Acquisitive—acquisition of a right by the lapse of time; other names
are adverse possession and usucapcion
o Usucapcion—expressly vests the property and raised a new title in
the occupant
2. Extinctive—rights and actions are lost by the lapse of time; another
name is limitation of action
o Bar the right of action
 The concept most fundamental to a system of title by possession:
the relationship between the occupant and the land in terms of
possession is capable of producing legal consequences; in other
words, the possessor is the actor.
Acquisitive Extinctive
The possessor is the actor One does not look at the act of the possessor
but at the neglect of the owner
Important feature
Claimant in possession The owner out of possession
 Concept of laches—doctrine of stale—based upon grounds of
public policy which requires, for the peace of the society, and the
discouragement of stale claims
o Applies independently of prescription and the prescriptive period
has not yet expired
o Can also bar the filing or prosecution of a suit
o Requisites:
1. Conduct on the defendant giving rise to the situation of which
complaint is made and for which the complaint seeks a remedy
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having knowledge or notice of the defendant’s conduct and
having been afforded an opportunity to institute a suit
3. Lack of knowledge or notice on the part of the defendant that
the complainant would assert the right on which he bases his
suit
4. Injury or prejudice to the defendant in the event relief is
accorded to the complainant or the suit is not held barred
Laches Statute of Limitation
Concerned with the effect of the Concerned with fact of delay
delay
A question of inequity of permitting A matter of time
a claim to be enforced
Statutory
Equity Applies at law
Based on fixed time
1107.
A. Persons capable of acquiring property or rights by the other legal
modes may acquire the same by means of prescription
B. Minors and other incapacitated persons, may acquire property or
rights by prescription, either personally or through their parents,
guardians or legal representatives
 The acquisition of a minor without the assistance of his parents or
guardian is annullable or voidable
 However, when such minor comes of age, he may ratify the
acquisition
1108. Prescription, both acquisitive and extinctive, runs against:
A. Minors and other incapacitated persons—who have parents,
guardians or other legal representatives
 Art. 1108(1) of the Civil Code—illegitimate child cannot claim
exemption from the effects of prescription because they fall squarely
under the said article
B. Absentees—who have administrators, either appointed by them
before their disappearance or appointed by the courts
 If the absentee can go back to his domicile but he intentionally does
not want to return, prescription will lie against him
C. Persons living abroad—who have managers or administrators
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  With persons living abroad without administrators, prescription will
not run against them but it must be shown that they cannot return
to their domicile within the period when prescription should have
run
D. Juridical persons—except the State and its subdivisions
 Juridical persons—endowed by law of the attributes of a natural
person and hence can acquire and lose properties and rights
 State and its subdivision, acting in their sovereign capacity, cannot
be the subject of prescription
 But if the political subdivision or instrumentality of the government
is acting in its proprietary character, prescription will lie against it
 Persons who are disqualified from administering their property
have a right to claim damages from their legal representatives
whose negligence has been the cause of prescription.
1109. Prescription does not run between:
A. Husband and Wife—even though there be a separation of property
agreed upon in the marriage settlements or by judicial decree
 Art. 1109 of the 1950 Civil Code—prescription by adverse
possession cannot exist between husband and wife
B. Parents and Children—during the minority or insanity of the latter
 Natural bond of filiation is the basis of this rule
C. Guardian and Ward—during the continuance of the guardianship
 Due to fiduciary relationship, prescription will not lie during the
period of guardianship
1110. Prescription, acquisitive and extinctive, runs in favor of, or against
a married woman
1111. Prescription, obtained by a co-proprietor or a co-owner shall
benefit the others
 Co-ownership—exists when the ownership of an undivided thing or
right belongs to different persons
1112. Persons with capacity to alienate property may renounce
prescription already obtained, but not the right to prescribe in the
future.
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 It is deemed to have been tacitly renounced when the renunciation
results from acts which imply the abandonment of the right required
 When a debt is already barred by prescription, it cannot be enforced
by the creditor. But a new contract recognizing and assuming the
prescribed debt would be valid and enforceable
 A new express promise to pay a debt barred, take the case from the
operation of the statute of limitations as this proceeds upon the
ground that as a statutory limitation merely bars the remedy and
does not discharge the debt, there is something more than a mere
moral obligation to support a promise, to wit – a pre-existing debt
which is a sufficient consideration constitutes, in fact, a new cause
of action
1113. All things which are within the commerce of men are susceptible
of prescription, unless otherwise provided.
 Property of the State or any of its subdivisions not patrimonial in
character shall not be the object of prescription
 Forest lands of the public domain cannot be acquired by prescription,
its possession however long cannot ripen into private ownership
 Judicial confirmation of imperfect title—those who, by themselves or
through their predecessors-in-interest, have been in the open,
continuous, exclusive, and notorious possession and occupation of
agricultural lands of the public domain, under bona fide claim of
ownership, for at least 30 years immediately preceding the filing of the
application for confirmation of title
1114. Creditors and all other persons interested in making the
prescription effective may avail themselves thereof notwithstanding the
express or tacit renunciation by the debtor or proprietor
1115. The provisions of the present Title are understood to be without
prejudice to what in this Code or in special laws is established with
respect to specific cases of prescription
 In case of conflict between the period provided in this Title and in
another portion of the Civil Code: the more specific provision will
prevail
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  If different statutes are involved providing for different prescriptive
periods, as well as the types of cause of action contemplated by them
are apparently conflicting, they do not exclude each other from being
availed of by the aggrieved party
1116. Prescription already running before the effectivity of this Code
shall be governed by laws previously in force
 But if since the time of this Code took effect, the entire period herein
required for prescription should elapse, the present Code shall be
applicable, even though by the former laws a longer period might be
required
 Situations:
A. Prescriptive period under the old law has lapsed before the effectivity
of the 1950 Civil Code—prescriptive period of the old law shall apply
B. Prescriptive period under the old law is still running upon the
effectivity of the 1950 Civil Code
i. Old law provides for a different period for the same situation—1950
Civil Code shall prevail provided that the prescriptive period of such
has already lapsed even though under the old law, the period has not
yet lapsed.
ii. The remaining balance of the prescription period in the old law
since the effectivity of the 1950 Civil Code is shorter than that
provided in the latter—old prescriptive law will apply
Chapter 2: Prescription of Ownership and Other Legal Rights
1117. Acquisitive prescription of dominion and other legal rights may be:
A. Ordinary—requires possession of things in good faith and with just
title for the time fixed by law
 Requires uninterrupted possession for the required statutory period
of years in good faith and with a just title
B. Extraordinary
 Requires uninterrupted possession for the required statutory period
of years but without need of just title and good faith on the part of
the possessor
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1118. Possession has to be in the concept of an
A. Owner
 The possessor asserts dominion over the property to the exclusion
of all others
 It must be adverse possession
 For possession to constitute a foundation of a prescriptive right, it
must be en concepto de dueno (claim of title) or that possession should
be adverse.
B. Public
 There must be a notorious holding of the property known to the
community
 It must not be of a surreptitious character because it must be in the
concept of an owner
C. Peaceful
 There must be no valid interference from others claiming or
asserting their rights to the property for acquisitive prescription to
apply
D. Uninterrupted
 ―while tax declaration and tax receipts are not necessarily evidence of
title, they are considered as a strong evidence of possession for no one
in his right mind would be paying taxes year after year for a property
that is not in his actual possession‖
1119. Acts of possessory character executed in virtue of license or by
mere tolerance of the owner shall not be available for the purposes of
possession
 Possession by tolerance does not imply an assertion of ownership and
thus produces no effect with respect to possession or prescription
1120. Possession is interrupted for the purposes of prescription either:
A. Naturally—through any cause it should cease for more than 1 year
B. Civilly—produced by judicial summons to the possessor
 An uninterrupted possession strengthens the adverse right of the
possessor
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1121. Possession is naturally interrupted when through any cause it
should cease for more than 1 year.
 The old possession is not revived if a new possession should be
exercised by the same adverse claimant
1122. If the natural interruption is for only one year or less, the time
elapsed shall be counted in favor of the prescription
 Example for 1121 and 1122:
o B sold his property in a public action where A was the highest bidder.
A was already in possession of the said land for 4 years before Z
claimed that he was the rightful owner. A left the said property for 2
years before A found out that Z was a fraud. A continued to be in the
possession of the property for 7 years before C claimed that he had
purchased the disputed property before A did. A will not own the land
by ordinary acquisitive prescription even though he had possessed the
property for a total of 11 years because the interruption was more
than 1 year. But if the interruption was only a year or less, that said
time will be computed in favor of the prescription.
1123. Civil interruption is produced by judicial summons to the possessor
 It is not the filing of the complaint in court which interrupts the
possession. It is interrupted upon the receipt of the possessor of the
judicial summons after the filing of the complaint.
1124. Judicial summons shall be deemed not to have been issued and
shall not give rise to interruption:
A. If it should be void for lack of legal solemnities
 Judicial summons have been served by a person not authorized by
the court
B. If the plaintiff should desist from the complaint or should allow the
proceedings to lapse
 Desistance—means voluntarily having the case dismissed
 Allowing the proceeding to lapse—manifests the lack of interest to
prosecute the case
C. If the possessor should be absolved from the complaint
 Absolution—the complaint have not been fully substantiated to
support any adverse claim by the complainant
 The possessor is always presumed to be in good faith
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In all these cases, the period of interruption shall be counted for the
prescription.
1125. Ant express or tacit recognition which the possessor may make of
the owner’s right also interrupts possession.
 This is the recognition that one owner recognizes somebody else as
having a superior right as an owner
 ―Where the sale is subject to the owner’s right of redemption, the
purchaser’s possession has been held in subordination to the title of the
owner prior to the expiration of the redemption period, although it may
become hostile thereafter‖
1126. Against a title recorded in the Registry of Property, ordinary
prescription of ownership or real rights shall not take place to prejudice
a third person, except in virtue of another title also recorded; and the
time shall begin to run from the recording of the latter.
 As to lands registered under the Land Registration Act, the provisions
of that special laws shall govern
 Although prescription will not apply to registered property, the doctrine
of laches is applicable.
 Laches—the rule of ineffectivity of stale demands; inaction for an
unreasonable and unexplained length of time constitutes laches
 A registered landowner may lose his right to recover the possession of
his registered property be reason of laches.
1127. The good faith of the possessor consists in the reasonable belief
that the person from whom he received the thing was the owner
thereof, and could transmit his ownership
1128. The conditions of good faith required for possession in Arts. 526,
527, 528 and 529 of this Code are likewise necessary for the
determination of good faith in the prescription of ownership and other
real rights.
 Art. 526—not aware that there exists any flaw which invalidates his title
or mode of acquisition
 Art. 527—good faith is always presumed
 Art. 528—possession acquired in good faith does not lose this character
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 Art. 529—it is presumed that possession continues to be enjoyed in the
same character in which it was acquired
 Good faith cannot be invoked if the claimant has actual or constructive
notice of the legal and valid rights of possession of another during the
prescriptive period
1129. For the purposes of prescription, there is just title when the
adverse claimant came into possession of the property through one of
the modes recognized by law for the acquisition of ownership or other
real rights, but the grantor was not the owner or could not transmit any
right.
Art. 1130. The title for prescription must be true and valid
 “Titulo Colorado”—such title where, although there was a mode of
transferring ownership, still something is wrong because the grantor is
not the owner
Art. 1131. For the purposes of prescription, just title must be proved; it is
never presumed.
Art. 1132. The ownership of movables prescribes through uninterrupted
possession for 4 years in good faith.
 The ownership of personal property also prescribes through
uninterrupted possession for 8 years, without need of any other
condition
 With regard to the right of the owner to recover personal property
lost or of which he has been illegally deprived, as well as with respect
to movables acquired in a public sale, fair, or market, or from a
merchant’s store the provisions of Arts. 559 and 1505 of this Code
shall be observed.
 Art. 559—the possession of movable property acquired in good faith is
equivalent to a title. If the possessor lost or of which the owner has been
unlawfully deprived, has acquired it in good faith at a public sale, the
owner cannot obtain its return without reimbursing the price paid
therefor
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1133. Movables possessed through a crime can never be acquired
through prescription by the offender
 The benefits of prescription are denied to the offender
 However, if the thing was in the meanwhile passed to a subsequent
holder, prescription begins to run (4 or 8 years, depending on the
existence of good faith)
1134. Ownership and other rights over immovable property are acquired
by ordinary prescription through possession of 10 years.
1135. In case the adverse claimant possesses by mistake an area greater,
or less, than that expressed in his title, prescription shall be based on the
possession.
 The extent of property subject to the prescription shall be the one
actually possessed or held by the claimant regardless of the size indicated
or described in the title.
1136. Possession in wartime, when the civil courts are not open, shall
not be counted in favor of the adverse claimant.
 The possession of the adverse claimant during that time shall not be
counted where it must be observed that the civil courts must be closed
 If it is functioning, even during wartime, the possession may be counted
in his favor
1137. Ownership and real rights over immovable also prescribe through
uninterrupted adverse possession thereof for 30 years, without need of
title or for good faith.
1138. In the computation of time necessary for prescription, the
following rules shall be observed:
A. The present possessor may complete the period necessary for
prescription by tacking his possession to that of his grantor or
predecessor in interest
 ―grantor‖ and ―predecessor in interest‖ connote a transfer in a
manner provided by law of property from one person to another
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  Tacking possession is allowed only when there is a privity of
contract or relationship between the previous and present
possessors.
B. It is presumed that the present possessor who was also the
possessor at a previous time, has continued to be in possession
during the intervening time, unless there is proof to the contrary
 The presumption proceeds from a set of facts
 For the presumption to exist, there must be a prior showing of the
fact that the person presently possessing the property was also the
one in possession of the same before the intervening time
C. The first day shall be excluded and the last day included
Chapter 3: PRESCRIPTION OF ACTIONS
1139. Actions prescribe by the mere lapse of time fixed by law.
 Prescription of actions = limitation of actions
o Actions to enforce or preserve a right or claim must be brought within
a certain period of time
 Actions prescribe by mere lapse of time fixed by law
 When the government is the real party in interest and is proceeding
mainly to assert its own rights and recover its own property, there can
be no defense on the ground of laches or limitation
o Prescription of action does not run against the government
 Requisites for cause or right of action exists:
a. A right in favor of the plaintiff by whatever means and under
whatever law it arises or is created must be present
b. An obligation on the part of the defendant to respect such right
c. An act or omission on the part of such defendant violative of the right
of the plaintiff
 It is the legal possibility of bringing the action that determines the
starting point for the computation of the period of prescription, that is,
only upon the happening of the third requisite when it can be said that a
cause of action has arisen
1140. Actions to recover movables shall prescribe eight years from the
time the possession thereof is lost, unless the possessor has acquired the
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ownership by prescription for a less period, according to article 1132,
and without prejudice to the provisions of articles 559, 1505, and 1133.
 This refers to extraordinary prescription for movables period of which
to bring an action to recover is fixed at 8 years
o However, action shall not prosper if it is brought after 4 years when
the possessor has already acquired title by ordinary acquisitive
prescription
 If possessor acquired the movable in good faith at a public sale, owner
cannot obtain its return without reimbursing the price paid therefore
 In certain cases, owner is precluded from recovery without right to
reimbursement although the action has not yet prescribed
 Movables possessed through a crime cannot be acquired through
prescription by offender
1141. Real actions over immovables prescribed after thirty years.
This provision is without prejudice to what is established for the
acquisition of ownership and other real rights by prescription.
 Action for recovery of title to, or possession of, real property or an
interest therein can only be brought within 10 years after cause of action
accrues
 This article refers to extraordinary prescription for immovables
 If action is based on fraud, action prescribes in 4 years from the
discovery of fraud and such discovery is deemed to have taken place
upon the issuance of the certificate of title over the property
 If based on implied or constructive trust, in 10 years from the alleged
fraudulent registration or date of issuance of certificate of title over the
property
1142. A mortgage action prescribes after ten years.
1143. The following rights, among others specified elsewhere in this
Code, are not extinguished by prescription:
1. To demand a right of way, regulated in article 649
2. To bring an action to abate a public or private nuisance
 Rights not extinguished by prescription:
a. To demand partition of a co-ownership as long as the co-ownership is
expressly or impliedly recognized
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 b. To enforce an express trust
c. To demand easement of light and view
d. To declare the inexistence of a contract or the nullity of a void
judgment or of a void title
e. To compel a trustee to reconvey property registered in his name for
the benefit of the cestui que trust
f. To compel reconveyance of land registered in bad faith provided it has
not yet passed to an innocent purchaser for value
g. To quiet title brought by a person in possession of the property
h. To recover real property or its value where the property was taken by
the government for public use without first acquiring title thereto
i. To seek issuance of a writ of possession
j. To probate a will
k. To recover by the State non registrable land
1144. The following actions must be brought within ten years from the
time the right of action accrues:
1. Upon a written contract
2. Upon an obligation created by law
3. Upon a judgment
 The computation of the period should start from the date the cause of
action accrues or from the day the right of the plaintiff is violated
o The 10-year period in the case of a written contract is to be reckoned
from that time which is not necessarily the date of execution of the
contract
 Written contracts:
o Action for annulment under Art. 1391 shall be brough within 4 years
o A P.N or a check or a ticket issued for transportation is a written
contract
o Right to claim payment of deficiency after foreclosure of real estate
mortgage prescribes in 10 years
 Obligations created by law:
o Obligation of the possessor to reconvey to the true owner real
property arising from a constructive or implied trust
o Obligation of the winner in a gambling game to refund the amount
won to the loser
o Obligation of the lessor to indemnify the lessee in good faith for
useful improvements on the property leased
o Obligation of husband and wife, parents and children, and brothers
and sisters to support each other
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 Judgment—judgment that is final and executory
o Under Rules of Court, judgment may be executed on motion within 5
years from the date of its entry or from the date it becomes final and
executory. After the lapse of such time, and before it is barred by the
statute of limitations, it may be enforced by ordinary action within 10
years
1145. The following actions must be commenced within six years:
1. Upon an oral contract
2. Upon a quasi-contract
 Action upon an oral contract of tenancy to compel the reinstatement of
a tenant comes under the provision
 Recover local license fees illegally collected upon a quasi-contract
1146. The following actions must be instituted within four years:
1. Upon an injury to the rights of the plaintiff
2. Upon a quasi-delict
 Purpose of an action or suit and the law to govern it, including the
period of prescription, are to be determined by the complaint itself, its
allegations and prayer for relief
 Examples of ―injury to the rights of the plaintiff:‖
o A suit questioning the removal as corporate secretary must be brought
within 4 years for the unjustified separation from employment or
illegal dismissal is an injury to the rights of the plaintiff
o Action for recovery of damages for taking or retaining personal
property, or incident to trespass upon real estate prescribes within 4
years
 Examples of quasi-delicts:
o Prescriptive period is counted from the day quasi-delict occurred or
was committed
o Action against the Central Bank for ―tortuous inference,‖ that is, in
closing and liquidating a bank
 Other actions that prescribe in 4 years:
a. To revoke or reduce a donation based on the birth, appearance, or
adoption of a child
b. To revoke a donation based on non-compliance with a condition
c. To rescind a contract
d. To annul a contract
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1147. The following actions must be filed within one year:
1. For forcible entry and detainer
2. For defamation
 Other actions that prescribe in 1 year:
a. To recover possession de facto
b. To revoke a donation on the ground of ingratitude
c. To rescind or recover damages if immovable is sold with non-
apparent burden or servitude
d. To enforce warranty of solvency in assignment of credits
 Actions that prescribe in 6 months:
a. To rescind the sale or reduce the price of real estate
1. sold at a certain price for a unit area, if the vendor is unable to
deliver all that is stated in the contract
2. if made for a lump sum, of the vendor is unable to deliver all that
which is included within the boundaries mentioned in the contract
b. To enforce warranty against hidden defects of, or encumbrances upon
the thing sold
 Action that prescribe in 40 days:
o Redhibitory action, based on the faults or defects of animals sold,
must be brought within 40 days from the date of their delivery to the
vendee
1148. The limitations of action mentioned in articles 1140 to 1142, and
1144 to 1147 are without prejudice to those specified on other parts of
this Code, in the Code of Commerce, and in special laws.
 The provisions of Title V on Prescription have suppletory application to
specific cases of prescription found elsewhere in the Civil Code and in
special laws
1149. All other actions whose periods are not fixed in this Code or in
other laws must be brought within five years from the time the right of
action accrues.
 The right of action or cause of action accrues from the moment of
commission or omission of an act by a party in violation of his duty to,
or of the right, of another
 Essential elements are:
a. Right in favor of a person (obligee)
b. A correlative obligation on the part of another (obligor)
c. Am act or omission in violation of said right
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1150. The time for prescription for all kinds of actions, when there is no
special provision which ordains otherwise, shall be counted from the day
they may be brought.
 Prescriptive period for actions based on quasi-delict shall begin to run
―from the day the action may be brought,‖ that is, from the day the
quasi-delict was committed
 Unless otherwise provided, the statutory limitation for period for filing a
criminal action begins to run on the commission of the offense
 Where offended party expressly reserves his right to institute a separate
civil action, the running of the period of prescription starts to run from
the date reservation is made up to the time the civil action is actually
filed in court
 Statute of limitations begins to run as to each unpaid installment from
the date the creditor could sue the debtor thereof
 Prescriptive period to set aside or reform a simulate or fictitious written
deed of pacto de retro sale where the alleged vendees make known their
intention by overt acts not to abide by the true agreement, starts from
the date they make known such intention
1151. The time for prescription of actions which have for their object the
enforcement of obligations to pay principal with interest or annuity runs
from the last payment of the annuity or of the interest.
 This refers to obligations where payment of which is due at stipulated
intervals
 Hence, if the debt is not yet due, payment of interest or annuity will not
start the running of the period
1152. The period for prescription of actions to demand the fulfillment of
obligations declared by a judgment commences from the time the
judgment became final.
1153. The period for prescription of actions to demand accounting runs
from the day the persons who should render the same cease in their
functions.
The period for the action arising from the result of the accounting runs
from the date when said result was recognized by agreement of the
interested parties.
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 There is no difference between actions for accounting and reliquidation
since both involve the determination, adjustment and settlement of what
is due to the parties under the law
1154. The period during which the obligee was prevented by the
fortuitous event from enforcing his right is not reckoned against him.
 General Rule: existence of a fortuitous event relieves the obligor from
liability that might otherwise arise in the breach of an obligation or
excuse an obligee from his failure to exercise a right that might
otherwise constitute a waiver of said right
 A court order deferring action on the execution of a judgment
suspended the running of the 5-year period for execution of a judgment
 Prescriptive period to institute foreclosure proceeding by a mortgagee-
bank was held legally interrupted when the bank was placed under
receivership by the Central Bank with express prohibition from
transacting business
1155. The prescription of actions is interrupted when they are filed
before the court, when there is a written extrajudicial demand by the
creditors, and when there is any written acknowledgement of the debt
by the debtor.
 This means that the period of prescription begins to run anew, and
whatever time of limitation might have already elapsed is thereby
negated and rendered inefficacious
 Filing of an action in court:
o Civil actions are deemed commenced from the date of the filing and
docketing of the complaint with the Clerk of Court
o Interruption lasts during the pendency of the action
o If the plaintiff desists from prosecuting the action to its final
conclusion, the action is deemed abandoned and as if it has never
been instituted
 Written extrajudicial demand by the creditor when it does not interrupt
prescription:
o Petition to open an administration proceeding over the estate of a
deceased debtor, even if brought by the creditor
o Written extrajudicial demand addressed to a co-debtor will not
interrupt the prescription as to other debtors who did not receive the
demand
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o In the absence of an existing obligation, the party demanding
annulment cannot be considered a creditor, and Art. 1155 is not
applicable
 Written acknowledgement of the debt by the debtor:
o Written offer of payment works as a renewal of the obligation
OBLIGATIONS AND CONTRACTS
TITLE 1: OBLIGATIONS
CHAPTER 1: GENERAL PROVISIONS
1156. An obligation is a juridical necessity to give, to do or not to do.
 Obligation—―legal bond whereby constraint is laid upon a person or
group of persons to act or forbear on behalf of another person or group
of persons‖
 Elements:
1. Vinculum juris or juridical tie which is the efficient cause established by
the various sources of obligations
2. The object which is the prestation or conduct, required to be observed
3. Subject-persons who, viewed from the demandability of the obligation
are the (a) active (oblige) and the (b) passive (obligor) subjects
 ―Persons‖—both natural and juridical persons
 Prestations—to give, to do and not to do
1157. Obligations arise from:
1. Law
2. Contracts
3. Quasi-Contracts
4. Acts or omissions punished by law
5. Quasi-delicts
 The enumeration is exclusive where there can be no other sources of
obligations
 Obligations are:
A. Civil--gives a right of action to compel their performance
B. Natural—based on equity and natural law; it does not grant a right of
action to enforce their performance, but after voluntary fulfillment by
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 the obligor, they authorize the retention of what has been delivered or
rendered by reason thereof
1158. Obligations derived from law are not presumed. Only those
expressly determined in this Code or in special laws are demandable,
and shall be regulated by the precepts of the law which establishes them
and as to what has not been foreseen, by the provisions of this Book.
 Law is the most important source of obligation
o It does not depend upon the will of the parties
o Imposed by the State and is generally imbued with some public policy
considerations
o The basis of the obligation must be clear
o It cannot be presumed
 Existing law enters into and forms part of a valid contract without need
for the parties expressly making reference thereto
1159. Obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith.
 Contract—a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some
service
 A contract may involve mutual and reciprocal obligations and duties
between and among the parties
 The willful non-fulfillment of the provisions of a contract may involve
sanctions
 The parties voluntarily impose upon themselves the performance of
certain duties and obligations which, in the event of breach or willful
non-performance, can prejudice the other party or parties
1160. Obligations derived from quasi-contracts shall be subject to the
provisions of Ch. 1, Title 17, of this Book.
 Certain lawful, voluntary and unilateral acts give rise to the juridical
relation of quasi-contract to the end that no one shall be unjustly
enriched or benefited at the expense of the other
1161. Civil obligations arising from criminal offenses shall be governed
by the penal laws, subject to the provisions of Art. 2177, and of the
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pertinent provisions of Ch. 2, Preliminary Title, on Human Relations, and
of Title 18 of this Book, regulating damages.
 Civil liability attaches to any individual who is found to be criminally
liable.
1162. Obligations derived from quasi-delicts shall be governed by the
provisions of Ch. 2, Title 17 of this Book, and by special laws.
 Quasi-delict—whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damage done.
Such fault or negligence, if there is no pre-existing contractual relation
between the parties
CHAPTER 2: NATURE AND EFFECTS OF OBLIGATIONS
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.
 ―something‖—connotes a determinate object
 Determinate object—definite, known and has already been distinctly
decided and particularly specified as the matter to be given from among
the same things belonging to the same kind
 In case of a contrary stipulation of the parties, such should not be one
contemplating relinquishment or waiver of the most ordinary diligence
 Common carriers—persons, corporations, firms or associations engaged
in the business of carrying or transporting passengers or goods or both,
by land, water, or air, for compensation, offering their services to the
public
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.
 Acquisition of real right means that such right can be enforceable
against the whole world and will prejudice anybody claiming the same
object of the prestation
 The real right only accrues when the thing or object of the prestation is
delivered to the creditor
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 The personal right of the creditor can be defeated by a third person in
good faith who has innocently acquired the property prior to the
scheduled delivery regardless of whether or not such third person
acquired the property after the right to the delivery of the thing has
accrued in favor of the creditor
 Personal right—the power of one person to demand of another, as a
definite passive subject, the fulfillment of a prestation to give, to do, or
not to do
 Real right—the power belonging to a person over a specific thing,
without passive subject individually determined, against whom such
right may be personally exercised
1165. When what is to be delivered is a determinate thing, the creditor,
in addition to the right granted him by Art. 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 2 or
more persons who do not have the same interest, he shall be
responsible for any fortuitous event until he has effected the delivery.
 Generic—any object belonging to the same kind
 Non-delivery of:
o Generic thing—the creditor may have it accomplished or delivered in
any reasonable and legal way charging all expenses in connection with
such fulfillment to the debtor
o Determinate thing—the remedy is to file an action to compel the
debtor to make the delivery which is called specific performance
 Fortuitous event—an event which ―could not be foreseen, or which
though foreseen, were inevitable‖
 A fortuitous event will not excuse the obligor from his obligation in 2
cases:
1. If the obligor delays
2. If he has promised to deliver the same thing to 2 or more persons
who do not have the same interest
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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.
1167. If the 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 obligations. Furthermore, it may be decreed that what has
been poorly done be undone.
1168. When the obligation consists in not doing and the obligor does
what has been forbidden, it shall also be undone at his expense.
 ―at his cost‖—imply both the right to have somebody else perform the
obligation and the right to charge the expenses thereof to the debtor
1169. Those obliged to deliver or to do something incur in delay from the
time the obligee judicially or extra-judicially 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 declare; 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.
 mora solvendi—delay or default committed by the debtor
 mora accipiendi—delay or default committed by the creditor
o the debtor can consign whatever is due to the creditor in court if the
circumstances warrant
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 Delay in the performance of the obligation must either be malicious or
negligent
o Hence, if the delay was only due to inadvertence without any malice or
negligent, the obligor will not be held liable under Art. 1170
 Default generally begins from the moment the creditor demands the
performance of the obligation
o Without such demand, judicial or extra-judicial, the effects of default
will not arise.
o Commencement of a suit is a sufficient demand
o Obligor is liable for damages for the delay from the time of extra-
judicial or judicial demand
 Art. 1169 is applicable only when the obligation is to do something
other than the payment of money
 Art. 2209 shall apply in obligations for the payment of money where ―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 6%
per annum‖
 If the contract stipulates from what time interest will be counted, said
stipulated time controls
 An action or suit can be filed at anytime after the non-compliance of the
other party of his obligation because the cause of action of the aggrieved
party will always start from such time
 2 cases where an extra-judicial demand should first be made prior to the
filing of a civil suit:
1. Ejectment cases
2. Consignment cases
 In ―default‖, it is necessary that the following requisites be present for
the debtor to be in default:
1. That the obligation be demandable and already liquidated
2. That the debtor delays performance
3. That the creditor requires the performance judicially and extra-
judicially
 Demand is not necessary in 3 cases:
1. When the obligation or the law expressly so declares
2. When time is of the essence in a particular contract
3. When it would be useless, as when the obligor has rendered it beyond
his power to perform
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 Reciprocal obligations—those created and established at the same time,
out of the same cause and which results in a mutual relationship of
creditor and debtor between the parties
o The performance of one is conditioned upon the simultaneous
fulfillment of the other
o Obligation of one is a resolutory condition of the obligation of the
other, the non-fulfillment of which entitles the other party to rescind
the contract
 Contract of loan
 Contract of lease
 Contract of sale
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.
 If any of these four bases of liability co-exist with a fortuitous event or
aggravates the loss caused by a fortuitous event, the obligor cannot be
excused from being liable on his obligation
1171. Responsibility arising from fraud is demandable in all obligations.
Any waiver of an action for future fraud is void.
 The dolo or fraud necessarily involves a valid agreement but, in the
performance of the same, fraud is committed
1172. Responsibility arising from negligence in the performance of every
kind of obligation is also demandable, but such liability may be regulated
by the courts, according to the circumstances.
 Liability can be regulated by the courts depending on the circumstances
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 Arts. 1171
and 2201, par. 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.
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 Negligence—―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‖
o In essence, it is the want of care required by circumstances
o It is a relative or comparative, not an absolute term and its application
depends upon the situation of the parties and the degree of care and
vigilance which the circumstances reasonably require
o It must be always proven
 Bad faith—a state of mind affirmatively operating with furtive design or
with some motive of ill-will.
o It imports a dishonest purpose or some moral obliquity and conscious
doing of wrong
o It is synonymous with fraud and involves a design to mislead or
deceive another, not prompted by an honest mistake as to one’s rights
or duties, but by some interested or sinister motive
 Art. 2201, 2nd par—the obligor shall be responsible for all damages
which may be reasonably attributed to the non-performance of the
obligation
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.
 The general rule is that ―no one should be held to account for fortuitous
cases‖
 For the breach of an obligation due to an ―act of God‖, the following
must concur:
1. The cause of the breach of the obligation must be independent of the
will of the debtor
2. The event must be such as to render it impossible for the debtor to
fulfill his obligation in a normal manner
3. The debtor must be free from any participation in, or aggravation of
the injury
 When the negligence of a person concurs with an act of God in
producing a loss, such person is not exempt from liability
 When the object of prestation is generic—the debtor cannot avail of the
benefit of a fortuitous event even if the object is wiped out by it
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 Even if there is a fortuitous event, a person can still be held responsible
for the performance of his obligation if the law, or the stipulation of the
parties, or when the nature of the obligation so requires
1175. Usurious transactions shall be governed by special laws.
 Art. 1175 in itself does not prohibit usurious contracts
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.
 A presumption must always arise from a fact or a set of facts
o To have probative value, the creation of the presumption must be
provided by law
 Presumption can be rebutted by strong evidence to the contrary
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.
 Following successive measures which must be taken by the creditor
before he can bring an action for rescission of an allegedly fraudulent
sale:
1. Exhaust the properties of the debtor through levying by attachment
and execution upon all the property of the debtor, except such as are
exempt by law from execution
2. Exercise all the rights and actions of the debtor, save those personal to
him
3. Seek rescission of the contracts executed by the debtor in fraud of
their rights
1178. Subject to the laws, all rights acquired in virtue of an obligation are
transmissible, if there has been no stipulation to the contrary.
 In general, rights growing out of an obligations are transmissible
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 However, the person who transmits the right cannot transfer greater
rights than he himself has by virtue of the obligation, and vice versa
 The transmissibility of rights may be limited, or altogether prohibited by
stipulation of the parties
 Transmission must be subject to pertinent laws
Chapter 3: DIFFERENT KINDS OF OBLIGATIONS
Section 1: Pure and Conditional Obligations
1179. 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.
 Pure obligation—an unqualified obligation which is demandable
immediately
o An obligation whose performance does not depend upon a future or
uncertain event, or past event unknown to the parties
 Conditional obligation—reverse of a pure obligation
o Condition—an act or event, other than a lapse of time, which, unless
the condition is excused, must occur before a duty to perform a
promise in the agreement arises or which discharges a duty of
performance that has already risen
 The performance depends upon a future or uncertain event or upon
a past event unknown to the parties
 Its efficacy or obligatory force is subordinated to the happening of a
future or uncertain event
 Resolutory condition—once the condition is established and
acknowledged, the right immediately exists and therefore the obligation
concomitant to the right can be demanded at once
o The obligation is resolved or extinguished by operation of law but
such resolution can be made effective at some later date if the parties
so stipulate in their contract
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o In case a contract involves a reciprocal obligation, the obligation of
one is a resolutory condition of the obligation of the other, the non-
fulfillment of which entitles the other party to rescind the contract
 Suspensive condition—demanded only upon the happening of the
future or unknown event or a past event unknown to the parties, which
constitutes the condition
o It gives rise to the performance of the obligation
o If the condition does not take place, the parties would stand as if the
conditional obligation had never existed
o When a contract is subject to this, its birth or effectivity can take place
only if and when the event which constitutes the condition happens or
is fulfilled
 Contract to sell—there is only a promise to sell upon the happening of
the suspensive condition
 Conditional contract of sale—if the suspensive condition is not fulfilled,
the perfection of the contract is abated
Contract of sale Contract to sell
Ownership thereto automatically Ownership will not automatically
transfers to the buyer by operation transfer to the buyer although the
of law without any further act property may have been previously
having to be performed by the delivered to him
seller
The prospective seller still has to
convey title to the prospective
buyer by entering into a contract of
sale
1180. 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.
 Debtor—usually the passive subject of the prestation because he is the
one who can be compelled to give or do the prestation
 Creditor—the active subject because he is the one who can compel
performance
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.
 Condition precedent—known as the suspensive condition
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 o An act or event, other than a lapse of time, which must exist or occur
before a duty to perform a promised performance arises
o If the condition does not occur and is not excused, the promised
performance need not be rendered
 Condition subsequent—known as the resolutory condition
o An event, the existence of which, by agreement of the parties, operates
to discharge a duty of performance that has arisen
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.
 ―when fulfillment of a condition‖—connotes a suspensive character of
prestation
 Potestative suspensive condition—if fulfillment depends upon the sole
will of the debtor, then it is essentially a condition because whether the
debtor will or will not fulfill the obligation is a future and uncertain
event, which is void
o However, if the potestative condition is imposed not on the birth of
the obligation but on its fulfillment, only the condition is avoided,
leaving unaffected the obligation itself
 A condition at once facultative and resolutory may be valid even though
the condition is made to depend upon the will of the obligor
 Mixed obligations—those which depend not only upon the will of the
debtor but also upon chance and some other factors
 Casual conditions—depend on chance, hazard, or the will of a third
person
 A resolutory condition that depends upon the will of a third person is
not void
1183. 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.
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1184. The condition that some event happen at a determinate time shall
extinguish the obligation as soon as the time expires of it if has become
indubitable that the event will not take place.
1185. The condition that some event will not happen at a determinate
time shall render the obligation effective form 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.
1186. The condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment.
 The good faith-obligation of the parties includes an implied term on the
part of the said parties not to impede, hinder, obstruct or prevent the
fulfillment of the obligation
 Constructive fulfillment—the obligor voluntarily prevents the fulfillment
of the condition in an obligation where the law states that the obligation
shall be deemed fulfilled
 In reciprocal obligation, both parties are mutually obligors and also
obligees, and any of the contracting parties may, upon non-fulfillment
by the other party of his part of the prestation, rescind the contract or
seek fulfillment.
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 the 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.
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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.
 In resolutory condition, the fulfillment of the event extinguishes the
obligation; hence retroactivity is not relevant
o 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
 In suspensive conditions, the efficacy of the obligation is merely
suspended or held in abeyance until the condition is fulfilled
o Art. 1187 applies to this where the suspensive condition occurs, the
effect of a conditional obligation ―to give‖ retroacts to the day of the
constitution of the obligation
 If the obligation is unilateral, the debtor or obligor 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 is different
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.
 A creditor can file an injunction suit to stop the debtor from alienating
his property which is supposed to be given to the creditor once a
particular condition is fulfilled.
 If prior to the happening of the event constituting the suspensive
condition, the debtor, by mistake, pays the creditor, the debtor can
recover because the obligation is not yet due and demandable
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
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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
 The choice of the remedies to be pursued, whether rescission plus
damages or fulfillment plus damages, belongs to the creditor regardless
of the degree of deterioration caused by the debtor
 If the deterioration caused by the debtor is so grave that the object goes
out of commerce, it can be considered lost and the creditor can seek
damages from the debtor
 Usufruct—it gives a right to enjoy the property of another with the
obligation of preserving its form and substance unless the title
constituting it or the law otherwise provides
1190. When the conditions to have for their purpose the extinguishment
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 obligations to do and not to do, the provisions of the 2 nd par. of
Art. 1187 shall be observed as regards the effect of the extinguishment
of the obligation.
 Once a resolutory condition is fulfilled, the obligation is extinguished
and there must be restitution of what has been obtained.
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
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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 Arts. 1385 and 1388
and the Mortgage Law.
 ―to rescind‖—―is to declare the contract void at its inception and to put
an end to it as though it never was‖
 Rescission or resolution under Art. 1191 is predicated on the breach of
faith by any of the parties to a contract that violates the reciprocity
between them
 The power to rescind is not absolute and must be based on a serious or
substantial breach of an obligation as to defeat the object of the parties
in making the agreement
o A mere casual breach does not justify rescission of the contract
o The question of whether a breach of a contract is substantial depends
upon the attendant circumstances
 The implied power to rescind can only be enforced through court
action, in the absence of stipulation to the contrary.
o The decision of the court is the revocatory act of rescission
 The power to rescind need not be implied in all cases.
o The law does not prohibit parties from entering into an agreement
providing that the violation of the terms of contract shall cause the
cancellation, termination or rescission thereof even without court
intervention
o But it is always provisional, being ever subject to scrutiny and review
by the proper court
 Notice must always be given to the defaulter before rescission can take
effect
 If the contract involved is a contract to sell, the termination is not a
rescission under Art. 1191 but an enforcement of the contract
1192. In case both parties have committed a breach of the obligation,
the liability of the first shall be equitably tempered by the courts. If it
cannot be determined which of the parties first violated the contract,
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the same shall be deemed extinguished, and each shall bear his own
damages.
Section 2: Obligations with a Period
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.
 Period—designates a particular time which is certain to happen as the
moment when the obligation will either be effective or be extinguished
 Suspensive period—gives rise to the effectivity of the obligation
 Resolutory period—gives rise to the extinguishment of the obligation
 Obligation with a suspensive period:
o An obligation constitute at a much earlier date but its effectivity only
commences on a certain future period of time
1194. In case of loss, deterioration, or improvement of the thing before
the arrival of the day certain, the rules in Art. 1189 shall be observed.
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.
 If the obligor delivered the object before the arrival of the period, and
upon arrival of the period, the obligee is in the possession of the object,
the obligor can only recover the fruits and interest accruing from the
time of the delivery up to the arrival of the period.
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1196. Whenever in an obligation a period is designated, it is presumed to
have been established for the benefit of both of 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.
 The benefit of the period may be waived by the person in whose favor it
was constituted
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.
 Two-step process:
1. The court must first determine that ―the obligation does not fix a
period‖ or that a period is made to depend upon the will of the
debtor, but from the nature and circumstances it can be inferred that a
period was intended
2. The court must decide what period was ―probably contemplated by
the parties‖
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
 Insolvency need not be judicially declared
2. When he does not furnish to the creditor the guaranties or
securities which he has promised
 Securities can take the form of real-estate mortgages or pledges
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
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5. When the debtor attempts to abscond
 If the debtor attempts to flee from his obligations, or to move away
to evade payment of his indebtedness, the debt can be demanded
from him immediately
Sec. 3 – Alternative Obligations
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.
 ―Different prestations‖—refers to both the strict sense and the loose
sense of the word ―prestation‖
 Partial performance of the different prestations cannot be considered
fulfillment of the obligation and therefore cannot be done unless the
creditor accepts such partial performance as complete performance
 If all but one of the alternatives become legally impossible to fulfill, the
obligation will cease to be alternative
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.
 Any doubt as to whom the choice is given must always be interpreted in
favor of the debtor
 Only by an express grant of choice can a creditor have the right to
choose which prestation is to be performed
1201. The choice shall produce no effect except from the time it has
been communicated.
 The creditor is always entitled to be notified of the choice.
 Communication to the creditor gives effect to the choice
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1202. The debtor shall lose the right of choice when among the
prestations whereby he is alternatively bound, only one is practicable.
 Majority of the choices must be practicable
 If only one is practicable, the creditor has no right to complain about
such situation because such affects only the debtor who will lose his
right of choice
 The creditor has no choice but to accept this single practicable choice
provided that it is not unlawful or inconsistent with the object of the
obligation
 ―practicable‖—capable of being done, or simply feasible
1203. If through the creditor’s acts the debtor cannot make a choice
according to the terms of the obligation, the latter may rescind the
contract with damages.
 If the debtor has been prevented from making a choice due to the fault
of the creditor, the debtor can ask for the rescission of the contract with
damages
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
rewarded.
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;
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 If only the car were lost, the creditor has a choice between the truck
and the boat
 But if all the things are lost through a fortuitous event, the obligation
is extinguished
(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;
 If the debtor destroys the car, the creditor has a choice among the
truck, the boat or the price of the car plus 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.
 If all the things are lost, the creditor has a choice among the price of
the car, the price of the truck or the price of the boat plus damages
The same rules shall be applies to obligations to do or not to do in case
one, some or all of the prestations should become impossible.
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.
 If the substitute prestation was one of the main reasons which induced
the creditor to enter into the contract with the debtor, but the latter did
not really intend to constitute it as a substitute, this could be an act of
fraud which would make the whole contract voidable.
o If the creditor does not make any move to annul the contract and
accepts the substitute, his acceptance cannot cure the defect of the
said voidable contract
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 Sec. 4: JOINT AND SOLIDARY OBLIGATIONS
1207. The concurrence of 2 or more creditors or of 2 or more debtors in
one and the same obligations 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 prestation. There is solidary liability only
when the obligation expressly so states, or when the law or the nature of
the obligation requires solidary liability.
 Solidary obligation—implies a situation where there are debts or
obligations incurred by 2 or more debtors in favor of 2 or more
creditors, and giving anyone, some or all of the creditors the right to
demand from anyone, some or all of the debtors the satisfaction of the
total obligation and not merely the share of each debtor in the debts or
obligations.
1. It exists only when the obligation expressly so states, or when the law
or nature of the obligation requires solidarity
 Surety—a person who binds himself to pay the obligation of the debtor
when it becomes due
1. A surety who is solidarily is therefore an insurer of the debt
 Guarantor—a person who can be required to pay the indebtedness of
the principal debtor only after the creditor has unsuccessfully exhausted
all means to collect from the debtor.
1. A guarantor is subsidiarily liable for the debt of the debtor; he is not
jointly liable
 An agreement to be ―individually‖ and ―jointly‖ liable indicates solidary
liability
1. ―individually‖—has the same meaning as ―collectively‖, ―separately‖
or ―severally‖
2. Several obligation—one by which one individual binds himself to
perform the whole obligation
 In case of concurrence of 2 or more creditors or 2 or more debtors in
one obligation, the presumption is that the obligation is joint, and
not solidary
o Solidarity must be expressed
o When the obligation is ambiguous, it must be considered as joint
obligation
 Obligations:
1. Individual obligation—one debtor and one creditor
2. Collective obligation—2 or more debtors and 2 or more creditors
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a. Joint—entire obligation is to be paid or performed
proportionately by the debtors
b. Solidary—each one of the debtors are obliged to pay the entire
obligation, each one of the creditors has the right to demand
from any of the debtors the fulfillment of the entire obligation
i. Passive solidarity—solidarity on the part of the Debtors
 Full payment made by one of the solidary debtors
extinguishes the obligation. The one who paid can claim
reimbursement from his co-debtors as regards their
corresponding shares in the obligation
ii. Active solidarity—solidarity on the part of the Creditors
 Full payment to any of the creditors extinguishes the
obligation. The creditor who received the entire amount will
be liable to pay the corresponding shares of his co-creditors
in accordance with their internal agreement.
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 equal 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.
 The presumption of law is that the obligation is always joint.
 The joint debtors are obliged to pay only their share in the indebtedness
while the creditors can only claim their share in the credit
 When there is a concurrence of several creditors or of several
debtors in one and in the same obligation, there is a presumption
that the obligation is joint.
 This provision speaks of joint divisible obligation.
o Each of the creditors shall be entitled to demand only the payment
of his proportionate share of the credit.
o Each of the debtors may be compelled to pay only his
proportionate share of the debt.
o The credits or debts shall be considered distinct from one another.
 Consequences of joint obligation:
1. Each debtor – liable for a proportionate part of the entire debt;
2. Each creditor – entitled to a proportionate part of the credit;
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 3. Demand made by one creditor upon one debtor produces the
effects of default only as between them, but not with respect to the
others;
4. The interruption of prescription caused by the demand made by
one creditor upon one debtor will not benefit the cocreditors;
5. The insolvency of one debtor will not increase the liability of his
co-debtors, nor will it allow a creditor to demand anything from
the co-creditors.
1209. If the division is impossible, the right of the creditors may be
prejudiced only by their collective acts, and the debt can be enforced
only by proceeding against all the debtors. If one of the latter should be
insolvent, the others shall not be liable for his share.
 A joint indivisible obligation gives rise to indemnity for damages from
the time anyone of the debtors does not comply with the 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 the value of the service in which the obligation
consists
 Batman and Robin jointly obliged themselves to deliver a brand new
Toyota Fortuner worth P1,500,000.00 to Superman. The object, a
vehicle, is indivisible. They must deliver the thing jointly. In case of
breach, the obligation is converted into monetary obligation for
indemnity for damages. Batman and Robin will be liable only for P
750,000.00 each.
1210. The indivisibility of an obligation does not necessarily give rise to
solidarity. Nor does solidarity of itself imply indivisibility.
 Solidary obligation—refers to the nature of the obligation attaching to
the obligor and oblige
 Indivisible Obligation—the obligation where the prestation or object
to be delivered cannot be performed by parts without altering its
essence or substance
Basis Indivisibility Solidarity
Nature Refers to the prestation of the Refers to tie existing
contract between parties
Number of Does not require plurality of Requires plurality of
subjects / parties parties
parties
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Effect of Obligation is converted into The liability, even if
breach of monetary obligation for converted into
obligation indemnity for damages— indemnity for
where each debtor is liable damages, remain
only for his own part solidary
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.
 Enforcement of the terms and conditions may be made at different
times. The obligations which have matured can be enforced while
those still undue will have to be awaited. Enforcement can be made
against any one of the solidar debtors although it can happen that a
particular obligation chargeable to a particular debtor is not yet due.
He will be answerable for all the prestations which fall due although
chargeable to the other co-debtors.
1212. Each one of the solidary creditors may do whatever may be useful
to the others, but not anything which may be prejudiced to the latter.
 Satisfaction of a judgment against one of the debtors by one of the
creditors will discharge their obligation to the other solidary creditors
 If one of the solidary creditors make an extra-judicial demand for the
debtor to pay, this will benefit also the other creditors as the demand
will effectively make the prescriptive period for the fulfillment of the
obligation run anew
 The fact that these other solidary creditors were prejudiced will not
invalidate the extinguishment of the obligation
o Their remedy is to collect their share of the indebtedness from the
solidary creditor who made the remission
o They can likewise ask for damages for whatever they may have lost as
a result of the remission, such as interest
1213. A solidary creditor cannot assign his rights without the consent of
the others.
 Ideally, the relationship between and among solidary creditors is one of
mutual trust
o Hence, to preserve as much as possible this confidence, a solidary
creditor cannot assign his rights without the consent of the others
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 The assignee does not become a solidary creditor, and any payment
made upon him by the debtor does not extinguish the obligation. He
is considered a stranger, and his acts are not binding to the
solidarity.
 Doctrine of mutual agency - in solidary obligations, the act of one is
act of the others.
 Exceptions to the doctrine:
1. Art. 1212 – a creditor may not perform an act prejudicial to other
creditors
2. Art. 1213 – a creditor cannot transfer his right without consent
1214. The debtors may pay any of the solidary creditors; but if any
demand, judicial or extra-judicial, has been made by one of them,
payment should be made to him.
 This article does not by itself expressly make invalid or void payment to
the other non-demanding creditors.
o It is only giving preference to the demanding-creditor without
necessarily curtailing the rights of the other creditors to be paid or the
right of the debtor to pay the other creditors their rightful due
 If the demand is extra-judicial, it will facilitate the fulfillment of the
obligation and ultimately the satisfaction of his share
1215. Novation, compensation, confusion or remission of the debt, made
by one of the solidary creditors or with any of the solidary debtors, shall
extinguish the obligation, without prejudice to the provisions of Art.
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.
 Modes of extinguishing an obligation:
1. Novation—the change of creditors, debtors or the principal condition
of the contract
o It must however be clear to release the solidary obligation of the
debtors
2. Compensation—takes place when 2 persons, in their own right, are
creditors and debtors of each other
o Erap borrowed P100 from Fernando. Fernando borrowed P75
from Erap. Erap‘s obligation to Fernando is now P25 only,
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because the original obligation was offset by Fernando‘s
supposed-to-be obligation to Erap.
3. Confusion—merger of the characters of creditor and debtor in the
same person
o Tito pays his debt to Vic with a check payable to ―cash‖. Vic paid
his debt to Joey with the same check. Joey paid his debt to Tito,
with the same check Tito issued to Vic. Tito becomes paid by his
own check. He becomes the debtor and the creditor of himself at
the same time.
4. Remission—the condonation of an obligation
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.
 The solidary creditor has a right not to accept partial payment from the
solidary debtors.
o However, if he does not accept partial payment from some of them,
this will not prevent him from demanding or claiming from the others
who have not actually paid
1217. Payment made by one of the solidary debtors extinguishes the
obligation. If 2 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 co-debtors, in proportion to the debt of each.
 Payment – consists in the delivery of the thing or the rendition
(rendering) of the service which is the object of the obligation.
 Interest – compensation for the use of borrowed money
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 Partial payment – the solidary debtor who made the partial payment
is entitles to be reimbursed only for such amount of money which he
had paid and which exceeds his own share in the obligation.
1218. Payment by a solidary debtor shall not entitle him to
reimbursement from his co-debtors if such payment is made after the
obligation has prescribed or become illegal.
 If A pays the creditor despite the prescription of the claim, B can refuse
to pay A his share in the indebtedness because technically the debt has
prescribed
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 affected.
 Applicable only when there is one creditor
1220. The remission of the whole obligation, obtained by one of the
solidary debtors, does not entitle him to reimbursement from his co-
debtors.
 There is nothing to be reimbursed because he did not spend any
money, the remission being a gratuitous act.
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.
It 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 extra-judicial demand upon him by the
creditor, the provisions of the preceding paragraph shall apply.
 Loss of the thing or impossibility of prestation –
1. NO FAULT – solidary debtors – obligation is extinguished
2. FAULT of any one of them – all are liable because of their mutual
agency
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3. FORTUITOUS EVENT – delay on the part of the debtors – all
will be liable
 If the thing due was not lost, but there is merely a delay, fraud or
negligence on the part of one of the solidary debtors, all (including
the innocent) debtors will share in the payment of the principal
prestation. The damages and interest imposed will be borne by the
guilty debtor.
 Obligation to deliver is converted into an obligation to pay
indemnity when there us loss or impossibility of performance.
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 debts for which the latter
are responsible.
 While the whole debt may be collected from one of the solidary debtors,
he can nevertheless pay less than the whole amount of indebtedness to
the creditor in the event that there are defenses he can set up
 Defenses of a solidary debtor:
1. Defense arising from the nature of the obligation – such as
payment, prescription, remission, statute of frauds, presence of
vices of consent, etc.
2. Defenses which are personal to him or which pertains to his own
share alone – such as minority, insanity and others personal to
him.
3. Defenses personal to the other solidary creditors but only as
regards that part of the debt for which the other creditors are
liable.
Sec. 5: DIVISIBLE AND INDIVISIBLE OBLIGATIONS
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.
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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.
 Joint debtors—only bound to perform their respective portion in a
particular indebtedness
o If the obligation is indivisible, each debtor must coordinate with the
rest of the debtors for the fulfillment of the obligation
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.
 Indivisible obligation—an obligation which is not susceptible of partial
performance
 In obligations not to do, divisibility of indivisibility shall be determined
by the character of the prestation in each particular case
 The following are considered INDIVISIBLE obligations:
1. Obligation to give definite things
2. Obligations which are not susceptible of partial performance
3. Even though the object or service may be physically divisible, it is
indivisible if:
a. the law so provides
b. when the parties intended it to be indivisible
 The following obligations are deemed DIVISIBLE:
1. When the object of the obligation is the execution of a certain
number of days of work
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2. When the object of the obligation is the accomplishment of work
measured in units
3. When the object of the obligation is susceptible of partial
compliance
4. When the object of the obligation is such that the debtor is
required to pay in installments
 If the contract is divisible, and a part of it is illegal, the illegal part is
void, and the rest shall be valid and enforceable.
 If the contract is indivisible, and a part of it is illegal, the entire
contract is void.
 Partial performance of an indivisible obligation is tantamount to
non-performance.
Sec. 6: OBLIGATIONS WITH A PENAL CLAUSE
1226. In obligations with a penal clause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of non-
compliance, 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 the obligation.
The penalty may be enforced only when it is demandable in accordance
with the provisions of this Code.
 If the principal obligation has been complied with, the penal clause has
lost its efficacy or applicability
 Penal clause—an accessory obligation which the parties attach to a
principal obligation for purpose of insuring the performance thereof by
imposing on the debtor a special prestation in case the obligation is not
fulfilled or is irregularly or inadequately fulfilled
 Penalty—there is need of proof of loss
 Liquidated damages—payment may be made without proof of loss
 There is no difference between a penalty and liquidated damages, so far
as legal results are concerned
 If the parties stipulate that the award of penalty pursuant to the penalty
clause shall not constitute a bar to the recovery of other damages, and in
the payment of interest, then it shall be so
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 Penalty may be claimed only when there is demand, judicial or extra-
judicial, unless the law, the stipulation of the parties or the nature of the
contract otherwise demands
 Purposes:
1. Funcion coercitiva o de garantia – to insure the performance of the
obligation
2. Funcion liquidatoria – to liquidate the amount of damages to be
awarded to the injured party in case of breach of the principal
obligation; and
3. Funcion estrictamente penal – in certain exceptional cases, to punish
the obligor in case of breach of the principal obligation.
 The penalty imposable is a substitute for the indemnity for:
1. damages
2. payment of interest in case of breach of obligation
-unless the contrary is stipulated!
 EXCEPTIONS – additional damages may be recovered from the
following acts:
1. If the debtor refuses to pay the penalty
2. If the debtor is guilty of fraud in the fulfillment of the obligation
3. If there is express stipulation that the other damages or interests
are demandable to the penalty in the penal clause
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 to 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.
 The debtor cannot substitute performance of the principal obligation by
mere payment of penalty because penalty is only an accessory obligation,
but the parties can stipulate otherwise
 In the event that the creditor demands fulfillment of the obligation and
the same has become impossible without the fault of the debtor, the
penalty may be enforced
 The creditor cannot demand the stipulated fulfillment of the
principal obligation and the penalty at the same time, except
RA Salanga 1A
1. when the creditor was clearly given the right to enforce both the
principal obligation and penalty;
2. when the creditor has demanded fulfillment of the obligation but
cannot be fulfilled due to the
a. debtor‘s fault – creditor may demand for penalty
b. creditor‘s fault – he cannot claim the penalty
c. fortuitous event – principal obligation and penalty are
extinguished
1228. Proof of actual damages suffered by the creditor is not necessary
in order that the penalty may be demanded.
 This is because the particular penalty in the penalty clause is already
specified and hence liquidated, there is no need to prove actual damages
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.
 If the penalty clause, which is construed against the one enforcing it, is
so unconscionable that its enforcement, in effect, constitutes an undue
deprivation or confiscation of the property of the obligor, the courts can
strike it down as an invalid
 Judicial Reduction Of Penalty
1. Principal obligation – partly complied with by the debtor (but not
in indivisible obligation, because it is tantamount to non-
compliance)
2. Principal obligation – complied not in accordance with the tenor of
the agreement (refers to irregular performance)
3. Penalty – iniquitous or unconscionable
 Judge‘s power to reduce penalties are limited to private contracts.
 Iniquitous or Unconscionable – when it is revolting to the
conscience or common sense; grossly disproportionate to the
damages suffered.
 Penalty not enforceable:
1. Impossible performance of principal obligation due to fortuitous
events
2. Creditor prevented the debtor from fulfilling the obligation
3. Penalty is contrary to good morals or good customs
4. Both parties are guilty of breach of contract
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 5. Breach of contract by the creditor
6. None of the parties committed any willful or culpable violation of
the agreement
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.
 The penal clause, being merely an accessory obligation, does not
invalidate the principal obligation in the event that such penal clause is
void or without effect.
Chapter 4: EXTINGUISHMENT OF OBLIGATIONS
GENERAL PROVISIONS
1231. Obligations are extinguished:
1) By payment or performance
2) By lost 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.
 Death of a party, however, does not extinguish an obligation unless the
obligation is personal in nature or intransmissible
 If the civil liability neither solely nor originally springs from the crime,
the civil liability shall persist despite the extinction of the criminal
liability
Section 1: PAYMENT OF PERFORMANCE
1232. Payment means not only the delivery of money but also the
performance, in any other manner, of an obligation.
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 Payment is not exclusively limited to the giving of money; it includes any
manner of performing the obligation with the end in view of
extinguishing it
 The burden of proving that the obligation has been extinguished by
payment devolves upon the debtor
 Promissory notes in the hands of the creditor are proofs of indebtedness
rather than proofs of payment
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.
 Payment contemplates full satisfaction of the debt or obligation
 Complete delivery or service must comprise everything that is necessary
to satisfy the obligation consistent with the object of the same
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.
 Substantial performance is not complete performance where it
constitutes a breach of obligation
o However, the breach in this case is not a material one enough to
compel the obligor to rescind the whole obligation
 The pertinent inquiry is not simply whether the breach was willful but
whether the behavior of the party in default comports with the
standards of good faith and fair dealing
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.
 The substantial compliance contemplated here connotes the waiver of
the obligee of damages arising from the breach of contract which
resulted in the incompleteness or irregularity of the obligation
 The law does not require the protest or objection of the creditor to be
made in a particular manner or at a particular time.
o If the party fails to interpose any objection to the entries or conditions
in an invoice furnished to him by the other party, such failure can be
considered as implied acceptance and therefore he will be liable to pay
the amount stated therein
Oblicon Page 26 of 90
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.
 Reason for this article: whenever a third person pays there is a
modification of the prestation that is due.
 If the debt has been remitted, paid compensated or prescribed, a
payment by a third person would constitute a payment of what is not
due; his remedy would be against the person who received the
payment under such conditions and not against the debtor who did
not benefit from the payment
 payment against debtor‘s will – even if payment of the third party is
against the will of the debtor, upon payment by the third party, the
obligation between the debtor and creditor is already extinguished
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.
 This article gives to the third person who paid only a simple
personal action for reimbursement, without the securities, guaranties
and other rights recognized in the creditor, which are extinguished
by the payment
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.
 Legal 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
 If the third person pays the creditor:
a. Without the knowledge or against the will of the debtor—can only
recover from the debtor to the extent that the debtor has been
benefited
RA Salanga 1A
o As to what is beneficial to the debtor can be invoked only by
such debtor but is determined by law and not the will of the
debtor
o The beneficial effects must be determined at the time the
payment was made
b. With the knowledge of the debtor but over his objection—same as
(a)
c. With the knowledge and consent of the debtor—can recover the
amount he paid and can compel the creditor to transfer to him any
mortgage, guaranty or penalty
d. If the creditor accepts payment from a third person because this
has been allowed in the contract—same as (c)
e. Without intending to be reimbursed—obligation is extinguished
whether or not the consent of the debtor is obtained. The payment
is treated as donation which requires the debtor‘s consent
1239. In obligation 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 Art. 1427 under the Title on
“Natural Obligations.”
 Free disposal—the owner of the thing or a person given authority by the
owner to use the property as payment
 Art. 1427: ―when a minor between 18 and 21 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‖
o General Rule: any contract entered into by a minor with respect to
alienation of something which he owns is annullable
o Art. 1427 is already repealed by Arts. 234 and 236 of the Family Code
which lowered the age of majority and emancipation to 18 years of age
o If ever the effects of Art. 1427 is still to apply, it shall apply only to
those 17 years of age and below
1240. Payment shall be made to the person in whose favor the
obligation has been constituted, or his successors-in-interest, or any
person authorized to receive it.
 ―any person authorized to receive it‖—not only a person authorized by
the same creditor, but also a person authorized by law to do so whose
Oblicon Page 27 of 90
 right or authority to receive payment is indisputable: guardian, executor
or administrator of estate of a deceased, and assignee or liquidator of a
partnership or corporation
 Payment made to a third person, even through error and in good faith,
shall not release the debtor of the obligation to pay and will not deprive
the creditor of his right to demand payment.
o If it becomes impossible to recover what was unduly paid, any loss
resulting therefrom shall be borne by the deceived debtor, who is the
only one responsible for his own acts unless there is a stipulation for a
wrongful payment.
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 creditor’s conduct, the debtor has been led to believe that the
third person had authority to receive payment
 For an incapacitated person, such as minor or an insane, to be able to
administer his property and to be able to transact business, there must
be a guardian appointed by the courts to hand his affairs.
 Direct payment to an incapacitated person shall be voidable unless if
one of the following conditions is present:
a. He has kept the thing delivered
b. He uses the payment for activities beneficial to him
 in addition to those mentioned above, payment to a third person
releases the debtor:
a. when, without notice of the assignment of credit, he pays to the
original creditor
b. when in good faith he pays to one in possession of the credit
 even when the creditor receives no benefit from the payment to a
third person, he cannot demand payment anew, if the mistake of the
debtor was due to the fault of the creditor
RA Salanga 1A
1242. Payment made in good faith to any person in possession of the
credit shall release the debtor.
 A person in possession of a credit is presumed to own the credit and
hence, a debtor who pays such person in good faith shall be released
from the debt
1243. Payment made to the creditor by the debtor after the latter has
been judicially ordered to retain the debt shall not be valid.
 There is a situation where the debtor is prohibited from paying a
particular creditor during the effectivity of a court order prohibiting him
to make such payment
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
 Unless the prestation is subject to an alternative or facultative condition,
a debtor has no choice in the payment of his obligation except by giving
what has been agreed upon by the parties
 Upon agreement of consent of the creditor, the debtor may deliver a
different thing or perform a different prestation in lieu of that
stipulated. In this case there may be dation in payment or novation
 The defects of the thing delivered may be waived by the creditor, if
he expressly so declares or if, with knowledge thereof, he accepts the
thing without protest or disposes of it or consumes it
1245. Dation in payment, whereby property is alienated to the creditor
in satisfaction of a debt in money, shall be governed by the law on sales.
 Dation in payment (Dacion en Pago)—is the delivery and transmission of
ownership of a thing by the debtor to creditor as an accepted equivalent
of the performance of an obligation
o Before the creditor becomes the owner of the property collateralizes
to secure the debt, an intervening agreement subsequent and
independent from the original contract is entered into by the creditor
and the debtor to have the property collateralized in the original
agreement as payment of the debt, thereby extinguishing the
obligation
Oblicon Page 28 of 90
  Requisites for a valid dation in payment:
a. There must be the performance of the prestation in lieu of payment
which may consist in the delivery of a corporeal thing or a real right or
a credit against the third person
b. There must be some difference between the prestation due and that
which is given in substitution
c. There must be an agreement between the creditor and debtor that the
obligation is immediately extinguished by reason of the performance
of a prestation different from that due
 Any property made as a security for a loan must always be foreclosed or
subjected to a sale by public bidding in case it shall be used to satisfy the
debt wholly or partially of the debtor
 Obligation is totally extinguished only when the parties, by agreement,
express or implied, or by their silence, consider the thing as equivalent to
the obligation
 Pactum commissorium—the parties agree, generally in one single contract,
that, in the event that the debtor fails to pay the debt, the mortgaged or
pledged property of the debtor shall automatically be appropriated or
owned by the creditor
o This is void in accordance with Art. 2088 where ―the creditor cannot
appropriate the things given by way of pledge or mortgage, or dispose
of them. Any stipulation to the contrary is null and void‖
 Elements of pactum commissorium:
a. There must be a creditor-debtor relationship between the parties
b. The property of the debtor was used as a security for the loan, either
as a mortgage or a pledge
c. There was automatic appropriation of the property upon failure of the
debtor to pay the obligation as provided in their agreement
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 in consideration.
 If there is disagreement between the debtor and the creditor as to
the quality of the thing delivered, the court should decide whether it
complies with the obligation, taking into consideration the purpose
and other circumstances of the obligation
 Both the creditor and the debtor may waive the benefit of this article
RA Salanga 1A
1247. Unless it is otherwise stipulated, the extra-judicial expenses
required by the payment shall be for the account of the debtor. With
regard to judicial costs, the Rules of Court shall govern.
 The creditor usually benefits from the obligation and as such, the
creditor must fully take the benefit of not spending in the extra-judicial
expenses for the payment or performance of the obligation
1248. Unless there is an express stipulation to that effect, the creditor
cannot be compelled partially to receive the prestation 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.
 Partial payment can be made if there is an
a. Express stipulation by the parties allowing the same
b. If the debt is partially liquidated and partially unliquidated
c. If the creditor accepts such partial payment and benefits from it
 The creditor who refuses to accept partial prestations does not incur
delay except when there is abuse of right or if good faith requires
acceptance
 This article does not apply to obligations where there are several
subjects or where the various parties are bound under different terms
and conditionss
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 abeyance.
 Promissory note—a document where a promise to pay is made by the
debtor to the creditor
Oblicon Page 29 of 90
 o An unconditional promise in writing made by one person to another,
signed by the maker, engaging to pay on demand or at a fixed or
determinable future time, a sum certain in money to order or to
bearer.
 Bill of exchange—an unconditional order in writing addressed by one
person to another signed by the person giving it, requiring the person to
whom it is addressed to pay on demand or at a fixed or determinable
future time a sum certain in money to order or bearer
 Check—a bill of exchange drawn on a bank payable on demand
 ―when through the fault of the creditor they have been impaired‖—
applicable only to instruments executed by third person and delivered by
the debtor to the creditor
 A check becomes stale if it has not been presented to the bank for a
period of 6 months from the date of the said check
 Legal Tender - means such currency which in a given jurisdiction
can be used for the payment of debts, public and private, and which
cannot be refused by the creditor
o That which a debtor may compel a creditor to accept in payment of
debt.
 So long as the notes were legal tender at the time they were paid or
delivered, the person accepting them must suffer the loss if thereafter
they became valueless
 The provisions of the present article have been modified by RA No.
529 which states that payments of all monetary obligations should
now be made in currency which is legal tender in the Phils.
o A stipulation providing payment in a foreign currency is null and
void but it does not invalidate the entire contract, and R.A. 4100.
1250. In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the time of
establishment of the obligation shall be the basis of payment, unless
there is an agreement to the contrary.
 Extraordinary inflation—exists when ―there is a decrease or increase in
the purchasing power of the Philippine currency which is unusual or
beyond the common fluctuation in the value of said currency, and such
decrease or increase could not have been reasonable foreseen or was
manifestly beyond the contemplation of the parties at the time of the
establishment of the obligation‖
RA Salanga 1A
 The effects of extraordinary inflation or deflation cannot be applied
without an official declaration thereof by competent authorites: Bangko
Sentral and the Department of Finance
 Art. 1250 applies only to cases where a contract or agreement is
involved and not where the obligation to pay arises from law,
independent of contract
 ―value of the currency‖—refers to the purchasing power of the
currency; often referred as
a. ―par value‖—the amount it takes one currency to buy a unit in
another country that is, how pieces of one unit are necessary to equal
the gold content of the other unit
b. ―legal exchange rate‖
c. ―par of exchange‖—applies only between countries having a fixed
metallic content for their currency unit
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.
 Since the law fixes the place of payment at the domicile of the debtor,
it is the duty of the creditor to go there and receive payment; he
should bear the expenses in this case because the debtor cannot be
made to shoulder the expenses which the creditor incurs in
performing a duty imposed by law and which is for his benefit.
 But if the debtor changes his domicile in bad faith or after he has
incurred in delay, then the additional expenses shall be borne by him
 When the debtor has been required to remit money to the creditor,
the latter bears the risks and the expenses of the transmission. In
cases however where the debtor chooses this means of payment, he
bears the risk of loss.
Oblicon Page 30 of 90
 Subsection 1: APPLICATION OF PAYMENTS
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 payment is made, the former cannot complain of the same, unless
there is a cause for invalidating the contract.
 The choice as to which debt the payment is to be applied is given to the
debtor
 The debtor must make a declaration as to which debt should the
payment be applied
 Application of payment cannot be made on debts which are not yet due,
unless the parties agree
 Requisites:
a. 1 debtor and 1 creditor only
b. 2 or more debts of the same kind
c. all debts must be due
d. amount paid by the debtor must not be sufficient to cover the total
amount of all the debts
 It is necessary that the obligations must all be due. Exceptions:
a. when there is a stipulation to the contrary; and
b. the application of payment is made by the party for whose benefit
the term or period has been constituted (relate to Art. 1196)
 It is also necessary that all the debts be for the same kind, generally
of a monetary character. This includes obligations which were not
originally of a monetary character, but at the time of application of
payment, had been converted into an obligation to pay damages by
reason of breach or nonperformance
1253. If the debt produces interest, payment of the principal shall not be
deemed to have been made until the interests have been covered.
 This is merely directory and not mandatory
RA Salanga 1A
 The receipt of the principal by the creditor without reservation with
respect to the interest, shall give rise to the presumption that the interest
has been paid
1254. When the payment cannot be applied in accordance with the
preceding rules, or if application cannot 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 the proportionately.
 ―most onerous debt‖—the indebtedness which exacts the heavier
burden from among the many. Thus, a debt with interest or an
acceleration clause is more onerous
 Debts are not of the same burden (1st par.)– Rules:
1. Oldest are more onerous than new ones
2. One bearing interest more onerous than one that does not
3. secured debt more onerous than unsecured one
4. principal debt more onerous than guaranty
5. solidary debtor more onerous than sole debtor
6. share in a solidary obligation more onerous to a solidary debtor
7. liquidated debt more onerous than unliquidated
 Debts are of the same burden (2nd par.)– the payment shall be
applied to all of them pro rata or proportionately.
 Example: debtor owes his creditor several debts, all of them due, to
wit: (1) unsecured debt, (2) a debt secured with mortgage of the
debtor's property, (3) a debt with interest, (4) a debt in which the
debtor is solidarily liable with another. Partial payment was made by
the debtor, without specification as to which the payment should be
applied. The most onerous is (4), followed by (2), then (3), then (1).
Consequently, payment shall be made in that order.
Subsection 2: PAYMENT BY CESSION
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
Oblicon Page 31 of 90
cession, are made between the debtor and his creditors shall be Subsection 3: TENDER OF PAYMENT AND CONSIGNATION
governed by special laws.
 Cession—is both a mode of extinguishing debt and a form of payment 1256. If the creditor to whom tender of payment has been made refuses
o It presupposes financial difficulties on the part of the debtor and without just cause to accept it, the debtor shall be released from
refers to a situation where the debtor owes 2 or more creditors responsibility by the consignation of the thing or sum due.
 The creditors must agree to the cession and as to which debt will be paid
first or as to the proportioning of the payment of money obtained Consignation alone shall produce the same effect in the following cases:
through cession for the payment of debt 1) When the creditor is absent or unknown, or does not appear at the
o If there is no agreement, the applicable law on preference of credit will place of payment
apply 2) When he is incapacitated to receive the payment at the time it is
 Once cession is made, the obligation of the debtor shall only be due
extinguished up to the extent that the proceeds are able to satisfy the 3) When, without just cause, he refuses to give a receipt
claims of the creditors 4) When 2 or more persons claim the same right to collect
 Requisites: 5) When the title of the obligation has been lost
a. plurality of debts  Tender of payment and consignation apply in any contract where there
b. partial or relative insolvency of the debtor is an obligation to pay
c. acceptance of cession by the creditors  For a valid tender of payment, it is necessary that there be a fusion of
 Kinds of Cession: intent, ability and capability to make good such offer, which must be
a. Contractual (Art. 1255) absolute and must cover the amount due
b. Judicial (Insolvency Law)  Consignation—the act of depositing the thing due with the court or
 Must be initiated by debtors judicial authorities whenever the creditor cannot accept or refuses to
 Requires two or more creditors, debtors insolvent, cession accepted accept payment and it generally requires a prior tender of payment
by creditors o Must be judicially made
 Such assignment does not have the effect of making the creditors the  Tender—the antecedent of consignation
owners of the property of the debtor unless there is an agreement to o In order to be valid, the tender of payment must be made in lawful
that effect currency
Dation Cession o Tender of a check to pay for an obligation is not a valid tender of
May be 1 creditor Many creditors payment
Does not require insolvency Requires partial or relative insolvency o Can be made extra-judicially
Delivery of a thing Delivery of all the property
Transfer of ownership of No transfer of ownership (only of 1257. In order that the consignation of the thing due may release the
property possession and administration) obligor, it must first be announced to the persons interested in the
A novation fulfillment of the obligation.
Payment extinguishes The effect is merely to release the
obligation (to the extent of the debtor from the net proceeds of the The consignation shall be ineffectual if it is not made strictly in
value of the thing delivered) property; hence, partial consonance with the provisions which regulate payment.
extinguishment of obligation  Requirement of a valid consignation:
1. There was a debt due

RA Salanga 1A Oblicon Page 32 of 90

 2. The consignation of the obligation had been made because the
creditor to whom tender of payment was made refused to accept it, or
because he was absent or incapacitated, or because several persons
claimed to be entitled to receive the amount due
3. The previous notice of the consignation had been given to the person
interested in the performance of the obligation
4. The amount due was placed at the disposal of the court
5. After the consignation had been made, the person interested was
notified
 The lack of notice does not invalidate the consignation but simply
makes the debtor liable for the expenses
 The tender of payment and the notice of consignation sent to the
creditor may be made in the same act. In case of absent or unknown
creditors, the notice may be made by publication
 Special Requisites of consignation: [DLN-DN]
1. [D] There was a debt due
2. [L] The consignation of the obligation was made because of some
legal cause provided in the present article
3. [N] That previous notice of the consignation has been given to
persons interested in the performance of the obligation
4. [D] The amount or thing due was placed at the disposal of the
court
5. [N] After the consignation had been made the persons interested
had been notified thereof
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 proper case, and the announcement of the consignation
in other cases.
The consignation having been made, the interested parties shall also be
notified thereof.
 1st paragraph hereof - 4th Special Requisite of Consignation ([D]
Disposal of the Court)
o this is complied with if the debtor deposts the thing or amount
with the Clerk of Court
 2nd paragraph hereof - 5th Special Requisite of Consignation ([N]
Subsequent Notice)
o this is to enable the creditor to withdraw the goods or money
deposited.
RA Salanga 1A
1259. The expenses of consignation, when properly made, shall be
charged against the creditor.
 This is because it is the creditor’s failure to accept payment that led to
the consignation
 The consignation is properly made when:
a. after the thing has been deposited in court, the creditor accepts the
consignation without objection and without any reservation of his
right to contest it because of failure to comply with any of the
requisites for consignation; and
b. when the creditor objects to the consignation but the court, after
proper hearing, declares that the consignation has been validly
made
 in these cases, the creditor bears the expenses of the consignation
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.
 Payment is deemed to have been made at the time of the deposit of the
money in court or when it was placed at the disposal of the judicial
authority
 Consignation has a retroactive effect and the payment is deemed to
have been made at the time of the deposit of the thing in court or
when it was placed at the disposal of the judicial authority
 The effects of consignation are:
a. the debtor is released in the same manner as if he had performed
the obligation at the time of the consignation because this produces
the same effect as a valid payment
b. the accrual of interest on the obligation is suspended from the
moment of consignation
c. the deteriorations or loss of the thing or amount consigned
occurring without fault of the debtor must be borne by the
creditor, because the risks of the thing are transferred to the
creditor from the moment of deposit
d. any increment or increase in value of the thing after the
consignation inures to the benefit of the creditor.
Oblicon Page 33 of 90
 When the amount consigned does not cover the entire obligation,
the creditor may accept it, reserving his right to the balance. If no
reservations are made, the acceptance by the creditor of the amount
consigned may be regarded as a waiver of further claims under the
contract
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.
 When the consignation has already been made and the creditor has
accepted it or it has been judicially declared as proper, the debtor
cannot withdraw the thing or amount deposited unless the creditor
consents thereto. If the creditor authorizes the debtor to withdraw
the same, there is a revival of the obligation, which has already been
extinguished by the consignation, and the relationship of debtor and
creditor is restored to the condition in which it was before the
consignation. But third persons, solidary co-debtors, guarantors and
sureties who are benefited by the consignation are not prejudiced by
the revival of the obligation between the debtor and the creditor
Sec. 2: LOSS OF THE THING DUE
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.
 If it is the debtor’s fault or if it has been lost after the debtor has
incurred in delay, he shall answer for the resulting damages
1263. In an obligation to deliver a generic thing, the loss or destruction
of anything of the same kind does not extinguish the obligation.
 A generic thing cannot really be lost or destroyed unless the whole class
of said thing is destroyed, hence the obligation subsists despite the loss
or destruction of one thing in the said class
RA Salanga 1A
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.
 A loss may be:
1. Complete—arts. 1262 and 1263 will apply
2. Partial—if the loss is partial and the circumstances so warrant, the
court may consider it as a complete loss which extinguishes the
obligation.
o This can only happen if the partial loss is so important so as to
totally affect the whole object of the obligation.
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 Art. 1165. This
presumption does not apply in case of earthquake, flood, storm, or other
natural calamity.
 General Rule: the loss of thing is presumed to be due to the fault of the
debtor which arises from the fact that it was lost while it is in the
possession of the debtor
 If the presumption applies, it is incumbent upon the debtor to prove
that the loss is not through his fault or it has been caused by a fortuitous
event.
 The presumption does not apply even if the loss happens at the time the
thing is in the possession of the debtor if, at the time of the loss, an
earthquake, storm, or other natural calamity exists.
 3rd paragraph of Art. 1165: when 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 liable for any fortuitous event
until he has effected the delivery
o Hence, in cases where Art. 1165, par. 3 is applicable, even if the
debtor can prove that the loss of the thing in his possession was
not through his fault or that it was through a fortuitous event, he
shall still be liable to the creditor for damages.
1266. The debtor in obligation to do shall also be released when the
prestation becomes legally or physically impossible without the fault of
the obligor.
 Obligation ―to do‖—includes all kinds of work or service
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 Obligation ―to give‖—a prestation which consists in the delivery of a
movable or an immovable thing in order to create real right of for the
use of the recipient, or for its simple possession, or in order to return to
its owner
 When the prestation becomes legally or physically impossible without
the fault of the obligor, it shall be considered a loss which extinguishes
the obligation
 Legal Impossibility : may either be -
1. direct (when the law prohibits the performance or execution of the
work agreed upon, i.e. when it is immoral or dangerous)
2. indirect (the law imposes duties of a superior character upon the
obligor which are incompatible with the work agreed upon,
although the latter may be perfectly licit, as where the obligor is
drafted for military service or for a civil function)
 Physical Impossibilty : examples – death of the debtor; when there is
an accident...
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.
 Subjective impossibility—a promissor’s duty is never discharged by the
mere fact that the supervening events deprive him of the ability to
perform, if they are not such as to deprive other persons, likewise, of
ability to render such performance
 Requisites for this article to apply:
1. The prestation has become so difficult to render; and
2. The service has become manifestly beyond the contemplation of the
parties
 Principle of rebus sic stantibus—the parties stipulate in the light of certain
prevailing conditions, and once these conditions cease to exist, the
contract also ceases to exist
 ―service‖—refers to the ―performance‖ of the obligation
 Doctrine Of Unforeseen Event / Doctrine Of Relative Impossibility
(rebus sic stantibus)
o It refers to obligation "to do" (personal obligation)
o Parties are presumed to have the risk
o It does not apply to aleatory contracts (insurance contract)
o Excludes highly speculative business (stock exchange)
o Monatory obligations are also excluded (governed by 1357)
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 Requisites:
1. event or change in the circumstances could have been foreseen of
the time of the execution contract
2. it makes the performance of the contract extremely difficult but
not impossible
3. the event must not be due to the act of any of the parties
4. the contract is for a future prestation. If the contract is of
immediate fulfillment, the gross inequality of the reciprocal
prestations may be involve desion or want of cause.
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.
 If A stole a watch from B and was criminally charged for such an
offense, and the watch was lost through a fortuitous event, the debtor-
accused must still pay the price of the watch
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.
 If A buys a house from G, and the house, which is insured, is
accidentally burned by a fortuitous event prior to the demand for its
delivery, the obligation of G to deliver the house is extinguished
o However, in the event that A has already paid the price of the house,
he can seek reimbursement of the insurance proceeds due from the
insurance company.
Sec. 3: CONDONATION OR REMISSION OF DEBT
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.
 Condonation—an act of liberality
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 o Connotes that there is a previous demandable obligation but the
obligee or the creditor decides not to enforce the debtor’s prestation
anymore which requires the obligor’s implied or express consent
 Condonation or Remission of a debt—a donation of the obligee’s credit
in favor of the debtor
 Inofficious donation—if it turns out that the thing or amount donated
(remitted or condoned) encroaches or infringes on the legitime or
successional rights of the heirs of the condoning creditor
o In this case, the debtor must pay the child/children the amount which
will complete his/their legitime
 Art. 772: Only those who at the time of the donor’s death have a right
to the legitime and their heirs and successors in interest may ask for the
reduction of inofficious donations
 Art. 760: Every donation inter vivos, made by a person having no children
or descendants, legitimate or legitimated by subsequent marriage, or
illegitimate, may be revoked or reduced as provided in the next article,
by the happening of these events:
1. If the donor, after the donation, should have legitimate or legitimated
or illegitimate children, even though they be posthumous
2. If the child of the donor, whom the latter believed to be dead when he
made the donation, should turn out to be living
3. If the donor should subsequently adopt a minor child
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 dent.
 Promissory note—most common private document evidencing a credit
o If a creditor delivers a promissory note to the debtor, the former, in
effect, furnishes the debtor the evidence which could prove the
indebtedness of such debtor in his favor. It therefore implies that he is
no longer interested in the debt
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.
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 The fact that the document evidencing the debt is in the possession of
the debtor gives rise to the refutable presumption that such document
has been delivered by the creditor voluntarily
1273. The renunciation of the principal debt shall extinguish the
accessory obligations; but the waiver of the latter shall leave the former
in force.
 The existence of the accessory obligation depends on the existence of
the principal obligation
 If the principal obligation is extinguished, it carries with it the
extinguishment of the accessory obligation but not vice-versa
1274. It is presumed that the necessary 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.
 Pledge—an accessory contract
o it involves a movable property constituted by the owner of such
property who has free disposal of it, to secure the fulfillment of a
principal obligation and such contract is perfected only upon the
delivery of the thing pledged to the creditor
 In a contract of pledge, the creditor or the obligee must be in possession
of the thing pledged
o If it is in the possession of the debtor or of the third person who
owns it, there is a presumption that the accessory obligation has been
condoned or remitted
Sec. 4: CONFUSION OR MERGER OF RIGHTS
1275. The obligation is extinguished from the time the characters of
creditor and debtor are merged in the same person.
 Requisites of merger or confusion are:
1. It must take place between the creditor and the principal debtor,
2. The very same obligation must be involved, for if the debtor
acquires rights from the creditor, but not the particular obligation
in question in question there will be no merger,
3. The confusion must be total or as regards the entire obligation.
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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.
 The indebtedness by a debtor and guaranteed by a third person is
extinguished if there is a merger of the characters of the debtor and
creditor
o In this case, the guarantor is benefited because the extinguishment of
the principal obligation extinguishes the accessory obligation of the
guarantee
 However, the merger of the persons of the guarantor and the creditor
does not extinguish the obligation
o It merely extinguishes the accessory obligation
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.
 Joint debtors owe the creditor only their share in the whole
indebtedness and the creditor can only collect from a joint debtor his
share in the total indebtedness
 However, if the obligation of the debtors is solidary and there is merger
of characters, the obligation is extinguished
Sec. 5: COMPENSATION
1278. Compensation shall take place when two persons, in their own
right, are creditors and debtors of each other.
 If the parties are mutually debtors and creditors of each other such that
they owe each other the same amount and the requisites under Art. 1279
are present, they do not have to make actual payment, as payment is
made by operation of law
 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. It is the offsetting of
two obligations which are reciprocally extinguished if they are of
equal value. Or extinguished to the concurrent amount if of different
values.
 Kinds of Compensation:
a. As to their effects
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i. compensation may be total (when the two obligations are of the
same amount); or
ii. partial (when the amounts are not equal).
b. As to origin (it may be)
i. Legal—when it takes place by operation of law because all
requisites are present
ii. Facultative—when it can be claimed by one of the parties, who,
however, has the right to object to it, such as when one of the
obligations has a period for the benefit of one party alone and
who renounces that period so as to make the obligation due
iii. Conventional—when the parties agree to compensate their
mutual obligations even if some requisite is lacking
iv. Judicial—when decreed by the court in a case where there is a
counterclaim
 Compensation vs. Payment: In compensation, there can be partial
extinguishment of the obligation; in payment, the performance must
be complete, unless waived by the creditor. Payment involves
delivery of action, while compensation (legal compensation) takes
place by operation of law without simultaneous delivery.
 Compensation vs. Merger: In compensation, there are at least two
persons who stand as principal creditors and debtor of each other, in
merger, there is only one person involved in whom the characters of
creditor and debtor are merged. In merger, there is only one
obligation, while in compensation, there are two obligations
involved.
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,
commence by third persons and communicated in due time to the
debtor
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 Demandable means that the debts are enforceable in court, there
being no apparent defenses inherent in them. The obligations must
be civil obligations, including those that are purely natural.
 An obligation is not demandable, therefore, and not subject to
compensation, in the following cases:
a. when there is a period which has not yet arrived, including the
cases when one party is in a state of suspension of payments;
b. when there is a suspensive condition that has not yet happened;
c. when the obligation cannot be sued upon, as in natural obligation.
 Explanation of the requisites:
1. The parties must be mutual creditor and debtor of each other and
their relationship is a principal one, that is, they are principal
debtor and creditor of each other.
2. When the debts consist of money, there is not much of a problem
when it comes to compensation to the concurrent amount. It is a
matter of mathematical computation.
o When the debt consist of things, it is necessary that the things
are consumable which must be understood as ‗fungible‘ and
therefore susceptible of substitution. More than that they must
be of the same kind. If the quality has been states, the things
must be of the same quality.
o ―consumable‖—must be interpreted as ―fungible‖ which is
susceptible of substitution
3. A debt is ‗due‘ when its period of performance has arrived. If it is a
subject to a condition, the condition must have already been
fulfilled.
o However, in voluntary compensation, the parties may agree upon
the compensation of debts which are not yet due.
4. A debt is considered ‗liquidated‘ when its amount is clearly fixed.
Of if it is not yet specially fixed, a simple mathematical
computation will determine its amount or value.
o It is ‗unliquidated‘ when the amount is not fixed because it is still
subject to a dispute or to certain condition.
o It is not enough that the debts be liquidated. It is also essential
that the same be demandable. A debt is demandable if it is not
yet barred by prescription and it is not illegal or invalid.
5. A debt of a thing cannot be a subject of compensation if the same
had been subject of a garnishment of which the debtor was timely
notified. When a credit or property had been properly garnished of
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attached, it cannot be disposed of without the approval of the
court.
o ―due time‖—the period before legal compensation was supposed
to take place, considering that legal compensation operates so
long as the requisites concur, even without any conscious intent
on the part of the parties
 A controversy communicated to the parties after that time may
no longer undo the compensation that had taken place by force
of law
1280. Notwithstanding the provisions of the preceding article, the
guarantor may set up compensation as regards what the creditor may
owe the principal debtor.
 Guarantor—a person who promises to pay the creditor in the event that
the principal debtor fails to pay the indebtedness
o But before the creditor can go against the guarantor, the creditor must
first exhaust all possible ways to collect the debt from the principal
debtor unless the guarantor binds himself solidarily with the principal
debtor
o If the debtor goes against the guarantor, the latter can resist payment
by invoking compensation between the creditor and the principal
debtor
 ―notwithstanding the provisions of the preceding article‖—refers to the
fact that, even if the guarantor and the principal creditor are not mutual
debtors and creditors of each other, the obligation of the guarantor can
be extinguished by invoking compensation insofar as the principal
debtor is concerned
 Exception to the Rule On Compensation: Right of Guarantor to
Invoke Compensation Against Creditor. The general rule is that for
compensation to operate, the parties must be related reciprocally as
principal creditors and debtors of each other. Under the present
Article, the guarantor is allowed to set up compensation against the
creditor.
1281. Compensation may be total or partial. When the two debts are of
the same amount, there is a total compensation.
 Total compensation—arises when the mutual debts of the parties to
each other are equal
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 Partial compensation—when the debts are not equal, in which case, the
debts are extinguished to the concurrent amount
1282. The parties may agree upon the compensation of debts which are
not yet due.
 General Rule: compensation can only occur when the debts are due and
demandable
 Contractual compensation—the parties agreeing upon the compensation
of debts which are not yet due
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.
 This is judicial set-off and if the court agrees, there can be compensation
 For judicial set-off to apply, the amount of damages or the claim sought
to be compensated must be duly proven
1284. When one or both debts are rescissible or voidable, they may be
compensated against each other before they are judicially rescinded or
avoided.
 A rescissible or voidable debt is valid up to the time it is rescinded or
annulled.
o Hence, if all the requisites for a valid compensation are present before
the contract is rescinded or annulled, the compensation can occur by
operation of law.
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.
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 Assignment after Compensation:
o General Rules: when compensation has already taken place before
the assignment, inasmuch as it takes place ipso jure, there has
already been an extinguishment of one of the other of the
obligations. A subsequent assignment of an extinguished
obligation cannot produce any effect against the debtor.
o Exception to the rule: when the debtor consents to the assignment
of the credit; his consent constitutes a waiver of the compensation,
unless at the time he gives consent, he informs the assignor that he
reserved his right to the compensation.
 Assignment before compensation.
o The assignment may be made before compensation has taken place,
either because at the time of assignment one of the debts is not yet
due or liquidated, or because of some other cause which impedes
the compensation. As far as the debtor is concerned, the
assignment does not take effect except from the time he is notified
thereof. If the notice of assignment is simultaneous to the transfer,
he can set up compensation of debts prior to the assignment. If
notice was given to him before the assignment, this takes effect at
the time of the assignment; therefore the same rule applies. If he
consents to the assignment, he waives compensation even of debts
already due, unless he makes a reservation.
o But if the debtor was notified of the assignment, but he did not
consent, and the credit assigned to a third person matures after
that which pertains to the debtor, the latter may set up
compensation when the assignee attempts to enforce the assigned
credit, provided that the credit of the debtor became due before the
assignment. But if the assigned credit matures earlier than that of
the debtor, the assignee may immediately enforce it, and the debtor
cannot set up compensation, because the credit is not yet due.
o If the debtor did not have knowledge of the assignment, he may set
up by way of compensation all credits maturing before he is
notified thereof. Hence, if the assignment is concealed, and the
assignor still contracts new obligation in favor of the debtor, such
obligation maturing before the latter learns of the assignment will
still be allowable by way of compensation. The assignee in such
case would have a personal action against the assignor.
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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.
 ―indemnity for expenses of exchange or transportation to the place of
payment‖—arises only when there is partial payment
 Under Art. 1247, the extra-judicial expenses required for payment shall
be for the account of the debtor, unless it is otherwise stipulated
 This article applies to legal compensation and not to voluntary
compensation.
1287. Compensation shall not be proper when one of the debts arises
from a depositum or from the obligations of a depository or 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
par. 2 of Art. 301.
 Compensation will not occur in the following situations
1. Debts arising from a depositum or from the obligations of a depository
o Deposit—constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and
returning the same
2. Debts arising from the obligations of a bailee in commodatum
o Bailee in commodatum—acquires the use of the thing loaned but not
its fruits
o The bailee is obliged to pay the ordinary expenses for the use and
preservation of the thing loaned
o The bailee cannot retain the thing loaned on the ground that the
bailor owes him something even though it may be by reason of
expenses
3. Debts arising from duty to support
o Par. 2 of Art. 301: support in arrears can be compensated or
renounced
 The application of this is doubtful in view of the fact that the said
Art. 301 has already been deleted by the New Family Code
1288. Neither shall there be compensation if one of the debts consists in
civil liability arising from a penal offense.
4. Debts consisting of a civil liability arising from a penal offense
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o The person who has the civil liability arising from crime is the only
party who cannot set up the compensation; but the offended party
entitled to the indemnity can set up his claim in compensation of his
debt.
o A criminal violation of the Trust Receipt Law which makes the
obligor financially and civilly liable to the contracting bank to the
extend indicated cannot be extinguished by a claim of compensation
of the amount of deposit which the obligor has with the bank even
if, under the law, a person who opens a deposit account in a bank is
technically a creditor of that bank
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.
1290. When all the requisites mentioned in Art. 1270 are present,
compensation takes effect by operation of law, and extinguishes both to
the concurrent amount, even though the creditors and debtors are not
aware of the compensation.
 Legal compensation takes place from the moment that the requisites
of the articles 1278 and 1270 co-exist; its effects arise on the very
day which all its requisites concur.
 Voluntary of conventional compensation takes effect upon the
agreement of the parties.
 Facultative compensation takes place when the creditor declares his
option to set it up.
 Judicial compensation takes place upon final judgment.
 Effects of Compensation:
1. Both debts are extinguished to the concurrent amount;
2. interests stop accruing on the extinguished obligation of the part
extinguished;
3. the period of prescription stops with respect to the obligation or
part extinguished;
4. all accessory obligations of the principal obligation which has been
extinguished are also extinguished.
 Renunciation of Compensation.
o Compensation can be renounced, either at the time an obligation is
contracted or afterwards. Compensation rests upon a potestative
right, and a unilateral decision of the debtor would be sufficient
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 renunciation. Compensation can be renounced expressly of
impliedly.
 No Compensation.
o Even when all the requisites for compensation occur, the
compensation may not take place in the following cases:
a. When there is renunciation of the effects of compensation by a
party; and
b. When the law prohibits compensation.
Sec. 6: NOVATION
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
 Under the provisions of the Civil Code, novation refers to extinctive
novation and not modifactory novation
 Novation—a juridical act with a dual function, namely, it extinguishes an
obligation and creates a new one in lieu of the old
 Types of Novation:
1. Objective Novation—occurs when there is a change of the object or
principal conditions of an existing obligation
o To effect, it is imperative that the new obligation expressly declare
that the old obligation is thereby extinguished, or that the new
obligation be on every point incompatible with the new one
2. Subjective Novation—occurs when there is a change of either the
person of the debtor, or of the creditor in an existing obligation
o To effect, it is necessary that the old debtor be released expressly
from the obligation and the third or new debtor assumes his place in
the relation
3. Mixed Novation—occurs when the change of the object or principal
conditions of an obligation happens at the same time with the change
of either the person of the debtor or creditor
 Novation arising from a purported change in the person of the debtor
must be clear and express because, to repeat, it is never presumed
 General Rule: there is no form of words or writing necessary to give
effect to a novation
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1292. In order that an obligation may be extinguished by another which
substitutes 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.
 There can be no novation unless 2 distinct and successive binding
contracts take place, with the later one designed to replace the preceding
convention
 If a subsequent contract is designed to novate a previous contract and
not all parties to the original contract consented to or are made parties
in the subsequent contract—no novation
 Modifications introduced before a bargain becomes obligatory can in no
sense constitute novation in law
 The extinguishment of the old obligation by the new one is a necessary
element of novation which may be effected either expressly or impliedly
o ―expressly‖—contracting parties incontrovertibly disclose that their
object in executing the new contract is to extinguish the old one
o ―implied‖—all that is prescribed by law would be an incompatibility
between the two contracts
 Test of incompatibility—whether or not the 2 obligations can stand
together, each one having its independent existence. If they cannot,
they are incompatible and the latter obligation novates the first.
 The incompatibility must take place in any of the essential
elements of the obligation; otherwise, the change would be merely
modifactory in nature and insufficient to extinguish the original
obligation
 ―to cancel‖—means to strike out, revoke, rescind, abandon, or terminate
 An obligation to pay a sum of money is not novated, in a new
instrument wherein the old is ratified, by changing only the terms of
payment and adding other obligations not incompatible with the old
one, or wherein the old contract is merely supplemented by the new
one
 Four essential requisites of Novation:
1. A previous valid obligation
2. The agreement of all the parties to the new contract
3. The extinguishment of the old contract
4. Validity of the new one
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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 Arts. 1236
and 1237.
 Delegacion—if the old debtor, to extinguish his obligation, suggests to the
creditor that he be substituted by a new debtor of his choice and the
creditor agrees
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
obligation shall not give rise to any liability on the part of the original
debtor.
 Expromission—if the old debtor is substituted without the knowledge or
consent of the old debtor and the obligation is extinguished
 In both delegacion and expromission, the consent of the creditor is
indispensable
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 he delegated his debt.
 2 cases where the creditor can go against the old debtor in case of
insolvency of the new debtor:
1. When the insolvency of the new debtor has already been existing and
of public knowledge when the old debtor delegated the debt
2. When the insolvency is known to the old debtor when he delegated
his debt
 In both cases, the creditor must not have knowledge of the insolvency
of the new debtor
 In both cases, the insolvency must have existed at the time the old
debtor delegated his debt
1296. When the principal obligation is extinguished in consequence of a
novation, accessory obligations may subsist insofar as they may benefit
third person who did not give their consent.
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1297. If the new obligation is void, the original shall subsist, unless the
parties intended that the former relation should be extinguished in any
event.
 A subsequent void obligation intended to novate an old one has no legal
effect and will be considered as not having been agreed upon in the first
place; hence, the old obligation subsists
o However, if the parties agree that it shall in any event extinguish the
old obligation, then such obligation will not be revived
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.
 If the previously existing obligation is void, a subsequent obligation
intending to novate it shall likewise be voids unless it is clear that such
subsequent one can stand on itself and without any reference to the old
one.
 If the original obligation is merely annullable or voidable, it means that it
is valid up to the time it is annulled
o Hence, it can be novated before it is annulled
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.
 In order not to subject the obligation to the previous suspensive
condition, there must be an express statement to that effect in the new
obligation as novated
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.
 Legal subrogation—takes effect by mandate of law and does not
proceed from an agreement of the parties
o The law which forms the basis of the subrogation must be clearly
identified and invoked to enforce the rights pertinent thereto
 Conventional subrogation—must be clearly established by the
unequivocal terms of the substituting obligation or by the evident
incompatibility of the new and old obligations on every point
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 Both kinds of subrogation principally involve the change in the person
of the creditor
1301. Conventional subrogation of a third person requires the consent of
the original parties and of the third person.
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
 Preferred credit—the claims for the unpaid price of movables sold, on
said movables, so long as they are in the possession of the debtor, up to
the value of the same
o Hence, any creditor who owns such credit is a preferred creditor
 ―a person interested in the fulfillment of the obligation‖—one who will
be affected by payment of the debtor such as the guarantor, surety or a
solidary debtor
1303. 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.
 In conventional subrogation, the parties may stipulate the nature, limits,
extent and scope of the subrogation provided these are not contrary to
the law, morals, good customs, public order, or public policy.
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 subrogated in his place in virtue of the partial payment of the same
credit.
 This contemplates a situation where a debt has been partially paid by a
third person without the consent of the debtor
 In the event that the creditor and the third party demands from the
debtor at the same time, the creditor will be preferred
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Title 2: CONTRACTS
Chapter : General Provisions
1305. 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.
 This states the statutory definition of contracts
 Contract—a source of obligation and it can be defined also as a legally
enforceable agreement
o A juridical convention manifested in legal form, by virtue of which
one or more persons bind themselves in favor of another or others, or
reciprocally, to the fulfillment of a prestation to give, to do or not to
do.
o An agreement whereby at least one of the parties acquires a right,
either in rem or in personam, in relation to some person, thing, act or
forbearance
 Agreements falling under the Statute of Frauds are useless contracts for
they cannot be implemented which, in effect, negates the existence of a
contract
 Negotiation—covers the period from the time the prospective
contracting parties indicate interest in the contract to the time the
contract is concluded (perfected)
 Perfection—takes place upon the concurrence of the essential elements
of the contract
 A contract which is consensual as to perfection is so established upon a
mere meeting of the minds i.e. the concurrence of offer and acceptance,
on the object and on the cause thereof
 Real contract—a contract which requires, in addition to the above, the
delivery of the object of the agreement, as in a pledge or commodatum
 Solemn contract—compliance with certain formalities prescribed by law
is essential in order to make the act valid, the prescribed form being
thereby an essential element thereof
 Stage of consummation—begins when the parties perform their
respective undertakings under the contract culminating in the
extinguishment thereof
 Other Terms (Contract):
a. Perfect promise – distinguished from a contract, in that the latter
establishes and determines the obligations arising therefrom; while
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 the former tends only to assure and pave the way for the
celebration of a contract in the future.
b. Imperfect Promise – mere unaccepted offer
c. Pact – a special part of the contract, sometimes incidental and
separable for the principal agreement
d. Stipulation – similar to a pact; when the contract is an instrument,
it refers to the essential and dispositive part, as distinguished from
the exposition of the facts and antecedents upon which it is based.
 Number of Parties:
 The Code states ―two persons‖; what is meant actually is ―two
parties‖. For a contract to exist, there must be two parties. A party
can be one or more persons.
o Husband & Wife: Husbands and wives cannot sell to each other as
a protection of the conjugal partnership. They can however enter
into a contract of agency.
 Auto-contracts—It means one person contracts himself. As a general
rule, it is accepted in our law. The existence of a contract does not
depend on the number of persons but on the number of parties.
There is no general prohibition against auto-contracts; hence, it
should be held valid.
 Contracts of Adhesion—Contracts prepared by another, containing
provisions that he desires, and asks the other party to agree to them
if he wants to enter into a contract.
o Example: transportation tickets. It is valid contract according to
Tolentino because the other party can reject it entirely.
 Characteristics of Contracts: (3 elements)
1. Essential elements – without which there is no contract; they are:
a. consent
b. subject matter; and
c. cause
2. Natural elements – exist as part of the contract even if the parties
do not provide for them, because the law, as suppletory to the
contract, creates them
3. Accidental elements – those which are agreed by the parties and
which cannot exist without stipulated
 Stages of a Contract: (3 stages)
1. Preparation, Generation or Policitacion – period of negotiation and
bargaining, ending at the moment of agreement of the parties
2. Perfection or Birth of the contract – the moment when the parties
come to agree on the terms of the contract
RA Salanga 1A
3. Consummation or Death – the fulfillment or performance of the
terms agreed upon in any contract
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.
 This states the autonomous nature of contracts
 Freedom to stipulate terms and conditions—essence of the contractual
system provided such stipulations are not contrary to law, morals, good
customs, public order, or public policy
o This also prohibits a party from coercing or intimidating or unduly
influencing another to enter into a contract
 Contractual stipulations contravening provisions of law designed to
protect laborers and employees were not valid
 In the absence of express legislation or constitutional prohibition, a
court, in order to declare void as against public policy, must find that the
contract, as to the consideration or thing to be done, has a tendency to
injure the public, is against the public good, or contravene some
established interest of society, or is inconsistent with sound policy and
good morals which tends to undermine the security of individual rights,
whether of personal liability or of private property
 It is a rule that only laws existing at the time of the execution of a
contract are applicable thereto and that later statutes do not govern said
contract unless the latter is specifically intended to have a retroactive
effect
 Non-impairment of contracts or vested rights clauses will have to yield
to the superior and legitimate exercise by the State of police power to
promote the health, morals, peace, education, good order, safety and
general welfare of the people
 Statutes promulgated in exercise of a valid police power must be read
into every contract
 This article embodies the Principle of Autonomy of Contracts
 Freedom to contract:
o Any person has the liberty to enter into a contract so long as they
are not contrary to law, morals, good customs, public order or
public policy. The legislature, under the constitution, is prohibited
from enacting laws to prescribe the terms of a legal contract.
 Validity of Stipulations:
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 o Any and all stipulations not contrary to law, morals, good
customs, public order or public policy is valid
 Contrary to law:
o Freedom of contract is restricted by law for the good of the public.
It is fundamental postulate that however broad the freedom of the
contracting parties may be, it does not go so far as to countenance
disrespect for or failure to observe a legal prescription. The Statute
takes precedence.
o Examples:
a. A promissory note which represents a gambling debt is
unenforceable in the hands of the assignee.
b. Stipulations to pay usurious interests are void.
c. A contract between to public service companies to divide the
territory is void because it impairs the control of the Public
d. Service Commission.
e. Agreement to declare valid a law or ordinance is void.
 Contrary to Morals:
o Morals mean those generally accepted principles of morality which
have received some kind of social and practical confirmation.
o Examples:
a. a promise to marry or nor to marry, to secure legal separation, or
to adopt a child
b. a promise to change citizenship, profession, religion or domicile
c. a promise not to hold public office or which limits the
performance of official duties
d. a promise to enter a particular political party or separate from it
e. contracts which limit in an excessive manner the personal or
economic freedom of a person to make an act dependent on
money or some pecuniary value, when it is of such a nature that
it should not depend thereon; payment to kill another.
 Contrary to Public Order:
o Public order means the public weal or public policy. It represents
the public, social, and legal interest in private law that which is
permanent and essential in institutions, which, even if favoring
some individual to whom the right pertains, cannot be left to his
own will. A contract is said to be against public order if the court
finds that the contract as to the consideration or the thing to be
done, contravenes some established interest of society, or is
inconsistent with sound policy and good morals, or tends clearly to
undermine the security of individual rights.
RA Salanga 1A
o Examples:
a. Common carrier cannot stipulate for exemption for liability
unless such exemption is justifiable and reasonable and the
contract is freely and fairly made.
b. Payment to intermediaries in securing import licenses or quota
allocations.
c. Contract of scholarship stipulating that the student must remain
in the same school and that he waives his right to transfer to
another school without refunding the school
1307. Innominate contracts shall be regulated by the stipulations of the
parties, by the provision of Titles I and II of this Book, by the rules
governing the most analogous nominate contracts, and by the customs
of the place.
 Innominate contracts—those which are not specifically governed by any
provision in the Civil Code or special law but which likewise involve the
fulfillment or accomplishment of some prestations
o They are governed by the following:
a. Stipulation of the parties
b. Provisions in the law of obligations and contracts under Title I and
II of the Civil Code
c. Rules governing the most analogous nominate contracts
 Types of nominate contracts:
 Sale, barter or exchange, lease, partnership, agency, loan,
deposit, aleatory, contracts, compromises, guaranty, pledge,
mortgage, and antichresis
 Governed by special laws: insurance, real estate mortgage, and
charter party
d. Customs of the place
 Custom—a rule of conduct formed by repetition of acts uniformly
observed as a social rule, legally binding and obligatory and it must
be proved as a fact according to the rules of evidence
 Innominate Contracts:
1. do ut des (I give that you may give) – An agreement in which A
will give one thing to B, so that B will give another thing to A.
2. do ut facias (I give that you may do) – An agreement under which
A will give something to B, so that B may do something for A.
3. facio ut facias (I do that you may do) – An agreement under which
A does something for B, so that B may render some other service
for A.
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 4. facio ut des (I do that you may give) – An agreement under which
A does something for B, so that B may give something to A.
 Analogous contracts:
o Innominate contracts, in the absence of stipulations and specific
provisions of law on the matter, are to be governed by rules
applicable to the most analogous contracts.
1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
 This expresses the concept of mutuality of contracts
o Its purpose is to render void a contract containing a condition which
makes its fulfillment dependent exclusively upon the uncontrolled will
of one of the contracting parties
 A contract expressly giving to one party the right to cancel the same if a
resolutory condition therefor agreed upon is not fulfilled, is valid, the
reason being that when the contract is thus cancelled the, the agreement
of the parties is in reality being fulfilled
 In order that obligations arising from contracts may have the force of
law between the parties, there must be mutuality between the parties
based on their essential equality
 Contract of adhesion—one wherein a party, usually a corporation,
prepares the stipulations in the contract, while the other party merely
affixes his signature or his ―adhesion‖ thereto.
o These types of contracts are as binding as ordinary contracts. Because
in reality, the party who adheres to the contract is free to reject it
entirely
 Principle of Mutuality of Contract:
o The binding effect of contract on both parties is based on the
principles:
 that obligations arising from contracts have the force of law
between the contracting parties
 that there must be mutuality between the parties based on their
essential equality, to which is repugnant to have one party bound
by the contract leaving the other free therefrom.
o A contract containing a condition which makes its fulfillment
dependent exclusively upon the uncontrolled will of one of the
contracting parties is void.
 Unilateral Cancellation:
RA Salanga 1A
o Just as nobody can be forced to enter into a contract, in the same
manner once a contract is entered into, no party can renounce it
unilaterally or without the consent of the other.
o Nobody is allowed to enter into a contract, and while the contract
is in effect, leaves, denounces or disavows the contract to the
prejudice of the other.
 When Stipulated:
o However, when the contract so stipulates that one may terminate
the contract upon a reasonable period is valid.
o Judicial action for the rescission of the contract is no longer
necessary when the contract so stipulates that it may be revoked
and cancelled for the violation of any of its terms and conditions.
This right of rescission may be waived.
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.
 Exception to Art. 1308 (Mutuality of Contract)
o A third person may be called upon to decide whether or not
performance has been done for the fulfillment of the contract. Such
decision becomes binding when the contracting parties have been
informed of it.
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.
 Exception to Art. 1308 (Mutuality of Contract)
o However, when the decision cannot be arrived due to inequity, the
courts shall decide what is equitable for the parties involved.
1311. 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.
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
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benefit or interest of a person is not sufficient. The contracting parties
must have clearly and deliberately conferred a favor upon a third person.
 This expresses the nature of relativity of contracts
 General Rule: a stranger cannot invoke the contract of another for his
own interest or for a source of an alleged prejudice.
 The law operates to effect the transfer of a chosen of action from one
person to another without any concurring act on the part of the parties
or indeed without their assent
o The usual ways by which such transfers are brought to pass are by the
transfer of an interest in land, by marriage, and by death
 Real property is peculiar in that, upon its transfer, covenants may be
annexed to the contract which run with the land and one who
subsequently acquires an interest therein takes it subject to the benefits
and obligations of such covenants
 Transmission of rights and obligations in a contract may likewise be
agreed upon by the parties.
 3 cases where contracts cannot take effect with respect to the heirs or
assigns:
a. When the nature of the contract does not allow transmission
o Where acts stipulated in a contract require the exercise of special
knowledge, genius, skill, taste, ability, experience, judgment, discretion,
integrity, or other personal qualification of one or both parties, the
agreement is of a personal nature, and terminates on the death of the
party who is required to render such service
b. When the parties stipulate that no transmission of rights shall be
allowed
c. When the law provides non-transmission
 Contracts pour autrui—enforcement of which may be demanded by a
third party for whose benefit it has been made, although not a party to
the contract, before the stipulation in his favor has been revoked by the
contracting parties. There must be a clear intent to benefit the third
party. It is insufficient that the third party be merely incidentally
benefited.
 Stipulation pour autrui—a stipulation in favor of a third person
conferring a clear and deliberate favor upon him, which stipulation is
found in a contract entered into by parties neither of whom acted as
agent of the beneficiary; it is not necessary that such third person be
always named in the contract
o Requisites:
RA Salanga 1A
1. There must be a stipulation in favor of a third person
2. The stipulation must be a part, not the whole of the contract
3. The contracting parties must have clearly and deliberately conferred
a favor upon a third person, not a mere incidental benefit or interest
4. Neither of the contracting parties bears the legal representation or
authorization of the third party
5. The favored party must have communicated his acceptance of the
stipulation to the obligor before its revocation
 1st paragraph of this article embodies the Principle of Relativity of
Contract
 Four exceptional instances where a contract may produce effect on
third persons (stipulation pour autrui): Art. 1311, par.2 – 1314
a. Parties bound by contract:
o Generally, only the parties that agreed on the contracts are
bound by the contract. Transmission is possible to the heirs or
assignees if so stipulated and in certain contracts.
b. Third persons not bound:
o It is a general rule that third parties are not bound by the acts of
another.
o A contract cannot be binding upon and cannot be enforced
against one who is not a party to it, even if he has knowledge of
such contract and has acted with knowledge thereof.
c. Enforcement of contract:
o Only a party to the contract can maintain an action to enforce
the obligations arising under said contract.
d. Contracts bind heirs:
o Rights and obligations under a contract are transmissible to
heirs. Heirs are not third persons because there is privity of
interest between them and their predecessor.
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 Law.
 This provides another example when a third person not a party to a
contract is affected or may be subject to its provisions
 Example: if the lessor terminates the lease contract for a valid cause, the
sublessee can be ejected from the leased premises even if he is not a
party to the lease contract
 Real Rights in Property
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 o A real right directly affects property subject to it; hence, whoever
is in possession of such property must respect that real right.
1313. Creditors are protected in cases of contracts intended to defraud
them.
 Art. 1381(3)—provides that a contract shall be rescissible if it is
undertaken in fraud of creditors when the latter cannot in any other
manner collect the claim due them
 Even if the creditor is not a party to the contract intended to defraud
him, he is given legal personality by law to terminate the contract
1314. Any third person who induces another to violate his contract shall
be liable for damages to the other contracting party.
 A stranger owes to the parties to the agreement a duty not to interfere
with its performance
 This doctrine is not confined to contract of services
 It covers every case where one person maliciously persuades another
to break any contract with a third person
 Malicious act—if the persuasion be used for the indirect purpose of
injuring the plaintiff, or benefiting the defendant, at the expense of the
plaintiff
 Lack of malice precludes damages. But it does not relieve petitioner of
the legal liability for entering into contracts and causing breach of
existing ones
 The party guilty of such breach may, nevertheless, recover against the
one who induces him to violate his contract when the latter, by such acts
and persuasion, intended to injure the other contracting party or to
coerce him into adopting a line of business against his will and judgment
 Damage—the loss, hurt, or harm which results from injury and damages
are the recompense or compensation awarded for the damage suffered
 One becomes liable in an action for damages for a non-trespassory
invasion of another’s interest in the private use and enjoyment of asset
if:
1. The other has property rights and privileges with respect to the use
or enjoyment interfered with
2. The invasion is substantial
3. The defendant’s conduct is a legal cause of the invasion
4. The invasion is either intentional and unreasonable or unintentional
and actionable under general negligence rules
RA Salanga 1A
 Elements of tort interference are:
1. Existence of a valid contract
2. Knowledge on the part of the third person of the existence of contract
3. Interference of the third person is without legal justification or excuse
1315. 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.
 General Rule: Contracts are perfected by mere consent of the parties i.e.
contract of sale however, ownership over the object is transferred only
upon actual or constructive delivery
1316. Real contracts, such as deposit, pledge and commodatum, are not
perfected until the delivery of the object of the obligation.
 Exception to the Principle of Consensuality
 Real Contracts—perfected not only be mere consent but by delivery of
the object of the contract
1. Bailee in commodatum—acquires the use of the thing loaned but not its
fruits
2. Pledge—constituted by the owner of the object to be pledged to
secure a loan
o It is indispensable that the thing pledged be placed in the possession
of the creditor, or of a third person by common agreement
3. Deposit—constituted from the moment a person receives a thing
belonging to another, with the obligation and principal purpose of
safely keeping it and of returning the same
1317. No one may contract in the name of another without being
authorized by the latter; or unless he has by a 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.
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 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
 The principal of the agent must comply with all the obligations which
the agent may have contracted with the scope of his authority
 Wherein the agent has exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly
 When the agent exceeded his authority, the principal is solidarily liable
with the agent if the former allowed the latter to act as though he had
full powers
 When a sale of a piece of land or any interest therein is through an
agent, the authority of the latter shall be in writing; otherwise, the sale
shall be void
 ―if a private corporation intentionally or negligently clothes its officers
or agents with apparent power to perform acts for it, the corporation
will be stopped to deny that such apparent authority is real, as to
innocent third persons dealing in good faith with such officers or
agents‖
 This apparent authority may result from:
1. General manner by which the corporation holds out an officer or
agent as having power to act
2. The acquiescence in his acts of a particular nature, with actual or
constructive knowledge thereof, whether within or without the scope
of his ordinary powers
 Art. 1393: Ratification may be effected expressly or tacitly. It is
understood that there is 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
 Compromise—an agreement between two or more persons who, for
preventing or putting an end to a lawsuit, adjust their respective
positions by mutual consent in the way they feel they can live with
 Reciprocal concessions—the very heart and life of every compromise
agreement, where each party approximates and concedes in the hope of
gaining balanced by the danger of losing
 3 minimum elements for any valid contract:
1. Consent
2. Object certain which is the subject matter of the contract
3. Cause of the obligation which is established
RA Salanga 1A
 Consent—manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the agreement
 Offer—must be certain and the acceptance seasonable and absolute; if
qualified, the acceptance would merely constitute a counter-offer
Chapter 2: Essential Requisites of Contracts
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
 ―cause‖—all the 3 requisites must be present
o Absence of one negates the existence of a contract
 The rule on pari delicto as between the parties does not apply in cases of
inexistent contracts
Section 1: Consent
1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except
from the time it came to his knowledge. The contract, in such a case, is
presumed to have been entered into in the place where the offer was
made.
 Consent—the concurrence of the wills of the offerer and the acceptor as
to the thing and the cause which constitute a contract
 Offer—a manifestation of a willingness to enter into a bargain so made
as to justify another person in understanding that his assent to that
bargain is invited and will conclude it
o Making an offer means inviting an acceptance which, if given, will
finally create a contract
 It must be so complete that its acceptance will form an agreement
containing all the terms necessary and intended by the parties, for it
is obvious that there can be no agreement until its terms are settled,
and that an offer which is not complete is merely a step in the
negotiations
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 The following relations, until a contract is perfected, are not considered
binding commitments, and if withdrawn, such withdrawal is effective
immediately after its manifestation such as by its mailing and not
necessarily when the offeree learns of the withdrawal
o Negotiation—is formally initiated by an offer
o Imperfect promise (policitacion)—is merely an offer
o Public advertisements or solicitations and the like—are ordinarily
construed as mere invitations to make offers or only as proposals.
 Essence of Consent: the conformity of the parties on the terms of the
contract, the acceptance by one, of the offers made by the other
 Acceptance must be unconditional and unequivocal
o It must be identical to the terms of the offer
o It must not vary from the proposal either by way of omission, addition
or alteration
 Condition imposed on the perfection of a contract
o Failure to comply results in the failure of a contract
 Condition imposed merely on the performance of an obligation
o Failure to comply gives the other party options and/or remedies to
protect interests
 Requisites of Consent:
a. consent must be manifested by the concurrence of the offer and the
acceptance (Arts. 1319-1326);
b. contracting parties must possess the necessary legal capacity (Arts.
1327-1329); and
c. consent must be intelligent, free, spontaneous and real (Arts. 1330-
1346)
 Manifestation: Consent is manifested by the concurrence of offer and
acceptance with respect to the object and the cause of the contract.
Once there is such a manifestation, the period or stage of negotiation
is terminated. If consensual, the contract is perfected.
 A unilateral proposition (offer), to form a valid contract, must be:
a. Definite—distinguished from mere communications
b. Complete—stating the essential and nonessential conditions
desired by the offeror
c. Intentional—when accepted by another party
 Mental reservation—when a party makes a declaration but secretly
does not desire the effects of such declaration. The mental
reservation of the offeror, unknown to the other, cannot affect the
validity of the offer.
RA Salanga 1A
1320. An acceptance may be express or implied.
 Acceptance may be shown by the acts, conduct or words of a party
recognizing the existence of the contract
 Implied acceptance may arise from acts or facts which reveal the
intent to accept, such as the consumption of the things sent to the
offeree, or the fact of immediately carrying out of the contract
offered.
1321. The person making the offer may fix the time, place, and manner
of acceptance, all of which must be complied with.
 The offerer will not be bound by an acceptance made by the acceptor in
any other manner than that specified by the offerer unless the latter
acquiesces in the change
 In a contract of sale—the manner of payment of the purchase price is
essential element before a valid and binding contract of sale can exist
1322. An offer made through an agent is accepted from the time
acceptance is communicated to him.
 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
 When a sale of a piece of land or any interest therein is through an
agent, the authority of the latter shall be in writing, otherwise the sale is
void
1323. An offer becomes ineffective upon the death, civil interdiction,
insanity, or insolvency of either party before acceptance is conveyed.
 ―before acceptance is conveyed‖—before acceptance has come to the
actual knowledge of the offeror
 When an offer becomes ineffective, nothing can be accepted
1324. When the offerer has allowed the offeree a certain period to
accept, the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is founded
upon a consideration, as something paid or promised.
 Option—a contract granting a privilege to buy or sell at a determined
price within an agreed time
Oblicon Page 50 of 90
 Option period—the offerer has allowed the offeree a certain period to
accept the offer
a. If the period is not itself founded upon or supported by a
consideration
o The offerer is still free and has the right to withdraw the offer
before its acceptance or if an acceptance was made, before the
offeror’s coming to know of such fact, by communicating that
withdrawal to the offeree
o The right to withdraw must not be exercised whimsically or
arbitrarily; otherwise, it could give rise to a damage claim under Art.
19 of the Civil Code
 ―every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith‖
b. If the period has a separate consideration
o A contract of ―option‖ is deemed perfected and it would be a
breach of that contract to withdraw the offer during the agreed
period
o If the optioner-offeror withdraws the offer before its acceptance by
the optionee-offeree, the latter may not sue for specific performance
on the proposed contract since it has failed to reach its own stage of
perfection
o However, the optioner-offeror renders himself liable for damages
for breach of the option
 An optional contract is a privilege existing only in one party—the buyer
o He is given the right to decide to purchase or not, a certain
merchandise or property, at any time within the agreed period, at a
fixed price
 Consideration—in an option contract, may be anything of value, unlike
in sale where it must be the price certain in money or its equivalent
 Earnest money—considered part of the price in a contract of sale and
can be a proof of the perfection of the contract of sale
o However, it is not the giving of the earnest money per se, but the proof
of the concurrence of all the essential elements of the contract of sale
which establishes the existence of a perfected sale
 It is not the moment of sending but the time of receipt of the
revocation or acceptance which is controlling.
 The delay in transmission is at the risk of the sender, because he is
the one who selects the time and the manner of making the
transmission.
RA Salanga 1A
 Contract of Option: This is a preparatory contract in which one
party grants to the other, for a fixed period and under specified
conditions, the power to decide whether or not to enter into a
principal contract. It must be supported by an independent
consideration, and the grant must be exclusive.
1325. Unless it appears otherwise, business advertisement of things for
sale are not definite offers, but mere invitations to make an offer.
 General Rule: advertisement of things for sale are mere invitations to
make an offer
 Exception: ―unless it appears otherwise‖—connotes that the
advertisement may constitute an offer which is certain
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.
 Davies, Inc. v. CA:
o When a company starts the process of a bidding and disseminates the
document denominated the ―Terms Conditions of the Bidding‖ to the
bidders, the dissemination of the said documents constitutes an
―advertisement‖ to bid in the project
o The bid proposals or quotations submitted by the prospective
suppliers are the offers
o The favorable reply of the company to one of the prospective
suppliers is the acceptance
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
 Emancipation takes place by the attainment of majority age which
commences at the age of 18 years
o Any contract entered into by an unemancipated person is annullable
or voidable
o Only the minor can invoke the ground that a contract is annullable
because, at the time it was entered into, he was still a minor
 Hence, if a person of age bought property from a minor and the
latter received the purchase price, the person of age cannot file a
Oblicon Page 51 of 90
 case to annul the contract on the ground that the other party is a
minor
o Braganza v. De Villa Abrille: 2 minors signed a promissory note,
without telling the creditor their ages, and where the creditor sought
to enforce the promissory note against them, the SC ruled that the
minors can set up the defense of minority to resist claim
o Minors have no juridical duty to disclose their inability or age
o Even if the written contract is unenforceable because of non-age, they
shall make restitution to the extent that they may have profited by the
money they received
 Contracts entered into by insane or demented persons are likewise
annullable
o Valid up to the time they are rendered ineffective by the courts
o To annul a contract, it is always important to prove the insanity of the
other party at the time of the perfection of the contract
 Classes of persons suffering from mental incapacity:
1. Idiot—one who has been insane from birth
2. Lunatic—one who was at one time sane, but who from some cause or
other has lost use of his reason
3. Persons who are not legally totally incapacitated but are mentally weak
 The contract of one who is insane as to be unable to understand its
nature and effect is voidable at his option, except for necessaries
o But, when the insane is not under a guardian and the other contracting
party has no reasonable cause to believe him otherwise insane, the
agreement is valid if equitable and beneficial to such insane person
 This provision is designed to prevent fraud for the protection of
handicapped people
 Unemancipated minors cannot enter into valid contracts, and
contracts entered into by them are not binding upon them, unless
upon reaching majority they ratify the same.
 Insane persons: It is not necessary that there be a previous of
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.
 Being 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.
RA Salanga 1A
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.
 Lucid interval—that period of time when an insane person acts with
reasonable understanding, comprehension and discernment with respect
to what he is doing
o Lunacy may be intermittent in character
o However, when one is shown to have been mentally deranged at a
recent period anterior to the execution of the contract, that condition
is presumed to continue and the burden is on the other party to show
that the agreement was entered into during a lucid interval
 The intoxication must be such a character as to perpetuate an undue
advantage over the drunken person
o Other than necessities, an agreement made by a person when so drunk
as to be incapable of understanding its nature and effect, is voidable at
the intoxicated person’ option
 The contracts of an intoxicated person may be voidable under any of the
following:
1. When it appears that the drunkenness was brought about by the
opposite party
2. That a fraudulent advantage was taken of it
3. That the drunkenness was so complete as to deprive the party of his
reason of an agreeing mind
 The effect of the drunkenness or intoxication must render the person
incapable of intelligent assent and deprived of the power to know what
he is doing
o Any short of this will not invalidate the contract
 Hypnosis—an artificially induced state, resembling sleep, but
characterized by exaggerated suggestibility and continued responsiveness
to the voice of the hypnotist
 The use of intoxicants does not necessarily mean a complete loss of
understanding. The same may be said of drugs. But a person, under
the influence of superabundance of alcoholic drinks or excessive use
of drugs, may have no capacity to contract.
 In hypnotism and somnambulism, the utter want of understanding is
a common element.
Oblicon Page 52 of 90
1329. The incapacity declared in Art. 1327 is subject to the modification
determined by law, and is understood to be without prejudice to special
disqualification established in the laws.
 The Rules of Court provide a list of incompetents who need
guardianship: persons suffering from the penalty of civil interdiction,
hospitalized lepers, prodigals, deaf and dumb who are unable to write
and read, those of unsound mind (even though they have lucid
intervals), and persons not being of unsound mind but by reason of
age, disease, weak mind, and other similar causes cannot, without
outside aid, take care of themselves and manage their property—
becoming an easy prey for deceit and exploitation.
 The incapacity to give consent (Arts. 1327 & 1328) to contracts
renders the contract merely voidable, while special disqualification
(Art. 1329) makes it void.
1330. A contract where consent is given through mistake, violence,
intimidation, undue influence, or fraud is voidable.
 Intimidation, violence and undue influence—can be classified as acts of
duress where, as a result, the coerced party is compelled to execute the
contract against his will
 A contract obtained through duress or mistake is voidable or annullable
under Art. 1390.
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.
Mistakes 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.
 For mistake to make a contract voidable or annullable, the law states
that the consent must either refer to the
1. Substance of the thing which is the object of the contract
2. Conditions which principally induced the parties to enter into a
contract
RA Salanga 1A
 A unilateral mistake in the making of an agreement, of which the other
party is entirely ignorant and to which he in no way contributes, will not
affect the agreement or afford ground for its avoidance or rescission,
unless it is such a mistake as goes to the substance of the agreement
itself
 Mistake involved either
a. Ignorance—absence of knowledge which respect to a thing
b. Mistake properly speaking—a wrong conception about said thing or a
belief in the existence of some circumstance, fact or event which in
reality does not exist
 A simple mistake of account shall give rise to its correction
o A simple accounting error does not go into the essentials of a contract
 Ignorance and error are 2 different states of mind. Ignorance means
the complete absence of any notion about a particular matter, while
error or mistake means a wrong or false notion about such matter.
 Annulment of contract on the ground of error is limited to cases in
which it may reasonably be said that without such error the consent
would not have been given.
 An error as to the person will invalidate consent when the
consideration of the person has been the principal cause of the same.
 Mistake as to qualifications, even when there is no error as to
person, is a cause vitiating consent, if such qualifications have been
the principal cause of the contract.
 A mistake as to the motive of a party does not affect the contract; to
give it such effect would destroy the stability of contractual
relations. When the motive has, however, been expressed and was a
condition of the consent given, annulment is proper—because an
accidental element is, by the will of the parties, converted into a
substantial element.
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.
 Presumption: when entering into a contract, the parties are presumed to
have understood the terms of the contract they voluntarily signed
especially when there is proof that they are educated
Oblicon Page 53 of 90
 Before the benefits of this article can be availed of, the person invoking
the same must prove that he has the conditions described in the same
article
o Only after sufficiently adducing evidence proving the fact that he
cannot read or that he does not understand the language of the
contract will the burden of proof shift to the one enforcing the
contract to show that the terms thereof have been explained to the
person who is unable to read or who does not understand the
language of the contract
1333. There is no mistake if the party alleging it knew the doubt,
contingency or risk affecting the object of the contract.
 If the parties are conscious of their ignorance as to the existence of
some facts, the non-existence of such facts is of no consequence
 To invalidate consent, the error must be excusable. It must be a real
error and not one that could have been avoided by the party alleging
it. The error must arise from facts unknown to him. A mistake that
is caused by manifest negligence cannot invalidate a juridical act.
1334. Mutual error as to the legal effect of an agreement when the real
purpose of the parties is frustrated, may vitiate consent.
 A unilateral mistake of law as to the legal effect of an agreement is
generally not a ground to annul a contract
 A mistake of law may vitiate consent if the following requisites are
present:
1. The mistake as to the legal effect of the agreement must be mutual
2. Such mutual mistake frustrates the real purpose of the parties
 Three requisites under this article:
1. the error must be as to the legal effect of an agreement
2. it must be mutual; and
3. the real purpose of the parties is frustrated
 The legal effects include the rights and obligations of the parties, not
as stipulated in the contract, but as provided by the law.
 The mistake as to these effects, therefore, means an error as to what
the law provides should spring as consequences from the contract in
question.
 An error as to the nature or character is always essential, and makes
the act juridically inexistent.
RA Salanga 1A
1335. There is violence when in order to wrest consent, serious or
irresistible force is employed.
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.
To determine the degree of the intimidation, the age, sex and condition
of the person shall be borne in mind.
A threat to enforce one’s claim through competent authority, if the claim
is just or legal, does not vitiate consent.
 There is total absence of free will in case a person is compelled to enter
into a contract through violence
 It is necessary that the threats and circumstances be of a character as to
excite the reasonable apprehensions of a person of ordinary courage,
and that the agreement be made under the influence of such threats or
menace
o Threat must be tangible and direct
 The duress or intimidation must be more than the ―general feeling of
fear‖
o There must be specific acts or instances of such nature and magnitude
as to have, of themselves, inflicted fear or terror upon the subject
thereof that his execution of the questioned deed or act cannot be
considered voluntary
 Mere threat to bring a good faith action, maintainable at law, does not
amount to duress
 Legal actions which amount to duress:
1. A threatened civil action where the parties are not on an equal footing
2. Threats made against a person of inferior intellect, or an aged
weakened in body and mind to the effect that certain civil proceedings
will be instituted
3. Threatening litigation while the defendant is ill, or to continue
litigation when the circumstances are oppressive
 Duress is that degree of constraint or danger either actually inflicted
(violent) or threatened and impending (intimidation), sufficient to
overcome the mind and will of a person of ordinary firmness.
 Violence refers to physical force or compulsion, while intimidation
refers to moral force or compulsion.
Oblicon Page 54 of 90
 Requisites of violence:
1. That the physical force employed must be irresistible or of such
degree that the victim has no other course, under the
circumstances, but to submit; and
2. that such force is the determining cause in giving the consent to
the contract
 Requisites of intimidation:
1. that the intimidation must be the determining cause of the
contract, or must have caused the consent to be given;
2. that the threatened act be unjust or unlawful;
3. that the threat be real and serious, there being an evident
disproportion between the evil and the resistance which all men
can offer; and
4. that it produces a reasonable and well-grounded fear from the fact
that the person from whom it comes has the necessary means or
ability to inflict the threatened injury
1336. Violence or intimidation shall annul the obligation, although it may
have been employed by a third person who did not take part in the
contract.
 If A is coerced to enter into a contract with X because G threatens to
kill all the children of A if he does not do so, such contract may be
annulled whether or not X knew of the intimidation
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
confidential, 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.
 Annulling a contract based on undue influence ―is based upon principles
of highest morality, it reaches every case and grants relief where
influence is acquired and abused, or where confidence is reposed and
betrayed‖
 ―undue‖—unrighteous, illegal and designed to perpetrate a wrong
o It must amount to fraud or coercion
 ―due influence‖—solicitation, importunity, argument and persuasion
used by one party as means to the consent of the other
RA Salanga 1A
o Influence obtained by persuasion or argument or by appeals to the
affections is not prohibited either in law or morals and is not
obnoxious even in courts of equity
 In intimidation, there must be an unlawful or unjust act which is
threatened and which causes consent to be given, while in undue
influence there need not be an unjust or unlawful act. In both cases,
there is moral coercion.
 Moral coercion may be effected through threats, expressed or
implied, or through harassing tactics.
 Undue influence is any means employed upon a party which, under
the circumstances, he could not well resist, and which controlled his
volition and induced him to give his consent to the contract—which
otherwise he would not have entered into.
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.
 Fraud—a false representation of a material fact made by word or
conduct with knowledge of its falsehood or in reckless disregard of its
truth, in order to induce and actually inducing another to act thereon to
his injury
 There must be always be damage or injury in case of fraud
 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
executing a particular act.
 Fraud produces qualified error; it induces in the other party an
inexact notion of facts. The will of another is maliciously misled by
means of false appearance of reality.
 ―Insidious words or machinations‖ include false promises;
exaggeration of hopes or benefits; abuse of confidence; and fictitious
names, qualifications, or authority.
 Kinds of fraud:
1. dolo causante (Art. 1338) — which determines or is the essential
cause of the consent; fraud in the perfection of contract
2. dolo incidente— (Arts. 1344 & 1170) which does not have such a
decisive influence and by itself cannot cause the giving of consent,
but refers only to some particular or accident of the obligation.
Oblicon Page 55 of 90
 Dolo causante can be a ground for annulment; dolo incident cannot be a
ground for annulment.
 The result of fraud is error on the part of the victim.
 Requisites of fraud:
1. it must have been employed by one contracting party upon the
other;
2. it must have induced the other party to enter into the contract;
3. it must have been serious;
4. and it must have resulted in damage or injury to the party seeking
annulment
1339. Failure to disclose facts, when there is a duty to reveal them, as
when the parties are bound by confidential relations, constitutes fraud.
 The mere fact that one of the parties has superior knowledge of the
value of the property subject of the transaction does not per se constitute
fraud
 There is only fraud when, under the special and peculiar circumstances
of each case, a legal or equitable duty is imposed upon the dominant
party to reveal certain facts material to the transaction or when there is a
confidential relationship between the parties
 Silence or concealment, by itself, does not constitute fraud, unless
there is a special duty to disclose certain facts, or unless according to
good faith and the usages of commerce, the communication should be
made
 Thus, the innocent non-disclosure of a fact does not affect the
formation of the contract or operate to discharge the parties from
their agreement.
1340. The usual exaggeration in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent.
 If a party is induced by such exaggerations, there may be fraud
amounting to active misrepresentation
 If it is within the means of the other party to investigate and he does not
do so, there will be no fraud despite the exaggerations
 Tolerated fraud includes minimizing the defects of the thing,
exaggeration of its good qualities, and giving it qualities that it does
not have. This is lawful misrepresentation known as dolus bonus. This
is also called lawful astuteness.
RA Salanga 1A
 These misrepresentations are usually encountered in fairs, markets,
and almost all commercial transactions. They do not give rise to an
action for damages, either because of their insignificance or because
the stupidity of the victim is the real cause of his loss.
 The thinking is that where the means of knowledge are at hand and
equally available to both parties, one will not be heard to say that he
has been deceived.
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.
 General Rule: Opinions are not regarded as representation of facts
o Hence, if it turns out to be wrong, it is not considered legally deceitful
insidiously inducing a party to enter into a contract
 This provision is the exception
 An opinion of an expert is like a statement of fact, and if false, may be
considered a fraud giving rise to annulment.
1342. Misrepresentation by a third person does not vitiate consent,
unless such misrepresentation has created substantial mistake and the
same is mutual.
 A contract may be annulled on the ground of vitiated consent if deceit
by a third person, even without connivance or complicity with one of
the contracting parties, resulted in mutual error on the part of the parties
to the contract
 The general rule is that the fraud employed by a third person upon
one of the parties does not vitiate consent and cause the nullity of a
contract.
 Exception: If one of the parties is in collusion with the third person,
or knows of the fraud by the third person, and he is benefited
thereby, he may be considered as an accomplice to the fraud, and the
contract becomes voidable.
1343. Misrepresentation made in god faith is not fraudulent but may
constitute error.
 Misrepresentation is inclusive of the term fraud
 Practically, every fraud is a misrepresentation but not every
misrepresentation is fraudulent
Oblicon Page 56 of 90
 Misrepresentations may be made without the knowledge of its falsity
and therefore completely done in good faith
o In this case, it may constitute merely an error
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.
 The fraudulent act must be serious
o There must be an intention to injure and that damage or injury in fact
resulted
o It must not be dolo incidente—accidental and collateral fraud—which
does not necessarily bear on the decision of the party defrauded to
enter into the contract
o It must be dolo causante—which refers to the very cause why the other
party entered into the contract
 Fraud is serious when it is sufficient to impress, or to lead an
ordinarily prudent person into error; that which cannot deceive a
prudent person cannot be a ground for nullity.
 Besides being serious, the fraud must be the determining cause of the
contract. It must be dolo causante.
 When both parties use fraud reciprocally, neither one has an action
against the other; the fraud of one compensates that of the other.
Neither party can ask for the annulment of the contract.
1345. Simulations 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.
 Absolute simulation—renders the contract null and void—when the
parties do not intend to be bound at all by the same
 The basic characteristic of this type of simulation of contract is the fact
that the apparent contract is not really desired or intended to either
produce legal effects or in any way alter the juridical situation of the
parties
 Simulation is the declaration of a fictitious will, deliberately made by
agreement of the parties, in order to produce, for the purposes of
deception, the appearance of a juridical act which does not exist or is
different from that which was really executed.
RA Salanga 1A
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.
 Pua v. CA: where it was proven that the person who allegedly entered
into the contract was not even conceived at the time the contract was
executed, the SC said that the contract was definitely absolutely
simulated
 In absolute simulation, there is color of a contract, without any
substance thereof, the parties not having any intention to be bound.
 In relative simulation, the parties have an agreement which they
conceal under the guise of another contract. Example: a deed of sale
executed to conceal donation.
Section 2: Object of Contracts
 The object of a contract is its subject matter. It is the thing, right, or
service which is the subject-matter of the obligation arising from the
contract.
 Requisites: [CILID]
1. [C] within the commerce of man;
2. [I] not intransmissible
3. [L] must be licit, or not contrary to law, morals, good customs,
public policy, or public order;
4. [I]not an impossible thing or service; and
5. [D] it must be determinate as to its kind.
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.
 Any property or service can be the object of a contract provided that it
is within the commerce of man
 Creek—a recess or arm extending from a river and participating in the
ebb and flow of the sea and is a property belonging to the public
Oblicon Page 57 of 90
 domain which is not susceptible to private appropriation and acquisitive
prescription
 Future things that can be reasonably ascertained can be the object of a
contract
 Rights may likewise be the object of contracts provided they are
transmissible
 Future inheritance—any property or right not in existence or capable of
determination at the time of the contract, that a person may in the
future acquire by possession
 Blas v. Santos: where the wife agreed to give whatever her share in the
conjugal partnership property to her heirs once the husband dies, the SC
said that such agreement does not involve future inheritance
o The document refers to existing properties which she will receive by
operation of law on the death of her husband, because it is her share
in the conjugal assets
 Things which are outside the commerce of man:
1. Services which imply an absolute submission by those who render
them, sacrificing their liberty, their independence or beliefs, or
disregarding in any manner the equality and dignity of persons,
such as perpetual servitude or slavery;
2. Personal rights, such as marital authority, the status and capacity
of a person, and honorary titles and distinctions;
3. Public offices, inherent attributes of the public authority, and
political rights of individuals, such as the right of suffrage;
4. Property, while they pertain to the public dominion, such as the
roads, plazas, squares, and rivers;
5. Sacred things, common things, like the air and the sea, and res
nullius, as long as they have not been appropriated.
6. Even future things can be the object of contracts, as long as they
have the possibility or potentiality of coming into existence.
7. The law, however, generally does not allow contracts on future
inheritance. A contract entered into by a fideicommissary heir with
respect to his eventual rights would be valid provided that the
testator has already died. The right of a fideicommissary heir
comes from the testator and not from the fiduciary.
1348. Impossible things or services cannot be the object of contracts.
 One cannot be bound to do the impossible
 Things are impossible when they are not susceptible of existing, or
they are outside the commerce of man. Personal acts or services
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impossible when they beyond the ordinary strength or power of
man.
 The impossibility must be actual and contemporaneous with the
making of the contract, and not subsequent thereto.
 The impossibility is absolute or objective when nobody can perform
it; it is relative or subjective when due to the special conditions or
qualifications of the debtor it cannot be performed.
 The absolute or objective impossibility nullifies the contract; the
relative or subjective does not.
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.
 The object must be one that can be ascertained with reasonable certainty
as to its kind
o Hence, a contract engaging a certain person to perform a deed,
without specifying what deed it is, does not make the service
determinable and is therefore void
Section 3: Cause of Contracts
 The cause of the 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.
 The cause as to each party is the undertaking or prestation to be
performed by the other. The object of the contract is the subject
matter thereof (e.g., the land which is sold in a sales contract).
 Consideration, meanwhile, is the reason, motive, or inducement by
which a man is moved to bind himself by an agreement.
 Requisites:
1. it must exist;
2. it must be true; and
3. it must be licit.
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1350. In onerous contracts, the cause is understood to be, for each
contracting party, the prestation of 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.
 Cause of the contract—the essential or more proximate purpose which
the contracting parties have in view at the time of entering into the
contract
o It may or may not be tangible
o It can take different forms:
a. Prestation or promise of a thing or service by another
b. Giving of a sum of money, an object
c. Expectation of profits from a subdivision project
 The contact is the law between the parties
o When the words of a contract are plain and readily understandable,
there is no room for construction
 Cause of contracts:
1. Onerous contract—for each contracting party, the prestation or
promise of a thing or service by the other
2. Reciprocal contracts—the obligation or promise of each party
3. Remuneratory contracts—the service or benefit which is remunerated
4. Contracts of pure beneficence—mere liberality of the benefactor
o It does not involve any material thing but rather it involves only the
generosity of the benefactor
 In onerous contracts, the cause need not be adequate or an exact
equivalent in point of actual value, especially in dealing with objects
which have a rapidly fluctuating price. There are equal
considerations.
 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. The consideration of one is greater than the other‘s.
1351. The particular motives of the parties in entering into a contract are
different from the cause thereof.
 ―cause‖—essential reason for the contract
 ―motive‖—particular reason for a contracting party which does not
affect the other party and which does not preclude the existence of a
different consideration
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 Motivation of the parties is independent from the cause of the contract
and therefore does not form an essential part of it
 General rule: motive or particular purpose of a party in entering into a
contract does not affect the validity nor existence of the contract
o Exception: when the realization of such motive or particular purpose
has been made a condition upon which the contract is made to
depend
 Elementary in the law of contracts is the principle that no judicial action
is necessary for the annulment of a void contract
o Any such action would be merely declaratory
 Cause is the objective, intrinsic, and juridical reason for the existence
of the contract itself, while motive is the psychological, individual, or
personal purpose of a party to the contract.
 General principle--the motives of a party do not affect the validity or
existence of a contract.
o Exceptions: When motive predetermines the purpose of the
contract, such as:
1. When the motive of a debtor in alienating property is to defraud
his creditors, the alienation is rescissible;
2. When the motive of a person in giving his consent is to avoid a
threatened injury, as in the case of intimidation, the contract is
voidable; and
3. When the motive of a person induced him to act on the basis of
fraud or misrepresentation by the other party, the contract is
voidable.
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.
 Absence of the cause, being one of the essential elements of a contract,
do not create a contract as there can be no meeting of the minds
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.
 General rule: false cause stated in a contract makes the contract void
 Exception: when a contract, though stating a false consideration, has in
fact a real consideration, the contract is not void
o The contract is at least a relatively simulated one
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1354. Although the cause is not stated in the contracts, it is presumed
that it exists and is lawful, unless the debtor proves the contrary.
 Unless the contrary is proved, a contract is presumed to have a good
and sufficient consideration.
 This presumption applies when no cause is stated in the contract.
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.
 A valuable consideration, however small or nominal, if given or
stipulated in good faith is, in the absence of fraud, sufficient
 In case of lesion or inadequacy of cause:
o General rule: the contract is not subject to annulment.
 In cases provided by law, however, such as those mentioned in Art
1381, the lesion is a ground for rescission of the contract.
 Gross inadequacy naturally suggests fraud and is evidence thereof,
so that it may be sufficient to show it when taken in connection with
other circumstances.
Chapter 3: Forms of Contracts
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.
 General Rule: contracts are valid and binding from their perfection
regardless of form, whether they be oral or written
o Once the 3 elements exist, the contract is generally valid and
obligatory, regardless of the form, oral or written, in which they are
couched
 Exceptions:
1. Contracts for which the law itself requires that they be in some
particular form (writing) in order to make them valid and enforceable
a. Donation of immovable property and Donations of movables worth
more than P5,000—requires to be embodied in a public instrument
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b. Contracts to pay interest on loans(mutuum)—must be ―expressly
stipulated in writing‖
c. Agreements contemplated by Arts. 1744, 1773, 1847 and 2134 of
the New Civil Code
2. Contracts that the law requires to be proved by some writing
(memorandum) of its terms—those covered by the old Statute of
Frauds, now Art. 1403(2) of the Civil Code
 A certain form may be prescribed by law for any of the following
requisites, for:
1. Validity—non-observance renders the contract void and of no effect
2. Enforceability—non-compliance will not permit, upon the objection
of a party, the contract, although otherwise valid, to be proved or
enforced by action
3. Greater efficacy or convenience or to bind third persons—if not done,
would not adversely affect the validity or enforceability of the contract
between the contracting parties themselves
 FORM – in some kind of contracts only as contracts are generally
consensual; form is a manner in which a contract is executed or
manifested
 Kinds of Forms:
1. Informal – may be entered into whatever form as long as there is
consent, object and cause
2. Formal – required by law to be in certain specified form such as:
a. donation of real property
b. stipulation to pay interest
c. transfer of large cattle
d. sale of land thru agent
e. contract of antichresis
f. contract of partnership
g. registration of chattel mortgage
h. donation of personal property in excess of 5,000
3. Real – creation of real rights over immovable property must be
written
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.
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 A party, who desires to have his contract reduced in the particular form
required by law, can file an action to compel the other party to comply
with such form
 If the requirement of law is directory only and has no bearing on the
validity or enforceability of the contract, the parties can enforce the
contract and, at the same time, demand that it be reduced in the form
required by law
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 Arts. 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 500 pesos must
appear in writing, even a private one. But sales of goods, chattels or
things in action are governed by Arts. 1403, No. 2and 1405.
 Failure to put in a public or private document or writing the transactions
or matters herewith will not render the agreement void or invalid
o They shall still be effective as between the parties
o The requirement of this article is only for the purpose of greater
efficacy, of convenience or of binding third persons
 This article nowhere provides that the absence of written form will make
the agreement invalid or unenforceable
 Contract of Sale—a consensual contract, which means that the sale is
perfected by mere consent
o No particular form is required for its validity
 Under Art. 1498, when the sale is made through a public instrument, the
execution thereof is equivalent to the delivery of the thing
 Delivery may either be [a] actual (real) or [b] constructive
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o The delivery of a parcel of land may be done by placing the vendee in
control and possession of the land (real) or by embodying the sale in a
public instrument (constructive)
Chapter 4: Reformation of Instruments
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.
 Reformation applies only to written contracts contained in an
instrument or series of instrument
o This connotes a valid contract
 2 fundamental matters must be shown before reformation can be
availed:
o Failure to prove these two may lead to the creation of an entirely
new contract not within the contemplation of the parties
1. The instrument embodying the contract does not reveal the true
intention of the parties
2. The existence of a real and actual contract entered into by the parties
 In actions for reformation, the onus probandi is upon the party who insists
that the contract should be reformed
 An action for reformation is in personam, not in rem, even when real estate
is involved
o It is merely an equitable relief granted to the parties where through
mistake or fraud, the instrument failed to express the real agreement
or intention of the parties
 An action for reformation can be filed within 10 years from the time the
cause of action accrues, since the suit is based on a written contract
o The cause of action accrues upon the
a. Knowledge of the ground for reformation, or
b. From the date of the execution of the instrument embodying the
contract
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  if the cause or causes for reformation were already known at the
time of the execution of the said instrument embodying the
contract
 Action for reformation may be barred by laches
 An action for reformation of instrument is instituted as a special civil
action for declaratory relief under the Rules of Court
o Since the purpose of an action for declaratory relief is to secure an
authoritative statement of the rights and obligations of the parties for
their guidance in the enforcement thereof, or compliance therewith
o It may be entertained only before the breach or violation of the law or
contract to which it refers
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.
1361. When a mutual mistake of the parties causes the failure of the
instrument to disclose their real agreement, said instrument may be
reformed.
 For mistake to be a cause for reformation, mistake must be
1. Mutual, and
2. Generally involve factual matters
 Relief by way of reformation of a written agreement will not be granted
unless the proof of mutual mistake is of the clearest and most
satisfactory character
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.
 If the mistake is unilateral and reformation is sought—it must be shown
that the other party has acted fraudulently or inequitably resulting in the
drafting of a document which does not correspond to the actual
contract agreed upon by the parties
 General Rule: mistake of law or ignorance of law is not a ground for
reformation because parties must, as a rule, submit to the legal
ramifications of their written contracts clearly pursuant to their true
intent and meaning
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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.
 Mutual mistake—knowledge by one party of the other’s mistake
regarding the expression of the agreement
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.
 However, oversight may not be attributed to all the parties to the
contract and therefore, it cannot be considered a valid reason for the
reformation of the same contract
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.
 In reforming instruments, courts do not make another contract for the
parties
 They merely inquire into the intention of the parties and, having found
it, reform the written instrument (not the contract) in order that it may
express the real intention of the parties
1366. There shall be no reformation in the following causes:
1. Simple donations inter vivos wherein no condition is imposed
2. Wills
3. When the real agreement is void
 Any disposition in a will or an unconditional donation bequeathing or
donating something is an act of liberality
o Wills and donations are gratuitous
o They do not involve any meeting of the minds of the parties before
the document is even drafted
 Reformation implies that there must be a prior agreement between the
parties
o If such prior agreement is void, it cannot be given legal effect
Oblicon Page 62 of 90
1367. When one of the parties has brought an action to enforce the
instrument, he cannot subsequently ask for its reformation.
 A party seeking to enforce an agreement necessarily acknowledges that
the instrument embodies the contract intended by the parties
o Hence, he is estopped from filing a case for reformation alleging that
the contract does not contain the true intention of the parties
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.
 Persons who are given legal standing to initiate an action for
reformation:
1. If mistake is mutual—either party or his successor-in-interest
2. If the cause for reformation is some other grounds—such as fraud or
vitiated consent—the injured party or his heirs and assigns
1369. The procedure for the reformation of instruments shall be
governed by rules of court to be promulgated by the Supreme Court.
 Rule 63 of the 1997 New Rules of Civil Procedure
o In an action for declaratory relief, any person interested under a deed,
will, contract or other written instrument, […] before the breach or
violation thereof, bring an action in the appropriate RTC to determine
any question of construction or validity arising, and for the declaration
of his rights and duties, thereunder
o If before the final termination of the case, a breach or violation of an
instrument 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
Summary of Chapter 4: Reformation of Contracts
 REFORMATION OF CONTRACTS – remedy to conform to real
intention of parties due to mistake, fraud, inequitable conduct,
accident
 CAUSES/GROUNDS:
1. Mutual: instrument includes something w/c should not be there or
omit what should be there
a. Mutual
b. Mistake of fact
c. Clear and convincing proof
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d. Causes failure of instrument to express true intention
2. Unilateral
a. one party was mistaken
b. other either acted fraudulently or inequitably or knew but
concealed
c. party in good faith may ask for reformation
3. Mistake by 3rd persons – due to ignorance, lack of skill, negligence
, bad faith of drafter, clerk, typist
4. Others specified by law – to avoid frustration of true intent
 Requisites for Reformation to be allowed:
1. There is a written instrument
2. There is meeting of minds
3. True intention not expressed in instrument
4. Clear and convincing proof
5. Facts put in issue in pleadings
 NOTE: prescribes in 10 years from date of execution of instrument
 WHEN REFORMATION NOT AVAILABLE:
1. Simple donation inter vivos
2. Wills
3. When real agreement is void
4. Estoppel when party has brought suit to enforce it
Chapter 5: Interpretation of Contracts
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.
 Purpose of Interpretation: to be able to know the intent of the parties so
that the contract can be properly implemented
 Interpretation—the act of making intelligible what was before not
understood, ambiguous, or not obvious
o A method by which the meaning of language is ascertained
 Interpretation of Contract—the determination of the meaning attached
to words written or spoken which make the contract
 Reformation—remedy in equity by means which a written instrument is
made or construed so as to express or conform to the real intention of
the parties
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 Latin Maxim:
o Expresso unius exclusion alterius—the mention of one thing implies the
exclusion of another thing
 General Rule: the intention of the parties is reflected from the wordings
of the contract, hence, the literal meaning of its stipulations shall control
o The task is to be discharged by looking to the words they used to
project that intention in their contract, all the words not just a
particular word or two, and words in context not words in isolation
o The title of a contract does not necessarily determine its true nature
 Parties to a contract must be careful in examining the language or the
wordings of their contract, and they must be diligent enough to read the
same before entering into it so that no complications can arise in the
future
 ―renewal of a contract‖—connotes the death of the old one and the
birth or emergence of a new one
 ―extension of the period of lease‖—operated on its own force to create
an additional term
o The period of lease must be construed to be for the benefit of both
parties
o The continuance, effectivity and fulfillment of a contract of lease
cannot be made to depend exclusively upon the free and uncontrolled
choice of the lessee between continuing the payment of the rentals or
not, completely depriving the owner of any say in the matter
 It is a fundamental principle that a court may not make a new contract
for the parties or rewrite their contract under the guise of construction
1371. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.
 The reasons and surrounding circumstances behind a contract’s
execution are of paramount importance to place the interpreter in the
situation occupied by the parties concerned at the time of the writing
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.
 Latin Maxims:
o Noscitur a sociis—general and unlimited terms are restrained and limited
by particular terms that follow
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o Ejusdem generis—a general term joined with a specific one will be
deemed to include only things that are like, of the same genus as, the
specific one
 However broad may be the terms of a contract, it extends only to those
things concerning which it appears the parties intended to contract
 The terms employed are servants, and not masters, of an intent
 They are interpreted so as to subserve, and not to subvert, such intent
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.
 Where the instrument is susceptible of 2 interpretations, one which will
make it invalid and illegal and another which will make it valid and legal,
the latter interpretation should be interpreted
 Construction of the terms of a contract which would amount to
impairment or loss of right is not favored
 Conservation and preservation, not waiver, abandonment or forfeiture
of a right is the rule
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.
 The various provisions of a contract must be read as a whole and not in
isolation
 Each provision must be related to each other in order to clearly know
the total import and application of the law and so that a harmonious
whole will be attained
 ―thus, the requirements of contract as to notice—as to the time of
giving, form and manner of service thereof—must be strictly observed
because in an obligation where a period is designated, it is presumed to
have been established for the benefit of both the contracting parties.
Thus, the unilateral termination of the contract in question by the herein
petitioners is violative of the principle of mutuality of contracts‖
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.
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1376. The usage or customs of the place shall be borne in the mind in
the interpretation of the ambiguities of a contract, and shall fill the
omission of stipulations which are ordinarily established.
 The office of the custom or usage is to explain the meaning of words
and phrases used in a written contract and to annex thereto certain
incidents which circumstances indicate the parties intended when the
words used do not necessarily exclude the operation of such custom or
usage but they may not be used to contradict nor vary the plain meaning
of the contract
 Usage may be admissible to explain what is doubtful; it is never
admissible to contradict what is plain
1377. The interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity.
 This is based on the maxim verba accipiuntur forties contra proferentem or the
rule contra proferentem which translates to ―against the profferer‖ or
―against the person who drafter or tendered the documents‖
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.
 Hence, if the object of the contract is a particular house of the seller in
QC and he owns two houses in the said locality, the contract will be
considered void if it cannot be determined which house is the object of
the contract
1379. The principles of interpretation stated in Rule 123 of the Rules of
Court shall likewise be observed in the construction of contracts.
 Rule 123 of the Rules of Court is now Rule 130 of the New Rules of
Court
 Kinds of Defective contracts:
a. Rescissible c. Unenforceable
b. Voidable d. Void or Inexistent
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Chapter 6: Rescissible Contracts
1380. Contracts validly agreed upon may be rescinded in the cases
established by law,
 Contracts under this are valid, but may subsequently be terminated on
legal grounds
 Their being rescissible is not principally premised on a breach of trust by
the other party, but on some economic damage as a result of inequitable
conduct by one party
 If the contract is in fraud of creditors, which is a ground for rescission,
but it is likewise simulated in that there is absolutely no consideration,
the contract is not rescissible under this chapter but clearly void ab initio
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 ¼ 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 in the preceding number
3. Those undertaken in fraud of creditors when the latter cannot in
any other manner collect the claim 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 of
rescission
 Lesion—implies an economic damage
 Guardianship: Any act of ownership or disposition undertaken by the
guardian on behalf of his ward without court approval is void
o If there is court approval, the transaction is valid whether or not there
is lesion
o If the guardian performs acts of administration (e.g. repairing) and the
ward suffers economic loss because there was no need to make a
useless transaction, then the contract entered into by the guardian is
rescissible provided that the ward suffers lesion by more than ¼ of the
value of the things which are the object of the contract
 Absentee: Provisional Absentee—when a person disappears from his
domicile, his whereabouts being unknown, and without leaving an agent
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 to administer his property, the judge, at the instance of an interested
party, a relative, or a friend, may appoint a person to represent him in all
that may be necessary
o 2 years having elapsed without any news about the absentee or since
the receipt of the last news, and 5 years in case the absentee has left a
person in charge of the administration of his property, his absence
may be declared by the court
 The court, then, may appoint an administrator or a representative to
manage the properties of the absentee
 Contracts in Fraud of Creditors: contract entered into in bad faith by the
parties which was purposely designed to evade the due obligations in
favor of creditors who have no other way to collect their debts
o Fraud is not presumed, it must be proved by clear preponderance of
evidence
o It is essential that it be shown that both contracting parties have acted
maliciously and with fraud and for the purpose of prejudicing said
creditors and that the latter are deprived by the transaction of all
means by which they may effect collection of their claims
o All these circumstances must concur in a given case
o ―in fraud of creditors‖—necessarily refers to actual creditors of the
debtor or obligee
 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
 ―right of first refusal‖—in the event the debtor decides to sell his
property, he must first offer the same to the creditor
o A contract of sale therefore, entered into in violation of a right of first
refusal of another person, while valid, is rescissible
1382. Payments made in a state of insolvency for obligations to whose
fulfillment the debtor could not be compelled at the time they were
affected, are also rescissible.
 ―in a state of insolvency‖—a debtor whose liabilities already exceed his
assets and who can barely pay off his debts
 If he pays off a creditor whose credit has not yet become due, that
payment can be rescinded
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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.
 A cause of action for rescission under this chapter can only be made in a
proper and direct action for that purpose and not on a mere motion
incidental to another case
 Rescission—a relief which the law grants on the premise that the
contract is valid for the protection of one of the contracting parties and
third persons from all injury and damage the contract may cause, or to
protect some incompatible and preferential right created by the contract
 ―accion pauliana‖—the action to rescind contracts made in favor of
creditors, must be commenced within 4 years
 Accion pauliana presupposes:
1. A judgment
2. The issuance by the trial court of a writ of execution for the
satisfaction of the judgment; and
3. The failure of the sheriff to enforce and satisfy the judgment of the
court
 It requires that the creditor has exhausted the property of the debtor
o The date of the decision of the trial court is immaterial
o What is important is that the credit of the plaintiff antedates that of
the fraudulent alienation by the debtor of his property
o After all, the decision of the trial court against the debtor will retroact
to the time when the debtor became indebted to the creditor
1384. Rescission shall be only to the extent necessary to cover the
damages caused.
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.
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 In restitution, the parties shall be placed in the same position where they
were before they entered into the assailed contract
 If the object of the contract cannot be restored because of loss, damages
may be claimed from the person responsible for the loss
1386. Rescission referred to in Nos. 1 and 2 of Article 1381 shall not take
place with respect to contracts approved by the courts.
 Once judicially approved, such contract cannot anymore be the subject
of rescission
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 the 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 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.
In additions to these presumptions, the design to defraud creditors may
be proved in any other manner recognized by the law of evidence.
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 2 or more alienations, the first acquirer shall be liable first,
and so on successively.
 In the event that the transferee in bad faith transfers the property to a
subsequent buyer who is likewise in bad faith, the latter shall have the
obligation to return said property if it is still possible to do so. If not, he
shall be liable for damages
 However, if such buyer is in good faith, his purchase of the property is
perfectly valid, thereby making it impossible for the first transferee to
return the property, in which case, such first transferee shall be liable for
damages
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1389. The action to claim rescission must be commenced within 4 years.
For persons under guardianship and for absentees, the period of 4 years
shall not begin until the termination of the former’s incapacity, or until
the domicile of the latter is known.
 The prescriptive period begins to run after the aggrieved party has
unsuccessfully exhausted all possible remedies to enforce the obligation
or to recover what has been lost, thus:
1. For persons under guardianship—the period begins from the time the
incapacity terminates and the aggrieved party has unsuccessfully
exhausted all possible remedies to enforce the obligation or to recover
what has been lost
2. For absentees—the period begins from the time he learns of the
contract and has successfully exhausted all other remedies to be able
to enforce his rights or recover what has been lost
o Domicile—the place of habitual residence
o Domicile of Juridical persons—the place where their legal
representative is established or where they exercise their principal
function
3. For contracts entered into in fraud of creditors—the period begins
from the time of the discovery of the fraud and after he or she has
unsuccessfully exhausted all possible remedies to enforce the
obligation or to recover what has been lost
4. For contracts entered into with respect to things under litigation
without the knowledge and approval of the litigants or of competent
judicial authority—the period begins from the time of knowledge of
the transaction and unsuccessfully exhausted all possible remedies to
enforce the obligation or to recover what has been lost
Summary of Rescissible Contracts
RESCISSIBLE CONTRACTS – Those which have caused a particular
economic damage either to one of the parties or to a 3rd person and
which may be set aside even if valid. It may be set aside in whole or in
part, to the extent of the damage caused
REQUISITES:
I. Under art 1381: Contracts entered into by persons exercising fiduciary
capacity:
1. Entered into by guardian whenever ward suffers damage by more
than 1/4 of value of object
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 2. Agreed upon in representation of absentees, if absentee suffers lesion of one‘s obligation or what is Non-performance by the other
by more than ¼ of value of property incumbent upon him party is not important
3. Contracts where rescission is based on fraud committed on creditor Applies only to reciprocal
Applies to both unilateral and
(accion pauliana) obligation reciprocal obligations
4. Objects of litigation; contract entered into by defendant w/o Only a party to the contract mayEven a 3rd person who is
knowledge or approval of litigants or judicial authority demand fulfillment or seek the prejudiced by the contract may
5. Payment by an insolvent – on debts w/c are not yet due; prejudices rescission of the contract demand the rescission of the
claim of others contract
6. Provided for by law – arts. 1526, 1534, 1538, 1539, 1542, 1556, 1560, Court may fix a period or grant Court cannot grant extension of
1567 and 1659 extension of time for the time for fulfillment of the
II. Under art 1382 - Payments made in a state of insolvency fulfillment of the obligation obligation
1. Plaintiff has no other means to obtain reparation. Its purpose is to cancel the Its purpose is to seek reparation
2. Plaintiff must be able to return whatever he may be obliged to return contract for the damage or injury cause,
due to rescission thus allowing partial rescission of
3. The things must not have been passed to 3rd parties who did not act the contract
in bad faith
4. It must be made within the prescribed period (of 4 years) Chapter 7: Voidable Contracts
Obligation created by the rescission of the contract: Mutual Restitution
1. Things w/c are the objects of the contract and their fruits
1390. The following contracts are voidable or annullable, even though
2. Price with interest
Mutual Restitution Not Applicable When there may have been no damage to the contracting parties.
1. creditor did not receive anything from contract 1. Those where one of the parties is incapable of giving consent to a
2. thing already in possession of party in good faith; subject to contract
indemnity only; if there are 2 or more alienations – liability of 1st 2. Those where the consent is vitiated by mistake, violence,
infractor intimidation, undue influence, or fraud
BADGES OF FRAUD These contracts are binding, unless they are annulled by a proper action
1. consideration of the conveyance is inadequate or fictitious in court. They are susceptible of ratification.
2. transfer was made by a debtor after a suit has been begun and while  Ratification—any defect or infirmity causing its annullable nature can be
it is pending against him cured by the party aggrieved or injured
3. sale upon credit by an insolvent debtor evidence of indebtedness or
 The effects of an annulment operate prospectively and do not retroact
complete insolvency
to the time the contract, such as sale, was made
4. transfer of all his property by a debtor when he is financially
embarrassed or insolvent 1391. The action for annulment shall be brought within 4 years.
5. transfer made between father and son where there is present any of
the above circumstances This period shall begin:
6. failure of the vendee to take exclusive possession of the property
In cases of intimidation, violence or undue influence, from the time the
defect of the consent ceases.
Rescission in Art. 1191 Rescission in 1381
It is a principal action retaliatory It is a subsidiary remedy In case of mistake or fraud, from the time of the discovery of the same.
in character
Only ground is non-performance There are 5 grounds to rescind.
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And when the action refers to contracts entered into by minors or other
incapacitated persons, from the time the guardianship ceases.
 Prescriptive period—time within which an aggrieved party can file a case
in court to make a claim or to assert a right or to correct a wrong
 It is a rule that an extra-judicial demand by a creditor shall interrupt the
running of a prescriptive period. However, this rule only applies to a
determinate conduct that can be demanded.
1392. Ratification extinguishes the action to annul a voidable contract.
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.
 Ratification—the act of curing the defect which made the contract
annullable
 There can be no ratification by a corporation of acts performed by an
officer if he has not been given apparent authority by the corporation,
or if his acts are not later validated by the corporation
1394. Ratification may be effected by the guardian of the incapacitated
person.
 Guardian—tasked with the administration of the person and properties
of the ward
1395. Ratification does not require the conformity of the contracting
party who has no right to bring the action for annulment.
 Ratification is a unilateral act
o Generally done by the injured party and not by the party causing the
injury
1396. Ratification cleanses the contract from all its defects from the
moment it was constituted.
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
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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.
 Thus, strangers to a contract cannot sue either or both of the
contracting parties to annul and set aside that contract
 This provision follows Art. 1311 which provides that ―contracts take
effect only between the parties, their assigns and heirs […]‖
 It is the existence of an interest in a particular contract that is the basis
of one’s right to sue for nullification of that contract and that essential
interest in a given contract is, in general, possessed only by one who is a
party to the contract
 Exception: when a person, who is not the party obligated principally or
subsidiarily in a contract, is prejudiced in his rights with respect to one
of the contracting parties
o But, it is indispensable to show the detriment which positively would
result to him from the contract in which he had no intervention
o Limitation of the exception: that contract may be nullified only to the
extent that such nullification is absolutely necessary to protect the
plaintiff’s lawful rights
 Preemptive or Redemptive Rights of a lessee—under PD 1517, this
exists only in respect of the urban land under lease on which he had
resided for 10 years or more
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.
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.
 It must be noted that the bank cannot file a case against the minor
 It can only recover by way of a counterclaim in a complaint for
annulment filed by the minor when he reaches the age of majority
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1400. Whenever the person obliged by the decree of annulment to 4. Can be assailed only by the party whose consent was defective or his
return the thing can not do so because it has been lost through his fault, heirs or assigns
he shall return the fruits received and the value of the thing at the time WHAT CONTRACTS ARE VOIDABLE:
of the loss, with interest from the same date. 1. Minors ( below 18 )
2. Insane unless acted in lucid interval
 When the object to be returned cannot be returned, because it was lost
3. Deaf mute who can‘t read or write
by the person obliged to return it due to the fault of the said person, the 4. Persons specially disqualified: civil interdiction
value of the object, its fruits and interest shall be given instead to satisfy 5. In state of drunkenness
the order of restitution 6. In state of hypnotic spell
MISTAKE
1401. The action for annulment of contracts shall be extinguished when o false belief into something
the thing which is the object thereof is lost through the fraud or fault of o REQUISITES:
the person who has a right to institute the proceedings. 1. Refers to the subject of the thing which is the object of the contract
2. Refers to the nature of the contract
If the right of action is based upon the incapacity of any one of the 3. Refers to the principal conditions in an agreement
contracting parties, the loss of the thing shall not be an obstacle to the 4. Error as to person - when it is the principal consideration of the
success of the action, unless said loss took place through the fraud or contract
fault of the plaintiff. 5. Error as to legal effect - when mistake is mutual and frustrates the
 It is a rule that no one can come to court with unclean hands real purpose of parties
 If an incapacitated person purchases a car and later he files a case to VIOLENCE
annul the contract of sale, the mere fact that the car has been lost will o serious or irresistible force is employed to wrest consent
not abate the proceedings for annulment INTIMIDATION
o This is so because the incapacitated person is not obliged to make any o one party is compelled by a reasonable and well grounded fear of an
restitution except when it has benefited him imminent and grave danger upon person and property of himself,
 However, if the incapacitated person loses the car through his own fault, spouse, ascendants or descendants (moral coercion)
then the case will be dismissed UNDUE INFLUENCE
o person takes improper advantage of his power over will of another
depriving latter of reasonable freedom of choice
1402. As long as one of the contracting parties does not restore what in o Martinez vs. Hongkong and Shanghai Bank
virtue of the decree of annulment he is bound to return, the other  The doctrine on reluctant consent provides that a contract is still
cannot be compelled to comply with what is incumbent upon him. valid even if one of the parties entered it against his wishes or even
against his better judgment. Contracts are also valid even though
Summary of Voidable Contracts they are entered into by one of the parties without hope of
VOIDABLE CONTRACTS – intrinsic defect; valid until annulled; advantage or profit.
defect is due to vice of consent or legal incapacity FRAUD
CHARACTERISTICS: o thru insidious words or machinations of contracting parties, other is
1. Effective until set aside induced to enter into contract w/o w/c he will not enter (dolo
2. May be assailed or attacked only in an action for that purpose causante)
3. Can be confirmed ( NOTE: confirmation is the proper term for KINDS OF FRAUD IN THE PERFORMANCE OF OBLIGATION
curing the defect of a voidable contract) OR CONTRACTS

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1. Causal Fraud (dolo causante) – deception of serious character
without which the other party would not have entered into; contract
is VOIDABLE (Art. 1338)
2. Incidental Fraud (dolo incidente) – deception which are not serious
and without which the other party would still have entered into the
contract; holds the guilty party liable for DAMAGES (Art. 1344)
3. Tolerated Fraud – includes minimizing the defects of the thing,
exaggeration of its good have; LAWFUL misrepresentation
o NOTE:
 Expression of an opinion – not fraud unless made by expert and
other party relied on the former‘s special knowledge
 Fraud by third person – does not vitiate consent; only action for
damages except if there is collusion between one party and the
third person, or resulted to substantial mistake, mutual between
parties
CAUSES OF EXTINCTION OF ACTION TO ANNUL
1. PRESCRIPTION - Period to bring an action for Annulment
a. Intimidation, violence, undue influence - 4 years from time defect
of consent ceases
b. Mistake, fraud – 4 years from time of discovery
c. Incapacity - From time guardianship ceases
Carantes vs. CA, 76 SCRA 514, discovery of fraud must be reckoned
to have taken place from the time the document was registered in the
office of the register of deeds. Registration constitutes constructive
notice to the whole world
2. RATIFICATION
o REQUISITES
a. knowledge of reason rendering contract voidable
b. such reason must have ceased, except in case of ratification
effected by the guardian to contracts entered into by an
incapacitated,
c. the injured party must have executed an act which expressly or
impliedly conveys an intention to waive his right
3. LOSS OF THE THING which is the object of the contract through
fraud or fault of the person who is entitled to annul the contract
o NOTE:
 Object is lost through a fortuitous event, the contract can still be
annulled, but the person obliged to return the same can be held
liable only for the value of the thing at the time of the loss, but
without interest thereon.
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 Ratification cleanses the contract of its defects from the moment
it was constituted.
Chapter 8: UNENFORCEABLE CONTRACTS
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 500 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 for the leasing for a longer period that one (1) 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 other acts indicating partial performance
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 If a contract has been entered into without authority, it cannot be
enforced
 Non-authority is also governed by the principles of agency which are
provided for in Art. 1868-1932 of the 1950 Civil Code
 Instances of unenforceable contract:
1. When a contract is entered into by parties who are both incapacitated
to enter into a contract
o When only one is incapacitated, the contract is voidable
2. When the contract does not comply with the Statute of Frauds
 Statute mandates that for certain executor contracts to be enforceable in
a court of law, the only evidence that can prove such contract is a
written proof of the agreement like some notes or memoranda
 Exception to the statute of frauds: existence of a written note or
memorandum evidencing the contract
 Memorandum—no particular form of language or instrument is
necessary to constitute a memorandum or note in writing under the
statute of frauds
o Any document or writing, formal or informal, written either for the
purpose of furnishing evidence of the contract or for another purpose,
which satisfies all requirements of the statute as to contents and
signature is a sufficient memorandum or note
o May be written as well with lead pencil as with pen and ink or filled in
on a printed form
o May be contained in a single document or in 2 or more papers
 For 2 or more writings, their sufficiency will depend on whether,
taken together, they meet the requirements of the statute as to
contents and the requirements of the statute as to signature
o Paper connected—the rule is frequently applied to 2 or more, or a
series of, letters or telegrams, or letters and telegrams sufficiently
connected to allow their consideration together; any other documents
can be read together when one refers to the other
 Examples:
a. Letter and an order of court
b. A letter and order for goods
c. A letter and a deposition
d. Letters or telegrams and undelivered deeds, wills correspondence
and related papers
e. A check and a letter
f. A receipt and a check
g. Deeds and a map
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h. A memorandum of agreement and a deed
i. A memorandum of sale and an abstract of title
j. A memorandum of sale and a will
k. A memorandum of sale and a receipt
l. A contract, deed and instructions to a depository in escrow
o The statute of frauds only applies to executor contracts and not to
contracts which have been consummated already or those which have
been totally or partially performed
o The contract must be fully made and completed in every respect
expect for the writing required by the statute, in order to be
enforceable on the ground of part performance
 The clearness and definiteness must extend to both the terms and
the subject-matter of the contract
 An oral contract, to be enforced on this ground must at least have
that degree of certainty which is required of written contracts sought
to be specifically enforced
o Partial performance can be manifested when improvements are made
on the subject property pursuant to the contract, rentals are paid,
taking possession on the basis of a verbal contract to purchase the
property, payment of taxes and relinquishment of rights, tender of
payment coupled with
 The enumeration in Par. 2 is exclusive
o 2(a)—: contracts which by their terms are not to be performed
within one year, may be taken out of the statute through
performance by one party thereto
 an agreement orally entered into 1987, for a person to commence
the painting of a portrait in 1989, cannot be enforced unless such
contract is in writing
 If a contract stipulates that a certain type of activity shall be
commenced within the year from the making of the contract, but
can only be fully accomplished after one year from the same will
fall within the Statute of Frauds
 However, if a contract is entered into where one party fully
completed his undertaking within one year and the other party
could only finish his undertaking beyond one year, it is removed
from the ambit of the Statute of Frauds
 If the contract stipulates that the contract shall be executed
immediately upon the signing of the agreement, although it has
been reset to another date by agreement of the parties so that it
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 can be finished only beyond one year, the contract is not within
the statute
o 2(b)—: ―special promise‖ is meant to limit the ―statutory provision
to express and tacit promises in fact made and does not apply in
cases where the duties are created by law without any promissory
assent‖
 A promise within this must have an obligation of some third
person to the promisee, either already existing or subsequently
existing; it must be made to the promisee and not to the debtor
 This must be in the nature of a collateral or subsidiary obligation
and not an original one
 It is very clear that a promisor cannot be made to answer for the
debt or default of another unless someone else is primarily liable
to the creditor
 The true 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 a collateral one:
a. ―collateral obligation‖—the promisor becomes a surety hence
it falls within the statute
 S promises C to answer for P’s debt, where there is an
obligation which exists between P and C, S’s obligation is
collateral to P’s and so within the statute unless some other
factors are present
 ―I will see you, paid‖ or ―I will pay if he does not‖
b. ―original obligation‖—if the promisor becomes primarily
liable for the payment of the debt, the promise is not within
the statute
 if no obligation exists between P and C, S’s promise is said
to be original, not within the statute, because he cannot be
answering for another’s default
 ‖while, as a matter of law, a promise, absolute in form, to
pay or to be ―responsible‖ or to be the ―paymaster‖
 In case the obligation is joint, there is no ―special promise‖
 Where the promises are not in form joint but are several or joint
and several, more than one obligation results. Here, the question
in whose favor the consideration is to inure becomes
determinative of whether the statute applies
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 ―debt, default and miscarriages‖—includes all legal obligations
which a person can come, contractual or non-contractual,
requiring a money payment or any other kind of performance
o 2(c)—: ante-nuptial agreements or marriage settlements must be in
writing, signed by the parties and executed before the marriage, to
be enforceable. This is mandatory.
 A mutual promise to marry will not fall under the statute because
a breach of such promise per se is not actionable
o 2(d)—:however, if one has paid, the contract has already been
partially performed and therefore it is removed from the ambit of
the statute
o 2(e)—: notarization is needed only to bind third persons, and so that
the proper registry of property can accept the deed or contract for
registration
o 2(f)—: Art. 21 of the Civil Code provides that ―every person must,
in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due and observe honesty and good
faith‖
 Unenforceable contracts cannot be enforced unless it is first ratified
in the manner provided by law. An unenforceable contract does not
produce any effect unless it is ratified. Unenforceable contracts
cannot be sued upon unless ratified (Paras, 2003).
 As to defectiveness, an unenforceable contract is nearer to absolute
nullity than voidable or rescissible contracts.
 There are 3 kinds of unenforceable contracts:
a. unauthorized contracts;
b. those that fail to comply with the Statute of Frauds;
c. those where both parties are incapable of giving consent to a
contract.
 UNAUTHORIZED CONTRACTS
o 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 third persons upon the contract; it
must have been the intention of the parties to bind someone, and,
as the principal was not bound, the agent should be. Ex: Without
my authority, my brother sold my car, in my name to X. The
contract is unauthorized and cannot affect me unless I ratify the
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 same expressly or implicitly, as by accepting the proceeds of the
sale. (Paras)
o Mere lapse of time, no matter how long, is not the ratification
required by law of an unenforceable contract (Tipton v. Velasco, 6
Phil 67, as cited in Paras).
 STATUTE OF FRAUDS
o Meaning: descriptive of statutes which require certain classes of
contracts to be in writing.
o Purpose: to prevent fraud and perjury in the enforcement of
obligations depending for their evidence upon the unassisted
memory of witnesses by requiring certain enumerated contracts
and transactions to be evidenced by a writing signed by the party
to be charged.
o Application: This statute does not deprive the parties the right to
contract with respect to matters therein involved, but merely
regulates the formalities of the contract necessary to render it
unenforceable. The statute of frauds, however, simply provides for
the manner in which contracts under it shall be proved. It does not
attempt to make such contracts invalid if not executed in writing
but only makes ineffective the action for specific performance.
o The statute of frauds is not applicable to contracts which are either
totally or partially performed, on the theory that there is a wide
field for the commission of frauds in executory contracts which can
only be prevented by requiring them to be in writing, a fact which
is reduced to a minimum in executed contracts because the
intention of the parties becomes apparent by their execution, and
execution concludes, in most cases, the rights of the parties.
o A note or memorandum is evidence of the agreement, and is used
to show the intention of the parties. No particular form of
language or instrument is necessary to constitute a memorandum
or note as a writing under the Statute of Frauds.
 General Rules of Application (mainly Paras):
1. Applies only to executory contracts. But it is not enough for a
party to allege partial performance in order to render the Statute
inapplicable; such partial performance must be duly proved, by
either documentary or oral evidence;
2. Cannot apply if the action is neither for damages because of the
violation of an agreement nor for the specific performance of said
agreement;
3. Exclusive, i.e. it applies only to the agreements or contracts
enumerated herein;
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4. Defense of the Statute may be waived;
5. Personal defense, i.e. a contract infringing it cannot be assailed by
third persons;
6. Contracts infringing the Statute are not void; they are merely
unenforceable;
7. The Statute of Frauds is a rule of exclusion, i.e. oral evidence
might be relevant to the agreements enumerated therein and
might therefore be admissible were it not for the fact that the law
or the statute excludes oral evidence;
8. The Statute does not determine the credibility or weight of
evidence. It merely concerns itself with the admissibility thereof;
9. The Statute does not apply if it is claimed that the contract does
not express the true agreement of the parties. As long as true or
real agreement is not covered by the Statute, it is provable by oral
evidence.
 THE SPECIFIC AGREEMENTS UNDER THE STATUTE OF
FRAUDS
1. Performance within a year. The 'making' of an agreement, for the
purpose of determining WON the period for performance brings
the agreement within the Statute, means the day on which the
agreement is made, and the time begins to run from the day the
contract is entered into, and not from the time that performance of
it is entered upon. There must be intention that the performance
should not be performed within a year.
2. Guaranty of Another's Debt. Test as to whether a promise is
within the Statute: lies in the answer to the question whether the
promise is an original or a collateral one. If the promise is original
or independent, as to when the promisor is primarily liable, it is
outside the Statute. If the promise is collateral, the promise must
be in writing.
3. Consideration of marriage. Applies to promises by a 3rd person to
one of the parties contemplating the marriage. Thus, a promise
made by the father of a prospective bride to give a gift to the
prospective husband is covered by the statute.
4. Sale of personality. Price of the property must be at least P500 and
covers both tangible and intangible property. The Statute will not
apply where there has been part payment of the purchase price. If
there is more than one item, which exceeds P500, the operation of
the statute depends upon WON there is a single inseparable
contract or several one. If inseparable, Statute applies. If the
contract is separable, then each article is taken separately, and the
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 application of the statute to it depends upon its price. Meaning of
―things in action‖: incorporated or intangible personal property
(Paras)
5. Lease or sale of realty. Evidence to prove an oral contract of sale of
real estate must be disregarded if timely objections are made to its
introduction. But the statute does not forbid oral evidence to prove
a consummated sale of real property.
6. Representation as to Credit. Limited to those which operate to
induce the person to whom they are made to enter into contractual
relations with the 3rd person, but not those representations
tending to induce action for the benefit of the person making them.
The statute does not cover representations deceitfully made.
 INCAPACITATED PARTIES
o Ratification by one party converts the contract into a voidable
contract- voidable at the option of the party who has not ratified.
1404. Unauthorized contracts are governed by Art. 1317 and the
principles of agency in Title X of this Book.
 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. (1259a)
 Requisites for a Person to contract in the name of another:
a. he must be duly authorized (expressly or impliedly) or
b. he must have by law a right to represent him (like the guardian, or
the administrator) or
c. the contract must be subsequently ratified (expressly or impliedly,
by word or by deed).
1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of
Art. 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.
 The cross-examination on the contract is deemed a waiver of the
defense of the Statute of Frauds because ―if the answers of those
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witnesses were stricken out, the cross-examination could have no object
whatsoever, and if the questions were put to the witnesses and answered
by them, they could only be taken into account by connecting them with
the answers given by those witnesses on direct examination‖
 If A sold to G a particular real property and A benefited from the
transaction by already obtaining the purchase price, the contract of sale
of the real property can be enforced even if the same was not in writing
 The Statute of Frauds may only be invoked in a case for violation of
contracts or for specific performance
 Two ways of ratification of contracts infringing the Statute are:
1. failure to object to the presentation of oral evidence;
2. acceptance of benefits under them, since the Statute does not
apply to contracts which are partially executed.
 Cross examination of the witnesses testifying orally on the contract
amounts to a waiver or to a failure to object.
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 Art. 1357.
 When the agreements provided in Art. 1403(2) are in writing and
therefore enforceable, and the law requires that the said written
document should be transformed into a public document for its
registration in the Registry of Property, the contracting parties may
compel each other to observe the form once the contract has been
perfected
 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.
 The right of one party to have the other execute the public document
needed for convenience in registration, is given only when the
contract is both valid and enforceable.
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.
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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.
 Under par. 2, the contract shall be completely valid as if it has not been
visited by any defect or infirmity at all
 Retroactivity of the ratified contract
1408. Unenforceable contracts cannot be assailed by third persons.
 The defense of the Statute is personal to the party to the agreement.
Thus, it cannot be set up by strangers to the agreement.
 Just as strangers cannot attack the validity of voidable contracts, so
also can they not attack a contract because of its unenforceability.
Indeed the Statute of Frauds cannot be set up as a defense by
strangers to the transaction. (Ayson v. CA, 97 Phil. 965).
Summary of Unenforceable Contract:
 UNENFORCEABLE CONTRACT – valid but cannot compel its
execution unless ratified; extrinsic defect; produce legal effects only
after ratified
 KINDS/VARIETIES:
1. Unauthorized/No sufficient authority – entered into in the name of
another when:
a. no authority conferred
b. in excess of authority conferred ( ultra vires )
Note: Curable by RATIFICATION
2. Both parties incapable of giving consent -2 minor or 2 insane
persons
Note: Curable by ACKNOWLEDGEMENT
3. Failure to comply with Statute of Frauds
a. Agreement to be performed within a year after making contract
b. Special promise to answer for debt, default or miscarriage of
another
c. Agreement made in consideration of promise to marry
d. Agreement for sale of goods, chattels or things in action at price
not less than 500; exception: auction when recorded sale in sales
book
e. Agreement for lease of property for more than 1 year & sale of
real property regardless of price
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f. Representation as to credit of another
 2 WAYS OF CURING UNENFORCEABLE CONTRACTS:
1. Failure of defendant to object in time, to the presentation of parole
evidence in court, the defect of unenforceability is cured
2. Acceptance of benefits under the contract. If there is performance
in either part and there is acceptance of performance, it takes it out
of unenforceable contracts; also estoppel sets in by accepting
performance, the defect is waived
Chapter 9: VOID AND INEXISTENT CONTRACTS
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.
 A contract which is void is no contract at all
o The defect in a void contract is permanent and incurable
o A void agreement will not be rendered operative by the parties’ alleged
partial or full performance of their respective prestations
o A void contract can never be confirmed nor ratified; neither can the
infirmity be cured by equity
 In determining a public policy of the State, courts are limited to a
consideration of the Constitution, the judicial decisions, the statutes, and
the practice of government officers
 Courts of justice will not recognize or uphold a transaction which in its
object, operation, or tendency, is calculated to be prejudicial to the
public welfare, to sound morality or to civic honesty
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 In order to declare a contract void as against public policy, a court must
find that the contract as to consideration or the thing to be done,
contravenes some established interest of society, or is inconsistent with
sound policy and good morals or tends clearly to undermine the security
of individual rights
 Good customs—those generally accepted principles of morality which
have received some kind of social and practical confirmation
1410. The action or defense for declaration of the inexistence of a
contract does not prescribe.
 There is no need to judicially file an action to make the contract void
 A case is filed merely to declare that the contract, which is already void,
is in fact void
 The filing of a case to declare the nullity of a void contract or to set up
such a defense is imprescriptible
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 disposal of effects of 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.
 The law will not aid either party to an illegal agreement
1412. If the act in which the unlawful or forbidden cause consists does
not constitute a criminal offense, the following rules shall be governed:
1. When the fault 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 has given without any
obligation to comply with his promise
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 Certificate of public convenience—a special privilege conferred by the
government
 ―kabit system‖ is invariably recognized as being contrary to public
policy, and, therefore, void and inexistent
1413. Interest paid in excess of the interest allowed by the usury laws
may be recovered by the debtor, with interest thereon from the date of
the payment.
 ―interest paid in excess of the interest allowed by the usury laws‖—
contemplates the whole amount of the interest
 In a loan of P1,000, with interest of 20% per annum or P200 per year, if
the borrower pays said P200, the whole P200 is the usurious interest,
not just that part thereof in excess of the interest allowed by law
1414. When money is paid or property delivered for an illegal purpose,
the contract may be repudiated by one of the parties before the purpose
has been accomplished, or before any damage has been caused to a
third 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.
1415. Where one of the parties to an illegal contract is incapable of
giving consent, the courts may, if the interest of justice so demands,
allow recovery of money or property delivered by the incapacitated
person.
 This provision is another exception to the in pari delicto rule
 This is, however, within the discretion of the court
1416. When the agreement is not illegal per se but is merely prohibited,
and the prohibition by the law is designed for the protection of the
plaintiff, he may, if public policy is thereby enhanced, recover what he
has paid or delivered.
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1417. When the price of any article or commodity is determined by
statute, or by authority of law, any person paying any amount in excess
of the maximum price allowed may recover such excess.
1418. 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.
 This provision is designed to prevent exploitation of employees or
laborers
 Overtime pay is now regulated by the Labor Code of the Philippines
1419. When the law sets, or authorizes the setting of a minimum wage
for laborers, and a contract is agreed upon by which a laborer accepts a
lower wage, he shall be entitled to recover the deficiency.
1420. In case of a divisible contract, if the illegal terms can be separated
from the legal ones, the latter may be enforced.
 If a void provision in a contract directly affects the entirety of the
contract, the contract can be considered void
 If the provision is independently separable from other provisions, such
provision alone shall be considered void
1421. The defense of illegality of contract is not available to third
persons whose interests are not directly affected.
 GR: there can only be mutuality of obligations in a contract which
affects the parties involved therein
 Exception: if a third person is greatly prejudiced as his interest is directly
affected, he may file a case for the nullification of a contract or set the
same as a defense even if such prejudiced person is not a party to the
void contract
1422. A contract which is the direct result of a previous illegal contract, is
also void and inexistent.
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Title 3 NATURAL OBLIGATIONS
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.
 There is a moral but not a legal duty to perform or pay, but the person
thus performing or paying feels that in good conscience he should
comply with his undertaking which is based on moral grounds
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.
 Example: if a debtor, despite the lapse of the prescriptive period and
knowing that the debt had already prescribed, pays the creditor, such
debtor can no longer recover such payment
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.
 Example: debt has already prescribed but, M, a third person, pays the
debt, and later on, the original debtor pays M, such payment shall be
considered valid and original debtor cannot recover such amount from
the creditor on the ground that M should not have paid him
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 the he has not
been benefited thereby, there is no right to demand the thing or price
thus returned.
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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. (1160A)
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.
 Example: A is indebted to B for P1000 and a civil suit is filed to collect
the amount but such was dismissed, A need not pay but, if he
voluntarily makes payment, he can no longer recover such payment
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.
 Example: A is indebted to B for P10000. A later dies, with M as his heir
who is entitled only to P500 from the estate of A. if M voluntarily pays
X P10000, M can no longer recover such amount
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.
 Example: M provided in his will that his car shall go to X. Later, the will
turns out to be void due to non-compliance of the prescribed form. If,
despite the nullity of the will, M’s heir still voluntarily gives the legacy of
the car to X, it shall be valid and cannot be revoked anymore
Title 4: ESTOPPEL
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.
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 Doctrine of estoppel—having its origin in equity its applicability to any
particular case depends, to a very large extent, upon the special
circumstances of the case
 Estoppel must be determined after carefully considering the material
facts of the case lest injustice may result
 Estoppel—characterized as harsh and odious, and not favored in law
o When misapplied, estoppels becomes a most effective weapon to
accomplish an injustice, inasmuch as it shuts a man’s mouth from
speaking the truth and debars the truth in a particular case
o This cannot be sustained by mere argument or doubtful inference
o It must be clearly proved in all its essential elements by clear,
convincing and satisfactory evidence
o It applies to questions of fact only, not of law, or about the truth of
which the other party is ignorant
 Non-applicability of Estoppel
o not applicable against the government suing in its capacity as
sovereign or asserting governmental rights
o government cannot be estopped by the mistake and errors of its
officers
o does not apply if a law or public policy will be violated
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.
1433. Estoppel may be in pais or by deed.
 Estoppel by deed—a bar which precludes one party to a deed and his
privies from asserting as against the other party and his privies any right
or title in derogation of the deed, or from denying the truth of any
material facts asserted in it
o It is technical in nature and such an estoppel may conclude a party
without reference to the moral equities of his conduct
o Where estoppel by deed arises, it is generally limited to an action on
the deed itself; in a collateral action, there is ordinarily no estoppel
o Requisites:
1. There must have been a representation or concealment of material
facts
2. The representation must have been with knowledge of the facts
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 3. The party to whom it was made must have been ignorant of the
truth of the matter
4. It must have been made with the intention that the other party
would act upon it
 Equitable estoppel—estoppel in pais—a term applied usually to a
situation where, because of something which he has done or omitted to
do, a party is denied the right to plead or prove an otherwise important
fact
o Requisites:
1. Conduct amounting to false representation or concealment of
material facts or at least calculated to convey the impression that the
facts are otherwise than, and inconsistent with, those which the
party subsequently attempts to assert
2. Intent, or at least expectation that this conduct shall be acted upon,
or at least influenced by the other party
3. Knowledge, actual or constructive, of the actual facts
 Prescription: actions to declare the inexistence of contracts do not
prescribe
Laches Prescription
Concerned with the effect of the Concerned with the fact of delay
delay
A question of inequity of A matter of time
permitting a claim to be enforced
Statutory
Equity Applies at law
Based on fixed time
 Requisites of Laches:
5. Conduct on the defendant giving rise to the situation of which
complaint is made and for which the complaint seeks a remedy
6. Delay in asserting the complainant’s rights, the complainant having
knowledge or notice of the defendant’s conduct and having been
afforded an opportunity to institute a suit
7. Lack of knowledge or notice on the part of the defendant that the
complainant would assert the right on which he bases his suit
8. Injury or prejudice to the defendant in the event relief is accorded to
the complainant or the suit is not held barred
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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.
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.
 A constituted B as his agent to sell a car and he car was in fact sold by B,
A cannot later on claim that he was the owner to invalidate the
transaction
1436. A lessee or a bailee is estopped from asserting title to the thing
leased or received, as against the lessor or bailor.
 For the reason that they are not the owner and that they only has
peaceful possession of the thing
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
4. The party defrauded must have acted in accordance with the
misrepresentation
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
pledge who received the same in good faith and for value.
 Pledge—constituted by the absolute owner of the thing pledged to
secure the fulfillment of a principal obligation
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1439. Estoppel is effective only as between the parties thereto or their
successors-in-interest.
 An equitable estoppel must be mutual and reciprocal
 Mutuality being requisite, an estoppel operates neither in favor of, nor
against, strangers—that is, persons who are neither parties nor privies to
the transaction out of which the estoppel arose
Title 5: TRUSTS
 What is a trust?
o Trust is a legal relationship between one person having an
equitable ownership in property and another person owning the
legal title to such property, the equitable ownership of the former
entitling him to the performance of certain duties and the exercise
of certain powers by the latter
o It is the right to beneficial enjoyment of property, the legal title of
which is vested in another. It is a fiduciary relationship concerning
property which obliges the person holding it to deal with the
property for the benefit of another
 Characteristics of a Trust
a. It is a fiduciary relationship.
b. Created by law or agreement.
c. Where the legal title is held by one, the equitable title or beneficial
title is held by another.
 Trust distinguished from Guardianship or Executorship:
o In a trust, the trustee or holder has LEGAL title to the property.
o A guardian, administrator or executor does not have.
 Trust distinguished from a Stipulation Pour Autrui
o 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.
o A trust refers to specific property; a stipulation pour autrui refers to
a specific property or to other things.
 Co-Ownership as Trust
o A Co-Ownership is a form of trust, with each co-owner being a
trustee for each of the others.
 DO TRUSTS PRESCRIBE?
o Express trusts DO NOT. Implied Trusts—resulting trusts do not
prescribe but constructive trusts do prescribe
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o This article applies whether it is real or personal property. Even if
it is oral evidence, said evidence must be trustworthy oral
evidence, for oral evidence may be easily fabricated.
Chapter 1: General Provisions
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.
 Trustor—a person who establishes a trust
 Trustee—a person in whom confidence is reposed as regards property
for the benefit of another person
 Beneficiary—a person for whose benefit the trust has been created
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.
 Trust—right enforceable solely in equity, to the beneficial enjoyment of
property, the legal title to which is bested in another
o Frequently employed to indicate duties, relations and responsibilities
which are not strictly technical trusts
 Express trusts—those which are created by the direct and positive acts
of the parties, by some writing or deed, or will, or by words either
expressly or impliedly evincing an intention to create a trust
o The intention to establish a trust is clear
 Implied trusts—those which, without being expressed, are deducible
from the nature of the transaction as matters of intent, or which are
superinduced on the transaction by operation of law as matters of
equity, independently of the particular intention of the parties
o The intent to establish a trust is to be taken from circumstances or
other matters indicative of such intent
o Usually subdivided into resulting and constructive trusts
a. Resulting trust—a trust which is raised or created by the act or
construction of law
 A trust raised by implication of law and presumed always to have
been contemplated by the parties, the intention as to which is to
be found in the nature of their transaction, but not expressed in
the deed or instrument of conveyance
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  The rule of imprescriptibility of the action to recover property
held in trust, under this kind, may be applied as long as the trustee
has not repudiated the trust
b. Constructive trust—a trust raised by construction of law, or arising
by operation of law
 a trust not created by words but by the construction of equity in
order to satisfy the demands of justice
 not a trust in the technical sense
 The prescriptibility of an action, under this, for reconveyance is
now settled
 Rules applied on express trust because under Sec. 38 of Art. 190
provides that the law of prescription does not apply ―in the case of a
continuing and subsisting trust‖:
a. A trustee cannot acquire by prescription the ownership of property
entrusted to him
b. There is no prescription on an action to compel a trustee to convey
property registered in his name in trust for the benefit of the cestui que
trust
c. No prescription in an action to recover property held by a person in
trust for the benefit of another
d. Property held in trust can be recovered by the beneficiary regardless of
the lapse of time
 Acquisitive prescription may bar the action of the beneficiary against the
trustee in an express trust for the recovery of the property held in trust
where:
a. The trustee has performed inequivocal acts of repudiation amounting
to an ouster of the cestui que trust
b. Such positive acts of repudiation have been made known to the cestui
que trust
c. The evidence thereon is clear and conclusive
 Prescription may supervene in an implied trust
 Whether the trust is resulting or constructive, its enforcement may be
barred by laches
 An action for reconveyance of registered land based on an implied trust
may be barred by laches
o The prescriptive period for such is 10 years from the date the right of
action accrued
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1442. The principles of the general law of trusts, insofar as they are not
in conflict with this Code, the Code of Commerce, the Rules of Court and
Special laws are hereby adopted.
Summary of Chapter 1
 Parties to a Trust
1. trustor or settler –he establishes the trust (may at the same time be
the beneficiary)
2. trustee –hold the property in trust for the benefit of another
3. beneficiary or cestui que trust –the person for whose benefit the trust
has been created.
 Elements of a Trust:
1. parties to the trust
2. trust property or the trust estate or the subject matter of the trust.
 Note: cf this with the ratio of the Mindanao Development Authority
v. CA & Ang Bansing case below
1. Express Trusts—created by the parties, or by intention of the
trustor
2. Implied Trusts—created by operation of the law; two kinds
a. Resulting trust (also bare or passive trusts)—there is intent to
create a trust but it is not effective as an express trust (cf Art.
1451).
b. Constructive Trust—no intention to create a trust is present, but
a trust is nevertheless created by law to prevent unjust
enrichment
 The law of trusts has been much more frequently applied in England
and in the US than in Spain, so we may draw freely from American
precedents in determining the effects of trusts.
Chapter 2: Express Trusts
1443. No express trusts concerning an immovable or any interest therein
may be proved by parol evidence.
 Parol evidence—refers to oral evidence
 To prove an express trust over immovable properties or any interest
therein, there must always be a showing of some document proving the
same
 A trust may be proven by clear, satisfactory, and convincing evidence
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1444. No particular words are required for the creation of an express
trust, it being sufficient that a trust is clearly intended.
 For as long as the intention to establish a trust is very clear from the
proofs, whether by some writing or deed or will or by words, an express
trust is created
1445. No trust shall fail because the trustee appointed declines the
designation, unless the contrary should appear in the instrument
constituting the trust.
 In case of refusal to accept the trust by the trustee, the court will appoint
a trustee
 But, if the appointment of the trustee is a material provision, the trustor
can provide that a refusal of the trustee to accept the trust shall result in
the failure or nullification of the same
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.
 Trust property is designed to benefit a cestui que trust or a beneficiary
 Onerous condition—one which the beneficiary is required to perform to
make the trust effective or is one which should be done for as long as
the trust exists
 If there is no onerous condition, it is in sense an act of gratuity or
liberality and therefore acceptance of the beneficiary shall be presumed
Summary of Express Trusts
 Formalities Re Express Trusts:
1. Express trusts are to be written for enforceability and not for
validity as to between the parties; hence, by analogy, can be
included under the Statute of Frauds.
2. By implication, since the article applies to immovable property
only, trust over personal property on oral agreement is valid and
enforceable between the parties.
3. 3rd Persons—trust must be made in a public instrument and
REGISTERED in the Registry of Property, if it concerns Real
Property.
 How an Express Trust is Created:
1. By conveyance to the trustee by an act inter vivos or mortis causa
(as in a will).
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2. By admission of the trustee that he holds the property, only as a
trustee.
3. Clear Intent—there must be a clear intention to create a trust.
4. Capacity—The trustor must be capacitated to convey property
(hence, a minor cannot create an express or conventional trust of
any kind).
5. Administration of the trust. The trustee must:
a. File a bond
b. Make an inventory of the real and personal property in trust
c. Manage and dispose of the estate and faithfully discharge his
trust in relation thereto, according to the law or terms of the
trust as long as they are legal and possible.
d. Render a true and clear account.
e. Not acquire property held in trust by prescription as long as the
trust is admitted.
 Effect if Trustee Declines
 The trust ordinarily continues even if the trustee declines. Why?
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.
 Beneficiary necessarily has to accept either expressly, impliedly or
presumably. Acceptance is presumed if the granting of benefit is
purely gratuitous (no onerous condition).
 How Express Trusts are ended:
1. Mutual agreement by all parties.
2. Expiration of the Term
3. Fulfillment of the resolutory condition
4. Rescission or annulment
5. Loss of subject matter of the trust
6. Order of the court
7. Merger
8. Accomplishment of the purpose of the trust.
Chapter 3: Implied Trusts
1447. The enumeration of the following cases of implied trust does not
exclude other established by the general law of trust, but the limitation
laid down in Art. 1442 shall be applicable.
 Constructive trust—trust ex maleficio, a trust ex delicto, a trust de son tort,
an involuntary trust, or an implied trust—a trust be operation of law
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 which arises contrary to intention and in invitum, against one who, by
fraud, actual or constructive, by duress or abuse of confidence, by
commission of wrong, or by any form of unconscionable conduct,
artifice, concealment or questionable means, or who in any way against
equity and good conscience, either has obtained or holds the legal right
to property which he ought not, in equity or good conscience, hold and
enjoy
 A constructive trust is substantially an appropriate remedy against unjust
enrichment
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.
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 done,
he nevertheless is either to have no beneficial interest or only a part
thereof.
 M donated a lot and the apartment on it to N. However, despite the
donation, M was still to get all the rentals of the apartment. This is an
implied trust where the trustee is the done and the beneficiary is the
donor
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.
 A wants to buy the property of Z. X made the payment using his own
money to benefit A. The money was a loan to A. The property was
placed under the name of X to have an assurance that the debt of A can
be paid. In this case, the trustee is the lender. A can later redeem the
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property by paying X. Thereafter, A can compel X to convey the
property
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.
 B is the only compulsory heir of M who dies. After the payment of debt
of M, the net estate will go to B. However, if B causes the title to the
estate to be placed in the name of Z, an implied trust is created for the
benefit of B
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.
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.
 A told B that the property sold should be in his name because he
shall only hold it for the benefit of X, the real owner
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.
 M is indebted to N. A property was conveyed to N by M to secure such
indebtedness. N holds the property only in trust for M. Upon payment
of the debt, M can demand that the property be returned to his name
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.
 B is the trustee of N’s funds for the benefit of Z. B, using the trust fund,
purchased a property and placed it under his name or under the name of
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 X. A trust is created and the trustee is either B or X, and the trust is in
favor of Z.
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.
 T fraudulently made X sign an alleged loan agreement which actually
turned out to be an absolute sale of X’s property. The sale is voidable
and a trust is deemed created by force of law. The trustee is T and
therefore is merely holding the property for the benefit of X.
1457. An implied trust may be proved by oral evidence.
 Because it is deducible from the nature of the transactions as matters of
intent or which are superinduced on the transaction by operation of law,
independently of the particular intention of the parties.
Summary of Implied Trusts
 Trusts are recognized only if they are not in conflict with the Civil
Code, Code of Commerce, Rules of Court and Special Laws.
 This is a resulting trust because a trust is intended.
o Example:
 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.
 This is again a resulting trust where the donee becomes the trustee
of the real beneficiary.
o Example:
 A donated land to B. But it was agreed that B is supposed to have
only 1/3 of the products of said land. There is a trust here and B
is the trustee.
 This is a constructive trust, the reason of the law being to prevent
unjust enrichment.
o Example:
 A wants to buy land from B but A has no money. So A asks C to
pay for the land. The land is then given in C‘s name. This is
supposed to be C‘s security until the debt of A is paid. Here, an
implied trust is created. C is a trustee and the beneficiary is A.
When A has the money, he may redeem the property from C and
compel a conveyance to A.
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o NOTE: This is not the same as mortgage. Mortgage is when A
borrows money from C and A later buys land in his own name. A
then executes a mortgage on the land in favor of C. This is not an
implied trust.
 Trust Receipts
o Partakes of a nature of a conditional sale…the importer being 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.‖
o 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 beneficiary.
o This is a resulting trust in view of the intent to create a trust.
 Example:
 A group of Chinese wanted to buy a lot with a house on it to be
used a clubhouse. The name of the property was registered
under only one of them. The registered owner leased the
property, collected rents and when asked for accounting,
refused to on account that he was the owner. Nope, he is a
mere trustee and is therefore obliged render proper accounting.
The beneficiaries are all members of the club.
o This is a resulting trust in view of the owner‘s intention to create a
trust.
 Example:
 A bought from B a parcel of land and it was conveyed to A on
A‘s statement or declaration that he would hold it in behalf of
C. Here, A is merely a trustee and C is the beneficiary.
o This is a constructive trust the purpose of the law to prevent
unjust enrichment to the prejudice of the true owner.
 Example:
 A owe‘s B. To guarantee his debt, A sold her parcel of land to
B. Here, a trust is created. If A pays his debt when it becomes
due, A may demand the resale of property to her.
o This is a constructive trust and this article applies to any trustee,
guardian or persons holding a fiduciary relationship (eg, an agent).
 Example:
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 An agent using his principal‘s money purchases land in his own
name. He also registers it under his name. Here, he will only be
considered a trustee and the principal is the beneficiary. The
principal can bring an action for conveyance of the property to
himself, so long as the rights of innocent third persons are not
adversely affected.
o This is a constructive trust.
 Example:
 A was given a car by B although it should have been given to
C. A is considered merely a trustee of the car for the benefit of
C.
 NOTE: The mistake referred to in this article is one made by a third
person, not one who is a party to the contract. If made by any of the
parties, then no trust is created.
Title 17: EXTRA-CONTRACTUAL OBLIGATIONS
Chapter 1: Quasi-Contracts
2142. Certain lawful, voluntary and unilateral acts give rise to the
juridical relation of quasi-contract to the end that no one shall be
unjustly enriched or benefited at the expense of another.
 A quasi-contract is not an implied contract
 A juridical relation is created so that nobody shall enrich himself at the
expense of another
2143. The provisions for quasi-contracts in this Chapter do not exclude
other quasi-contracts which may come within the purview of the
preceding article.
 Two obligations treated in the chapter devoted to quasi-contracts:
1. The obligation incident to the officious management of the affairs of
other persons (gestion de negocios ajenos)
2. The recovery of what has been improperly paid (cobro de lo indebido)
 However, the number of quasi-contracts is not only confined in these
two but may be indefinite as may be the number of lawful acts, the
generation of the said obligation
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Section 1: Negotiorum Gestio
2144. Whoever voluntarily takes charge of the agency or management of
the business or property of another, without any power from the latter,
is obliged to continue the same until the termination of the affair and its
incidents, or to require the person concerned to substitute him, if the
owner is in a position to do so. This juridical relation does not arise in
either of these instances:
1. When the property or business is not neglected or abandoned
2. If in fact the manager has been tacitly authorized by the owner
In the first case, the provisions of Arts. 1317, 1403(1), and 1404
regarding unauthorized contracts shall govern.
In the second case, the rules on agency in Title X of this Book shall be
applicable.
 Negotiorum gestio is a quasi-contract which should not be performed for
profit
 Circumstances under which one may undertake to carry out a business
matter for another (gestion de negocios ajenos):
1. They relate to determined things or affairs, and that there be no
administrator or representative of the owner who is charged with the
management thereof
2. That it be foreign to all idea of express or tacit mandate on the part of
the owner, for it very often may happen even without his knowledge
3. That the actor be inspired by the beneficent idea of averting losses and
damages to the owner or to the interested party through abandonment
of the things that belong to him or of the business in which he may be
interested, that is, the administration is not for profit
2145. The officious manager shall perform his duties with all diligence of
a good father of a family, and pay the damages which through his fault
or negligence may be suffered by the owner of the property or business
under management.
The courts may, however, increase or moderate the indemnity according
to the circumstances of each case.
 An officious manages is in a sense an intruder in the business or the
property of the owner
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 However, if his intrusion is with the objective of preserving, managing
and taking care of the property without any intent to gain, a quasi-
contract is created
2146. If the officious manager delegates to another person all or some of
his duties, he shall be liable for the acts of the delegate, without
prejudice to the direct obligation of the latter toward the owner of the
business.
The responsibility of two or more officious managers shall be solidary,
unless the management was assumed to save the thing or business from
imminent danger.
2147. The officious manager shall be liable for any fortuitous event:
1. If he undertakes risky operations which the owner was not
accustomed to embark upon
2. If he has preferred his own interest to that of the owner
3. If he fails to return the property or business after demand by the
owner
4. If he assumed the management in bad faith
 First case—: the business is simply providing a warehouse for dolls, the
officious manager stored highly inflammable materials
 Second case—: same business, but the officious manager also stored
some of his goods in the warehouse. During flood, he chose to save his
goods first before that of the owner, the officious manager will be liable
for the loss
2148. Except when the management was assumed to save the property
or business from imminent danger, the officious manager shall be liable
for fortuitous events:
1. If he is manifestly unfit to carry on the management
2. If by his intervention, he prevented a more competent person
taking up the management
2149. The ratification of the management by the owner of the business
produces the effects of an express agency, even if the business may not
have been successful.
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 Ratification—the owner agrees to whatever the officious manager has
done
2150. Although the officious management may not have been expressly
ratified, the owner of the property or business who enjoys the
advantages of the same shall be liable for obligations incurred in his
interest, and shall reimburse the officious manager for the necessary and
useful expenses for the damages which the latter may have suffered in
the performance of his duties.
The same obligation shall be incumbent upon him when the
management had for its purpose the prevention of an imminent and
manifest loss, although no benefit may have been derived.
2151. Even though the owner did not derive any benefit and there has
been no imminent and manifest danger to the property or business, the
owner is liable as under the first paragraph of the preceding article,
provided:
1. The officious manager has acted in good faith, and
2. The property or business is intact, ready to be returned to the
owner
2152. The officious manager is personally liable for contracts which he
has entered into with third persons, even though he acted in the name
of the owner and third persons. These provisions shall not apply:
1. If the owner has expressly or tacitly ratified the management, or
2. When the contract refers to things pertaining to the owner of the
business
2152. The management is extinguished:
1. When the owner repudiates it or puts an end thereto
2. When the officious manager withdraws from the management,
subject to the provisions of Art. 2144
3. By the death, civil interdiction, insanity or insolvency of the owner
or the officious manager
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 Section 2: Solutio Indebiti
2154. If something is received when there is no right to demand it, and it
was unduly delivered through mistake, the obligation to return it arises.
 Requisites:
1. That he who paid was not under obligation to do so
2. That payment was made by reason of an essential mistake of fact
 Principles of equity cannot be applied if there is a provision of law
specifically applicable to a case
2155. Payment by reason of a mistake in the construction or application
of a doubtful or difficult question of law may come within the scope of
the preceding article.
 Genelal Rule: Solution indebiti involves only a mistake of fact
 Exception: a mistake of law is required if the mistake is brought about
by the construction or application if a doubtful or difficult question of
law
 Voluntariness is incompatible with protest and mistake
2156. If the payer was in doubt whether the debt was due, he may
recover if he proves that it was not due.
2157. The responsibility of two or more payees, when there has been
payment of what is not due, is solidary.
2158. When the property delivered or money paid belongs to a third
person, the payee shall comply with the provisions of Art. 1984.
 Art. 1984. The depositary cannot demand that the depositor prove his
ownership of the thing deposited. Nevertheless, should he discover that
the thing has been stolen and who its true owner is, he must advise the
latter of the deposit. If the owner, in spite of such information, does not
claim it within the period of one month, the depositary shall be relieved
of all responsibility by returning the thing deposited to the depositor. If
the depositary has reasonable grounds to believe that the thing has not
been lawfully acquired by the depositor, the former may return the
same.
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2159. Whoever in bad faith accepts an undue payment, shall pay legal
interest if a sum of money is involved, or shall be liable for fruits received
or which should have been received if the thing produces fruits.
He shall furthermore be answerable for any loss or impairment of the
thing from any cause, and for damages to the person who delivered the
thing, until it is recovered.
 If the creditor knows that payment is not yet due, yet he accepted such
without informing the debtor that it is not yet due, he is therefore in bad
faith and shall be liable for interest from the time he accepts payment up
to the time he returns it upon demand of the debtor
2160. He who in good faith accepts an undue payment of a thing certain
and determinate shall only be responsible for the impairment or loss of
the same or its accessories and accessions insofar as he has thereby
been benefited. If he has alienated it, he shall return the price or assign
the action to collect the sum.
 A is obliged to give B a house on Dec. 1. Believing it was due on July, A
delivered the house. B likewise did not know that the house is only due
on Dec. 1 and accepted it. On Sept., the house was rented but the
kitchen was accidentally burned. On Nov., A discovered that the
delivery was not yet due and demanded for its return. B can return the
house and pay the amount of the kitchen which has been impaired,
because B has been benefited by the house when it had been rented
2161. As regards the reimbursement for improvements and expenses
incurred by him who unduly received the thing, the provisions of Title V
of Book II shall govern.
2162. He shall be exempt from the obligation to restore who, believing in
good faith that the payment was being made of a legitimate and
subsisting claim, destroyed the document, or allowed the action to
prescribe, or gave up the pledges, or cancelled the guaranties for his
right. He who paid unduly may proceed only against the true debtor or
the guarantors with regard to whom the action is still effective.
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2163. It is presumed that there was a mistake in the payment if
something which had never been due or had already been paid was
delivered; but he from whom the return is claimed may prove that the
delivery was made out of liberality or for any other just cause.
 The person to whom the payment has been made can show that such
payment is a gift or a donation by showing the proper evidence like a
valid deed of donation
Section 3: Other Quasi-Contracts
2164. When, without the knowledge of the person obliged to give
support, it is given by a stranger, the latter shall have a right to claim the
same from the former, unless it appears that he gave it out of piety and
without intention of being repaid.
 This is under Art. 206 of the Family Code:
o When, without the knowledge of the person obliged to give support, it
is given by a stranger, the latter shall have a right to claim the same
from the former, unless it appears that he gave it without the intention
of being reimbursed
 For one to recover under this, it must be alleged and proved that
1. Support has been furnished a dependent of one bound to give support
but who fails to do so
2. The support was supplied by a stranger
3. The support was given without the knowledge of the person charged
with the duty
2165. When funeral expenses are borne by a third person, without the
knowledge of those relatives who were obliged to give support to the
deceased, said relatives shall reimburse the third person, should the
latter claim reimbursement.
 The following are obliged to support each other:
1. Spouses
2. Legitimate ascendants and descendants
3. Parents and their legitimate children, and the legitimate and illegitimate
children of the latter
4. Parents and their illegitimate children, and the legitimate and
illegitimate children of the latter
5. Legitimate brothers and sisters, whether full or half-blood
RA Salanga 1A
 Whenever 2 or more persons are obliged to give support, the liability
shall devolve upon the following persons in the following order:
1. Spouses
2. Descendants in the nearest degree
3. Ascendants in the nearest degree
4. Brothers and sisters
2166. When the person obliged to support an orphan, or an insane or
other indigent person unjustly refuses to give support to the latter, any
third person may furnish support to the needy individual, with right of
reimbursement from the person obliged to give support. The provisions
of this article apply when the father or mother of a child under eighteen
years of age unjustly refuses to support him.
 This has been adopted by Art. 207 of the Family Code
o When the person obliged to support another unjustly refuses or fails
to give support when urgently needed by the latter, any third person
may furnish support to the needy individual with a right of
reimbursement from the person obliged to give support. This article
shall apply particularly when the father or the mother of a child under
the age of majority unjustly refuses to support or fails to give support
to the child when urgently needed
2167. When through an accident or other cause a person is injured or
becomes seriously ill, and he is treated or helped while he is not in a
condition to give consent to a contract, he shall be liable to pay for the
services of the physician or other person aiding him, unless the service
has been rendered out of pure generosity.
2168. When during a fire, flood, storm, or other calamity, property is
saved from destruction by another person without the knowledge of the
owner, the latter is bound to pay the former just compensation.
2169. When the government, upon the failure of any person to comply
with health or safety regulations concerning property, undertakes to do
the necessary work, even over his objection, he shall be liable to pay the
expenses.
Oblicon Page 89 of 90
2170. When by accident or other fortuitous event, movables separately
pertaining to two or more persons are commingled or confused, the
rules on co-ownership shall be applicable.

2171. The rights and obligations of the finder of lost personal property
shall be governed by Arts. 719 and 720.
 Art. 719. Whoever finds a movable, which is not treasure, must return it
to its previous possessor.
 Art. 720. If the owner should appear in time, he shall be obliged to pay,
as a reward to the finder, 1/10 of the sum or of the price of the thing
found

2172. The right of every possessor in good faith to reimbursement for

necessary and useful expenses is governed by Article 546.

2173. When a third person, without the knowledge of the debtor, pays
the debt, the rights of the former are governed by Articles 1236 and
1237.
 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.

2174. When in a small community, a majority of the inhabitants of age

decide upon a measure for protection against lawlessness, fire, flood,
storm or other calamity, any one who objects to the plan and refuses to
contribute to the expenses but is benefited by the project as executed
shall be liable to pay his share of said expenses.

2175. Any person who is constrained to pay the taxes of another shall be
entitled to reimbursement from the latter.

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